Securities and Exchange Commission
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 of 15d/16
of the Securities Exchange Act of 1934
April 2016
AEGON N.V.
Aegonplein 50
2591 TV THE HAGUE
The Netherlands
Aegons Supplemental Annual Report 2015, dated April 14, 2016, is included as appendix and incorporated herein by reference. This Supplemental Annual Report is based on Aegons 2015 Annual Report on Form 20-F dated March 25, 2016 and has been enhanced with the impacts, to all periods reported, of voluntary accounting policy changes related to reinsurance transactions that are entered into as part of a plan to exit a business as well as insurance accounting for Aegons business in the United Kingdom; the changes in the United Kingdom involve the aggregation level at which the liability adequacy test is carried out and the definition of when a substantially modified contract will be derecognized and changes to the segment reporting disclosures by aligning the disclosure with the current managerial view to geographical areas and underlying businesses.
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) | ||||||
(Registrant) | ||||||
Date: April 14, 2016 | By | /s/ J.H.P.M. van Rossum | ||||
J.H.P.M. van Rossum | ||||||
Executive Vice President and | ||||||
Corporate Controller |
I
Cross reference table Supplemental Annual Report
1
|
Identity of Directors, Senior Management and Advisers
|
|
n/a
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| ||
2
|
Offer Statistics and Expected Timetable
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n/a
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| ||
3
|
Key Information
|
|||||
3A |
Selected financial data |
11-13 | ||||
3B |
Capitalization and indebtedness |
n/a | ||||
3C |
Reasons for the offer and use of proceeds |
n/a | ||||
3D
|
Risk factors
|
|
87-107; 176-206; 341-360
|
| ||
4
|
Information on the Company
|
|||||
4A |
History and development of the Company |
10; 14-86; 300-301; 381 | ||||
4B |
Business overview |
14; 31-39; 51-70; 77-80; 85-86 | ||||
4C |
Organizational structure |
10; 14 | ||||
4D
|
Property, plants and equipment
|
|
360
|
| ||
4A
|
Unresolved Staff Comments
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n/a
|
| ||
5
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Operating and Financial Review and Prospects
|
|||||
5A |
Operating results |
14-86 | ||||
5B |
Liquidity and capital resources |
91-94; 246-248 | ||||
5C |
Research and development, patent and licenses etc. |
n/a | ||||
5D |
Trend information |
8-9; 14-86 | ||||
5E |
Off-balance sheet arrangements |
292-296 | ||||
5F |
Tabular disclosure of contractual obligations |
205-206; 292-296 | ||||
5G
|
Safe harbor
|
|
n/a
|
| ||
6
|
Directors, Senior Management and Employees
|
|||||
6A |
Directors and senior management |
6-7; 116-118 | ||||
6B |
Compensation |
108-115; 220-223; 303-308 | ||||
6C |
Board practices |
109-115 | ||||
6D |
Employees |
325 | ||||
6E
|
Share ownership
|
|
117-118; 327-329
|
| ||
7
|
Major Shareholders and Related Party Transactions
|
|||||
7A |
Major shareholders |
327-329 | ||||
7B |
Related party transactions |
302-308 | ||||
7C
|
Interest of experts and counsel
|
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n/a
|
| ||
8
|
Financial Information
|
|||||
8A |
Consolidated Statements and Other Financial Information |
128-134 | ||||
8B
|
Significant Changes
|
|
n/a
|
|
Supplemental Annual Report 2015 |
II
9
|
The Offer and Listing
|
|||||
9A |
Offer and listing details |
362 | ||||
9B |
Plan of distribution |
n/a | ||||
9C |
Markets |
362 | ||||
9D |
Selling shareholders |
n/a | ||||
9E |
Dilution |
n/a | ||||
9F
|
Expenses of the issue
|
|
n/a
|
| ||
10
|
Additional Information
|
|||||
10A |
Share capital |
n/a | ||||
10B |
Memorandum and articles of association |
363-364 | ||||
10C |
Material contracts |
364 | ||||
10D |
Exchange controls |
365 | ||||
10E |
Taxation |
365-371 | ||||
10F |
Dividends and paying agents |
n/a | ||||
10G |
Statement by experts |
n/a | ||||
10H |
Documents on display |
382 | ||||
10I
|
Subsidiary Information
|
n/a | ||||
11
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
89-90; 176-206
|
| ||
12
|
Description of Securities Other than Equity Securities
|
|
n/a
|
| ||
13
|
Defaults, Dividend Arrearages and Delinquencies
|
|
n/a
|
| ||
14
|
Material Modifications to the Rights of Security Holders and Use of Proceeds
|
|
n/a
|
| ||
15
|
Controls and Procedures
|
|
122
|
| ||
16A
|
Audit committee financial expert
|
|
101-102
|
| ||
16B
|
Code of Ethics
|
|
121
|
| ||
16C
|
Principal Accountant Fees and Services
|
|
371-372
|
| ||
16D
|
Exemptions from the Listing Standards for Audit Committees
|
|
n/a
|
| ||
16E
|
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
|
|
373
|
| ||
16F
|
Change in Registrants Certifying Accountant
|
|
372
|
| ||
16G
|
Corporate Governance
|
|
116-119
|
| ||
16H
|
Mine Safety Disclosure
|
|
n/a
|
| ||
17
|
Financial Statements
|
|
n/a
|
| ||
18
|
Financial Statements
|
|
128-325
|
| ||
19
|
Exhibits
|
|
383
|
|
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|
Supplemental Annual Report 2015 |
1
2 | Strategic information Introduction |
|
Supplemental Annual Report 2015 |
3
4 | Strategic information CEO letter |
2015 was a year in which we made significant progress in the execution of our strategy. Our operational and financial successes are ultimately the result of customers placing their trust in Aegon, and Im proud that we are helping millions of people achieve a lifetime of financial security.
|
Supplemental Annual Report 2015 |
5
6 | Strategic information Composition of the Executive Board and the Management Board |
Composition of the Executive Board
and the Management Board
1 | Tom Grondin was appointed as Chief Financial Officer, Aegon Asia, effective January 1, 2016. |
Allegra van Hövell-Patrizi joined Aegon on January 1, 2016 as Group Chief Risk Officer, and member of the Management Board. |
|
Supplemental Annual Report 2015 |
7
8 | Strategic information Aegons strategy |
|
Supplemental Annual Report 2015 |
9
10 | Business overview History and development of Aegon |
History and development of Aegon
Aegon is an international life insurance, pensions and asset management group. Its listed holding company, Aegon N.V., is a public limited liability company with its statutory seat and head office in the Netherlands.
|
Supplemental Annual Report 2015 |
11
The financial results in this Supplemental Annual Report are based on Aegons consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as issued by the IASB (IFRS).
Selected consolidated income statement information | ||||||||||||||||||
In EUR million (except per share amount) | 2015 1) | 2014 1) | 2013 1) | 2012 1) | 2011 1) | |||||||||||||
Amounts based upon IFRS | ||||||||||||||||||
Premium income |
22,925 | 19,864 | 19,939 | 19,049 | 19,521 | |||||||||||||
Investment income |
8,525 | 8,148 | 7,909 | 8,413 | 8,167 | |||||||||||||
Total revenues 2) |
33,902 | 30,157 | 29,805 | 29,327 | 29,159 | |||||||||||||
Income/ (loss) before tax |
(514) | 916 | 1,236 | 2,024 | 1,036 | |||||||||||||
Net income/ (loss) | (431) | 766 | 1,003 | 1,628 | 937 | |||||||||||||
Earnings per common share |
||||||||||||||||||
Basic |
(0.27) | 0.29 | 0.37 | 0.72 | (0.03) | |||||||||||||
Diluted |
(0.27) | 0.29 | 0.37 | 0.72 | (0.03) | |||||||||||||
Earnings per common share B |
||||||||||||||||||
Basic |
(0.01) | 0.01 | 0.01 | - | - | |||||||||||||
Diluted |
(0.01) | 0.01 | 0.01 | - | - | |||||||||||||
1 Amounts have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. 2 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts.
| ||||||||||||||||||
Selected consolidated balance sheet information | ||||||||||||||||||
In million EUR (except per share amount) | 2015 1) | 2014 1) | 2013 1) | 2012 1) | 2011 1) | |||||||||||||
Amounts based upon IFRS | ||||||||||||||||||
Total assets |
415,415 | 424,112 | 351,523 | 362,663 | 342,731 | |||||||||||||
Insurance and investment contracts |
343,558 | 321,384 | 283,234 | 277,596 | 272,105 | |||||||||||||
Borrowings including subordinated and trust pass-through securities |
13,361 | 15,049 | 12,009 | 13,416 | 9,377 | |||||||||||||
Shareholders equity |
22,441 | 23,847 | 17,589 | 20,913 | 17,424 |
1 | Amounts have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
12 | Business overview Selected financial data |
Number of common shares | ||||||||||||||||||||
In thousands | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Balance at January 1 |
2,145,948 | 2,131,459 | 1,972,030 | 1,909,654 | 1,736,049 | |||||||||||||||
Share issuance |
- | - | 120,713 | - | 173,605 | |||||||||||||||
Stock dividends |
1,089 | 14,489 | 38,716 | 62,376 | - | |||||||||||||||
Balance at end of period | 2,147,037 | 2,145,948 | 2,131,459 | 1,972,030 | 1,909,654 | |||||||||||||||
Number of common shares B | ||||||||||||||||||||
In thousands | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Balance at January 1 |
581,326 | 579,005 | - | - | - | |||||||||||||||
Share issuance |
3,696 | 2,320 | 579,005 | - | - | |||||||||||||||
Balance at end of period | 585,022 | 581,326 | 579,005 | - | - |
EUR per common share 1) | USD per common share 1) | |||||||||||||||||||||||
Year | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||
2011 |
- | 0.10 | 0.10 | - | 0.13 | 0.13 | ||||||||||||||||||
2012 |
0.10 | 0.11 | 0.21 | 0.12 | 0.14 | 0.26 | ||||||||||||||||||
2013 |
0.11 | 0.11 | 0.22 | 0.15 | 0.15 | 0.30 | ||||||||||||||||||
2014 |
0.11 | 0.12 | 0.23 | 0.15 | 0.13 | 0.28 | ||||||||||||||||||
2015 |
0.12 | 0.132) | 0.25 | 0.13 |
1 | Paid at each shareholders option in cash or in stock. |
2 | Proposed. |
|
Supplemental Annual Report 2015 |
13
Closing rates | Sept. 2015 | Oct. 2015 | Nov. 2015 | Dec. 2015 | Jan. 2016 | Feb. 2016 | ||||||||||||||||||
High (USD per EUR) |
1.1358 | 1.1473 | 1.1026 | 1.1025 | 1.0964 | 1.1362 | ||||||||||||||||||
Low (USD per EUR) |
1.1104 | 1.0963 | 1.0562 | 1.0573 | 1.0743 | 1.0868 |
Year ended December 31, | Average rate 1) | |||
2011 |
1.4002 | |||
2012 |
1.2909 | |||
2013 |
1.3303 | |||
2014 |
1.3210 | |||
2015 |
1.1032 |
1 | The US dollar exchange rates are the noon buying rates in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York. |
14 | Business overview Business lines |
|
Supplemental Annual Report 2015 |
15
16 | Business overview Results of operations Worldwide |
Underlying earnings geographically | ||||||||||||
Amounts in EUR millions | 2015 | 2014 | % | |||||||||
Net underlying earnings | 1,431 | 1,416 | 1% | |||||||||
Tax on underlying earnings |
358 | 449 | (20%) | |||||||||
Underlying earnings before tax geographically |
||||||||||||
Americas |
1,200 | 1,134 | 6% | |||||||||
Europe |
559 | 771 | (27%) | |||||||||
Asia |
20 | (17) | - | |||||||||
Asset Management |
170 | 115 | 48% | |||||||||
Holding and other activities |
(161) | (138) | (17%) | |||||||||
Underlying earnings before tax | 1,789 | 1,865 | (4%) | |||||||||
Fair value items |
(500) | (1,366) | 63% | |||||||||
Gains / (losses) on investments |
346 | 697 | (50%) | |||||||||
Net impairments |
49 | (34) | - | |||||||||
Other income / (charges) |
(2,254) | (240) | - | |||||||||
Run-off businesses |
88 | 6 | - | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | (482) | 927 | - | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
33 | 10 | - | |||||||||
Income tax |
51 | (161) | - | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(33) | (10) | - | |||||||||
Net income | (431) | 766 | - | |||||||||
Commissions and expenses |
6,916 | 5,865 | 18% | |||||||||
of which operating expenses |
3,734 | 3,312 | 13% |
|
Supplemental Annual Report 2015 |
17
New life sales | ||||||||||||
Amounts in EUR millions | 2015 | 2014 | % | |||||||||
Americas |
599 | 552 | 9% | |||||||||
Europe |
1,172 | 1,379 | (15%) | |||||||||
Asia |
173 | 114 | 52% | |||||||||
Total recurring plus 1/10 single | 1,944 | 2,045 | (5%) | |||||||||
Gross deposits (on and off balance) |
||||||||||||
Amounts in EUR millions | 2015 | 2014 | % | |||||||||
Americas |
36,999 | 31,849 | 16% | |||||||||
Europe |
6,075 | 3,716 | 63% | |||||||||
Asia |
408 | 526 | (22%) | |||||||||
Asset Management |
33,722 | 19,340 | 74% | |||||||||
Total gross deposits | 77,205 | 55,431 | 39% |
Worldwide revenues geographically 2015 Amounts in EUR millions |
Americas | |
The Nether- lands |
|
|
United Kingdom |
|
|
Central & Eastern Europe |
|
|
Spain & Portugal |
|
Asia | |
Asset Manage- ment |
|
|
Holding, other activities and elimina- tions |
|
|
Segment total |
|
|
Associates and Joint Ventures elimina- tions |
|
|
Consoli- dated |
| |||||||||||||||
Total life insurance gross premiums |
7,046 | 2,240 | 8,465 | 477 | 174 | 1,713 | - | (102 | ) | 20,013 | (431 | ) | 19,583 | |||||||||||||||||||||||||||||||
Accident and health insurance premiums |
2,266 | 234 | 47 | 1 | 64 | 105 | - | - | 2,717 | (14 | ) | 2,703 | ||||||||||||||||||||||||||||||||
General insurance premiums |
- | 473 | - | 164 | 80 | - | - | 2 | 720 | (80 | ) | 640 | ||||||||||||||||||||||||||||||||
Total gross premiums |
9,312 | 2,947 | 8,512 | 642 | 317 | 1,819 | - | (100 | ) | 23,450 | (524 | ) | 22,925 | |||||||||||||||||||||||||||||||
Investment income |
3,680 | 2,277 | 2,331 | 45 | 41 | 194 | 7 | 2 | 8,576 | (51 | ) | 8,525 | ||||||||||||||||||||||||||||||||
Fees and commission income |
1,704 | 351 | 98 | 39 | 13 | 62 | 650 | (284 | ) | 2,633 | (195 | ) | 2,438 | |||||||||||||||||||||||||||||||
Other revenue |
9 | - | - | - | 2 | - | - | 7 | 19 | (5 | ) | 14 | ||||||||||||||||||||||||||||||||
Total revenues |
14,705 | 5,575 | 10,941 | 726 | 373 | 2,076 | 657 | (375 | ) | 34,677 | (775 | ) | 33,902 | |||||||||||||||||||||||||||||||
Number of employees, including agent employees |
12,701 | 4,503 | 2,478 | 2,470 | 534 | 7,163 | 1,382 | 299 | 31,530 |
Underlying earnings before tax by line of business |
||||||||||||
Amounts in EUR millions | 2015 | 2014 | % | |||||||||
Life |
757 | 652 | 16% | |||||||||
Individual Savings & Retirement |
544 | 657 | (17%) | |||||||||
Pensions |
440 | 518 | (15%) | |||||||||
Non-life |
17 | 46 | (62%) | |||||||||
Distribution |
22 | 15 | 50% | |||||||||
Asset management |
170 | 115 | 48% | |||||||||
Other |
(161 | ) | (138 | ) | (17% | ) | ||||||
Underlying earnings before tax | 1,789 | 1,865 | (4% | ) |
18 | Business overview Results of operations Worldwide |
Results 2015 worldwide
Aegons net loss in 2015 amounted to EUR 431 million. Underlying earnings before tax declined to EUR 1,789 million, primarily impacted by lower earnings in the United Kingdom from the write down of deferred policy acquisition costs related to the restructuring of the organization. Results in 2015 were impacted by a loss of EUR 500 million on fair value items, which was driven by accounting losses on hedging programs and the impact of assumption changes. Realized gains of EUR 346 million mainly related to normal trading in the investment portfolio. Other charges amounted to EUR 2,254 million, mainly driven by the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization, the loss on the divestment of the Canadian life insurance activities and the impact of model updates.
|
Supplemental Annual Report 2015 |
19
20 | Business overview Results of operations Worldwide |
Results 2014 worldwide
Underlying earnings geographically | ||||||||||||
Amounts in EUR millions | 2014 | 2013 | % | |||||||||
Net underlying earnings |
1,416 | 1,531 | (8%) | |||||||||
Tax on underlying earnings |
449 | 437 | 3% | |||||||||
Underlying earnings before tax geographically |
||||||||||||
Americas |
1,134 | 1,314 | (14%) | |||||||||
Europe |
771 | 637 | 21% | |||||||||
Asia |
(17 | ) | 34 | - | ||||||||
Asset Management |
115 | 95 | 21% | |||||||||
Holding and other activities |
(138 | ) | (113 | ) | (27%) | |||||||
Underlying earnings before tax |
1,865 | 1,968 | (5%) | |||||||||
Fair value items |
(1,366 | ) | (1,118 | ) | (22%) | |||||||
Gains / (losses) on investments |
697 | 500 | 39% | |||||||||
Net impairments |
(34 | ) | (122 | ) | 72% | |||||||
Other income / (charges) |
(240 | ) | (52 | ) | - | |||||||
Run-off businesses |
6 | 68 | (92%) | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
927 | 1,244 | (25%) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
10 | 8 | 33% | |||||||||
Income tax |
(161 | ) | (240 | ) | 33% | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(10 | ) | (8 | ) | (33%) | |||||||
Net income |
766 | 1,003 | (24%) | |||||||||
Commissions and expenses |
5,865 | 5,826 | 1% | |||||||||
of which operating expenses |
3,312 | 3,273 | 1% | |||||||||
New life sales |
||||||||||||
Amounts in EUR millions |
2014 | 2013 | % | |||||||||
Americas |
552 | 464 | 19% | |||||||||
Europe |
1,379 | 1,381 | 0% | |||||||||
Asia |
114 | 67 | 71% | |||||||||
Total recurring plus 1/10 single |
2,045 | 1,911 | 7% | |||||||||
Gross deposits (on and off balance) |
||||||||||||
Amounts in EUR millions |
2014 | 2013 | % | |||||||||
Americas |
31,849 | 28,424 | 12% | |||||||||
Europe |
3,716 | 2,300 | 62% | |||||||||
Asia |
526 | 587 | (10%) | |||||||||
Asset Management |
19,340 | 13,018 | 49% | |||||||||
Total gross deposits |
55,431 | 44,330 | 25% |
|
Supplemental Annual Report 2015 |
21
Worldwide revenues geographically Amounts in EUR millions |
Americas | The Nether- lands |
United |
Central & Eastern |
Spain & |
Asia |
Asset Manage- |
Holding, elimina- |
Segment |
Associates and Joint Ventures elimina- tions |
Consoli- dated |
|||||||||||||||||||||||||||||||||
Total life insurance gross premiums |
6,461 | 3,982 | 5,057 | 524 | 196 | 1,097 | - | (70 | ) | 17,246 | (351 | ) | 16,896 | |||||||||||||||||||||||||||||||
Accident and health insurance premiums |
1,874 | 233 | 56 | 1 | 60 | 102 | - | - | 2,326 | (11 | ) | 2,316 | ||||||||||||||||||||||||||||||||
General insurance premiums |
- | 501 | - | 152 | 72 | - | - | - | 725 | (72 | ) | 653 | ||||||||||||||||||||||||||||||||
Total gross premiums |
8,334 | 4,716 | 5,113 | 678 | 328 | 1,199 | - | (70 | ) | 20,298 | (433 | ) | 19,864 | |||||||||||||||||||||||||||||||
Investment income |
3,312 | 2,568 | 2,077 | 54 | 49 | 124 | 4 | 2 | 8,191 | (42 | ) | 8,148 | ||||||||||||||||||||||||||||||||
Fees and commission income |
1,485 | 324 | 94 | 41 | 8 | 53 | 475 | (243 | ) | 2,237 | (100 | ) | 2,137 | |||||||||||||||||||||||||||||||
Other revenue |
2 | - | - | - | 2 | - | - | 5 | 10 | (3 | ) | 7 | ||||||||||||||||||||||||||||||||
Total revenues |
13,134 | 7,608 | 7,284 | 773 | 387 | 1,376 | 479 | (306 | ) | 30,735 | (578 | ) | 30,157 | |||||||||||||||||||||||||||||||
Number of employees, including agent employees |
12,865 | 4,426 | 2,644 | 2,495 | 433 | 4,189 | 1,276 | 274 | 28,602 |
Underlying earnings before tax by line of business | ||||||||||||
Amounts in EUR millions | 2014 | 2013 | % | |||||||||
Life |
652 | 1,003 | (35%) | |||||||||
Individual Savings & Retirement |
657 | 483 | 36% | |||||||||
Pensions |
518 | 475 | 9% | |||||||||
Non-life |
46 | 12 | - | |||||||||
Distribution |
15 | 16 | (8%) | |||||||||
Asset management |
115 | 95 | 21% | |||||||||
Other |
(138 | ) | (115 | ) | (24%) | |||||||
Underlying earnings before tax |
1,865 | 1,968 | (5%) |
22 | Business overview Results of operations Worldwide |
Results 2014 worldwide
Aegons net income in 2014 amounted to EUR 766 million. Underlying earnings before tax declined to EUR 1.9 billion. Net income in 2014 was impacted by a loss of EUR 1.4 billion on fair value items, which was mainly driven by accounting losses on hedging programs and the impact of assumption changes and model updates, and other charges of EUR 240 million. These losses were partly offset by realized gains of EUR 697 million.
|
Supplemental Annual Report 2015 |
23
24 | Business overview Results of operations Americas |
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2015 | 2014 | % | 2015 | 2014 | % | |||||||||||||||||||
Net underlying earnings |
1,045 | 1,082 | (3% | ) | 941 | 814 | 16% | |||||||||||||||||
Tax on underlying earnings |
287 | 424 | (32% | ) | 259 | 320 | (19%) | |||||||||||||||||
Underlying earnings before tax by business |
||||||||||||||||||||||||
Life |
213 | (13 | ) | - | 192 | (10 | ) | - | ||||||||||||||||
Accident & Health |
140 | 212 | (34% | ) | 126 | 160 | (21%) | |||||||||||||||||
Retirement plans |
261 | 272 | (4% | ) | 235 | 205 | 15% | |||||||||||||||||
Mutual funds |
50 | 47 | 6% | 45 | 35 | 26% | ||||||||||||||||||
Variable annuities |
501 | 671 | (25% | ) | 452 | 505 | (11%) | |||||||||||||||||
Fixed annuities |
66 | 172 | (62% | ) | 59 | 130 | (54%) | |||||||||||||||||
Stable Value Solutions |
101 | 109 | (8% | ) | 91 | 82 | 11% | |||||||||||||||||
Canada |
- | 30 | - | - | 23 | - | ||||||||||||||||||
Latin America |
1 | 5 | (72% | ) | 1 | 4 | (67%) | |||||||||||||||||
Underlying earnings before tax |
1,332 | 1,506 | (12% | ) | 1,200 | 1,134 | 6% | |||||||||||||||||
Fair value items |
(654 | ) | (661 | ) | 1% | (589 | ) | (497 | ) | (18%) | ||||||||||||||
Gains / (losses) on investments |
(83 | ) | 113 | - | (74 | ) | 85 | - | ||||||||||||||||
Net impairments |
79 | 27 | 189% | 71 | 21 | - | ||||||||||||||||||
Other income / (charges) |
(1,041 | ) | (69 | ) | - | (938 | ) | (52 | ) | - | ||||||||||||||
Run-off businesses |
98 | 8 | - | 88 | 6 | - | ||||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
(268 | ) | 925 | - | (241 | ) | 696 | - | ||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
5 | 4 | 39% | 5 | 3 | 66% | ||||||||||||||||||
Income tax |
7 | (129 | ) | - | 6 | (97 | ) | - | ||||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(5 | ) | (4 | ) | (39% | ) | (5 | ) | (3 | ) | (66%) | |||||||||||||
Net income |
(261 | ) | 796 | - | (235 | ) | 599 | - | ||||||||||||||||
Life insurance gross premiums |
7,821 | 8,585 | (9% | ) | 7,046 | 6,461 | 9% | |||||||||||||||||
Accident and health insurance premiums |
2,515 | 2,490 | 1% | 2,266 | 1,874 | 21% | ||||||||||||||||||
Total gross premiums |
10,336 | 11,074 | (7% | ) | 9,312 | 8,334 | 12% | |||||||||||||||||
Investment income |
4,085 | 4,401 | (7% | ) | 3,680 | 3,312 | 11% | |||||||||||||||||
Fees and commission income |
1,891 | 1,974 | (4% | ) | 1,704 | 1,485 | 15% | |||||||||||||||||
Other revenues |
11 | 3 | - | 9 | 2 | - | ||||||||||||||||||
Total revenues |
16,322 | 17,453 | (6% | ) | 14,705 | 13,134 | 12% | |||||||||||||||||
Commissions and expenses |
4,489 | 4,410 | 2% | 4,044 | 3,319 | 22% | ||||||||||||||||||
of which operating expenses |
1,843 | 1,871 | (2% | ) | 1,660 | 1,408 | 18% |
|
Supplemental Annual Report 2015 |
25
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2015 | 2014 | % | 2015 | 2014 | % | ||||||||||||||||||
Life |
622 | 615 | 1% | 561 | 463 | 21% | ||||||||||||||||||
Canada |
- | 75 | - | - | 56 | - | ||||||||||||||||||
Latin America |
42 | 43 | (2% | ) | 38 | 33 | 17% | |||||||||||||||||
Total recurring plus 1/10 single |
665 | 733 | (9% | ) | 599 | 552 | 9% | |||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2015 | 2014 | % | 2015 | 2014 | % | |||||||||||||||||||
New premium production accident and health insurance |
1,003 | 1,193 | (16% | ) | 904 | 898 | 1% | |||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2015 | 2014 | % | 2015 | 2014 | % | ||||||||||||||||||
Life |
7 | 9 | (20% | ) | 6 | 7 | (4%) | |||||||||||||||||
Retirement plans |
27,833 | 26,736 | 4% | 25,075 | 20,121 | 25% | ||||||||||||||||||
Mutual funds |
5,084 | 4,879 | 4% | 4,580 | 3,672 | 25% | ||||||||||||||||||
Variable annuities |
7,857 | 10,235 | (23% | ) | 7,079 | 7,702 | (8%) | |||||||||||||||||
Fixed annuities |
276 | 323 | (15% | ) | 249 | 243 | 2% | |||||||||||||||||
Canada |
- | 121 | - | - | 91 | - | ||||||||||||||||||
Latin America |
12 | 18 | (35% | ) | 10 | 14 | (22%) | |||||||||||||||||
Total gross deposits |
41,069 | 42,321 | (3% | ) | 36,999 | 31,849 | 16% | |||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates Per 1 EUR |
2015 | 2014 |
December 31, |
December 31, 2014 |
||||||||||||||||||||
USD |
1.1100 | 1.3288 | 1.0863 | 1.2101 | ||||||||||||||||||||
CAD |
1.4173 | 1.4667 | 1.5090 | 1.4015 |
26 | Business overview Results of operations Americas |
Results 2015 Americas
The net loss in 2015 was USD 261 million, primarily the result of the book loss on the divestment of Canada of USD 837 million. Underlying earnings before tax decreased to USD 1.3 billion compared with 2014. This was mainly driven by adverse claims experience and the impact on recurring earnings of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. Gross deposits and new life sales declined to USD 41.1 billion and USD 665 million respectively, due to product adjustments to improve profitability, while new premium production for accident & health insurance was down to USD 1.0 billion.
|
Supplemental Annual Report 2015 |
27
Results 2014 Americas
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2014 | 2013 | % | 2014 | 2013 | % | |||||||||||||||||||
Net underlying earnings |
1,082 | 1,280 | (15% | ) | 814 | 965 | (16% | ) | ||||||||||||||||
Tax on underlying earnings |
424 | 463 | (8% | ) | 320 | 349 | 9% | |||||||||||||||||
Underlying earnings before tax by business |
|
|||||||||||||||||||||||
Life insurance |
(13 | ) | 469 | - | (10 | ) | 353 | - | ||||||||||||||||
Accident & health insurance |
212 | 254 | (16% | ) | 160 | 191 | (16% | ) | ||||||||||||||||
Retirement plans |
272 | 239 | 14% | 205 | 180 | 13% | ||||||||||||||||||
Mutual funds |
47 | 33 | 43% | 35 | 25 | 42% | ||||||||||||||||||
Variable annuities |
671 | 414 | 62% | 505 | 312 | 62% | ||||||||||||||||||
Fixed annuities |
172 | 215 | (20% | ) | 130 | 162 | (20% | ) | ||||||||||||||||
Stable value solutions |
109 | 110 | (1% | ) | 82 | 83 | (1% | ) | ||||||||||||||||
Canada |
30 | 4 | - | 23 | 3 | - | ||||||||||||||||||
Latin America |
5 | 9 | (45% | ) | 4 | 7 | (46% | ) | ||||||||||||||||
Underlying earnings before tax |
1,506 | 1,744 | (14% | ) | 1,134 | 1,314 | (14% | ) | ||||||||||||||||
Fair value items |
(661 | ) | (1,300 | ) | 49% | (497 | ) | (980 | ) | 49% | ||||||||||||||
Gains / (losses) on investments |
113 | 145 | (22% | ) | 85 | 110 | (22% | ) | ||||||||||||||||
Net impairments |
27 | (58 | ) | - | 21 | (44 | ) | - | ||||||||||||||||
Other income / (charges) |
(69 | ) | 95 | - | (52 | ) | 72 | - | ||||||||||||||||
Run-off businesses |
8 | 91 | (92% | ) | 6 | 68 | (92% | ) | ||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
925 | 717 | 29% | 696 | 540 | 29% | ||||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
4 | 4 | (9% | ) | 3 | 3 | (9% | ) | ||||||||||||||||
Income tax |
(129 | ) | (158 | ) | 18% | (97 | ) | (119 | ) | 18% | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(4 | ) | (4 | ) | 9% | (3 | ) | (3 | ) | 9% | ||||||||||||||
Net income |
796 | 560 | 42% | 599 | 422 | 42% | ||||||||||||||||||
Life insurance gross premiums |
8,585 | 8,212 | 5% | 6,461 | 6,187 | 4% | ||||||||||||||||||
Accident and health insurance premiums |
2,490 | 2,372 | 5% | 1,874 | 1,787 | 5% | ||||||||||||||||||
Total gross premiums |
11,074 | 10,584 | 5% | 8,334 | 7,975 | 5% | ||||||||||||||||||
Investment income |
4,401 | 4,473 | (2% | ) | 3,312 | 3,370 | (2% | ) | ||||||||||||||||
Fees and commission income |
1,974 | 1,689 | 17% | 1,485 | 1,273 | 17% | ||||||||||||||||||
Other revenues |
3 | 6 | (44% | ) | 2 | 4 | (44% | ) | ||||||||||||||||
Total revenues |
17,453 | 16,752 | 4% | 13,134 | 12,622 | 4% | ||||||||||||||||||
Commissions and expenses |
4,410 | 4,332 | 2% | 3,319 | 3,264 | 2% | ||||||||||||||||||
of which operating expenses |
1,871 | 1,911 | (2% | ) | 1,408 | 1,440 | (2% | ) |
28 | Business overview Results of operations Americas |
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2014 | 2013 | % | 2014 | 2013 | % | ||||||||||||||||||
Life |
615 | 505 | 22% | 463 | 380 | 22% | ||||||||||||||||||
Canada |
75 | 68 | 9% | 56 | 51 | 9% | ||||||||||||||||||
Latin America |
43 | 42 | 3% | 33 | 32 | 3% | ||||||||||||||||||
Total recurring plus 1/10 single |
733 | 615 | 19% | 552 | 464 | 19% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2014 | 2013 | % | 2014 | 2013 | % | |||||||||||||||||||
New premium production accident and health insurance |
1,193 | 902 | 32% | 898 | 680 | 32% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2014 | 2013 | % | 2014 | 2013 | % | ||||||||||||||||||
Life |
9 | 11 | (20%) | 7 | 8 | (20%) | ||||||||||||||||||
Retirement plans |
26,736 | 21,238 | 26% | 20,121 | 16,002 | 26% | ||||||||||||||||||
Mutual funds |
4,879 | 4,301 | 13% | 3,672 | 3,241 | 13% | ||||||||||||||||||
Variable annuities |
10,235 | 8,496 | 20% | 7,702 | 6,402 | 20% | ||||||||||||||||||
Fixed annuities |
323 | 552 | (41%) | 243 | 416 | (41%) | ||||||||||||||||||
Stable value solutions |
- | 2,984 | - | - | 2,248 | - | ||||||||||||||||||
Canada |
121 | 125 | (3%) | 91 | 94 | (3%) | ||||||||||||||||||
Latin America |
18 | 18 | (2%) | 14 | 14 | (2%) | ||||||||||||||||||
Total gross deposits |
42,321 | 37,725 | 12% | 31,849 | 28,424 | 12% | ||||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates Per 1 EUR |
2014 | 2013 |
December 31, 2014 |
December 31, 2013 |
||||||||||||||||||||
USD |
1.3288 | 1.3272 | 1.2101 | 1.3780 | ||||||||||||||||||||
CAD |
1.4667 | 1.3674 | 1.4015 | 1.4641 |
|
Supplemental Annual Report 2015 |
29
Results 2014 Americas
Net income in 2014 increased to USD 796 million. Underlying earnings before tax decreased to USD 1.5 billion compared with 2013. This was mainly because higher earnings from variable annuities and pensions were more than offset by lower earnings in Life & Protection, mostly due to the impact of assumption changes and model updates, and unfavorable mortality. New life sales increased to USD 733 million due to higher sales of universal life products. Gross deposits were 12% higher compared with 2013 driven by variable annuities and retirement plans.
30 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2015 |
31
Overview of Americas
Aegon Americas comprises Aegon USA, which operates under the Transamerica brand, together with operations in Brazil and Mexico.
1 | Source: A.M. Best. |
2 | Source: BrandPower Analysis. |
32 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2015 |
33
34 | Business overview Results of operations Americas |
1 | Plansponsor, 2015. |
|
Supplemental Annual Report 2015 |
35
36 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2015 |
37
38 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2015 |
39
40 | Business overview Results of operations Europe |
Introduction Europe
Income statement - | ||||||||||||||||||||
Underlying earnings Amounts in EUR million |
The Netherlands | United Kingdom | Central & Eastern Europe |
Spain & Portugal | Europe | |||||||||||||||
2015 | ||||||||||||||||||||
Net underlying earnings | 419 | 31 | 26 | 6 | 482 | |||||||||||||||
Tax on underlying earnings |
118 | (58 | ) | 10 | 7 | 77 | ||||||||||||||
Underlying earnings before tax | 537 | (27 | ) | 37 | 12 | 559 | ||||||||||||||
Fair value items |
175 | (25 | ) | - | - | 150 | ||||||||||||||
Realized gains / (losses) on investments |
306 | 103 | 2 | - | 411 | |||||||||||||||
Impairment charges |
(25 | ) | - | (2 | ) | - | (27 | ) | ||||||||||||
Impairment reversals |
5 | - | - | - | 5 | |||||||||||||||
Other income / (charges) |
(22 | ) | (1,247 | ) | (2 | ) | 17 | (1,254 | ) | |||||||||||
Run-off businesses |
- | - | - | - | - | |||||||||||||||
Income / (loss) before tax |
977 | (1,196 | ) | 35 | 29 | (156 | ) | |||||||||||||
Income tax (expense) / benefit |
(223 | ) | 268 | (11 | ) | (7 | ) | 27 | ||||||||||||
Net income / (loss) | 753 | (928 | ) | 24 | 22 | (129 | ) | |||||||||||||
Revenues | ||||||||||||||||||||
2015 | ||||||||||||||||||||
Life insurance gross premiums |
2,240 | 8,465 | 477 | 174 | 11,356 | |||||||||||||||
Accident and health insurance |
234 | 47 | 1 | 64 | 345 | |||||||||||||||
General insurance |
473 | - | 164 | 80 | 717 | |||||||||||||||
Total gross premiums |
2,947 | 8,512 | 642 | 317 | 12,419 | |||||||||||||||
Investment income |
2,277 | 2,331 | 45 | 41 | 4,693 | |||||||||||||||
Fee and commission income |
351 | 98 | 39 | 13 | 501 | |||||||||||||||
Other revenues |
- | - | - | 2 | 2 | |||||||||||||||
Total revenues | 5,575 | 10,941 | 726 | 373 | 17,615 | |||||||||||||||
Commissions and expenses |
1,053 | 907 | 264 | 144 | 2,368 | |||||||||||||||
of which operating expenses |
831 | 398 | 143 | 70 | 1,442 |
|
Supplemental Annual Report 2015 |
41
Income statement - | ||||||||||||||||||||
Underlying earnings Amounts in EUR million |
The Netherlands | United Kingdom | Central & Eastern Europe |
Spain & Portugal | Europe | |||||||||||||||
2014 | ||||||||||||||||||||
Net underlying earnings | 423 | 144 | 48 | 23 | 638 | |||||||||||||||
Tax on underlying earnings |
135 | (19 | ) | 12 | 5 | 133 | ||||||||||||||
Underlying earnings before tax | 558 | 125 | 60 | 28 | 771 | |||||||||||||||
Fair value items |
(766 | ) | (31 | ) | 8 | - | (789 | ) | ||||||||||||
Realized gains / (losses) on investments |
431 | 164 | 9 | 2 | 606 | |||||||||||||||
Impairment charges |
(19 | ) | - | (42 | ) | - | (61 | ) | ||||||||||||
Impairment reversals |
7 | - | - | - | 7 | |||||||||||||||
Other income / (charges) |
(113 | ) | (49 | ) | (26 | ) | (1 | ) | (189 | ) | ||||||||||
Run-off businesses |
- | - | - | - | - | |||||||||||||||
Income / (loss) before tax |
99 | 209 | 9 | 28 | 345 | |||||||||||||||
Income tax (expense) / benefit |
(37 | ) | (35 | ) | - | (7 | ) | (79 | ) | |||||||||||
Net income / (loss) | 62 | 173 | 9 | 22 | 266 | |||||||||||||||
Revenues | - | |||||||||||||||||||
2014 | - | |||||||||||||||||||
Life insurance gross premiums |
3,982 | 5,057 | 524 | 196 | 9,759 | |||||||||||||||
Accident and health insurance |
233 | 56 | 1 | 60 | 351 | |||||||||||||||
General insurance |
501 | - | 152 | 72 | 725 | |||||||||||||||
Total gross premiums |
4,716 | 5,113 | 678 | 328 | 10,835 | |||||||||||||||
Investment income |
2,568 | 2,077 | 54 | 49 | 4,748 | |||||||||||||||
Fee and commission income |
324 | 94 | 41 | 8 | 467 | |||||||||||||||
Other revenues |
- | - | - | 2 | 2 | |||||||||||||||
Total revenues | 7,608 | 7,284 | 773 | 387 | 16,052 | |||||||||||||||
Commissions and expenses |
977 | 821 | 258 | 120 | 2,176 | |||||||||||||||
of which operating expenses |
726 | 476 | 138 | 60 | 1,400 |
42 | Business overview Results of operations Europe |
Income statement - | ||||||||||||||||||||
Underlying earnings Amounts in EUR million |
The Netherlands | United Kingdom | Central & Eastern Europe |
Spain & Portugal | Europe | |||||||||||||||
2013 | ||||||||||||||||||||
Net underlying earnings | 352 | 145 | 46 | 28 | 571 | |||||||||||||||
Tax on underlying earnings |
102 | (51 | ) | 11 | 5 | 68 | ||||||||||||||
Underlying earnings before tax | 454 | 94 | 57 | 33 | 638 | |||||||||||||||
Fair value items |
(41 | ) | (21 | ) | 1 | - | (61 | ) | ||||||||||||
Realized gains / (losses) on investments |
342 | 48 | 1 | 1 | 392 | |||||||||||||||
Impairment charges |
(39 | ) | (31 | ) | (17 | ) | - | (87 | ) | |||||||||||
Impairment reversals |
8 | - | - | - | 8 | |||||||||||||||
Other income / (charges) |
(36 | ) | (46 | ) | (210 | ) | 174 | (118 | ) | |||||||||||
Run-off businesses |
- | - | - | - | - | |||||||||||||||
Income / (loss) before tax |
688 | 44 | (168 | ) | 208 | 772 | ||||||||||||||
Income tax (expense) / benefit |
(166 | ) | 33 | 24 | (5 | ) | (114 | ) | ||||||||||||
Net income / (loss) | 522 | 77 | (144 | ) | 203 | 658 | ||||||||||||||
Revenues | - | |||||||||||||||||||
2013 | - | |||||||||||||||||||
Life insurance gross premiums |
3,515 | 6,537 | 517 | 223 | 10,792 | |||||||||||||||
Accident and health insurance |
243 | - | 1 | 62 | 306 | |||||||||||||||
General insurance |
487 | - | 150 | 44 | 681 | |||||||||||||||
Total gross premiums |
4,245 | 6,537 | 668 | 329 | 11,779 | |||||||||||||||
Investment income |
2,310 | 2,057 | 57 | 68 | 4,492 | |||||||||||||||
Fee and commission income |
328 | 129 | 49 | 9 | 515 | |||||||||||||||
Other revenues |
- | (1 | ) | - | 2 | 1 | ||||||||||||||
Total revenues | 6,883 | 8,722 | 774 | 408 | 16,787 | |||||||||||||||
Commissions and expenses |
990 | 810 | 298 | 90 | 2,188 | |||||||||||||||
of which operating expenses |
732 | 430 | 140 | 47 | 1,349 |
The results of operations Europe for 2015 and 2014 that are based on the figures of the separate operating segments are further disclosed on the following pages.
|
Supplemental Annual Report 2015 |
43
Results 2015 Europe
Amounts in EUR million | 2015 | 2014 | % | |||||||||
Net underlying earnings | 482 | 638 | (25%) | |||||||||
Tax on underlying earnings |
77 | 133 | (42%) | |||||||||
Underlying earnings before tax by business / country | ||||||||||||
The Netherlands |
537 | 558 | (4%) | |||||||||
United Kingdom |
(27 | ) | 125 | - | ||||||||
Central & Eastern Europe |
37 | 60 | (39%) | |||||||||
Spain and Portugal1) |
12 | 28 | (56%) | |||||||||
Underlying earnings before tax | 559 | 771 | (27%) | |||||||||
Fair value items |
150 | (789 | ) | - | ||||||||
Gains / (losses) on investments |
411 | 606 | (32%) | |||||||||
Net impairments |
(22 | ) | (54 | ) | 58% | |||||||
Other income / (charges) |
(1,254 | ) | (189 | ) | - | |||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
(156 | ) | 345 | - | ||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
6 | 2 | - | |||||||||
Income tax |
27 | (79 | ) | - | ||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(6 | ) | (2 | ) | - | |||||||
Net income | (129 | ) | 266 | - | ||||||||
Life insurance gross premiums |
11,356 | 9,759 | 16% | |||||||||
Accident and health insurance premiums |
345 | 351 | (2%) | |||||||||
General insurance premiums |
717 | 725 | (1%) | |||||||||
Total gross premiums | 12,419 | 10,835 | 15% | |||||||||
Investment income |
4,693 | 4,748 | (1%) | |||||||||
Fees and commission income |
501 | 467 | 7% | |||||||||
Other revenues |
2 | 2 | (20%) | |||||||||
Total revenues | 17,615 | 16,052 | 10% | |||||||||
Commissions and expenses |
2,368 | 2,175 | 9% | |||||||||
of which operating expenses |
1,442 | 1,401 | 3% | |||||||||
1 Underlying earnings before tax in 2014 include EUR 19 million of Aegons stake in La Mondiale Participations (France). |
| |||||||||||
New life sales | ||||||||||||
Amounts in EUR million |
2015 | 2014 | % | |||||||||
The Netherlands |
130 | 251 | (48%) | |||||||||
United Kingdom |
911 | 972 | (6%) | |||||||||
Central & Eastern Europe |
91 | 107 | (15%) | |||||||||
Spain & Portugal |
39 | 49 | (20%) | |||||||||
Total recurring plus 1/10 single | 1,172 | 1,379 | (15%) | |||||||||
Amounts in EUR million | 2015 | 2014 | % | |||||||||
New premium production accident and health insurance |
28 | 21 | 31% | |||||||||
New premium production general insurance |
84 | 72 | 17% |
44 | Business overview Results of operations Europe |
Gross deposits (on and off balance) | 2015 | 2014 | % | |||||||||
The Netherlands |
5,137 | 2,781 | 85% | |||||||||
United Kingdom |
683 | 665 | 3% | |||||||||
Central & Eastern Europe |
227 | 215 | 5% | |||||||||
Spain & Portugal |
29 | 55 | (47%) | |||||||||
Total gross deposits |
6,075 | 3,716 | 63% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates Per 1 EUR |
2015 | 2014 | ||||||||||
Pound sterling |
0.7256 | 0.8061 | ||||||||||
Czech koruna |
27.2662 | 27.5153 | ||||||||||
Hungarian florint |
309.3147 | 308.3758 | ||||||||||
Polish zloty |
4.1819 | 4.1839 | ||||||||||
Romanian leu |
4.4428 | 4.4429 | ||||||||||
Turkish Lira |
3.0206 | 2.9060 | ||||||||||
Ukrainian Hryvnia |
24.1414 | 15.8120 |
|
Supplemental Annual Report 2015 |
45
Results 2015 Europe
The net loss in 2015 was EUR 129 million, primarily due to a charge of EUR 1,274 million related to the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization. Underlying earnings before tax decreased to EUR 559 million, mainly driven by the United Kingdom, compared with a profit of EUR 771 million in 2014. Gross deposits increased to EUR 6.1 billion primarily as a result of higher bank deposits in the Netherlands. New life sales declined to EUR 1.2 billion mainly due to the absence of large pension buyouts in the Netherlands. New premium production for general and accident & health insurance increased to EUR 112 million.
46 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
47
Results 2014 Europe
Amounts in EUR million | 2014 | 2013 | % | |||||||||
Net underlying earnings |
638 | 570 | 12% | |||||||||
Tax on underlying earnings |
133 | 68 | 96% | |||||||||
Underlying earnings before tax by business / country |
||||||||||||
Netherlands |
558 | 454 | 23% | |||||||||
United Kingdom |
125 | 94 | 34% | |||||||||
Central & Eastern Europe |
60 | 57 | 5% | |||||||||
Spain & France |
28 | 33 | (16%) | |||||||||
Underlying earnings before tax |
771 | 637 | 21% | |||||||||
Fair value items |
(789 | ) | (62 | ) | - | |||||||
Gains / (losses) on investments |
606 | 393 | 54% | |||||||||
Net impairments |
(54 | ) | (80 | ) | 33% | |||||||
Other income / (charges) |
(189 | ) | (117 | ) | (61%) | |||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
345 | 772 | (55%) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
2 | 8 | (76%) | |||||||||
Income tax |
(79 | ) | (114 | ) | 31% | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(2 | ) | (8 | ) | 76% | |||||||
Net income |
266 | 658 | (60%) | |||||||||
Life insurance gross premiums |
9,759 | 10,792 | (10%) | |||||||||
Accident and health insurance premiums |
351 | 306 | 15% | |||||||||
General insurance premiums |
725 | 681 | 6% | |||||||||
Total gross premiums |
10,835 | 11,778 | (8%) | |||||||||
Investment income |
4,748 | 4,493 | 6% | |||||||||
Fees and commission income |
467 | 515 | (9%) | |||||||||
Other revenues |
2 | 1 | 82% | |||||||||
Total revenues |
16,052 | 16,787 | (4%) | |||||||||
Commissions and expenses |
2,175 | 2,187 | (1%) | |||||||||
of which operating expenses |
1,401 | 1,349 | 4% | |||||||||
New life sales |
||||||||||||
Amounts in EUR million | 2014 | 2013 | % | |||||||||
The Netherlands |
251 | 206 | 22% | |||||||||
United Kingdom |
972 | 1,014 | (4%) | |||||||||
Central & Eastern Europe |
107 | 108 | 0% | |||||||||
Spain & Portugal |
49 | 54 | (8%) | |||||||||
Total recurring plus 1/10 single |
1,379 | 1,381 | 0% | |||||||||
Amounts in EUR million | 2014 | 2013 | % | |||||||||
New premium production accident and health insurance |
21 | 30 | (28%) | |||||||||
New premium production general insurance |
72 | 61 | 17% |
48 | Business overview Results of operations Europe |
Gross deposits (on and off balance) | 2014 | 2013 | % | |||||||||
The Netherlands |
2,781 | 1,338 | 108% | |||||||||
United Kingdom |
665 | 705 | (6%) | |||||||||
Central & Eastern Europe |
215 | 248 | (13%) | |||||||||
Spain & Portugal |
55 | 9 | - | |||||||||
Total gross deposits |
3,716 | 2,300 | 62% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates |
||||||||||||
Per 1 EUR |
2014 | 2013 | ||||||||||
Pound sterling |
0.8061 | 0.8484 | ||||||||||
Czech koruna |
27.5153 | 25.9238 | ||||||||||
Hungarian florint |
308.3758 | 296.3309 | ||||||||||
Polish zloty |
4.1839 | 4.1940 | ||||||||||
Romanian leu |
4.4429 | 4.4167 | ||||||||||
Turkish Lira |
2.9060 | 2.5305 | ||||||||||
Ukrainian Hryvnia |
15.8120 | 10.8249 |
|
Supplemental Annual Report 2015 |
49
Results 2014 Europe
Net income in 2014 decreased to EUR 266 million. Underlying earnings before tax increased 21% to EUR 771 million in 2014. This was driven by higher underlying earnings in the Netherlands, the United Kingdom and Central & Eastern Europe, partly offset by lower underlying earnings in Spain & France. New life sales remained stable at EUR 1.4 billion. Gross deposits were 62% higher compared with 2013 driven by bank deposits in the Netherlands.
50 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
51
Overview of the Netherlands
Aegon has operated in the Netherlands for more than 170 years, and is the countrys leading provider of life insurance and pensions1, with approximately 4,500 employees. Aegon the Netherlands is headquartered in The Hague, has offices in Leeuwarden and Groningen, and owns the Unirobe Meeùs Group, one of the largest intermediaries in the Netherlands2.
1 | Verzekerd van cijfers 2014, Verbond van Verzekeraars. |
2 | AM Jaarcijfers. |
3 | Metrixlab brandtrackers. |
52 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
53
1 | Verzekerd van cijfers 2014, Verbond van Verzekeraars. |
54 | Business overview Results of operations Europe |
1 | Verzekerd van Cijfers. |
2 | Verzekerd van Cijfers. |
3 | Dutch Central Bank. |
4 | The Land Registry (Kadaster), 2015. |
5 | Dutch Central Bank. |
Supplemental Annual Report 2015 |
55
56 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
57
58 | Business overview Results of operations Europe |
Overview of United Kingdom
In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products, annuities, and savings products. Aegon Ireland is a specialist provider of variable annuity (guarantee) products in the United Kingdom, Germany and France. Aegon UK and Aegon Ireland have over two million customers, approximately 2,500 employees, and GBP 63 billion in revenue-generating investments.
1 | Platforum, UK Advisor Platform Guide, November 2015. |
|
Supplemental Annual Report 2015 |
59
60 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
61
62 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
63
Overview of Central & Eastern Europe
Aegon has operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey and Ukraine. Aegon first entered the Central & Eastern European market in 1992 with the purchase of a majority stake in Hungarys former state-owned insurance company, Állami Biztosító. Aegon Hungary is Aegons leading business in Central & Eastern Europe.
1 | https://www.knf.gov.pl/en/about_the_market/Insurance/Financial_and_statistical_data/Quarterly_data/quarterly.html |
2 | http://www.mabisz.hu/en/market-reports.html |
64 | Business overview Results of operations Europe |
1 | http://asfromania.ro/informatii-publice/statistici/statistici-pensii/evolutie-indicatori |
2 | http://www.mabisz.hu/images/stories/docs-eng/publications/yearbook-2014-english.pdf |
3 | http://www.mabisz.hu/images/stories/docs-eng/publications/quarter/2015-i-iii-quarter.pdf |
4 | https://www.knf.gov.pl/en/about_the_market/Insurance/Financial_and_statistical_data/Quarterly_data/quarterly.html |
5 | http://uainsur.com/stats/life/ |
6 | http://www.tsb.org.tr/official-statistics.aspx?pageID=1003 |
7 | http://www.adss.sk/en/Default.aspx?CatID=60&fundID=566 |
8 | http://www.mnb.hu/felugyelet/idosorok/v-aranykonyv |
|
Supplemental Annual Report 2015 |
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1 | http://www.mnb.hu/felugyelet/idosorok/v-aranykonyv |
2 | http://www.adss.sk/en/Default.aspx?CatID=60&fundID=566 |
3 | https://www.knf.gov.pl/en/about_the_market/Pension_system/Financial_and_statistical_data/Monthly_data.html |
4 | http://asfromania.ro/informatii-publice/statistici/statistici-pensii/evolutie-indicatori |
66 | Business overview Results of operations Europe |
|
Supplemental Annual Report 2015 |
67
Overview of Spain & Portugal
Aegon entered the Spanish insurance market in 1980 with the purchase of local insurer Seguros Galicia. In recent years, Aegons activities in Spain have developed through distribution partnerships with Spanish banks.
1 | Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA), which is responsible for researching, compiling and publishing all statistics in the Spanish insurance industry. |
2 | Associação Portuguesa de Seguradores (APS), which promotes risk management in Portugal. |
68 | Business overview Results of operations Europe |
1 | Source: Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA). |
2 | Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA). |
3 | Associação Portuguesa de Seguradores (APS). |
4 | Associação Portuguesa de Seguradores (APS) |
|
Supplemental Annual Report 2015 |
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70 | Business overview Results of operations Europe |
Overview of France
On November 24, 2014, following a strategic review, Aegon announced its decision to sell its 35% share in La Mondiale Participations, subject to regulatory review. The sale was finalized on March 3, 2015.
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71
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2015 | 2014 | % | 2015 | 2014 | % | |||||||||||||||||||
Net underlying earnings |
(4 | ) | (34 | ) | 89% | (3 | ) | (26 | ) | 87% | ||||||||||||||
Tax on underlying earnings |
27 | 12 | 130% | 24 | 9 | 176% | ||||||||||||||||||
Underlying earnings before tax by business / country |
||||||||||||||||||||||||
High net worth businesses |
45 | 17 | 170% | 40 | 13 | - | ||||||||||||||||||
Aegon Direct & Affinity Marketing Services |
5 | (2 | ) | - | 5 | (1 | ) | - | ||||||||||||||||
Strategic partnerships |
(27 | ) | (38 | ) | 27% | (25 | ) | (29 | ) | 15% | ||||||||||||||
Underlying earnings before tax |
23 | (23 | ) | - | 20 | (17 | ) | - | ||||||||||||||||
Fair value items |
7 | 4 | 108% | 7 | 3 | 150% | ||||||||||||||||||
Gains / (losses) on investments |
7 | 6 | 13% | 7 | 5 | 35% | ||||||||||||||||||
Net impairments |
- | (1 | ) | 73% | - | (1 | ) | 68% | ||||||||||||||||
Other income / (charges) |
(68 | ) | 5 | - | (61 | ) | 4 | - | ||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
(31 | ) | (9 | ) | - | (27 | ) | (7 | ) | - | ||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
3 | (3 | ) | - | 3 | (2 | ) | - | ||||||||||||||||
Income tax |
(3 | ) | (12 | ) | 76% | (3 | ) | (9 | ) | 71% | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(3 | ) | 3 | - | (3 | ) | 2 | - | ||||||||||||||||
Net income |
(33 | ) | (21 | ) | (57% | ) | (30 | ) | (16 | ) | (89% | ) | ||||||||||||
Life insurance gross premiums |
1,902 | 1,458 | 30% | 1,713 | 1,097 | 56% | ||||||||||||||||||
Accident and health insurance premiums |
117 | 136 | (14% | ) | 105 | 102 | 3% | |||||||||||||||||
Total gross premiums |
2,019 | 1,594 | 27% | 1,819 | 1,199 | 52% | ||||||||||||||||||
Investment income |
216 | 164 | 31% | 194 | 124 | 57% | ||||||||||||||||||
Fees and commission income |
69 | 70 | (1% | ) | 62 | 53 | 18% | |||||||||||||||||
Total revenues |
2,304 | 1,829 | 26% | 2,076 | 1,376 | 51% | ||||||||||||||||||
Commissions and expenses |
268 | 256 | 5% | 242 | 192 | 26% | ||||||||||||||||||
of which operating expenses |
143 | 146 | (2% | ) | 129 | 110 | 17% | |||||||||||||||||
New life sales | Amounts in USD millions | Amounts in EUR millions | ||||||||||||||||||||||
High net worth businesses |
151 | 123 | 23% | 136 | 93 | 47% | ||||||||||||||||||
Aegon Direct & Affinity Marketing Services |
1 | 4 | (86% | ) | 1 | 3 | (83% | ) | ||||||||||||||||
Strategic partnerships |
41 | 24 | 68% | 37 | 18 | 101% | ||||||||||||||||||
Total recurring plus 1/10 single |
193 | 152 | 27% | 173 | 114 | 52% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New premium production accident and health insurance |
31 | 30 | 3% | 28 | 23 | 24% |
72 | Business overview Results of operations Asia |
Gross deposits (on and off balance) | Amounts in USD millions | Amounts in EUR millions | ||||||||||||||||||||||
Strategic partnerships |
453 | 699 | (35%) | 408 | 526 | (22%) | ||||||||||||||||||
Total gross deposits |
453 | 699 | (35%) | 408 | 526 | (22%) |
Weighted average rate | ||||||||
Exchange rates | ||||||||
Per 1 EUR |
2015 | 2014 | ||||||
US dollar |
1.1100 | 1.3288 | ||||||
Chinese Yuan Renminbi |
6.9598 | 8.1902 |
|
Supplemental Annual Report 2015 |
73
Results 2015 Asia
Net loss in 2015 amounted to USD 33 million, which was mainly driven by Other charges. Higher underlying earnings before tax in 2015 compared with 2014 were mainly the result of one-time charges in 2014 from assumption changes and model updates. Gross deposits decreased to USD 453 million primarily due to a pricing change on variable annuities in Japan to maintain profitability of new sales. New life sales of USD 193 million mainly related to universal life products sold out of Hong Kong and Singapore.
74 | Business overview Results of operations Asia |
Results 2014 Asia
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2014 | 2013 | % | 2014 | 2013 | % | |||||||||||||||||||
Net underlying earnings |
(34 | ) | 15 | - | (26 | ) | 12 | - | ||||||||||||||||
Tax on underlying earnings |
12 | 30 | (62% | ) | 9 | 23 | (62% | ) | ||||||||||||||||
Underlying earnings before tax by business / country |
||||||||||||||||||||||||
High net worth businesses |
17 | 91 | (82% | ) | 13 | 69 | (81% | ) | ||||||||||||||||
Aegon Direct & Affinity Marketing Services |
(2 | ) | 6 | - | (1 | ) | 5 | - | ||||||||||||||||
Strategic partnerships |
(38 | ) | (52 | ) | 28% | (29 | ) | (39 | ) | 27% | ||||||||||||||
Underlying earnings before tax |
(23 | ) | 46 | - | (17 | ) | 34 | - | ||||||||||||||||
Fair value items |
4 | (21 | ) | - | 3 | (16 | ) | - | ||||||||||||||||
Gains / (losses) on investments |
6 | - | - | 5 | - | - | ||||||||||||||||||
Net impairments |
(1 | ) | 2 | - | (1 | ) | 1 | - | ||||||||||||||||
Other income / (charges) |
5 | (11 | ) | - | 4 | (8 | ) | - | ||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | (9 | ) | 15 | - | (7 | ) | 11 | - | ||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(3 | ) | (11 | ) | 76% | (2 | ) | (8 | ) | 76% | ||||||||||||||
Income tax |
(12 | ) | (24 | ) | 49% | (9 | ) | (18 | ) | 49% | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
3 | 11 | (76% | ) | 2 | 8 | (76% | ) | ||||||||||||||||
Net income |
(21 | ) | (9 | ) | (134% | ) | (16 | ) | (7 | ) | (133% | ) | ||||||||||||
Life insurance gross premiums |
1,458 | 809 | 80% | 1,097 | 609 | 80% | ||||||||||||||||||
Accident and health insurance premiums |
136 | 142 | (5% | ) | 102 | 107 | (5% | ) | ||||||||||||||||
Total gross premiums |
1,594 | 951 | 68% | 1,199 | 717 | 67% | ||||||||||||||||||
Investment income |
164 | 134 | 23% | 124 | 101 | 23% | ||||||||||||||||||
Fees and commission income |
70 | 66 | 7% | 53 | 49 | 7% | ||||||||||||||||||
Total revenues |
1,829 | 1,151 | 59% | 1,376 | 867 | 59% | ||||||||||||||||||
Commissions and expenses |
256 | 292 | (12% | ) | 192 | 220 | (13% | ) | ||||||||||||||||
of which operating expenses |
146 | 144 | 1% | 110 | 109 | 1% | ||||||||||||||||||
New life sales | Amounts in USD millions | Amounts in EUR millions | ||||||||||||||||||||||
High net worth businesses |
123 | 55 | 124% | 93 | 41 | 124% | ||||||||||||||||||
Aegon Direct & Affinity Marketing Services |
4 | 3 | 64% | 3 | 2 | 63% | ||||||||||||||||||
Strategic partnerships |
24 | 31 | (21% | ) | 18 | 23 | (21% | ) | ||||||||||||||||
Total recurring plus 1/10 single |
152 | 88 | 71% | 114 | 67 | 71% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New premium production accident and health insurance |
30 | 48 | (37% | ) | 23 | 36 | (37% | ) |
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75
Gross deposits (on and off balance) | Amounts in USD millions | Amounts in EUR millions | ||||||||||||||||||||||
Strategic partnerships |
699 | 779 | (10 | %) | 526 | 587 | (10 | %) | ||||||||||||||||
Total gross deposits |
699 | 779 | (10 | %) | 526 | 587 | (10 | %) | ||||||||||||||||
Weighted average rate | ||||||||||||||||||||||||
Exchange rates | ||||||||||||||||||||||||
Per 1 EUR |
2014 | 2013 | ||||||||||||||||||||||
US dollar |
1.3288 | 1.3272 | ||||||||||||||||||||||
Chinese Yuan Renminbi |
8.1902 | 8.1637 |
76 | Business overview Results of operations Asia |
Results 2014 Asia
Net losses in 2014 amounted to USD 21 million. Lower underlying earnings before tax in 2014 compared with 2013 were mainly the result of a charge from model updates in the high net worth business in 2014. New life sales of USD 152 million mainly related to universal life products sold out of Hong Kong and Singapore. Gross deposits decreased to USD 699 million primarily due to adverse currency movements and lower sales of variable annuities in Japan.
|
Supplemental Annual Report 2015 |
77
Overview of Asia
Aegon Asia operates through three major joint ventures in the Peoples Republic of China (hereafter referred to as China), India and Japan, in addition to a network of wholly-owned subsidiaries, including Aegons businesses in Hong Kong and Singapore that serve the high-net worth segment.
78 | Business overview Results of operations Asia |
1 | Source: the China Insurance Regulatory Commission (www.circ.gov.cn). |
2 | Source: Insurance Regulatory and Development Authority of India. |
3 | Source: Insurance Regulatory and Development Authority of India. |
|
Supplemental Annual Report 2015 |
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80 | Business overview Results of operations Asia |
|
Supplemental Annual Report 2015 |
81
Amounts in EUR millions | 2015 | 2014 | % | |||||||||
Net underlying earnings | 120 | 80 | 51% | |||||||||
Tax on underlying earnings |
50 | 36 | 41% | |||||||||
Underlying earnings before tax by business / country |
||||||||||||
Americas |
66 | 51 | 30% | |||||||||
The Netherlands |
11 | 18 | (40%) | |||||||||
United Kingdom |
32 | 27 | 18% | |||||||||
Rest of World |
(4) | (6) | 37% | |||||||||
Strategic partnerships |
65 | 25 | 156% | |||||||||
Underlying earnings before tax | 170 | 115 | 48% | |||||||||
Fair value items |
- | - | - | |||||||||
Gains / (losses) on investments |
3 | 1 | - | |||||||||
Net impairments |
- | - | - | |||||||||
Other income / (charges) |
(1) | (1) | (38%) | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 172 | 115 | 49% | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included |
19 | 8 | 145% | |||||||||
Income tax |
(50) | (36) | (41%) | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and |
(19) | (8) | (145%) | |||||||||
Net income | 121 | 79 | 53% | |||||||||
Investment income |
7 | 4 | 52% | |||||||||
Fees and commission income |
650 | 475 | 37% | |||||||||
Total revenues | 657 | 479 | 37% | |||||||||
Commissions and expenses |
487 | 368 | 32% | |||||||||
of which operating expenses |
444 | 339 | 31% | |||||||||
Gross deposits (on and off balance) | 2015 | 2014 | % | |||||||||
Americas |
2,329 | 3,123 | (25%) | |||||||||
The Netherlands |
4,080 | 2,542 | 60% | |||||||||
United Kingdom |
7,538 | 5,388 | 40% | |||||||||
Rest of World |
(389) | 507 | - | |||||||||
Strategic partnerships |
20,165 | 7,780 | 159% | |||||||||
Total gross deposits | 33,722 | 19,340 | 74% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates Per 1 EUR |
2015 | 2014 | ||||||||||
US dollar |
1.1100 | 1.3288 | ||||||||||
Canadian dollar |
1.4173 | 1.4667 | ||||||||||
Pound sterling |
0.7256 | 0.8061 | ||||||||||
Hungarian florint |
309.3147 | 308.3758 | ||||||||||
Chinese Yuan Renminbi |
6.9598 | 8.1902 |
82 | Business overview Results of operations Asset Management |
Results 2015 Asset Management
Net income in 2015 increased to EUR 121 million compared with 2014 as a result of higher underlying earnings before tax. Higher underlying earnings before tax in 2015 compared with 2014 were mainly the result of growth of third-party asset balances, favorable currency movements and one-off performance fees. Gross flows in third-party asset management increased by 74% to EUR 34 billion driven by record-high inflows.
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Results 2014 Asset Management
Amounts in EUR millions | 2014 | 2013 | % | |||||||||
Net underlying earnings | 80 | 62 | 29% | |||||||||
Tax on underlying earnings |
36 | 34 | 6% | |||||||||
Underlying earnings before tax by business / country |
||||||||||||
Americas |
51 | 47 | 7% | |||||||||
The Netherlands |
18 | 4 | - | |||||||||
United Kingdom |
27 | 19 | 44% | |||||||||
Rest of World |
(6) | (3) | (144%) | |||||||||
Strategic partnerships |
25 | 28 | (9%) | |||||||||
Underlying earnings before tax | 115 | 95 | 21% | |||||||||
Fair value items |
- | - | - | |||||||||
Gains / (losses) on investments |
1 | (2) | - | |||||||||
Net impairments |
- | - | - | |||||||||
Other income / (charges) |
(1) | 12 | - | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 115 | 105 | 10% | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates |
8 | 5 | 49% | |||||||||
Income tax |
(36) | (32) | (13%) | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and |
(8) | (5) | (49%) | |||||||||
Net income | 79 | 73 | 8% | |||||||||
Investment income |
4 | 4 | 7% | |||||||||
Fees and commission income |
475 | 432 | 10% | |||||||||
Total revenues | 479 | 437 | 10% | |||||||||
Commissions and expenses |
368 | 342 | 8% | |||||||||
of which operating expenses |
339 | 318 | 7% | |||||||||
Gross deposits (on and off balance) | 2014 | 2013 | % | |||||||||
Americas |
3,123 | 5,120 | (39%) | |||||||||
The Netherlands |
2,542 | 1,617 | 57% | |||||||||
United Kingdom |
5,388 | 3,877 | 39% | |||||||||
Rest of World |
507 | (107) | - | |||||||||
Strategic partnerships |
7,780 | 2,511 | - | |||||||||
Total gross deposits | 19,340 | 13,018 | 49% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates Per 1 EUR |
2014 | 2013 | ||||||||||
US dollar |
1.3288 | 1.3272 | ||||||||||
Canadian dollar |
1.4667 | 1.3674 | ||||||||||
Pound sterling |
0.8061 | 0.8484 | ||||||||||
Hungarian florint |
308.3758 | 296.3309 | ||||||||||
Chinese Yuan Renminbi |
8.1902 | 8.1637 |
84 | Business overview Results of operations Asset Management |
Results 2014 Asset Management
Net income in 2014 increased to EUR 79 million compared with 2013 as a result of higher underlying earnings before tax. Higher underlying earnings before tax in 2014 compared with 2013 were mainly the result of higher management and performance fees, favorable market and currency movements. Gross flows in third-party asset management increased by 49% to EUR 19 billion as a result of higher inflows in the Netherlands and China.
|
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85
Overview of Aegon Asset Management
Aegon Asset Management is an active investment manager that uses its investment management expertise to help people achieve a lifetime of financial security.
86 | Business overview Results of operations Asset Management |
|
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88 | Business overview Risk management |
|
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89
90 | Business overview Risk management |
|
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91
Capital and liquidity management
92 | Business overview Capital and liquidity management |
Agency December 31, 2015 |
Aegon N.V. | Aegon USA |
Aegon the |
Aegon UK | ||||||||||||
Standard & Poors |
A- | AA- | AA- | A+ | ||||||||||||
Moodys Investors Service |
A3 | A1 | - | - | ||||||||||||
Fitch Ratings |
A | AA- | - | AA- |
|
Supplemental Annual Report 2015 |
93
94 | Business overview Capital and liquidity management |
Capital requirements | Legal/regulatory minimum capital requirement |
Actual capitalization | Excess over legal/regulatory minimum | |||
United States1) |
100% Authorized Control Level (NAIC RBC ACL) | ~920% of combined ACL | ~EUR 6.7 bln | |||
The Netherlands2) |
100% Solvency I | ~240% Solvency I | ~EUR 2.7 bln | |||
United Kingdom3) |
100% Solvency I (Pillar 1) | ~165% Solvency I (Pillar 1) | ~EUR 1.1 bln |
1 | Capitalization for the United States represents the internally defined combined risk-based capital (RBC) ratio of Aegons life insurance subsidiaries in the United States. The combined RBC ratio utilizes the NAIC RBC ratio excluding affiliated notes and taking into account excess or deficient amounts related to offshore life affiliates. |
2 | Excluding the banking activities. |
3 | Including the With Profits fund at unaudited June 30, 2015 values. |
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Supplemental Annual Report 2015 |
95
96 | Business overview Regulation and Supervision |
|
Supplemental Annual Report 2015 |
97
98 | Governance Report of the Supervisory Board |
Report of the Supervisory Board
The Supervisory Board is entrusted with supervising and advising the Executive Board on management of the Company, and overseeing Aegons strategy and the general course of its businesses.
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Supplemental Annual Report 2015 |
99
Name | Regular SB meeting |
SB conference call |
Audit Committee |
Risk Committee |
Remuneration Committee |
Nomination & Governance Committee |
Combined Audit & Risk Committee |
|||||||||||||||||||||
Rob Routs |
7/7 | 7/7 | - | - | 6/6 | 6/6 | 1/1 | |||||||||||||||||||||
Irv Bailey |
7/7 | 7/7 | 6/6 | - | 6/6 | - | 1/1 | |||||||||||||||||||||
Bob Dineen |
7/7 | 7/7 | 6/6 | 4/4 | - | - | 1/1 | |||||||||||||||||||||
Shemaya Levy |
7/7 | 7/7 | - | 4/4 | - | 6/6 | 1/1 | |||||||||||||||||||||
Ben Noteboom 1) |
4/4 | 4/4 | 3/3 | - | 3/3 | - | 1/1 | |||||||||||||||||||||
Ben van der Veer |
7/7 | 7/7 | 6/6 | - | - | 6/6 | 1/1 | |||||||||||||||||||||
Dick Verbeek |
7/7 | 7/7 | 6/6 | 4/4 | - | 3/3 | 1/1 | |||||||||||||||||||||
Leo van Wijk 1) |
3/3 | 2/3 | - | - | 3/3 | 3/3 | - | |||||||||||||||||||||
Corien Wortmann |
7/7 | 7/7 | - | 4/4 | 6/6 | - | 1/1 | |||||||||||||||||||||
Dona Young |
7/7 | 7/7 | 6/6 | 4/4 | - | - | 1/1 |
1 | Where a Supervisory Board member retired from the Supervisory Board, stepped down from a Committee or was appointed throughout the year, only meetings during his / her tenure are taken into account. |
100 | Governance Report of the Supervisory Board |
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102 | Governance Report of the Supervisory Board |
|
Supplemental Annual Report 2015 |
103
104 | Governance Report of the Supervisory Board |
|
Supplemental Annual Report 2015 |
105
106 | Governance Members of the Supervisory Board |
Members of the Supervisory Board
|
Supplemental Annual Report 2015 |
107
108 | Governance Remuneration Report |
Global Remuneration Principles
The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout Aegon. They are applied regionally and/or locally.
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Supplemental Annual Report 2015 |
109
1 | In accordance with the Dutch Decree on Sound Remuneration Policy, the most recent annual disclosure of Identified Staff remuneration can be found on Aegons corporate website: http://www.aegon.com/Documents/aegon-com/Governance/Governance-documents/ |
110 | Governance Remuneration Report |
Base fee for membership of the Supervisory Board | EUR / year | |||
Chairman |
80,000 | |||
Vice-Chairman |
50,000 | |||
Member |
40,000 | |||
Fee for membership of a Supervisory Board committee | EUR / year | |||
Chairman of the Audit Committee |
13,000 | |||
Member of the Audit Committee |
8,000 | |||
Chairman of other committees |
10,000 | |||
Member of other committees |
5,000 | |||
Attendance fees | EUR | |||
Extra Supervisory Board meeting |
3,000 | |||
Audit Committee |
3,000 | |||
Other committees |
2,000 |
in EUR | 2015 | 2014 | ||||||
Robert J. Routs |
143,000 | 134,000 | ||||||
Irving W. Bailey, II |
135,000 | 122,750 | ||||||
Robert W. Dineen (as of May 21, 2014) |
121,000 | 70,125 | ||||||
Shemaya Levy |
101,000 | 94,125 | ||||||
Ben. J. Noteboom (as of May 20, 2015) |
69,250 | - | ||||||
Ben van der Veer |
115,000 | 104,125 | ||||||
Dirk P.M. Verbeek |
112,125 | 92,000 | ||||||
Corien M. Wortmann-Kool (as of May 21, 2014) |
96,000 | 55,250 | ||||||
Dona D. Young |
121,000 | 118,000 | ||||||
Total for active members |
1,013,375 | 790,375 | ||||||
Antony Burgmans (up to April 1, 2014) |
- | 15,000 | ||||||
Kornelis J. Storm (up to May 21, 2014) |
- | 33,750 | ||||||
Leo M. van Wijk (up to May 20, 2015) |
38,625 | 86,000 | ||||||
Total remuneration |
1,052,000 | 925,125 | ||||||
VAT liable on Supervisory Board remuneration |
220,920 | 194,276 | ||||||
Total |
1,272,920 | 1,119,401 |
|
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112 | Governance Remuneration Report |
1 | Based on VWAP December 15, 2014 January 15, 2015. |
|
Supplemental Annual Report 2015 |
113
Objectives | Maximum % of variable compensation |
Performance indicator | ||||
Group financial IFRS based |
21% | Group underlying earnings after tax, return on equity | ||||
Group financial risk adjusted based |
27% | Group market consistent value of new business Operational free cash flow | ||||
Group sustainability |
12% |
Group pre-tax return on required capital Objective measuring corporate responsibility and strategy | ||||
Personal objectives |
40% | Individual basket of strategic and personal objectives related to Aegons strategy |
1 | Mr Button earned an annual salary in USD. Amounts are based on USD, converted to EUR, based on annual average exchange rates. |
114 | Governance Remuneration Report |
|
Supplemental Annual Report 2015 |
115
116 | Governance Corporate governance |
Aegon is incorporated and based in the Netherlands. As a company established in the Netherlands, Aegon must comply with Dutch law and is subject to the Dutch Corporate Governance Code.
|
Supplemental Annual Report 2015 |
117
118 | Governance Corporate governance |
|
Supplemental Annual Report 2015 |
119
120 | Governance Differences between Dutch and US company laws |
US company laws
|
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121
122 | Governance Controls and procedures |
|
Supplemental Annual Report 2015 |
124 | Consolidated financial statements of Aegon N.V. |
Supplemental Annual Report 2015 |
125
126 | Exchange rates |
Exchange rates at December 31, 2015
EUR | USD | GBP | CAD | CNY | CZK | HUF | PLN | RON | TRY | UAH | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.0863 | 0.7370 | 1.5090 | 7.0540 | 27.0220 | 316.0051 | 4.2897 | 4.5215 | 3.1707 | 26.1017 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.9206 | - | 0.6784 | 1.3891 | 6.4936 | 24.8753 | 290.9004 | 3.9489 | 4.1623 | 2.9188 | 24.0281 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.3569 | 1.4739 | - | 2.0475 | 9.5712 | 36.6649 | 428.7722 | 5.8205 | 6.1350 | 4.3022 | 35.4161 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.6627 | 0.7199 | 0.4884 | - | 4.6746 | 17.9072 | 209.4136 | 2.8427 | 2.9964 | 2.1012 | 17.2973 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.1418 | 0.1540 | 0.1045 | 0.2139 | - | 3.8307 | 44.7980 | 0.6081 | 0.6410 | 0.4495 | 3.7003 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.7007 | 4.0201 | 2.7274 | 5.5843 | 26.1047 | - | 1,169.4364 | 15.8748 | 16.7327 | 11.7338 | 96.5943 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.3165 | 0.3438 | 0.2332 | 0.4775 | 2.2322 | 8.5511 | - | 1.3575 | 1.4308 | 1.0034 | 8.2599 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.2331 | 0.2532 | 0.1718 | 0.3518 | 1.6444 | 6.2993 | 73.6660 | - | 1.0540 | 0.7391 | 6.0847 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.2212 | 0.2403 | 0.1630 | 0.3337 | 1.5601 | 5.9763 | 69.8894 | 0.9487 | - | 0.7012 | 5.7728 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.3154 | 0.3426 | 0.2324 | 0.4759 | 2.2247 | 8.5224 | 99.6641 | 1.3529 | 1.4260 | - | 8.2322 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.0383 | 0.0416 | 0.0282 | 0.0578 | 0.2703 | 1.0353 | 12.1067 | 0.1643 | 0.1732 | 0.1215 | - |
Exchange rates at December 31, 2014
EUR | USD | GBP | CAD | CNY | CZK | HUF | PLN | RON | TRY | UAH | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.2101 | 0.7760 | 1.4015 | 7.5072 | 27.7150 | 315.7500 | 4.2981 | 4.4837 | 2.8288 | 19.1412 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.826 | - | 0.641 | 1.158 | 6.204 | 22.903 | 260.929 | 3.552 | 3.705 | 2.338 | 15.818 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.289 | 1.559 | - | 1.806 | 9.674 | 35.715 | 406.894 | 5.539 | 5.778 | 3.645 | 24.666 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.714 | 0.863 | 0.554 | - | 5.357 | 19.775 | 225.294 | 3.067 | 3.199 | 2.018 | 13.658 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.133 | 0.161 | 0.103 | 0.187 | - | 3.692 | 42.060 | 0.573 | 0.597 | 0.377 | 2.550 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.608 | 4.366 | 2.800 | 5.057 | 27.087 | - | 1,139.275 | 15.508 | 16.178 | 10.207 | 69.064 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.317 | 0.383 | 0.246 | 0.444 | 2.378 | 8.778 | - | 1.361 | 1.420 | 0.896 | 6.062 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.233 | 0.282 | 0.181 | 0.326 | 1.747 | 6.448 | 73.463 | - | 1.043 | 0.658 | 4.453 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.223 | 0.270 | 0.173 | 0.313 | 1.674 | 6.181 | 70.422 | 0.959 | - | 0.631 | 4.269 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.354 | 0.428 | 0.274 | 0.495 | 2.654 | 9.797 | 111.620 | 1.519 | 1.585 | - | 6.767 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.052 | 0.063 | 0.041 | 0.073 | 0.392 | 1.448 | 16.496 | 0.225 | 0.234 | 0.148 | - |
Supplemental Annual Report 2015 |
127
Weighted average exchange rates 2015
EUR | USD | GBP | CAD | CNY | CZK | HUF | PLN | RON | TRY | UAH | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.1100 | 0.7256 | 1.4173 | 6.9598 | 27.2662 | 309.3147 | 4.1819 | 4.4428 | 3.0206 | 24.1414 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.9009 | - | 0.6537 | 1.2768 | 6.2701 | 24.5641 | 278.6619 | 3.7675 | 4.0025 | 2.7213 | 21.7490 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.3782 | 1.5298 | - | 1.9533 | 9.5918 | 37.5775 | 426.2882 | 5.7634 | 6.1229 | 4.1629 | 33.2709 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.7056 | 0.7832 | 0.5120 | - | 4.9106 | 19.2381 | 218.2422 | 2.9506 | 3.1347 | 2.1312 | 17.0334 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.1437 | 0.1595 | 0.1043 | 0.2036 | - | 3.9177 | 44.4430 | 0.6009 | 0.6384 | 0.4340 | 3.4687 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.6675 | 4.0710 | 2.6612 | 5.1980 | 25.5254 | - | 1,134.4254 | 15.3373 | 16.2942 | 11.0782 | 88.5397 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.3233 | 0.3589 | 0.2346 | 0.4582 | 2.2501 | 8.8150 | - | 1.3520 | 1.4363 | 0.9765 | 7.8048 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.2391 | 0.2654 | 0.1735 | 0.3389 | 1.6643 | 6.5201 | 73.9651 | - | 1.0624 | 0.7223 | 5.7728 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.2251 | 0.2498 | 0.1633 | 0.3190 | 1.5665 | 6.1372 | 69.6216 | 0.9413 | - | 0.6799 | 5.4338 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.3311 | 0.3675 | 0.2402 | 0.4692 | 2.3041 | 9.0267 | 102.4017 | 1.3845 | 1.4708 | - | 7.9923 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.0414 | 0.0460 | 0.0301 | 0.0587 | 0.2883 | 1.1294 | 12.8126 | 0.1732 | 0.1840 | 0.1251 | - |
Weighted average exchange rates 2014
EUR | USD | GBP | CAD | CNY | CZK | HUF | PLN | RON | TRY | UAH | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3288 | 0.8061 | 1.4667 | 8.1902 | 27.5153 | 308.3758 | 4.1839 | 4.4429 | 2.9060 | 15.8120 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.753 | - | 0.607 | 1.104 | 6.164 | 20.707 | 232.071 | 3.149 | 3.344 | 2.187 | 11.899 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.241 | 1.648 | - | 1.820 | 10.160 | 34.134 | 382.553 | 5.190 | 5.512 | 3.605 | 19.615 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.682 | 0.906 | 0.550 | - | 5.584 | 18.760 | 210.251 | 2.853 | 3.029 | 1.981 | 10.781 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.122 | 0.162 | 0.098 | 0.179 | - | 3.360 | 37.652 | 0.511 | 0.542 | 0.355 | 1.931 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.634 | 4.829 | 2.930 | 5.330 | 29.766 | - | 1,120.743 | 15.206 | 16.147 | 10.561 | 57.466 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.324 | 0.431 | 0.261 | 0.476 | 2.656 | 8.923 | - | 1.357 | 1.441 | 0.942 | 5.128 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.239 | 0.318 | 0.193 | 0.351 | 1.958 | 6.576 | 73.705 | - | 1.062 | 0.695 | 3.779 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.225 | 0.299 | 0.181 | 0.330 | 1.843 | 6.193 | 69.409 | 0.942 | - | 0.654 | 3.559 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.344 | 0.457 | 0.277 | 0.505 | 2.818 | 9.468 | 106.117 | 1.440 | 1.529 | - | 5.441 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.063 | 0.084 | 0.051 | 0.093 | 0.518 | 1.740 | 19.503 | 0.265 | 0.281 | 0.184 | - |
Weighted average exchange rates 2013
EUR | USD | GBP | CAD | CNY | CZK | HUF | PLN | RON | TRY | UAH | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3272 | 0.8484 | 1.3674 | 8.1637 | 25.9238 | 296.3309 | 4.1940 | 4.4167 | 2.5305 | 10.8249 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.753 | - | 0.639 | 1.030 | 6.151 | 19.533 | 223.275 | 3.160 | 3.328 | 1.907 | 8.156 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.179 | 1.564 | - | 1.612 | 9.622 | 30.556 | 349.282 | 4.943 | 5.206 | 2.983 | 12.759 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.731 | 0.971 | 0.620 | - | 5.970 | 18.958 | 216.711 | 3.067 | 3.230 | 1.851 | 7.916 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.122 | 0.163 | 0.104 | 0.167 | - | 3.175 | 36.299 | 0.514 | 0.541 | 0.310 | 1.326 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.857 | 5.120 | 3.273 | 5.275 | 31.491 | - | 1,143.084 | 16.178 | 17.037 | 9.761 | 41.757 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.337 | 0.448 | 0.286 | 0.461 | 2.755 | 8.748 | - | 1.415 | 1.490 | 0.854 | 3.653 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.238 | 0.316 | 0.202 | 0.326 | 1.947 | 6.181 | 70.656 | - | 1.053 | 0.603 | 2.581 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.226 | 0.300 | 0.192 | 0.310 | 1.848 | 5.869 | 67.093 | 0.950 | - | 0.573 | 2.451 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.395 | 0.524 | 0.335 | 0.540 | 3.226 | 10.245 | 117.104 | 1.657 | 1.745 | - | 4.278 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.092 | 0.123 | 0.078 | 0.126 | 0.754 | 2.395 | 27.375 | 0.387 | 0.408 | 0.234 | - |
128 | Consolidated financial statements of Aegon N.V. |
Consolidated income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million (except per share data) | Note | 2015 1) | 2014 1) | 2013 1) | ||||||||||||
Premium income |
6 | 22,925 | 19,864 | 19,939 | ||||||||||||
Investment income |
7 | 8,525 | 8,148 | 7,909 | ||||||||||||
Fee and commission income |
8 | 2,438 | 2,137 | 1,950 | ||||||||||||
Other revenues |
14 | 7 | 6 | |||||||||||||
Total revenues |
33,902 | 30,157 | 29,805 | |||||||||||||
Income from reinsurance ceded |
9 | 3,321 | 2,906 | 2,838 | ||||||||||||
Results from financial transactions |
10 | 521 | 13,213 | 15,393 | ||||||||||||
Other income |
11 | 83 | 61 | 393 | ||||||||||||
Total income | 37,827 | 46,338 | 48,430 | |||||||||||||
Premiums paid to reinsurers |
6 | 2,979 | 3,011 | 3,108 | ||||||||||||
Policyholder claims and benefits |
12 | 26,443 | 36,214 | 37,688 | ||||||||||||
Profit sharing and rebates |
13 | 31 | 17 | 28 | ||||||||||||
Commissions and expenses |
14 | 6,598 | 5,629 | 5,609 | ||||||||||||
Impairment charges / (reversals) |
15 | 1,251 | 87 | 294 | ||||||||||||
Interest charges and related fees |
16 | 412 | 371 | 355 | ||||||||||||
Other charges |
17 | 774 | 172 | 134 | ||||||||||||
Total charges | 38,489 | 45,502 | 47,215 | |||||||||||||
Income before share in profit / (loss) of joint ventures, associates and tax |
(661 | ) | 836 | 1,215 | ||||||||||||
Share in profit / (loss) of joint ventures |
142 | 56 | - | |||||||||||||
Share in profit / (loss) of associates |
5 | 24 | 21 | |||||||||||||
Income / (loss) before tax |
(514 | ) | 916 | 1,236 | ||||||||||||
Income tax |
18 | 83 | (151 | ) | (233 | ) | ||||||||||
Net income / (loss) | (431 | ) | 766 | 1,003 | ||||||||||||
Net income / (loss) attributable to: | ||||||||||||||||
Equity holders of Aegon N.V. |
(432 | ) | 765 | 1,001 | ||||||||||||
Non-controlling interests |
1 | 1 | 3 | |||||||||||||
Earnings per share (EUR per share) | 19 | |||||||||||||||
Basic earnings per common share |
(0.27 | ) | 0.29 | 0.37 | ||||||||||||
Basic earnings per common share B |
(0.01 | ) | 0.01 | 0.01 | ||||||||||||
Diluted earnings per common share |
(0.27 | ) | 0.29 | 0.37 | ||||||||||||
Diluted earnings per common share B |
(0.01 | ) | 0.01 | 0.01 |
1 | Amounts for 2015, 2014 and 2013 have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
Supplemental Annual Report 2015 |
129
Consolidated statement of comprehensive income of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2015 1) | 2014 1) | 2013 1) | |||||||||
Net income |
(431 | ) | 766 | 1,003 | ||||||||
Items that will not be reclassified to profit or loss: |
||||||||||||
Changes in revaluation reserve real estate held for own use |
13 | 9 | (6 | ) | ||||||||
Remeasurements of defined benefit plans |
240 | (1,156 | ) | 562 | ||||||||
Income tax relating to items that will not be reclassified |
(77 | ) | 333 | (201 | ) | |||||||
Items that may be reclassified to profit or loss: |
||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
(2,175 | ) | 6,759 | (3,376 | ) | |||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
(485 | ) | (702 | ) | (435 | ) | ||||||
Changes in cash flow hedging reserve |
446 | 1,188 | (555 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
1,419 | 1,654 | (722 | ) | ||||||||
Equity movements of joint ventures |
(8 | ) | 10 | (4 | ) | |||||||
Equity movements of associates |
(1 | ) | (10 | ) | 54 | |||||||
Disposal of group assets |
(544 | ) | - | - | ||||||||
Income tax relating to items that may be reclassified |
783 | (2,018 | ) | 1,295 | ||||||||
Other |
9 | (5 | ) | (6 | ) | |||||||
Total other comprehensive income |
(380 | ) | 6,062 | (3,393 | ) | |||||||
Total comprehensive income | (811 | ) | 6,827 | (2,390 | ) | |||||||
Total comprehensive income attributable to: | ||||||||||||
Equity holders of Aegon N.V. |
(811 | ) | 6,828 | (2,387 | ) | |||||||
Non-controlling interests |
- | (1 | ) | (3 | ) |
1 | Amounts for 2015, 2014 and 2013 have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
130 | Consolidated financial statements of Aegon N.V. |
Consolidated statement of financial position of Aegon N.V.
As at December 31
Amounts in EUR million | Note | 2015 1) | 2014 1) | January 1, 2014 1) |
||||||||||||
Assets |
||||||||||||||||
Intangible assets |
21 | 1,901 | 2,073 | 2,272 | ||||||||||||
Investments |
22 | 160,478 | 153,219 | 135,533 | ||||||||||||
Investments for account of policyholders |
23 | 200,226 | 191,467 | 165,032 | ||||||||||||
Derivatives |
24 | 11,545 | 28,014 | 13,531 | ||||||||||||
Investments in joint ventures |
25 | 1,561 | 1,468 | 1,426 | ||||||||||||
Investments in associates |
26 | 242 | 140 | 470 | ||||||||||||
Reinsurance assets |
27 | 11,257 | 9,593 | 10,344 | ||||||||||||
Defined benefit assets |
41 | 41 | 38 | 34 | ||||||||||||
Deferred tax assets |
43 | 25 | 27 | 164 | ||||||||||||
Deferred expenses |
28 | 10,997 | 10,019 | 9,668 | ||||||||||||
Assets held for sale |
29 | - | 9,881 | - | ||||||||||||
Other assets and receivables |
30 | 7,549 | 7,563 | 7,357 | ||||||||||||
Cash and cash equivalents |
31 | 9,594 | 10,610 | 5,691 | ||||||||||||
Total assets | 415,415 | 424,112 | 351,523 | |||||||||||||
Equity and liabilities |
||||||||||||||||
Shareholders equity |
32 | 22,441 | 23,847 | 17,589 | ||||||||||||
Other equity instruments |
33 | 3,800 | 3,827 | 5,015 | ||||||||||||
Issued capital and reserves attributable to equity holders of Aegon N.V. |
26,241 | 27,674 | 22,605 | |||||||||||||
Non-controlling interests |
9 | 9 | 10 | |||||||||||||
Group equity | 26,250 | 27,683 | 22,614 | |||||||||||||
Subordinated borrowings |
34 | 759 | 747 | 44 | ||||||||||||
Trust pass-through securities |
35 | 157 | 143 | 135 | ||||||||||||
Insurance contracts |
36 | 123,042 | 111,927 | 101,769 | ||||||||||||
Insurance contracts for account of policyholders |
36 | 112,679 | 102,250 | 84,311 | ||||||||||||
Investment contracts |
37 | 17,718 | 15,359 | 14,545 | ||||||||||||
Investment contracts for account of policyholders |
37 | 90,119 | 91,849 | 82,608 | ||||||||||||
Derivatives |
24 | 10,890 | 26,048 | 11,838 | ||||||||||||
Borrowings |
39 | 12,445 | 14,158 | 11,830 | ||||||||||||
Provisions |
40 | 175 | 322 | 182 | ||||||||||||
Defined benefit liabilities |
41 | 4,471 | 4,404 | 3,060 | ||||||||||||
Deferred gains |
42 | 112 | 82 | 88 | ||||||||||||
Deferred tax liabilities |
43 | 2,252 | 2,906 | 1,425 | ||||||||||||
Liabilities held for sale |
29 | - | 7,810 | - | ||||||||||||
Other liabilities |
44 | 14,074 | 18,152 | 16,815 | ||||||||||||
Accruals |
45 | 272 | 272 | 259 | ||||||||||||
Total liabilities | 389,165 | 396,429 | 328,909 | |||||||||||||
Total equity and liabilities | 415,415 | 424,112 | 351,523 |
1 | Amounts for 2015 and 2014 have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
Supplemental Annual Report 2015 |
131
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2015
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revaluation reserves |
Remea- surement of defined benefit plans |
Other reserves |
Other equity instru- ments |
Issued capital and reserves 1) |
Non-con- trolling interests |
Total | ||||||||||||||||||||||||||||||
At January 1, 2015 3) | 8,597 | 8,639 | 8,308 | (1,611) | (86) | 3,827 | 27,674 | 9 | 27,683 | |||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | (432 | ) | - | - | - | - | (432 | ) | 1 | (431 | ) | ||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | 13 | - | - | - | 13 | - | 13 | |||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | - | 240 | - | - | 240 | - | 240 | |||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | (2 | ) | (75 | ) | - | - | (77 | ) | - | (77 | ) | |||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | (2,175 | ) | - | - | - | (2,175 | ) | - | (2,175 | ) | ||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
- | - | (485 | ) | - | - | - | (485 | ) | - | (485 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | 446 | - | - | - | 446 | - | 446 | |||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | (86 | ) | 1,505 | - | 1,419 | - | 1,419 | ||||||||||||||||||||||||||||||
Equity movements of joint ventures |
- | - | - | - | (8 | ) | - | (8 | ) | - | (8 | ) | ||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | (1 | ) | - | (1 | ) | - | (1 | ) | ||||||||||||||||||||||||||||
Disposal of group assets 2) |
- | - | (468 | ) | - | (76 | ) | - | (544 | ) | - | (544 | ) | |||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | - | 836 | - | (52 | ) | - | 783 | - | 783 | ||||||||||||||||||||||||||||||
Other |
- | 10 | - | - | - | - | 10 | (1 | ) | 9 | ||||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
10
|
|
|
(1,837
|
)
|
|
79
|
|
|
1,369
|
|
|
-
|
|
|
(379
|
)
|
|
(1
|
)
|
|
(380
|
)
| |||||||||||||
Total comprehensive income / (loss) for 2015 | - | (422 | ) | (1,837 | ) | 79 | 1,369 | - | (811 | ) | - | (811 | ) | |||||||||||||||||||||||||||
Shares issued and withdrawn |
1 | - | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||
Issuance and purchase of treasury shares |
- | 52 | - | - | - | - | 52 | - | 52 | |||||||||||||||||||||||||||||||
Dividends paid on common shares |
(211 | ) | (292 | ) | - | - | - | - | (503 | ) | - | (503 | ) | |||||||||||||||||||||||||||
Dividend withholding tax reduction |
- | 1 | - | - | - | - | 1 | - | 1 | |||||||||||||||||||||||||||||||
Coupons on perpetual securities |
- | (111 | ) | - | - | - | - | (111 | ) | - | (111 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
- | (28 | ) | - | - | - | - | (28 | ) | - | (28 | ) | ||||||||||||||||||||||||||||
Share options and incentive plans |
- | (7 | ) | - | - | - | (27 | ) | (33 | ) | - | (33 | ) | |||||||||||||||||||||||||||
At December 31, 2015 | 32, 33 | 8,387 | 7,832 | 6,471 | (1,532 | ) | 1,283 | 3,800 | 26,241 | 9 | 26,250 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
2 | Refer to note 51 for details on the disposals |
3 | Amounts have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
132 | Consolidated financial statements of Aegon N.V. |
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2014
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revalua- tion |
Remea- surement of defined benefit plans |
Other reserves |
Other equity instru- ments |
Issued capital and reserves 1) |
Non-con- trolling |
Total | ||||||||||||||||||||||||||||||
At January 1, 2014 2) | 8,701 | 8,345 | 3,023 | (706) | (1,773) | 5,015 | 22,605 | 10 | 22,614 | |||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | 765 | - | - | - | - | 765 | 1 | 766 | |||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | 9 | - | - | - | 9 | - | 9 | |||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | - | (1,156 | ) | - | - | (1,156 | ) | - | (1,156 | ) | ||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | (2 | ) | 335 | - | - | 333 | - | 333 | ||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | 6,759 | - | - | - | 6,759 | - | 6,759 | |||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
- | - | (702 | ) | - | - | - | (702 | ) | - | (702 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | 1,188 | - | - | - | 1,188 | - | 1,188 | |||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | (84 | ) | 1,738 | - | 1,654 | - | 1,654 | ||||||||||||||||||||||||||||||
Equity movements of joint ventures |
- | - | - | - | 10 | - | 10 | - | 10 | |||||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | (10 | ) | - | (10 | ) | - | (10 | ) | ||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | - | (1,968 | ) | - | (50 | ) | - | (2,018 | ) | - | (2,018 | ) | |||||||||||||||||||||||||||
Other |
- | (4 | ) | - | - | - | - | (4 | ) | (1 | ) | (5 | ) | |||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
(4
|
)
|
|
5,285
|
|
|
(905
|
)
|
|
1,687
|
|
|
-
|
|
|
6,063
|
|
|
(1
|
)
|
|
6,062
|
| |||||||||||||
Total comprehensive income / (loss) for 2014 | - | 761 | 5,285 | (905 | ) | 1,687 | - | 6,828 | (1 | ) | 6,827 | |||||||||||||||||||||||||||||
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 perpetual securities |
- | (128 | ) | - | - | - | - | (128 | ) | - | (128 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
- | (24 | ) | - | - | - | - | (24 | ) | - | (24 | ) | ||||||||||||||||||||||||||||
Share options and incentive plans |
- | 7 | - | - | - | (4 | ) | 3 | - | 3 | ||||||||||||||||||||||||||||||
At December 31, 2014 | 32, 33 | 8,597 | 8,639 | 8,308 | (1,611 | ) | (86 | ) | 3,827 | 27,674 | 9 | 27,683 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
2 | Amounts have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
Supplemental Annual Report 2015 |
133
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2013
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revaluation reserves |
Remea- surement of defined benefit plans |
Other reserves |
Other equity instru- ments |
Issued and |
Non-con- trolling |
Total | ||||||||||||||||||||||||||||||||
At January 1, 2013 (as previously stated) | 9,099 | 8,010 | 6,116 | (1,085 | ) | (1,103) | 5,018 | 26,055 | 13 | 26,068 | ||||||||||||||||||||||||||||||||
Changes in accounting policies relating to Deferred cost of reinsurance |
- | (124 | ) | - | - | - | - | (124 | ) | - | (124 | ) | ||||||||||||||||||||||||||||||
At January 1, 2013 (restated) 2) |
9,099 | 7,886 | 6,116 | (1,085 | ) | (1,103 | ) | 5,018 | 25,930 | 13 | 25,944 | |||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | 1,001 | - | - | - | - | 1,001 | 3 | 1,003 | |||||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | (6 | ) | - | - | - | (6 | ) | - | (6 | ) | ||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans | - | - | - | 562 | - | - | 562 | - | 562 | |||||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | 1 | (202 | ) | - | - | (201 | ) | - | (201 | ) | ||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | (3,376 | ) | - | - | - | (3,376 | ) | - | (3,376 | ) | ||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
- | - | (435 | ) | - | - | - | (435 | ) | - | (435 | ) | ||||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | (555 | ) | - | - | - | (555 | ) | - | (555 | ) | ||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | 19 | (741 | ) | - | (722 | ) | - | (722 | ) | ||||||||||||||||||||||||||||||
Equity movements of joint ventures |
- | - | - | - | (4 | ) | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | 54 | - | 54 | - | 54 | |||||||||||||||||||||||||||||||||
Disposal of group assets |
- | 3 | - | - | - | - | 3 | (3 | ) | - | ||||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | - | 1,274 | - | 21 | - | 1,295 | - | 1,295 | |||||||||||||||||||||||||||||||||
Transfer from / to other headings |
- | (3 | ) | 3 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
Other |
- | (4 | ) | - | - | - | - | (4 | ) | (2 | ) | (6 | ) | |||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
(4
|
)
|
|
(3,093
|
)
|
|
379
|
|
|
(670
|
)
|
|
-
|
|
|
(3,388
|
)
|
|
(5
|
)
|
|
(3,393
|
)
|
|||||||||||||||
Total comprehensive income / (loss) for 2013 | - | 997 | (3,093 | ) | 379 | (670 | ) | - | (2,387 | ) | (3 | ) | (2,390 | ) | ||||||||||||||||||||||||||||
Shares issued and withdrawn |
2 | - | - | - | - | - | 2 | - | 2 | |||||||||||||||||||||||||||||||||
Repurchased and sold own shares |
(400 | ) | (1 | ) | - | - | - | - | (401 | ) | - | (401 | ) | |||||||||||||||||||||||||||||
Treasury shares |
- | (77 | ) | - | - | - | - | (77 | ) | - | (77 | ) | ||||||||||||||||||||||||||||||
Dividends paid on common shares |
- | (240 | ) | - | - | - | - | (240 | ) | - | (240 | ) | ||||||||||||||||||||||||||||||
Preferred dividend |
- | (83 | ) | - | - | - | - | (83 | ) | - | (83 | ) | ||||||||||||||||||||||||||||||
Coupons on perpetual securities |
- | (146 | ) | - | - | - | - | (146 | ) | - | (146 | ) | ||||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
- | (21 | ) | - | - | - | - | (21 | ) | - | (21 | ) | ||||||||||||||||||||||||||||||
Share options and incentive plans |
- | 30 | - | - | - | (3 | ) | 27 | - | 27 | ||||||||||||||||||||||||||||||||
At December 31, 2013 | 32, 33 | 8,701 | 8,345 | 3,023 | (706 | ) | (1,773 | ) | 5,015 | 22,605 | 10 | 22,614 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
2 | Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
134 | Consolidated financial statements of Aegon N.V. |
Consolidated cash flow statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | Note | 2015 3) | 2014 3) | 2013 3) | ||||||||||||
Income / (loss) before tax |
(514 | ) | 916 | 1,236 | ||||||||||||
Results from financial transactions |
(896 | ) | (13,640 | ) | (16,219 | ) | ||||||||||
Amortization and depreciation |
1,519 | 944 | 964 | |||||||||||||
Impairment losses |
1,261 | 87 | 322 | |||||||||||||
Income from joint ventures |
(142 | ) | (56 | ) | - | |||||||||||
Income from associates |
(5 | ) | (24 | ) | (21 | ) | ||||||||||
Release of cash flow hedging reserve |
(39 | ) | (12 | ) | (26 | ) | ||||||||||
Remeasurements of defined benefit plans |
234 | (1,156 | ) | 562 | ||||||||||||
Other |
476 | 187 | (146 | ) | ||||||||||||
Adjustments of non-cash items |
2,407 | (13,671 | ) | (14,564 | ) | |||||||||||
Insurance and investment liabilities |
3,381 | 6,375 | (679 | ) | ||||||||||||
Insurance and investment liabilities for account of policyholders |
(3,343 | ) | 12,302 | 18,787 | ||||||||||||
Accrued expenses and other liabilities |
(2,077 | ) | 2,147 | (2,509 | ) | |||||||||||
Accrued income and prepayments |
(1,387 | ) | (2,266 | ) | (927 | ) | ||||||||||
Changes in accruals |
(3,426 | ) | 18,559 | 14,672 | ||||||||||||
Purchase of investments (other than money market investments) |
(38,290 | ) | (36,577 | ) | (34,100 | ) | ||||||||||
Purchase of derivatives |
(1,003 | ) | 1,417 | (850 | ) | |||||||||||
Disposal of investments (other than money market investments) |
36,619 | 33,846 | 31,176 | |||||||||||||
Disposal of derivatives |
3,099 | 1,589 | 182 | |||||||||||||
Net purchase of investments for account of policyholders |
4,371 | (1,788 | ) | (1,395 | ) | |||||||||||
Net change in cash collateral |
(2,569 | ) | 627 | (1,414 | ) | |||||||||||
Net purchase of money market investments |
648 | (958 | ) | 3,221 | ||||||||||||
Cash flow movements on operating items not reflected in income |
2,875 | (1,843 | ) | (3,180 | ) | |||||||||||
Tax paid |
(405 | ) | 148 | (164 | ) | |||||||||||
Other |
(23 | ) | 12 | (9 | ) | |||||||||||
Net cash flows from operating activities | 914 | 4,122 | (2,011 | ) | ||||||||||||
Purchase of individual intangible assets (other than VOBA and future servicing rights) |
(52 | ) | (28 | ) | (22 | ) | ||||||||||
Purchase of equipment and real estate for own use |
(90 | ) | (77 | ) | (66 | ) | ||||||||||
Acquisition of subsidiaries, joint ventures and associates, net of cash |
(239 | ) | (95 | ) | (291 | ) | ||||||||||
Disposal of equipment |
8 | 13 | 15 | |||||||||||||
Disposal of subsidiaries, joint ventures and associates, net of cash |
912 | 42 | 811 | |||||||||||||
Dividend received from joint ventures and associates |
76 | 75 | 64 | |||||||||||||
Other |
- | - | 5 | |||||||||||||
Net cash flows from investing activities | 615 | (71 | ) | 516 | ||||||||||||
Issuance of share capital |
1 | - | 2 | |||||||||||||
Issuance and purchase of treasury shares |
(213 | ) | (199 | ) | (92 | ) | ||||||||||
Proceeds from TRUPS 1), subordinated loans and borrowings |
1,821 | 3,862 | 1,056 | |||||||||||||
Repayment of perpetuals |
- | (1,173 | ) | - | ||||||||||||
Repayment of share premium |
- | - | (401 | ) | ||||||||||||
Repayment of TRUPS 1), subordinated loans and borrowings |
(3,916 | ) | (1,307 | ) | (2,283 | ) | ||||||||||
Dividends paid |
(292 | ) | (266 | ) | (323 | ) | ||||||||||
Coupons on perpetual securities |
(148 | ) | (171 | ) | (194 | ) | ||||||||||
Coupons on non-cumulative subordinated notes |
(38 | ) | (32 | ) | (28 | ) | ||||||||||
Other |
- | - | (8 | ) | ||||||||||||
Net cash flows from financing activities | (2,785 | ) | 715 | (2,271 | ) | |||||||||||
Net increase / (decrease) in cash and cash equivalents 2) | (1,257 | ) | 4,766 | (3,766 | ) | |||||||||||
Net cash and cash equivalents at the beginning of the year |
10,649 | 5,652 | 9,497 | |||||||||||||
Effects of changes in exchange rate |
200 | 231 | (79 | ) | ||||||||||||
Net cash and cash equivalents at the end of the year | 31 | 9,593 | 10,649 | 5,652 |
1 | Trust pass-through securities. |
2 | Included in net increase / (decrease) in cash and cash equivalents are interest received (2015: EUR 7,118 million, 2014: EUR 6,711 million, and 2013: EUR 6,731 million) dividends received (2015: EUR 1,384 million, 2014: EUR 1,342 million, and 2013: EUR 1,021 million) and interest paid (2015: EUR 350 million, 2014: EUR 320 million, and 2013: EUR 347 million). |
3 | Amounts for 2015, 2014 and 2013 have been restated for the voluntary changes in accounting policies for deferred cost of reinsurance and insurance accounting in the UK. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes. |
The cash flow statement is prepared according to the indirect method.
Supplemental Annual Report 2015 |
135
Notes to the consolidated financial statements
Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Aegon N.V. (or the Company) and its subsidiaries (Aegon or the Group) have life insurance and pensions operations in over 25 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs over 31,500 people worldwide (2014: over 28,000).
2 Summary of significant accounting policies
2.1 Basis of presentation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code for purposes of reporting with the U.S. Securities and Exchange Commission (SEC), including financial information contained in this Supplemental Annual Report.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2015 is provided below in note 2.1.1 Adoption of new IFRS accounting standards. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount. Certain amounts in prior years may have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders equity or earnings per share.
With regard to the income statements of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters.
The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on March 25, 2016. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 20, 2016. The shareholders meeting can decide not to adopt the financial statements but cannot amend them. The effect of the accounting policy changes and segment reporting changes as included in note 2.1.2 and note 2.4 respectively were approved by the Executive Board and Supervisory Board on April 14, 2016.
Other than for SEC reporting, Aegon prepares its Annual Accounts under International Financial Reporting Standards as adopted by the European Union, including the decisions Aegon made with regard to the options available under International Financial Reporting Standards as adopted by the EU (IFRS-EU). IFRS-EU differs from IFRS in respect of certain paragraphs in IAS 39 Financial Instruments: Recognition and Measurement regarding hedge accounting for portfolio hedges of interest rate risk. Under IFRS-EU, Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (fair value macro hedges) in accordance with the EU carve out version of IAS 39. Under IFRS, hedge accounting for fair value macro hedges cannot be applied to mortgage loans and ineffectiveness arises whenever the revised estimate of the amount of cash flows in scheduled time buckets is either more or less than the original designated amount of that bucket.
136 | Notes to the consolidated financial statements Note 2 |
A reconciliation between IFRS and IFRS-EU is included in the table below.
Shareholders equity | Net income | |||||||||||||||||||||||
2015 | 2014 | 2013 | 2015 | 2014 | 2013 | |||||||||||||||||||
In accordance with IFRS |
22,441 | 23,847 | 17,589 | (431 | ) | 766 | 1,003 | |||||||||||||||||
Adjustment of EU IAS 39 carve-out |
315 | 434 | (124 | ) | (120 | ) | 559 | (176 | ) | |||||||||||||||
Tax effect of the adjustment |
(71 | ) | (98 | ) | 31 | 27 | (129 | ) | 44 | |||||||||||||||
Effect of the adjustment after tax |
244 | 336 | (93 | ) | (92 | ) | 429 | (132 | ) | |||||||||||||||
In accordance with IFRS-EU | 22,684 | 24,183 | 17,496 | (523 | ) | 1,195 | 871 |
2.1.1 Adoption of new IFRS accounting standards
New standards and amendments to standards become effective at the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2015, the following amendments to existing standards issued by the IASB became mandatory but are not currently relevant or do not significantly impact the financial position or financial statements:
¿ | IAS 19 Employee BenefitsAmendment Employee Contributions; |
¿ | Annual improvements 2010-2012 Cycle; and |
¿ | Annual improvements 2011-2013 Cycle. |
2.1.2 Voluntary changes in accounting policies
On January 13, 2016, Aegon provided an update on its strategic plans at its Analyst & Investor Conference. Following this update Aegon adopted voluntary changes in accounting policies, effective January 1, 2016, which are applied retrospectively for all periods presented. Firstly, Aegon adopted a group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. Also, Aegon made two voluntary accounting policy changes that better reflect its business strategy after restructuring in the United Kingdom. The changes in the United Kingdom do not impact other reporting units within Aegon as these are changes specific to Aegon UK. However, these changes do increase alignment with other reporting units within Aegon.
Aegon has furnished its 2015 financial statements for these changes and filed 2015 supplemental financial statements on Form 6-K. As Aegon is aware that the changes which are effective as of January 1, 2016 have significant impact on its comparatives, Aegon amended its 2015 financial statements prior to issuance of the 2016 financial statements in order to increase the usefulness of the comparative information for users of the financial statements.
In the paragraphs below, details are provided for these changes in accounting policies including the impact on shareholders equity and net income.
Accounting related to certain reinsurance transactions
Aegon adopted one single group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. The previous accounting policy recorded a deferred cost of reinsurance which was subsequently amortized. Under the new accounting policy, when the company enters into a reinsurance contract as part of a plan to exit a business, an immediate gain or loss will be recognized in the income statement.
For purposes of this accounting policy, a business is defined as designated insurance liabilities to be disposed of through reinsurance transactions. The insurance liabilities are designated according to their homogenous risk profiles, possible examples include but are not limited to geographical area, product type, distribution channel, policyholder profiles, and policy form or riders. Details for the deferred cost of reinsurance are included in note 2.13 Deferred expenses.
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Supplemental Annual Report 2015 |
137
Insurance accounting for business in United Kingdom
In January 2016, Aegon announced the restructuring of its business and operations in the UK. This involves splitting the Aegon UK business into three components: the annuity business, the traditional pension book and the new digital solutions platform. By extracting the digital solutions platform from the rest of the business, management aims to ensure the focus and separate culture required to successfully build a viable and sustainably growing business over the longer term.
Aegon adopts two voluntary accounting policy changes that better reflect its business strategy after restructuring in the United Kingdom, only affecting Aegon UK. The changes involve the aggregation level at which the liability adequacy test is carried out and the definition of when a substantially modified contract will be derecognized.
Level of aggregation
The previous accounting policy for the level of aggregation for the liability adequacy test in the United Kingdom was on a geographical basis, therefore the total Aegon UK book was considered as one population. After the announced restructuring, Aegons business in the United Kingdom has been split into different portfolios that are managed independently from one another. Management is of the opinion that the liability adequacy test should be disaggregated to a portfolio level to reflect this change in strategy. This change in the definition of portfolio for Aegon UK will better align with other reporting units in the Group where insurance contracts are grouped consistent with the Companys manner of acquiring, servicing and measuring the profitability of its insurance contracts. Details for the liability adequacy test are included in note 2.19 Insurance contracts.
Substantial modification
The previous accounting policy for Aegons business in the United Kingdom is to derecognize insurance contracts when legal extinguishment occurs. As the annuity business, the traditional pension book and the new digital solutions platform will be managed separately post-restructuring, Aegon has decided to change its accounting policy for Aegon UK to one that applies criteria from IAS 39 contract modification. Under these criteria a change should be significant enough to be considered an extinguishment of the existing contract and the issuance of a new contract. Aegon considers that this change in accounting policy is preferred as introducing a more sophisticated approach to contract modification is consistent with how the business will be managed post-restructuring. Furthermore, it will provide the user with information that is more relevant and that reliably reflects the economic substance of our transactions with our upgraded policyholders, as required by IFRS 4 and IAS 8, in relation to the nature of contract modifications. Details for the recognition and derecognition of insurance contracts are included in note 2.19 Insurance contracts.
138 | Notes to the consolidated financial statements Note 2 |
Details of the impact of the adjustments on previous periods of the financial statements are provided in the following tables, including references to the principle notes that are impacted by changes in accounting policies. Notes that are impacted other than those referenced in the restatement tables provided include note 4, 5, 46 and 52. Furthermore, the Company financial statements of Aegon N.V. have been adjusted to reflect lower income from subsidiaries and the knock-on impact on equity as well as the financial statement schedules included in Other financial information.
2015 (as reported)1) |
Change in accounting |
2015 (re- stated) |
2014 (as reported) 1) |
Change in accounting |
2014 (restated) |
2013 (as reported) 1) |
Change in accounting |
2013 (restated) |
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Impact of changes in accounting policies on the consolidated income statement | Note | |
Defer- red cost of reinsur- ance |
|
|
Insur- ance account- |
|
|
Defer- red cost of reinsur- ance |
|
|
Insur- ance account- |
|
|
Defer- red cost of reinsur- ance |
|
|
Insur- ance account- |
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Premium income |
6 | 20,311 | - | 2,614 | 22,925 | 19,864 | - | - | 19,864 | 19,939 | - | - | 19,939 | |||||||||||||||||||||||||||||||||||||||
Policy holder claims and benefits |
12 | (23,830 | ) | - | (2,614 | ) | (26,443 | ) | (36,214 | ) | - | - | (36,214 | ) | (37,688 | ) | - | - | (37,688 | ) | ||||||||||||||||||||||||||||||||
Commissions and expenses |
14 | (6,485 | ) | 36 | (150 | ) | (6,598 | ) | (5,656 | ) | 27 | - | (5,629 | ) | (5,656 | ) | 47 | - | (5,609 | ) | ||||||||||||||||||||||||||||||||
Impairment charges / (reversals) |
15 | 22 | - | (1,274 | ) | (1,251 | ) | (87 | ) | - | - | (87 | ) | (294 | ) | - | - | (294 | ) | |||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
18 | (162 | ) | (26 | ) | 270 | 83 | (132 | ) | (18 | ) | - | (151 | ) | (200 | ) | (32 | ) | - | (233 | ) | |||||||||||||||||||||||||||||||
Impact on net income |
10 | (1,153 | ) | 9 | - | 15 | - | |||||||||||||||||||||||||||||||||||||||||||||
Earnings per share (EUR per share) | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Basic earnings per common share |
0.27 | - | (0.54 | ) | (0.27 | ) | 0.29 | - | - | 0.29 | 0.36 | 0.01 | 0.01 | 0.37 | ||||||||||||||||||||||||||||||||||||||
Basic earnings per common share B |
0.01 | - | (0.01 | ) | (0.01 | ) | 0.01 | - | - | 0.01 | 0.01 | - | - | 0.01 | ||||||||||||||||||||||||||||||||||||||
Diluted earnings per common share |
0.27 | - | (0.54 | ) | (0.27 | ) | 0.29 | - | - | 0.29 | 0.36 | 0.01 | 0.01 | 0.37 | ||||||||||||||||||||||||||||||||||||||
Diluted earnings per common share B |
0.01 | - | (0.01 | ) | (0.01 | ) | 0.01 | - | - | 0.01 | 0.01 | - | - | 0.01 | ||||||||||||||||||||||||||||||||||||||
Earnings per common share calculation | 19 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net income / (loss) attributable to equity holders |
711 | 10 | (1,153 | ) | (432 | ) | 756 | 9 | - | 765 | 986 | 15 | - | 1,001 | ||||||||||||||||||||||||||||||||||||||
Dividends on preferred shares |
- | - | - | - | - | - | - | - | (83 | ) | - | - | (83 | ) | ||||||||||||||||||||||||||||||||||||||
Coupons on perpetual securities |
(111 | ) | - | - | (111 | ) | (128 | ) | - | - | (128 | ) | (146 | ) | - | - | (146 | ) | ||||||||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
(28 | ) | - | - | (28 | ) | (24 | ) | - | - | (24 | ) | (21 | ) | - | - | (21 | ) | ||||||||||||||||||||||||||||||||||
Net income / (loss) attributable to equity holders for basic earnings per share calculation |
572 | 10 | (1,153 | ) | (571 | ) | 605 | 9 | - | 613 | 736 | 15 | - | 751 | ||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding (in million) |
2,101 | - | - | 2,101 | 2,094 | - | - | 2,094 | 2,035 | - | - | 2,035 | ||||||||||||||||||||||||||||||||||||||||
Weighted average number of common shares B outstanding (in million) |
584 | - | - | 584 | 580 | - | - | 580 | 366 | - | - | 366 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 25, 2016. |
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Supplemental Annual Report 2015 |
139
Decem- ber 31, 2015 (as previously reported) 1) |
Change in accounting |
Decem- ber 31, 2015 (re- stated) |
Decem- ber 31, 2014 (as previously reported) 1) |
Change in accounting |
Decem- (restated) |
January 1, 2014 (as previously reported) 1) |
Change in accounting |
January 1, (restated) |
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Defer- red cost of reinsur- ance |
Insur- account- |
Defer- red cost of reinsur- ance |
Insur- ance account- ing in UK |
Defer- red cost of reinsur- ance |
Insur- account- |
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Impact of changes in accounting policies on the consolidated statement of comprehensive income | Note | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
712 | 10 | (1,153 | ) | (431 | ) | 757 | 9 | - | 766 | 989 | 15 | - | 1,003 | ||||||||||||||||||||||||||||||||||||||
Items that may be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
32.6 | 1,414 | (12 | ) | 18 | 1,419 | 1,668 | (14 | ) | - | 1,654 | (727 | ) | 5 | - | (722 | ) | |||||||||||||||||||||||||||||||||||
Net effect comprehensive income |
326 | (2 | ) | (1,135 | ) | (811 | ) | 6,832 | (5 | ) | - | 6,827 | (2,409 | ) | 19 | - | (2,390 | ) | ||||||||||||||||||||||||||||||||||
Total comprehensive income attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity holders of Aegon N.V. |
326 | (2 | ) | (1,135 | ) | (811 | ) | 6,833 | (5 | ) | - | 6,828 | (2,406 | ) | 19 | - | (2,387 | ) | ||||||||||||||||||||||||||||||||||
Non-controlling interests |
- | - | - | - | (1 | ) | - | - | (1 | ) | (3 | ) | - | - | (3 | ) |
1 | As reported in Aegons Annual Report on Form 20-F dated March 25, 2016. |
140 | Notes to the consolidated financial statements Note 2 |
Decem- (as reported) 1) |
Change in accounting policy |
Decem- 2015 (restated) |
Decem- ber 31, 2014 (as previously reported) 1) |
Change account- |
Decem- ber 31, 2014 (restated) |
January 1, 2014 (as previously reported) 1) |
Change in accounting policy |
January 1, 2014 (restated) |
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Defer- red cost of reinsur- ance |
Insur- account- |
Defer- red cost of reinsur- ance |
Insur- ance account- ing in UK |
Defer- red cost of reinsur- ance |
Insur- ance account- ing in UK |
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Impact of changes in accounting policies on the consolidated statement of financial position | Note | |||||||||||||||||||||||||||||||||||||||||||||||||||
Assets |
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Intangible assets |
21 | 2,110 | - | (210 | ) | 1,901 | 2,073 | - | - | 2,073 | 2,272 | - | - | 2,272 | ||||||||||||||||||||||||||||||||||||||
Deferred expenses |
28 | 12,547 | (358 | ) | (1,192 | ) | 10,997 | 10,373 | (355 | ) | - | 10,019 | 10,006 | (337 | ) | - | 9,668 | |||||||||||||||||||||||||||||||||||
Equity and liabilities |
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Shareholders equity |
32 | 23,688 | (112 | ) | (1,135 | ) | 22,441 | 23,957 | (110 | ) | - | 23,847 | 17,694 | (105 | ) | - | 17,589 | |||||||||||||||||||||||||||||||||||
Insurance contracts |
36 | 123,042 | - | - | 123,042 | 111,927 | - | - | 111,927 | 101,769 | - | - | 101,769 | |||||||||||||||||||||||||||||||||||||||
Investment contracts |
37 | 17,718 | - | - | 17,718 | 15,359 | - | - | 15,359 | 14,545 | - | - | 14,545 | |||||||||||||||||||||||||||||||||||||||
Deferred tax liabilities |
43 | 2,765 | (247 | ) | (266 | ) | 2,252 | 3,151 | (245 | ) | - | 2,906 | 1,657 | (233 | ) | - | 1,425 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 25, 2016. |
Decem- ber 31, 2015 (as previously reported) 1) |
Change in accounting policy |
Decem- (restated) |
Decem- ber 31, 2014 (as previously reported) 1) |
Change in accounting |
Decem- ber 31, 2014 (restated) |
Decem- ber 31, 2013 (as previously reported) 1) |
Change in accounting |
Decem- (restated) |
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Defer- red cost of reinsur- ance |
Insur- account- |
Defer- red cost of reinsur- ance |
Insur- account- |
Defer- red cost of reinsur- ance |
Insur- account- |
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Impact of changes in accounting policies on the statement of changes in equity | Note | |||||||||||||||||||||||||||||||||||||||||||||||||||
Share capital |
32.1 | 8,387 | - | - | 8,387 | 8,597 | - | - | 8,597 | 8,701 | - | - | 8,701 | |||||||||||||||||||||||||||||||||||||||
Retained earnings |
32 | 9,075 | (91 | ) | (1,153 | ) | 7,832 | 8,740 | (101 | ) | - | 8,639 | 8,455 | (110 | ) | - | 8,345 | |||||||||||||||||||||||||||||||||||
Revaluation reserves |
32.4 | 6,471 | - | - | 6,471 | 8,308 | - | - | 8,308 | 3,023 | - | - | 3,023 | |||||||||||||||||||||||||||||||||||||||
Remeasurement of defined benefit plans |
32.5 | (1,532 | ) | - | - | (1,532 | ) | (1,611 | ) | - | - | (1,611 | ) | (706 | ) | - | - | (706 | ) | |||||||||||||||||||||||||||||||||
Other reserves |
32.6 | 1,286 | (21 | ) | 18 | 1,283 | (77 | ) | (9 | ) | - | (86 | ) | (1,778 | ) | 5 | - | (1,773 | ) | |||||||||||||||||||||||||||||||||
Shareholders equity | 23,688 | (112 | ) | (1,135 | ) | 22,441 | 23,957 | (110 | ) | - | 23,847 | 17,694 | (105 | ) | - | 17,589 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 25, 2016. |
The voluntary changes in accounting policies have had no impact on the cash flows as presented in the cash flow statement.
2.1.3 Future adoption of new IFRS accounting standards
The following standards, amendments to existing standards and interpretations, published prior to January 1, 2016, were not early adopted by the Group, but will be applied in future years:
¿ | IFRS 9 Financial Instruments; and |
¿ | IFRS 15 Revenue from Contracts with Customers. |
|
Supplemental Annual Report 2015 |
141
IFRS 9 Financial Instruments
The IASB issued the final version of IFRS 9 Financial Instruments in July 2014. IFRS 9 combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39 and all previous versions of IFRS 9. Under IFRS 9 Classification and Measurement, financial assets are measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income, based on both the entitys business model for managing the financial assets and the financial assets contractual cash flow characteristics. The classification and measurement of financial liabilities is unchanged from existing requirements apart from own credit risk. For financial liabilities that are measured at fair value through profit or loss, the changes which are attributable to the change in an entitys own credit risk are presented in other comprehensive income, unless doing so would enlarge or create an accounting mismatch. For the impairment component, the IASB included requirements for a credit loss allowance or provision which should be based on expected losses rather than incurred losses.
Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, at the time of issuance of the new standard, the IASB said it would consider potential challenges arising if IFRS 9 is implemented before the new insurance contracts standard (IFRS 4 Phase II-which is at an advanced stage of development but it is expected that it will not become effective before 2021). Subsequent discussions at the IASB have resulted in a proposal for temporary deferral for insurers which was further described in an Exposure Draft: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts issued by the IASB in December 2015. The comment period ended on February 8, 2016. The measures that the Exposure Draft proposes to introduce into IFRS 4 are:
¿ | The overlay approach an option for all entities that issue insurance contracts to adjust profit or loss to remove any additional accounting volatility that may arise from qualifying financial assets, and |
¿ | The deferral approach an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing insurance contracts. |
Those new measures would supplement other measures, including the flexibility offered by the existing IFRS 4 in choosing an accounting policy for insurance contracts (e.g. an option to adjust the measurement of insurance contracts to reduce accounting volatility) and the transition reliefs to be included in the new insurance contracts Standard for entities that apply that Standard after they apply IFRS 9.
At this stage it is not yet clear whether Aegon is planning or able to use the overlay or deferral approach. The implementation of IFRS 9 is expected to have a significant impact on shareholders equity, net result and/or other comprehensive income and disclosures. The full impact however will only be clear after full assessment of the standard.
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 18 Revenue, as well as other IFRIC and SIC interpretations regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The standard outlines the principles an entity shall apply to measure and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 will be effective for the Group on January 1, 2018, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon is evaluating the impact that adoption of this standard is expected to have on the Groups financial statements. The full impact will only be clear after full assessment of the standard.
The following new standards and amendments to existing standards and interpretations, published prior to January 1, 2016, which are not yet effective for the Group nor early adopted, are not expected to significantly impact the financial position or financial statements:
¿ | IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation Exception; |
¿ | IFRS 11 Joint Arrangements - Amendment Accounting for Acquisition of Interests in Joint Operations; |
¿ | IFRS 14 Regulatory Deferral Accounts; |
¿ | IAS 1 - Amendment Disclosure Initiative; |
¿ | IAS 27 Separate Financial Statements - Amendment Equity method in Separate Financial Statements; |
¿ | IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization; and |
¿ | Annual improvements 2012-2014 Cycle. |
142 | Notes to the consolidated financial statements Note 2 |
2.2 Basis of consolidation
Subsidiaries
The consolidated financial statements include the financial statements of Aegon N.V. and its subsidiaries. Subsidiaries (including consolidated structured entities) are entities over which Aegon has control. Aegon controls an entity when Aegon is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right.
The subsidiarys assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the Groups accounting policies, which is consistent with IFRS. Intra-group transactions, including Aegon N.V. shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses are eliminated, except to the extent that the underlying asset is impaired. Non-controlling interests are initially stated at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the non-controlling share in changes in the subsidiarys equity.
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Groups share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within 12 months after the acquisition date are made against goodwill. Aegon recognized contingent considerations either as provision or as financial liability depending on the characteristics. Contingent considerations recognized as provisions are discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination are recognized in the income statement. Contingent considerations recognized as financial liabilities are measured at fair value through profit or loss.
The identifiable assets, liabilities and contingent liabilities are stated at fair value when control is obtained.
Subsidiaries are deconsolidated when control ceases to exist. Any difference between the net proceeds plus the fair value of any retained interest and the carrying amount of the subsidiary including non-controlling interests is recognized in the income statement.
Transactions with non-controlling interests
Transactions with non-controlling interests are accounted for as transactions with equity holders. Therefore disposals to non-controlling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded in other comprehensive income. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V.
Investment funds
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless a direct link between the policyholder and the fund can be assumed).
In determining whether Aegon has power over an investment fund all facts and circumstances are considered, including the following:
¿ | Control structure of the asset manager (i.e. whether an Aegon subsidiary); |
¿ | The investment constraints posed by investment mandate; |
¿ | Legal rights held by the policyholder to the separate assets in the investment vehicle (e.g. policyholders could have the voting rights related to these investments); |
¿ | The governance structure, such as an independent board of directors, representing the policyholders, which has substantive rights (e.g. to elect or remove the asset manager); and |
¿ | Rights held by other parties (e.g. voting rights of policyholders that are substantive or not). |
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Supplemental Annual Report 2015 |
143
Exposure or rights to variability of returns can be the result of, for example:
¿ | General account investment of Aegon; |
¿ | Aegons investments held for policyholder; |
¿ | Guarantees provided by Aegon on return of policyholders in specific investment vehicles; |
¿ | Fees dependent on fund value (including, but not limited to, asset management fees); and |
¿ | Fees dependent on performance of the fund (including, but not limited to, performance fees). |
Investment funds where Aegon acts as an agent are not consolidated due to lack of control of the funds. In particular, for some separate accounts, the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts but acts as an agent.
For limited partnerships, the assessment takes into account Aegons legal position (i.e. limited partner or general partner) and any substantive removal rights held by other parties. Professional judgment is applied concerning the substantiveness of the removal rights and the magnitude of the exposure to variable returns, leading to the conclusion that Aegon controls some, but not all, of the limited partnerships in which it participates.
Upon consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. The liability is presented in the consolidated financial statements as investment contracts for account of policyholders. Where no repurchase obligation exists, the participations held by third parties are presented as non-controlling interests in equity. The assets allocated to participations held by third parties or by the Group on behalf of policyholders are presented in the consolidated financial statements as investments for account of policyholders.
Equity instruments issued by the Group that are held by investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties.
Structured entities
A structured entity is defined in IFRS 12 as An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. In these instances the tests and indicators to assess control provided by IFRS 10 have more focus on the purpose and design of the investee (with relation to the relevant activities that most significantly affect the structured entity) and the exposure to variable returns, which for structured entities lies in interests through e.g. derivatives, and will not be focused on entities that are controlled by voting rights.
Structured entities that are consolidated include certain mortgage backed securitization deals, where Aegon was involved in the design of the structured entities and also has the ability to use its power to affect the amount of the investees returns. Other factors that contribute to the conclusion that consolidation of these entities is required includes consideration of whether Aegon fully services the investees and can therefore influence the defaults of the mortgage portfolios and the fact that in these cases the majority of risks are maintained by Aegon.
Structured entities that are not consolidated include general account investments in non-affiliated structured entities that are used for investment purposes.
Non-current assets held for sale and disposal groups
Disposal groups are classified as held for sale if they are available for immediate sale in their present condition, subject only to the customary sales terms of such assets and disposal groups and their sale is considered highly probable. Management must be committed to the sale, which is expected to occur within one year from the date of classification as held for sale.
Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to their fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognized through a reduction of the carrying value of any goodwill related to the disposal group or the carrying value of certain other non-current, non-financial assets to the extent that the carrying value of those assets exceeds their fair value. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognized upon classification as held for sale, but is recognized as part of the result on disposal if and when a divestment transaction occurs.
Classification into or out of held for sale does not result in restating comparative amounts in the balance sheet.
144 | Notes to the consolidated financial statements Note 2 |
2.3 Foreign exchange translation
a. Translation of foreign currency transactions
The Groups consolidated financial statements are presented in euros. Items included in the financial statements of individual group companies are recorded in their respective functional currency which is the currency of the primary economic environment in which each entity operates. Transactions in foreign currencies are initially recorded at the exchange rate prevailing at the date of the transaction.
At the balance sheet date, monetary assets and monetary liabilities in foreign currencies and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, while assets carried at fair value are translated at the exchange rate when the fair value was determined.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in other comprehensive income as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in other comprehensive income or the income statement, consistently with other gains and losses on these items.
b. Translation of foreign currency operations
On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the 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. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are translated at the closing rates on the balance sheet date.
The resulting exchange differences are recognized in the foreign currency translation reserve, which is part of shareholders equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement.
2.4 Segment reporting
Based on the amended strategic plans as announced on January 13, 2016, Aegon has reconsidered its segment reporting. Previously, Aegon had the following reportable segments: Americas, The Netherlands, United Kingdom, New Markets and Holdings and other activities. New Markets was established to aggregate Aegons emerging businesses and global / European initiatives which was a combination of the following operating segments: Central & Eastern Europe, Asia, Spain & Portugal, Asset Management and VA Europe. Under IFRS 8 these operating segments were aggregated as one reportable segment due to their respective size.
Given that Aegon has changed its managerial view to geographical areas and underlying businesses have developed since 2010, internal management reports have changed as of 2016 accordingly. Alignment of segment reporting with those changes and developments are in place as of 2016 reflecting Aegons announcements related to its strategic plan. This means that the operating segments are presented on this basis and introduces separate presentation of the asset management business. The following will be reported from 2016 onwards:
¿ | Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units activities located outside these countries; |
¿ | Europe: which covers the following operating segments: The Netherlands, United Kingdom (including VA Europe), Central & Eastern Europe, Spain & Portugal; |
¿ | Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units activities located outside these countries; |
¿ | Asset Management: one operating segment which covers business activities from Aegon Asset Management; |
¿ | Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies. |
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. For Europe, the underlying businesses (the Netherlands, United Kingdom including VA Europe, Central & Eastern Europe and Spain & Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in the segment note. The change in segment reporting does not have an impact on the consolidated statement of financial position, the consolidated income statement and results of operations or the consolidated cash flow statement of Aegon N.V.
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Supplemental Annual Report 2015 |
145
Aegons segment information is prepared by consolidating on a proportionate basis Aegons joint ventures and associated companies.
The following tables show the reconciliation between former and new segment reporting, first showing the impact of the segment change and second showing the new segments taking into account the voluntary change in accounting policies as described in note 2.1.2.
2015:
The following table shows the segments as previously reported excluding voluntary accounting changes:
Income statement -Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
New Markets |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
|||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,200 | 537 | 125 | 236 | (163 | ) | 2 | 1,939 | 34 | 1,973 | ||||||||||||||||||||||||||
Fair value items |
(589 | ) | 175 | (27 | ) | 8 | (68 | ) | - | (500 | ) | (59 | ) | (559 | ) | |||||||||||||||||||||
Realized gains / (losses) on investments |
(74 | ) | 306 | 95 | 20 | - | - | 346 | (8 | ) | 338 | |||||||||||||||||||||||||
Impairment charges |
(43 | ) | (25 | ) | - | (2 | ) | - | - | (70 | ) | (21 | ) | (91 | ) | |||||||||||||||||||||
Impairment reversals |
114 | 5 | - | - | - | - | 119 | - | 119 | |||||||||||||||||||||||||||
Other income / (charges) |
(938 | ) | (22 | ) | 27 | (47 | ) | - | - | (980 | ) | 21 | (959 | ) | ||||||||||||||||||||||
Run-off businesses |
52 | - | - | - | - | - | 52 | - | 52 | |||||||||||||||||||||||||||
Income / (loss) before tax |
(277 | ) | 977 | 220 | 215 | (230 | ) | 2 | 906 | (33 | ) | 874 | ||||||||||||||||||||||||
Income tax (expense) / benefit |
31 | (223 | ) | (2 | ) | (71 | ) | 71 | - | (194 | ) | 33 | (162 | ) | ||||||||||||||||||||||
Net income / (loss) | (246 | ) | 753 | 218 | 144 | (159 | ) | 2 | 712 | - | 712 | |||||||||||||||||||||||||
Inter-segment underlying earnings |
(220 | ) | (55 | ) | (75 | ) | 339 | 10 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2015 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
7,046 | 2,240 | 5,650 | 2,565 | 4 | (106 | ) | 17,400 | (431 | ) | 16,969 | |||||||||||||||||||||||||
Accident and health insurance |
2,266 | 234 | 47 | 170 | 6 | (6 | ) | 2,717 | (14 | ) | 2,703 | |||||||||||||||||||||||||
General insurance |
- | 473 | - | 244 | 2 | - | 720 | (80 | ) | 640 | ||||||||||||||||||||||||||
Total gross premiums |
9,312 | 2,947 | 5,697 | 2,979 | 13 | (112 | ) | 20,836 | (524 | ) | 20,311 | |||||||||||||||||||||||||
Investment income |
3,680 | 2,277 | 2,327 | 291 | 387 | (385 | ) | 8,576 | (51 | ) | 8,525 | |||||||||||||||||||||||||
Fee and commission income |
1,704 | 351 | 43 | 813 | - | (278 | ) | 2,633 | (195 | ) | 2,438 | |||||||||||||||||||||||||
Other revenues |
9 | - | - | 2 | 7 | - | 19 | (5 | ) | 14 | ||||||||||||||||||||||||||
Total revenues | 14,705 | 5,575 | 8,067 | 4,086 | 406 | (776 | ) | 32,064 | (775 | ) | 31,289 | |||||||||||||||||||||||||
Inter-segment revenues |
24 | 2 | - | 356 | 393 |
146 | Notes to the consolidated financial statements Note 2 |
The following table shows the segments as reported after the voluntary change in segment reporting:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,200 | 537 | 122 | 37 | 12 | 20 | 170 | (163) | 2 | 1,939 | 34 | 1,973 | ||||||||||||||||||||||||||||||||||||
Fair value items |
(589 | ) | 175 | (25 | ) | - | - | 7 | - | (68 | ) | - | (500 | ) | (59 | ) | (559 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
(74 | ) | 306 | 103 | 2 | - | 7 | 3 | - | - | 346 | (8 | ) | 338 | ||||||||||||||||||||||||||||||||||
Impairment charges |
(43 | ) | (25 | ) | - | (2 | ) | - | - | - | - | - | (70 | ) | (21 | ) | (91 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
114 | 5 | - | - | - | - | - | - | - | 119 | - | 119 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(938 | ) | (22 | ) | 27 | (2 | ) | 17 | (61 | ) | (1 | ) | - | - | (980 | ) | 21 | (959 | ) | |||||||||||||||||||||||||||||
Run-off businesses |
52 | - | - | - | - | - | - | - | - | 52 | - | 52 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
(277 | ) | 977 | 227 | 35 | 29 | (27 | ) | 172 | (230 | ) | 2 | 906 | (33 | ) | 874 | ||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
31 | (223 | ) | (2 | ) | (11 | ) | (7 | ) | (3 | ) | (50 | ) | 71 | - | (194 | ) | 33 | (162 | ) | ||||||||||||||||||||||||||||
Net income / (loss) | (246 | ) | 753 | 225 | 24 | 22 | (30 | ) | 121 | (159 | ) | 2 | 712 | - | 712 | |||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(220 | ) | (55 | ) | (63 | ) | (14 | ) | - | 77 | 264 | 10 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2015 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
7,046 | 2,240 | 5,851 | 477 | 174 | 1,713 | - | 4 | (106 | ) | 17,400 | (431 | ) | 16,969 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
2,266 | 234 | 47 | 1 | 64 | 105 | - | 6 | (6 | ) | 2,717 | (14 | ) | 2,703 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 473 | - | 164 | 80 | - | - | 2 | - | 720 | (80 | ) | 640 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
9,312 | 2,947 | 5,898 | 642 | 317 | 1,819 | - | 13 | (112 | ) | 20,836 | (524 | ) | 20,311 | ||||||||||||||||||||||||||||||||||
Investment income |
3,680 | 2,277 | 2,331 | 45 | 41 | 194 | 7 | 392 | (391 | ) | 8,576 | (51 | ) | 8,525 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,704 | 351 | 98 | 39 | 13 | 62 | 650 | - | (284 | ) | 2,633 | (195 | ) | 2,438 | ||||||||||||||||||||||||||||||||||
Other revenues |
9 | - | - | - | 2 | - | - | 7 | - | 19 | (5 | ) | 14 | |||||||||||||||||||||||||||||||||||
Total revenues | 14,705 | 5,575 | 8,327 | 726 | 373 | 2,076 | 657 | 412 | (787 | ) | 32,064 | (775 | ) | 31,289 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
24 | 2 | - | - | - | 101 | 261 | 399 |
Supplemental Annual Report 2015 |
147
The following table shows the impact of the voluntary changes in accounting policies as presented in note 2.1.2 and the impact on the new segments:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
- | - | (150 | ) | - | - | - | - | - | - | (150 | ) | - | (150 | ) | |||||||||||||||||||||||||||||||||
Fair value items |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment charges |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment reversals |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
- | - | (1,274 | ) | - | - | - | - | - | - | (1,274 | ) | - | (1,274 | ) | |||||||||||||||||||||||||||||||||
Run-off businesses |
36 | - | - | - | - | - | - | - | - | 36 | - | 36 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
36 | - | (1,423 | ) | - | - | - | - | - | - | (1,388 | ) | - | (1,388 | ) | |||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(25 | ) | - | 270 | - | - | - | - | - | - | 245 | - | 245 | |||||||||||||||||||||||||||||||||||
Net income / (loss) | 11 | - | (1,153 | ) | - | - | - | - | - | - | (1,143 | ) | - | (1,143 | ) | |||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2015 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
- | - | 2,614 | - | - | - | - | - | - | 2,614 | - | 2,614 | ||||||||||||||||||||||||||||||||||||
Accident and health insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
General insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total gross premiums |
- | - | 2,614 | - | - | - | - | - | - | 2,614 | - | 2,614 | ||||||||||||||||||||||||||||||||||||
Investment income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fee and commission income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other revenues |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total revenues | - | - | 2,614 | - | - | - | - | - | - | 2,614 | - | 2,614 | ||||||||||||||||||||||||||||||||||||
Inter-segment revenues |
- | - | - | - | - | - | - | - |
148 | Notes to the consolidated financial statements Note 2 |
The following table shows the new segment figures taking into account the voluntary accounting changes (note 2.1.2):
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,200 | 537 | (27 | ) | 37 | 12 | 20 | 170 | (163) | 2 | 1,789 | 34 | 1,824 | |||||||||||||||||||||||||||||||||||
Fair value items |
(589 | ) | 175 | (25 | ) | - | - | 7 | - | (68 | ) | - | (500 | ) | (59 | ) | (559 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
(74 | ) | 306 | 103 | 2 | - | 7 | 3 | - | - | 346 | (8 | ) | 338 | ||||||||||||||||||||||||||||||||||
Impairment charges |
(43 | ) | (25 | ) | - | (2 | ) | - | - | - | - | - | (70 | ) | (21 | ) | (91 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
114 | 5 | - | - | - | - | - | - | - | 119 | - | 119 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(938 | ) | (22 | ) | (1,247 | ) | (2 | ) | 17 | (61 | ) | (1 | ) | - | - | (2,254 | ) | 21 | (2,233 | ) | ||||||||||||||||||||||||||||
Run-off businesses |
88 | - | - | - | - | - | - | - | - | 88 | - | 88 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
(241 | ) | 977 | (1,196 | ) | 35 | 29 | (27 | ) | 172 | (230 | ) | 2 | (481 | ) | (33 | ) | (514 | ) | |||||||||||||||||||||||||||||
Income tax (expense) / benefit |
6 | (223 | ) | 268 | (11 | ) | (7 | ) | (3 | ) | (50 | ) | 71 | - | 51 | 33 | 83 | |||||||||||||||||||||||||||||||
Net income / (loss) | (235 | ) | 753 | (928 | ) | 24 | 22 | (30 | ) | 121 | (159 | ) | 2 | (431 | ) | - | (431 | ) | ||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(220 | ) | (55 | ) | (63 | ) | (14 | ) | - | 77 | 264 | 10 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2015 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
7,046 | 2,240 | 8,465 | 477 | 174 | 1,713 | - | 4 | (106 | ) | 20,013 | (431 | ) | 19,583 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
2,266 | 234 | 47 | 1 | 64 | 105 | - | 6 | (6 | ) | 2,717 | (14 | ) | 2,703 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 473 | - | 164 | 80 | - | - | 2 | - | 720 | (80 | ) | 640 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
9,312 | 2,947 | 8,512 | 642 | 317 | 1,819 | - | 13 | (112 | ) | 23,450 | (524 | ) | 22,925 | ||||||||||||||||||||||||||||||||||
Investment income |
3,680 | 2,277 | 2,331 | 45 | 41 | 194 | 7 | 392 | (391 | ) | 8,576 | (51 | ) | 8,525 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,704 | 351 | 98 | 39 | 13 | 62 | 650 | - | (284 | ) | 2,633 | (195 | ) | 2,438 | ||||||||||||||||||||||||||||||||||
Other revenues |
9 | - | - | - | 2 | - | - | 7 | - | 19 | (5 | ) | 14 | |||||||||||||||||||||||||||||||||||
Total revenues | 14,705 | 5,575 | 10,941 | 726 | 373 | 2,076 | 657 | 412 | (787 | ) | 34,677 | (775 | ) | 33,902 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
24 | 2 | - | - | - | 101 | 261 | 399 |
Supplemental Annual Report 2015 |
149
2014:
The following table shows the segments as previously reported excluding voluntary accounting changes:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
New Markets |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
|||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,134 | 558 | 115 | 196 | (139) | 1 | 1,865 | (9 | ) | 1,856 | ||||||||||||||||||||||||||
Fair value items |
(497 | ) | (766 | ) | (15 | ) | (6 | ) | (82 | ) | - | (1,366 | ) | 2 | (1,364 | ) | ||||||||||||||||||||
Realized gains / (losses) on investments |
85 | 431 | 164 | 16 | - | - | 697 | (3 | ) | 694 | ||||||||||||||||||||||||||
Impairment charges |
(38 | ) | (19 | ) | - | (43 | ) | - | - | (100 | ) | (23 | ) | (123 | ) | |||||||||||||||||||||
Impairment reversals |
58 | 7 | - | - | - | - | 66 | - | 66 | |||||||||||||||||||||||||||
Other income / (charges) |
(52 | ) | (113 | ) | (49 | ) | (24 | ) | (3 | ) | - | (240 | ) | 22 | (218 | ) | ||||||||||||||||||||
Run-off businesses |
(21 | ) | - | - | - | - | - | (21 | ) | - | (21 | ) | ||||||||||||||||||||||||
Income / (loss) before tax |
669 | 99 | 215 | 139 | (223 | ) | 1 | 900 | (10 | ) | 889 | |||||||||||||||||||||||||
Income tax (expense) / benefit |
(79 | ) | (37 | ) | (37 | ) | (50 | ) | 60 | - | (143 | ) | 10 | (132 | ) | |||||||||||||||||||||
Net income / (loss) | 590 | 62 | 178 | 89 | (164 | ) | 1 | 757 | - | 757 | ||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (58 | ) | (59 | ) | 272 | 18 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,461 | 3,982 | 4,859 | 2,015 | - | (70 | ) | 17,246 | (351 | ) | 16,896 | |||||||||||||||||||||||||
Accident and health insurance |
1,874 | 233 | 56 | 163 | 6 | (6 | ) | 2,326 | (11 | ) | 2,316 | |||||||||||||||||||||||||
General insurance |
- | 501 | - | 224 | - | - | 725 | (72 | ) | 653 | ||||||||||||||||||||||||||
Total gross premiums |
8,334 | 4,716 | 4,916 | 2,402 | 6 | (76 | ) | 20,298 | (433 | ) | 19,864 | |||||||||||||||||||||||||
Investment income |
3,312 | 2,568 | 2,073 | 234 | 326 | (323 | ) | 8,191 | (42 | ) | 8,148 | |||||||||||||||||||||||||
Fee and commission income |
1,485 | 324 | 43 | 623 | - | (237 | ) | 2,237 | (100 | ) | 2,137 | |||||||||||||||||||||||||
Other revenues |
2 | - | - | 3 | 5 | - | 10 | (3 | ) | 7 | ||||||||||||||||||||||||||
Total revenues | 13,134 | 7,608 | 7,032 | 3,262 | 336 | (637 | ) | 30,735 | (578 | ) | 30,157 | |||||||||||||||||||||||||
Inter-segment revenues |
16 | - | - | 292 | 327 |
150 | Notes to the consolidated financial statements Note 2 |
The following table below shows the segments as reported after the voluntary change in segment reporting:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,134 | 558 | 125 | 60 | 28 | (17) | 115 | (139 | ) | 1 | 1,865 | (9 | ) | 1,856 | ||||||||||||||||||||||||||||||||||
Fair value items |
(497 | ) | (766 | ) | (31 | ) | 8 | - | 3 | - | (82 | ) | - | (1,366 | ) | 2 | (1,364 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
85 | 431 | 164 | 9 | 2 | 5 | 1 | - | - | 697 | (3 | ) | 694 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(38 | ) | (19 | ) | - | (42 | ) | - | (1 | ) | - | - | - | (100 | ) | (23 | ) | (123 | ) | |||||||||||||||||||||||||||||
Impairment reversals |
58 | 7 | - | - | - | - | - | - | - | 66 | - | 66 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(52 | ) | (113 | ) | (49 | ) | (26 | ) | (1 | ) | 4 | (1 | ) | (3 | ) | - | (240 | ) | 22 | (218 | ) | |||||||||||||||||||||||||||
Run-off businesses |
(21 | ) | - | - | - | - | - | - | - | - | (21 | ) | - | (21 | ) | |||||||||||||||||||||||||||||||||
Income / (loss) before tax |
669 | 99 | 209 | 9 | 28 | (7 | ) | 115 | (223 | ) | 1 | 900 | (10 | ) | 889 | |||||||||||||||||||||||||||||||||
Income tax (expense) /benefit |
(79 | ) | (37 | ) | (36 | ) | - | (7 | ) | (9 | ) | (36 | ) | 60 | - | (143 | ) | 10 | (132 | ) | ||||||||||||||||||||||||||||
Net income / (loss) | 590 | 62 | 174 | 9 | 22 | (16 | ) | 79 | (164 | ) | 1 | 757 | - | 757 | ||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (58 | ) | (55 | ) | (17 | ) | - | 55 | 229 | 18 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,461 | 3,982 | 5,056 | 524 | 196 | 1,097 | - | - | (70 | ) | 17,246 | (351 | ) | 16,896 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,874 | 233 | 56 | 1 | 60 | 102 | - | 6 | (6 | ) | 2,326 | (11 | ) | 2,316 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 501 | - | 152 | 72 | - | - | - | - | 725 | (72 | ) | 653 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
8,334 | 4,716 | 5,113 | 678 | 328 | 1,199 | - | 6 | (76 | ) | 20,298 | (433 | ) | 19,864 | ||||||||||||||||||||||||||||||||||
Investment income |
3,312 | 2,568 | 2,077 | 54 | 49 | 124 | 4 | 332 | (329 | ) | 8,191 | (42 | ) | 8,148 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,485 | 324 | 94 | 41 | 8 | 53 | 475 | - | (243 | ) | 2,237 | (100 | ) | 2,137 | ||||||||||||||||||||||||||||||||||
Other revenues |
2 | - | - | - | 2 | - | - | 5 | - | 10 | (3 | ) | 7 | |||||||||||||||||||||||||||||||||||
Total revenues | 13,134 | 7,608 | 7,284 | 773 | 387 | 1,376 | 479 | 342 | (648 | ) | 30,735 | (578 | ) | 30,157 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
16 | - | - | - | - | 70 | 228 | 333 |
|
Supplemental Annual Report 2015 |
151
The following table shows the impact of the voluntary changes in accounting policies as presented in note 2.1.2 and the impact on the new segments:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fair value items |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment charges |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment reversals |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Run-off businesses |
27 | - | - | - | - | - | - | - | - | 27 | - | 27 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
27 | - | - | - | - | - | - | - | - | 27 | - | 27 | ||||||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(18 | ) | - | - | - | - | - | - | - | - | (18 | ) | - | (18 | ) | |||||||||||||||||||||||||||||||||
Net income / (loss) | 9 | - | - | - | - | - | - | - | - | 9 | - | 9 | ||||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Accident and health insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
General insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total gross premiums |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Investment income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fee and commission income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other revenues |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total revenues | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Inter-segment revenues |
- | - | - | - | - | - | - | - |
152 | Notes to the consolidated financial statements Note 2 |
The following table shows the new segment figures taking into account the voluntary accounting changes (note 2.1.2):
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,134 | 558 | 125 | 60 | 28 | (17 | ) | 115 | (139) | 1 | 1,865 | (9 | ) | 1,856 | ||||||||||||||||||||||||||||||||||
Fair value items |
(497 | ) | (766 | ) | (31 | ) | 8 | - | 3 | - | (82 | ) | - | (1,366 | ) | 2 | (1,364 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
85 | 431 | 164 | 9 | 2 | 5 | 1 | - | - | 697 | (3 | ) | 694 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(38 | ) | (19 | ) | - | (42 | ) | - | (1 | ) | - | - | - | (100 | ) | (23 | ) | (123 | ) | |||||||||||||||||||||||||||||
Impairment reversals |
58 | 7 | - | - | - | - | - | - | - | 66 | - | 66 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(52 | ) | (113 | ) | (49 | ) | (26 | ) | (1 | ) | 4 | (1 | ) | (3 | ) | - | (240 | ) | 22 | (218 | ) | |||||||||||||||||||||||||||
Run-off businesses |
6 | - | - | - | - | - | - | - | - | 6 | - | 6 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
696 | 99 | 209 | 9 | 28 | (7 | ) | 115 | (223 | ) | 1 | 927 | (10 | ) | 916 | |||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(97 | ) | (37 | ) | (35 | ) | - | (7 | ) | (9 | ) | (36 | ) | 60 | - | (161 | ) | 10 | (151 | ) | ||||||||||||||||||||||||||||
Net income / (loss) | 599 | 62 | 173 | 9 | 22 | (16 | ) | 79 | (164 | ) | 1 | 766 | - | 766 | ||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (58 | ) | (54 | ) | (17 | ) | - | 55 | 229 | 18 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,461 | 3,982 | 5,057 | 524 | 196 | 1,097 | - | - | (70 | ) | 17,246 | (351 | ) | 16,896 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,874 | 233 | 56 | 1 | 60 | 102 | - | 6 | (6 | ) | 2,326 | (11 | ) | 2,316 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 501 | - | 152 | 72 | - | - | - | - | 725 | (72 | ) | 653 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
8,334 | 4,716 | 5,113 | 678 | 328 | 1,199 | - | 6 | (76 | ) | 20,298 | (433 | ) | 19,864 | ||||||||||||||||||||||||||||||||||
Investment income |
3,312 | 2,568 | 2,077 | 54 | 49 | 124 | 4 | 332 | (329 | ) | 8,191 | (42 | ) | 8,148 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,485 | 324 | 94 | 41 | 8 | 53 | 475 | - | (243 | ) | 2,237 | (100 | ) | 2,137 | ||||||||||||||||||||||||||||||||||
Other revenues |
2 | - | - | - | 2 | - | - | 5 | - | 10 | (3 | ) | 7 | |||||||||||||||||||||||||||||||||||
Total revenues | 13,134 | 7,608 | 7,284 | 773 | 387 | 1,376 | 479 | 342 | (648 | ) | 30,735 | (578 | ) | 30,157 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
16 | - | - | - | - | 70 | 228 | 333 |
Supplemental Annual Report 2015 |
153
2013:
The following table shows the segments as previously reported excluding voluntary accounting changes:
Income statement - Underlying earnings | Americas | The Nether- lands |
United Kingdom |
New Markets |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
|||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,314 | 454 | 87 | 227 | (109 | ) | (3 | ) | 1,968 | (50 | ) | 1,918 | ||||||||||||||||||||||||
Fair value items |
(980 | ) | (41 | ) | (16 | ) | (21 | ) | (61 | ) | - | (1,118 | ) | 37 | (1,082 | ) | ||||||||||||||||||||
Realized gains / (losses) on investments |
110 | 342 | 48 | - | - | - | 500 | - | 500 | |||||||||||||||||||||||||||
Impairment charges |
(111 | ) | (40 | ) | (31 | ) | (16 | ) | - | - | (198 | ) | - | (198 | ) | |||||||||||||||||||||
Impairment reversals |
67 | 8 | - | - | - | - | 75 | - | 75 | |||||||||||||||||||||||||||
Other income / (charges) |
72 | (36 | ) | (45 | ) | (33 | ) | (11 | ) | - | (52 | ) | 6 | (47 | ) | |||||||||||||||||||||
Run-off businesses |
21 | - | - | - | - | - | 21 | - | 21 | |||||||||||||||||||||||||||
Income / (loss) before tax | 493 | 687 | 43 | 158 | (181 | ) | (3 | ) | 1,197 | (8 | ) | 1,189 | ||||||||||||||||||||||||
Income tax (expense) / benefit |
(86) | (166) | 33 | (31) | 42 | - | (208) | 8 | (200) | |||||||||||||||||||||||||||
Net income / (loss) | 407 | 521 | 76 | 127 | (139 | ) | (3 | ) | 989 | - | 989 | |||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (54 | ) | (59 | ) | 257 | 29 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,187 | 3,515 | 6,537 | 1,349 | 14 | (73 | ) | 17,529 | (416 | ) | 17,112 | |||||||||||||||||||||||||
Accident and health insurance |
1,787 | 243 | - | 170 | 8 | (8 | ) | 2,200 | (10 | ) | 2,190 | |||||||||||||||||||||||||
General insurance |
- | 487 | - | 194 | - | - | 681 | (44) | 637 | |||||||||||||||||||||||||||
Total gross premiums | 7,975 | 4,245 | 6,537 | 1,713 | 22 | (82 | ) | 20,410 | (471 | ) | 19,939 | |||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,054 | 233 | 336 | (336 | ) | 7,968 | (58 | ) | 7,909 | |||||||||||||||||||||||||
Fee and commission income |
1,273 | 328 | 80 | 583 | - | (238 | ) | 2,026 | (76 | ) | 1,950 | |||||||||||||||||||||||||
Other revenues |
4 | - | - | 2 | 4 | - | 10 | (3) | 6 | |||||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,670 | 2,531 | 362 | (656 | ) | 30,413 | (608 | ) | 29,805 | |||||||||||||||||||||||||
Inter-segment revenues |
20 | 1 | 1 | 292 | 342 |
154 | Notes to the consolidated financial statements Note 2 |
The following table below shows the segments as reported after the voluntary change in segment reporting:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Elimina- tions |
Segment total |
Joint ventures and associates eliminations |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,314 | 454 | 94 | 57 | 33 | 34 | 95 | (109 | ) | (3 | ) | 1,968 | (50 | ) | 1,918 | |||||||||||||||||||||||||||||||||
Fair value items |
(980 | ) | (41 | ) | (21 | ) | 1 | - | (16 | ) | - | (61 | ) | - | (1,118 | ) | 37 | (1,082 | ) | |||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
110 | 342 | 48 | 1 | 1 | - | (2 | ) | - | - | 500 | - | 500 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(111 | ) | (40 | ) | (31 | ) | (17 | ) | - | 1 | - | - | - | (198 | ) | - | (198 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
67 | 8 | - | - | - | - | - | - | - | 75 | - | 75 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
72 | (36 | ) | (46 | ) | (210 | ) | 174 | (8 | ) | 12 | (11 | ) | - | (52 | ) | 6 | (47 | ) | |||||||||||||||||||||||||||||
Run-off businesses |
21 | - | - | - | - | - | - | - | - | 21 | - | 21 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
493 | 687 | 44 | (168 | ) | 209 | 11 | 105 | (181 | ) | (3 | ) | 1,197 | (8 | ) | 1,189 | ||||||||||||||||||||||||||||||||
Income tax (expense) /benefit |
(86 | ) | (166 | ) | 33 | 24 | (5 | ) | (18 | ) | (32 | ) | 42 | - | (208 | ) | 8 | (200 | ) | |||||||||||||||||||||||||||||
Net income / (loss) | 407 | 521 | 77 | (144 | ) | 203 | (7 | ) | 73 | (139 | ) | (3 | ) | 989 | - | 989 | ||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (54 | ) | (54 | ) | (23 | ) | - | 54 | 221 | 29 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,187 | 3,515 | 6,537 | 517 | 223 | 609 | - | 14 | (73 | ) | 17,529 | (416 | ) | 17,112 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,787 | 243 | - | 1 | 62 | 107 | - | 8 | (8 | ) | 2,200 | (10 | ) | 2,190 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 487 | - | 150 | 44 | - | - | - | - | 681 | (44 | ) | 637 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
7,975 | 4,245 | 6,537 | 668 | 329 | 717 | - | 22 | (82 | ) | 20,410 | (471 | ) | 19,939 | ||||||||||||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,057 | 57 | 68 | 101 | 4 | 342 | (342 | ) | 7,968 | (58 | ) | 7,909 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,273 | 328 | 129 | 49 | 9 | 49 | 432 | - | (244 | ) | 2,026 | (76 | ) | 1,950 | ||||||||||||||||||||||||||||||||||
Other revenues |
4 | - | (1 | ) | - | 2 | - | - | 4 | - | 10 | (3 | ) | 6 | ||||||||||||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,722 | 774 | 408 | 867 | 437 | 368 | (668 | ) | 30,413 | (608 | ) | 29,805 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues
|
20 | 1 | 1 | - | - | 72 | 226 | 348 |
Supplemental Annual Report 2015 |
155
The following table shows the impact of the voluntary changes in accounting policies as presented in note 2.1.2 and the impact on the new segments:
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding other |
Elimina- tions |
Segment total |
Joint and |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fair value items |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment charges |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Impairment reversals |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Run-off businesses |
47 | - | - | - | - | - | - | - | - | 47 | - | 47 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
47 | - | - | - | - | - | - | - | - | 47 | - | 47 | ||||||||||||||||||||||||||||||||||||
Income tax (expense) /benefit |
(32 | ) | - | - | - | - | - | - | - | - | (32 | ) | - | (32 | ) | |||||||||||||||||||||||||||||||||
Net income / (loss) | 15 | - | - | - | - | - | - | - | - | 15 | - | 15 | ||||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Accident and health insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
General insurance |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total gross premiums |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Investment income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Fee and commission income |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Other revenues |
- | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Total revenues | - | - | - | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Inter-segment revenues |
- | - | - | - | - | - | - | - |
156 | Notes to the consolidated financial statements Note 2 |
The following table shows the new segment figures taking into account the voluntary accounting changes (note 2.1.2):
Income statement - Underlying earnings |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding other |
Elimina- tions |
Segment total |
Joint and |
Consoli- dated |
||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,314 | 454 | 94 | 57 | 33 | 34 | 95 | (109 | ) | (3 | ) | 1,968 | (50 | ) | 1,918 | |||||||||||||||||||||||||||||||||
Fair value items |
(980 | ) | (41 | ) | (21 | ) | 1 | - | (16 | ) | - | (61 | ) | - | (1,118 | ) | 37 | (1,082 | ) | |||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
110 | 342 | 48 | 1 | 1 | - | (2 | ) | - | - | 500 | - | 500 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(111 | ) | (40 | ) | (31 | ) | (17 | ) | - | 1 | - | - | - | (198 | ) | - | (198 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
67 | 8 | - | - | - | - | - | - | - | 75 | - | 75 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
72 | (36 | ) | (46 | ) | (210 | ) | 174 | (8 | ) | 12 | (11 | ) | - | (52 | ) | 6 | (47 | ) | |||||||||||||||||||||||||||||
Run-off businesses |
68 | - | - | - | - | - | - | - | - | 68 | - | 68 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
540 | 687 | 44 | (168 | ) | 209 | 11 | 105 | (181 | ) | (3 | ) | 1,244 | (8 | ) | 1,236 | ||||||||||||||||||||||||||||||||
Income tax (expense) /benefit |
(119 | ) | (166 | ) | 33 | 24 | (5 | ) | (18 | ) | (32 | ) | 42 | - | (240 | ) | 8 | (233 | ) | |||||||||||||||||||||||||||||
Net income / (loss) | 422 | 521 | 77 | (144 | ) | 203 | (7 | ) | 73 | (139 | ) | (3 | ) | 1,003 | - | 1,003 | ||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (54 | ) | (54 | ) | (23 | ) | - | 54 | 221 | 29 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,187 | 3,515 | 6,537 | 517 | 223 | 609 | - | 14 | (73 | ) | 17,529 | (416 | ) | 17,112 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,787 | 243 | - | 1 | 62 | 107 | - | 8 | (8 | ) | 2,200 | (10 | ) | 2,190 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 487 | - | 150 | 44 | - | - | - | - | 681 | (44 | ) | 637 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
7,975 | 4,245 | 6,537 | 668 | 329 | 717 | - | 22 | (82 | ) | 20,410 | (471 | ) | 19,939 | ||||||||||||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,057 | 57 | 68 | 101 | 4 | 342 | (342 | ) | 7,968 | (58 | ) | 7,909 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,273 | 328 | 129 | 49 | 9 | 49 | 432 | - | (244 | ) | 2,026 | (76 | ) | 1,950 | ||||||||||||||||||||||||||||||||||
Other revenues |
4 | - | (1 | ) | - | 2 | - | - | 4 | - | 10 | (3 | ) | 6 | ||||||||||||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,722 | 774 | 408 | 867 | 437 | 368 | (668 | ) | 30,413 | (608 | ) | 29,805 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
20 | 1 | 1 | - | - | 72 | 226 | 348 |
Segment measures are explained and disclosed in note 5 Segment information.
2.5 Offsetting of assets and liabilities
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterpart.
2.6 Intangible assets
a. Goodwill
Goodwill is recognized as an intangible asset for interests in subsidiaries and is measured as the positive difference between the acquisition cost and the Groups interest in the net fair value of the entitys identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is carried at cost less accumulated impairment charges. It is derecognized when the interest in the subsidiary or joint venture is disposed.
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b. Value of business acquired
When a portfolio of insurance contracts is acquired, whether directly from another insurance company or as part of a business combination, the difference between the fair value and the carrying amount of the insurance liabilities is recognized as value of business acquired (VOBA). The Group also recognizes VOBA when it acquires a portfolio of investment contracts with discretionary participation features.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
When unrealized gains or losses arise on available-for-sale assets, VOBA is adjusted to equal the effect that the realization of the gains or losses (through a sale or impairment) would have had on VOBA. The adjustment is recognized directly in shareholders equity. VOBA is derecognized when the related contracts are settled or disposed.
c. Future servicing rights
On the acquisition of a portfolio of investment contracts without discretionary participation features under which Aegon will render investment management services, the present value of future servicing rights is recognized as an intangible asset. Future servicing rights can also be recognized on the sale of a loan portfolio or the acquisition of insurance agency activities.
The present value of the future servicing rights is amortized over the servicing period and is subject to impairment testing. It is derecognized when the related contracts are settled or disposed.
Where applicable, Aegon recognizes other intangibles on the acquisition of a business combination such as those related to customer relationships. This can include customer contracts, distribution agreements and client portfolios. For these intangibles the present value of future cash flows are recognized and amortized in the period when future economic benefits arise from these intangibles. These intangible assets are also presented under future servicing rights.
d. Software and other intangible assets
Software and other intangible assets are recognized to the extent that the assets can be identified, are controlled by the Group, are expected to provide future economic benefits and can be measured reliably. The Group does not recognize internally generated intangible assets arising from research or internally generated goodwill, brands, customer lists and similar items.
Software and other intangible assets are carried at cost less accumulated depreciation and impairment losses. Depreciation of the asset is over its useful life as the future economic benefits emerge and is recognized in the income statement as an expense. The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement.
An intangible asset is derecognized when it is disposed of or when no future economic benefits are expected from its use or disposal.
2.7 Investments
General account investments comprise financial assets, excluding derivatives, as well as investments in real estate.
a. Financial assets, excluding derivatives
Financial assets are recognized on the trade date when the Group becomes a party to the contractual provisions of the instrument and are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased.
Classification
The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the Groups investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced.
158 | Notes to the consolidated financial statements Note 2 |
Financial assets with fixed or determinable payments, that are not quoted in an active market and that the Group does not intend to sell in the near future are classified as loans. Those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, are accounted for as available-for-sale.
All remaining non-derivative financial assets are classified as available-for-sale.
Measurement
Financial assets are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
Loans and financial assets held-to-maturity are subsequently carried at amortized cost using the effective interest rate method. Financial assets at fair value through profit or loss are measured at fair value with all changes in fair value recognized in the income statement as incurred. Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting.
Amortized cost
The amortized cost of a debt instrument is the amount at which it is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization of any difference between the initial amount and the maturity amount, and minus any reduction for impairment. The effective interest rate method is a method of calculating the amortized cost and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument. When calculating the effective interest rate, all contractual terms are considered. Possible future credit losses are not taken into account. Charges and interest paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts are included in the calculation.
Fair value
The consolidated financial statements provide information on the fair value of all financial assets, including those carried at amortized cost where the values are provided in the notes to the financial statements.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
Derecognition
A financial asset is derecognized when the contractual rights to the assets cash flows expire and when the Group retains the right to receive cash flows from the asset or has an obligation to pay received cash flows in full without delay to a third party and either: has transferred the asset and substantially all the risks and rewards of ownership, or has neither transferred nor retained all the risks and rewards but has transferred control of the asset. Financial assets of which the Group has neither transferred nor retained significantly all the risk and rewards are recognized to the extent of the Groups continuing involvement. If significantly all risks are retained, the assets are not derecognized.
On derecognition, the difference between the disposal proceeds and the carrying amount is recognized in the income statement as a realized gain or loss. Any cumulative unrealized gain or loss previously recognized in the revaluation reserve in shareholders equity is also recognized in the income statement.
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Security lending and repurchase agreements
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash (collateral) received, on which interest is accrued.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash (collateral) paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
Collateral
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure defaults. When cash collateral is recognized, a liability is recorded for the same amount.
b. Real estate
Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as investments. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in Other assets and receivables.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for long-term construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders equity and are released to other comprehensive income over the remaining useful life of the property.
On disposal of an asset, the difference between the net proceeds received and the carrying amount is recognized in the income statement. Any remaining surplus attributable to real estate in own use in the revaluation reserve is transferred to retained earnings.
Maintenance costs and other subsequent expenditure
Expenditure incurred after initial recognition of the asset is capitalized to the extent that the level of future economic benefits of the asset is increased. Costs that restore or maintain the level of future economic benefits are recognized in the income statement as incurred.
2.8 Investments for account of policyholders
Investments held for account of policyholders consist of investments in financial assets as well as investments in real estate. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. Investments for account of policyholders are valued at fair value through profit or loss.
2.9 Derivatives
a. Definition
Derivatives are financial instruments of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date.
Assets and liabilities may include derivative-like terms and conditions. With the exception of features embedded in contracts held at fair value through profit or loss, embedded derivatives that are not considered closely related to the host contract are bifurcated, carried at fair value and presented as derivatives. In assessing whether a derivative-like feature is closely related to the contract in which it is embedded, the Group considers the similarity of the characteristics of the embedded derivative and the host contract. Embedded derivatives that transfer significant insurance risk are accounted for as insurance contracts.
Derivatives with positive values are reported as assets and derivatives with negative values are reported as liabilities. Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of Aegon N.V. equity instruments are accounted for in shareholders equity.
160 | Notes to the consolidated financial statements Note 2 |
b. Measurement
All derivatives recognized on the statement of financial position are carried at fair value.
The fair value is calculated net of the interest accrued to date and is based on market prices, when available. When market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that market participants would consider and are based on observable market data, to the extent possible.
c. Hedge accounting
As part of its asset liability management, the Group enters into economic hedges to limit its risk exposure. These transactions are assessed to determine whether hedge accounting can and should be applied.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to the hedged item. A hedging relationship is considered effective if the results of the hedging instrument are within a ratio of 80% to 125% of the results of the hedged item.
For hedge accounting purposes, a distinction is made between fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortized through the profit and loss account over the remaining term of the original hedge or recognized directly when the hedged item is derecognized.
Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk of a forecasted transaction or a recognized asset or liability and could affect profit or loss. To the extent that the hedge is effective, the change in the fair value of the derivative is recognized in the related revaluation reserve in shareholders equity. Any ineffectiveness is recognized directly in the income statement. The amount recorded in shareholders equity is released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of a non-financial asset or liability. In this case, the amount in shareholders equity is included in the initial cost of the asset or liability.
Net investment hedges
Net investment hedges are hedges of currency exposures on a net investment in a foreign operation. To the extent that the hedge is effective, the change in the fair value of the hedging instrument is recognized in shareholders equity. Any ineffectiveness is recognized in the income statement. The amount in shareholders equity is released to the income statement when the foreign operation is disposed of.
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains or losses in shareholders equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item.
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2.10 Investments in joint arrangements
In general, joint arrangements are contractual agreements whereby the Group undertakes, with other parties, an economic activity that is subject to joint control. Joint control exists when it is contractually agreed to share control over an economic activity. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If joint ventures are obtained in successive share purchases, each significant transaction is accounted for separately.
The carrying amount is subsequently adjusted to reflect the change in the Groups share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Groups accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are reflected in other reserves in shareholders equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement. The Groups share in losses is recognized until the investment in the joint ventures equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
Gains and losses on transactions between the Group and the joint ventures are eliminated to the extent of the Groups interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the joint venture are not eliminated.
On disposal of an interest in a joint venture, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement.
2.11 Investments in associates
Entities over which the Group has significant influence through power to participate in financial and operating policy decisions, but which do not meet the definition of a subsidiary, are accounted for using the equity method. Interests held by venture capital entities, mutual funds and investment funds that qualify as an associate are accounted for as an investment held at fair value through profit or loss. Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss.
Interests in associates are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If associates are obtained in successive share purchases, each significant transaction is accounted for separately.
The carrying amount is subsequently adjusted to reflect the change in the Groups share in the net assets of the associate and is subject to impairment testing. The net assets are determined based on the Groups accounting policies. Any gains and losses recorded in other comprehensive income by the associate are reflected in other reserves in shareholders equity, while the share in the associates net income is recognized as a separate line item in the consolidated income statement. The Groups share in losses is recognized until the investment in the associates equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
Gains and losses on transactions between the Group and the associate are eliminated to the extent of the Groups interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the associate are not eliminated.
On disposal of an interest in an associate, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement.
162 | Notes to the consolidated financial statements Note 2 |
2.12 Reinsurance assets
Reinsurance contracts are contracts entered into by the Group in order to receive compensation for claims/benefits incurred on contracts written by the Group (outgoing reinsurance). For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement.
Reinsurance assets are measured consistently with the assumptions associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Aegon is not relieved of its legal liabilities when entering into reinsurance transactions, therefore the reserves relating to the underlying insurance contracts will continue to be reported on the consolidated statement of financial position during the contractual term of the underlying contracts.
Reinsurance premiums, commissions and claim settlements are accounted for in the same way as the original contracts for which the reinsurance was concluded. The insurance premiums for the original contracts are presented gross of reinsurance premiums paid.
2.13 Deferred expenses
a. Deferred policy acquisition costs (DPAC)
DPAC relates to all insurance contracts as well as investment contracts with discretionary participation features and represents directly attributable costs that are related to the selling, underwriting and initiating of these insurance contracts.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-by-country basis as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
For products sold in the United States, when unrealized gains or losses arise on available-for-sale assets, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized directly in the related revaluation reserve in shareholders equity.
DPAC is derecognized when the related contracts are settled or disposed.
b. Deferred cost of reinsurance
A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business. When Aegon enters into a reinsurance contract as part of a plan to exit a business, an immediate loss is recognized in the income statement. Upon reinsurance, Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying contracts.
When losses on buying reinsurance are deferred, the amortization is based on the assumptions of the underlying insurance contracts. The amortization is recognized in the income statement.
c. Deferred transaction costs
Deferred transaction costs relate to investment contracts without discretionary participation features under which Aegon will render investment management services. Incremental costs that are directly attributable to securing these investment management contracts are recognized as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered.
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For contracts involving both the origination of a financial liability and the provision of investment management services, only the transaction costs allocated to the servicing component are deferred. The other transaction costs are included in the carrying amount of the financial liability.
The deferred transaction costs are amortized in line with fee income, unless there is evidence that another method better represents the provision of services under the contract. The amortization is recognized in the income statement. Deferred transaction costs are subject to impairment testing at least annually.
Deferred transaction costs are derecognized when the related contracts are settled or disposed.
2.14 Other assets and receivables
Other assets include trade and other receivables, prepaid expenses, equipment and real estate held for own use. Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost. Equipment is initially carried at cost, depreciated on a straight line basis over its useful life to its residual value and is subject to impairment testing. The accounting for real estate held for own use is described in note 2.7 Investments.
2.15 Cash and cash equivalents
Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments generally with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investments or investments for account of policyholders.
2.16 Impairment of assets
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. For tangible and intangible assets, financial assets and reinsurance assets, if not held at fair value through profit or loss, the recoverable amount of the asset is estimated when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets with an indefinite useful life that are not amortized, are tested at least annually.
There are a number of significant risks and uncertainties inherent in the process of monitoring investments and determining if impairment exists. These risks and uncertainties include the risk that the Groups assessment of an issuers ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Any of these situations could result in a charge against the income statement to the extent of the impairment charge recorded.
a. Impairment of non-financial assets
Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an assets value in use and its fair value less cost of disposal. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties. The valuation utilizes the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 21 Intangible assets for more details.
Impairment losses are charged to shareholders equity to the extent that they offset a previously recorded revaluation reserve relating to the same item. Any further losses are recognized directly in the income statement. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/ (reversals).
With the exception of goodwill, impairment losses are reversed when there is evidence that there has been a change in the estimates used to determine the assets recoverable amount since the recognition of the last impairment loss. The reversal is recognized in the income statement to the extent that it reverses impairment losses previously recognized in the income statement. The carrying amount after reversal cannot exceed the amount that would have been recognized had no impairment taken place.
Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated
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to cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets recoverable amounts.
b. Impairment of debt instruments
Debt instruments are impaired if there is objective evidence that a credit event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. Individually significant loans and other receivables are first assessed separately. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
For debt instruments carried at amortized cost, the carrying amount of impaired financial assets is reduced through an allowance account. The impairment loss is calculated as the difference between the carrying and recoverable amount of the investment. The recoverable amount is determined by discounting the estimated probable future cash flows at the original effective interest rate of the asset. For variable interest debt instruments, the current effective interest rate under the contract is applied.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-for-sale is recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
Impairment losses recognized for debt instruments can be reversed if in subsequent periods the amount of the impairment loss decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized. For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed what the amortized cost would have been at the reversal date, had the impairment not been recognized.
c. Impairment of equity instruments
For equity instruments, objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in fair value below initial cost is also considered objective evidence of impairment and always results in a loss being recognized in the income statement. Significant or prolonged decline is defined as an unrealized loss position for generally more than six months or a fair value of less than 80% of the cost price of the investment. Equity investments are impaired to the assets fair value and any unrealized gain or loss previously recognized in shareholders equity is taken to the income statement as an impairment loss. The amount exceeding the balance of previously recognized unrealized gains or losses is recognized in the income statement. If an available-for-sale equity security is impaired based upon Aegons qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon Aegons impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
Impairment losses on equity instruments cannot be reversed.
d. Impairment of reinsurance assets
Reinsurance assets are impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that not all amounts due under the terms of the contract may be received. In such a case, the value of the reinsurance asset recoverable is determined based on the best estimate of future cash flows, taking into consideration the reinsurers current and expected future financial conditions plus any collateral held in trust for Aegons benefit. The carrying value is reduced to this calculated recoverable value, and the impairment loss recognized in the income statement.
2.17 Equity
Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares, the Group has issued perpetual securities. Perpetual securities have no
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final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities, Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that are directly attributable to the issuing or buying back of the compound instruments are recognized proportionate to the equity component and liability component, net of tax.
Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Treasury shares are shares issued by Aegon N.V. that are held by Aegon, one of its subsidiaries or by another entity controlled by Aegon. Treasury shares are deducted from Group equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
2.18 Trust pass-through securities and (subordinated) borrowings
A financial instrument issued by the Group is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Group.
Trust pass-through securities and (subordinated) borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated on a fair value basis. The liability is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled.
Subordinated borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on the accounting policy of the non-cumulative subordinated notes refer to note 2.17 Equity.
2.19 Insurance contracts
Insurance contracts are accounted for under IFRS 4 Insurance Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS, with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies, in general, non-uniform accounting policies for insurance liabilities and intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegons operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS. If any changes are made to current accounting policies for insurance contracts, these will be in accordance with IFRS 4.
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Insurance contracts are contracts under which the Group accepts a significant risk other than a financial risk from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected. Contracts that do not meet this definition are accounted for as investment contracts. The Group reviews homogeneous books of contracts to assess whether the underlying contracts transfer significant insurance risk on an individual basis. This is considered the case when at least one scenario with commercial substance can be identified in which the Group has to pay significant additional benefits to the policyholder. Contracts that have been classified as insurance are not reclassified subsequently.
Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when the contract expires, is discharged, disposed or cancelled. Within the United States, the Netherlands and the United Kingdom, substantially modified contracts are accounted for as an extinguishment of the original liability and the recognition of a new liability.
Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to the transition to IFRS and with consideration of standards effective subsequent to the date of transition to IFRS, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts.
a. Life insurance contracts
Life insurance contracts are insurance contracts with life-contingent benefits. The measurement of the liability for life insurance contracts varies depending on the nature of the product.
Liabilities arising from traditional life insurance products that are offered by Aegon, particularly those with fixed and guaranteed account terms, are typically measured using the net premium method. Under this method the liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Furthermore, the liability for life insurance comprises reserves for unearned premiums and accrued annuity benefits payable.
Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years.
Terms and conditions, including participation features and expected lapse rates, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the balance sheet date for future distribution to policyholders.
In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19 c Embedded derivatives or, if bifurcated from the host contract, as described in note 2.9 Derivatives.
b. Life insurance contracts for account of policyholders
Life insurance contracts under which the policyholder bears the risks associated with the underlying investments are classified as insurance contracts for account of policyholders.
The liability for the insurance contracts for account of policyholders is measured at the policyholder account balance. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. If applicable, the liability representing the nominal value of the policyholder unit account is amortized over the term of the contract so that interest on actuarial funding is at an expected rate of return.
c. Embedded derivatives
Life insurance contracts typically include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives.
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Guaranteed minimum benefits
Certain life insurance contracts, issued by the Group, contain guaranteed minimum benefits. Bifurcated guaranteed minimum benefits are classified as derivatives.
In the United States, the additional liability for guaranteed minimum benefits that are not bifurcated is determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
In the Netherlands, an additional liability is established for guaranteed minimum investment returns on group pension plans with profit sharing and on traditional insurance contracts, with profit sharing based on an external interest index, that are not bifurcated. These guarantees are measured at fair value.
d. Shadow accounting
Shadow accounting allows that all gains and losses on investments affect the measurement of the insurance assets and liabilities in the same way, regardless of whether they are realized or unrealized and regardless of whether the unrealized gains and losses are recognized in the income statement or directly in equity in the revaluation reserve. In some instances, realized gains or losses on investments have a direct effect on the measurement of the insurance assets and liabilities. For example, some insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses on available-for-sale investments can lead to unlocking of VOBA or DPAC and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns. For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains or losses on available-for-sale investments for which the unrealized gains or losses are recognized in the revaluation reserve in equity, shadow accounting is applied. This means that the increase in the liability is also charged to equity to offset the unrealized gains rather than to the income statement.
e. Non-life insurance contracts
Non-life insurance contracts are insurance contracts where the insured event is not life-contingent. For non-life products the insurance liability generally includes reserves for unearned premiums, unexpired risk, inadequate premium levels and outstanding claims and benefits. No catastrophe or equalization reserves are included in the measurement of the liability.
The reserve for unearned premiums includes premiums received for risks that have not yet expired. Generally, the reserve is released over the coverage period of the premium and is recognized as premium income.
The liability for outstanding claims and benefits is established for claims that have not been settled and any related cash flows, such as claims handling costs. It includes claims that have been incurred but have not been reported to the Group. The liability is calculated at the reporting date using statistical methods based on empirical data and current assumptions that may include a margin for adverse deviation. Liabilities for claims subject to periodic payment are calculated using actuarial methods consistent with those applied to life insurance contracts. Discounting is applied if allowed by the local accounting principles used to measure the insurance liabilities. Discounting of liabilities is generally applied when there is a high level of certainty concerning the amount and settlement term of the cash outflows.
f. Liability adequacy testing
At each reporting date, the adequacy of the life insurance liabilities (including life insurance contracts for account of policyholders), net of VOBA and DPAC, is assessed using a liability adequacy test.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio of
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contracts that are subject to broadly similar risks and managed together as a single portfolio. Specifically, in the Netherlands the liability adequacy test is performed on a consolidated basis for all life and non-life business, whereas in the Americas and the UK it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on managements expectation of the future return on investments. These future returns on investments take into account managements best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. Aegon the Netherlands, as required locally, adjusts the outcome of the liability adequacy test for the difference between the fair value and the book value of the assets that are measured at amortized cost in the balance sheet.
To the extent that the account balances are insufficient to meet future benefits and expenses, any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place. In the Netherlands, in situations where market interest rates for the valuation of debt securities leads to a change in the revaluation reserve, and where the result of using the same assumptions for the liabilities could lead to a deficiency in the liability adequacy test that should be recognized in the income statement, shadow loss recognition is applied. Shadow loss recognition is applied to the extent that the deficiency of the insurance liabilities relates to the revaluation of debt securities as a result of movements in interest rates, the addition to the insurance liabilities is then off set against the revaluation reserve. If in subsequent periods such a deficiency of the insurance liability is no longer applicable, shadow loss recognition is reversed via the revaluation reserve.
The adequacy of the non-life insurance liability is tested at each reporting date. Changes in expected claims that have occurred, but that have not been settled, are reflected by adjusting the liability for claims and future benefits. The reserve for unexpired risk is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed the future premiums plus the current unearned premium reserve.
2.20 Investment contracts
Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders. Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged or is cancelled.
a. Investment contracts with discretionary participation features
Some investment contracts have participation features whereby the policyholder has the right to receive potentially significant additional benefits which are based on the performance of a specified pool of investment contracts, specific investments held by the Group or on the issuers net income. If the Group has discretion over the amount or timing of the distribution of the returns to policyholders, the investment contract liability is measured based on the accounting principles that apply to insurance contracts with similar features.
Some unitized investment contracts provide policyholders with the option to switch between funds with and without discretionary participation features. The entire contract is accounted for as an investment contract with discretionary participation features if there is evidence of actual switching resulting in discretionary participation benefits that are a significant part of the total contractual benefits.
b. Investment contracts without discretionary participation features
At inception, investment contracts without discretionary features are carried at amortized cost.
Investment contracts without discretionary participation features are carried at amortized cost based on the expected cash flows and using the effective interest rate method. The expected future cash flows are re-estimated at each reporting date and the carrying amount of the financial liability is recalculated as the present value of estimated future cash flows using the financial liabilitys original effective interest rate. Any adjustment is immediately recognized in the income statement. For these investment contracts deposit accounting is applied, meaning that deposits are not reflected as premium income, but are recognized as part of the financial liability.
The consolidated financial statements provide information on the fair value of all financial liabilities, including those carried at amortized cost. As these contracts are not quoted in active markets, their value is determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling. For investment contracts without discretionary participation features that can be cancelled by the policyholder, the fair value cannot be less than the surrender value.
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c. Investment contracts for account of policyholders
Investment contracts for account of policyholders are investment contracts for which the actual return on investments allocated to the contract is passed on to the policyholder. Also included are participations held by third parties in consolidated investment funds that meet the definition of a financial liability.
Investment contracts for account of policyholders are designated at fair value through profit or loss. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund.
For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and recognized as a deferred revenue liability, refer to note 2.23 Deferred gains.
2.21 Provisions
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. Management exercises judgment in evaluating the probability that a loss will be incurred.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date, considering all its inherent risks and uncertainties, as well as the time value of money. The estimate of the amount of a loss requires management judgment in the selection of a proper calculation model and the specific assumptions related to the particular exposure. The unwinding of the effect of discounting is recorded in the income statement as an interest expense.
Onerous contracts
With the exception of insurance contracts and investment contracts with discretionary participation features for which potential future losses are already considered in establishing the liability, a provision is recognized for onerous contracts in which the unavoidable costs of meeting the resulting obligations exceed the expected future economic benefits. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.
2.22 Assets and liabilities relating to employee benefits
a. Short-term employee benefits
A liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
b. Post-employment benefits
The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the Group has no further obligation than the payment of a fixed contribution. All other plans are classified as defined benefit plans.
Defined contribution plans
The contribution payable to a defined contribution plan for services provided is recognized as an expense in the income statement. An asset is recognized to the extent that the contribution paid exceeds the amount due for services provided.
Defined benefit plans
Measurement
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected. Plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
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Plan assets are qualifying insurance policies and assets held by long-term employee benefit funds that can only be used to pay the employee benefits under the plan and are not available to the Groups creditors. They are measured at fair value and are deducted from the defined benefit obligation in determining the amount recognized on the statement of financial position.
Profit or loss recognition
The cost of the defined benefit plans are determined at the beginning of the year and comprise the following components:
¿ | Current year service cost which is recognized in profit or loss; and |
¿ | Net interest on the net defined benefit liability (asset) which is recognized in profit or loss. |
Remeasurements of the net defined benefit liability (asset) which is recognized in other comprehensive income are revisited quarterly and shall not be reclassified to profit or loss in a subsequent period.
Deducted from current year service cost are discretionary employee contributions and employee contributions that are linked to service (those which are independent of the number of years of service). Net interest on the net defined benefit liability (asset) shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation. Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset).
Remeasurements of the net defined benefit liability (asset) comprise of:
¿ | Actuarial gains and losses; |
¿ | The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and |
¿ | Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). |
Settlements
Gains or losses on curtailments or settlements of a defined benefit plan comprise of the difference between:
¿ | The present value of the defined benefit obligation being settled, as determined on the date of settlement; and |
¿ | The settlement price, including any plan assets transferred and any payments made directly by Aegon in connection with the settlement. |
Aegon recognizes (in the income statement) gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs.
c. Share-based payments
The Group has issued share-based plans that entitle employees to receive equity instruments issued by the Group or cash payments based on the price of Aegon N.V. common shares. Some plans provide employees of the Group with the choice of settlement.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the Groups shares. For long-term share-based plans where employees are granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee, expenses recognized are based on the fair value on the grant date of the shares. The fair value is measured at the market price of the entities shares, adjusted to take into account the terms and conditions upon which the shares were granted. For example, where the employee is not entitled to receive dividends during the vesting period, this factor is taken into account when estimating the fair value of the shares granted. For the determination of factors such as expected dividends, market observable data has been considered.
The cost for share option plans and long term incentive plans are recognized in the income statement, together with a corresponding increase in shareholders equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects managements best estimate of the number of shares expected to vest ultimately.
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Share appreciation right plans are initially recognized at fair value at the grant date, taking into account the terms and conditions on which the instruments were granted. The fair value is expensed over the period until vesting, with recognition of a corresponding liability. The liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in the income statement.
Share option plans that can be settled in either shares or cash at the discretion of the employee and/or employer are accounted for as a compound financial instrument, which includes a debt component and an equity component.
2.23 Deferred gains
a. Deferred revenue liability
Initial fees and front-end loadings paid by policyholders and other clients for future investment management services related to investment contracts without discretionary participation features are deferred and recognized as revenue when the related services are rendered.
b. Deferred gain on reinsurance
A deferred gain on reinsurance is established when Aegon enters into a reinsurance transaction, except for reinsurance transactions that are entered into as part of a plan to exit a business. When Aegon enters into a reinsurance contract as part of a plan to exit a business, an immediate gain is recognized in the income statement. Upon reinsurance, Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying contracts.
When gains on buying reinsurance are deferred, the amortization is based on the assumptions of the underlying insurance contracts. The amortization is recognized in the income statement.
2.24 Tax assets and liabilities
a. Current tax assets and liabilities
Tax assets and liabilities for current and prior periods are measured at the amount that is expected to be received from or paid to the taxation authorities, using the tax rates that have been enacted or substantively enacted by the reporting date.
b. Deferred tax assets and liabilities
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the carrying value of an item and its tax value, with the exception of differences arising from the initial recognition of goodwill and of assets and liabilities that do not impact taxable or accounting profits. A tax asset is recognized for tax loss carryforwards to the extent that it is probable at the reporting date that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilized.
Deferred tax liabilities relating to investments in subsidiaries, associates and joint ventures are not recognized if the Group is able to control the timing of the reversal of the temporary difference and it is probable that the difference will not be reversed in the foreseeable future.
Deferred tax assets and liabilities are reviewed at each reporting period and are measured at tax rates that are expected to apply when the asset is realized or the liability is settled. Since there is no absolute assurance that these assets will ultimately be realized, management reviews Aegons deferred tax positions at each reporting period to determine if it is probable that the assets will be realized. These reviews include, among other things, the nature and amount of the taxable income and deductible expenses, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning opportunities it can utilize to increase the likelihood that the tax assets will be realized. The carrying amount is not discounted and reflects the Groups expectations concerning the manner of recovery or settlement.
Deferred tax assets and liabilities are recognized in relation to the underlying transaction either in profit and loss, other comprehensive income or directly in equity.
2.25 Contingent assets and liabilities
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
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A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote.
2.26 Premium income
Gross premiums, including recurring and single premiums, from life and non-life insurance and investment contracts with discretionary participation features are recognized as revenue when they become receivable. For products where deposit accounting is required, the deposits are not reflected as premium income, but are recognized as part of the financial liability. For these products the surrender charges and charges assessed have been included in gross premiums.
Premium loadings for installment payments and additional payments by the policyholder towards costs borne by the insurer are included in the gross premiums. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium, others are recognized as an expense. Depending on the applicable local accounting principles, bonuses that are used to increase the insured benefits may be recognized as gross premiums. The insurance premiums for the original contracts are presented gross of reinsurance premiums paid.
2.27 Investment income
For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument. Investment income includes the interest income and dividend income on financial assets carried at fair value through profit or loss.
Investment income also includes rental income due, as well as fees received for security lending.
2.28 Fee and commission income
Fees and commissions from investment management services and mutual funds, services where Aegon acts as service provider (including mortgage loan fee business) and from sales activities are recognized as revenue over the period in which the services are performed or for sales activities where services have been rendered.
2.29 Policyholder claims and benefits
Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefits in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts. It includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered.
2.30 Results from financial transactions
Results from financial transactions include:
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives include fair value changes of financial assets carried at fair value through profit or loss. The net gains and losses do not include interest or dividend income.
Realized gains and losses on financial investments
Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss.
Net fair value change of derivatives
All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net investment in a foreign operation. Fair value movements of fair value hedge instruments are offset by the fair value movements of the hedged item, and the resulting hedge ineffectiveness, if any, is included in this line. In addition, the fair value movements of bifurcated embedded derivatives are included in this line.
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Net fair value change on for account of policyholder financial assets at fair value through profit or loss
Net fair value change on for account of policyholder financial assets at fair value through profit or loss includes fair value movements of investments held for account of policyholders (refer to note 2.8 Investments for account of policyholders). The net fair value change does not include interest or dividend income.
Other
In addition, results from financial transactions include gains/losses on real estate (general account and account of policyholders), net foreign currency gains/(losses) and net fair value change on borrowings and other financial liabilities and realized gains on repurchased debt.
2.31 Impairment charges/(reversals)
Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and liabilities and other non-financial assets and receivables. Impairment of deferred policy acquisition costs is included in note 15 Impairment charges/ (reversals). Refer to note 15 Impairment charges/ (reversals).
2.32 Interest charges and related fees
Interest charges and related fees includes interest expense on trust pass-through securities and other borrowings. Interest expense on trust pass-through securities and other borrowings carried at amortized cost is recognized in profit or loss using the effective interest method.
2.33 Leases
Arrangements that do not take the form of a lease but convey a right to use an asset in return for a payment are assessed at inception to determine whether they are, or contain, a lease. This involves an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the purchaser (lessee) has the right to control the use of the underlying asset.
Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases.
Payments made under operating leases, where the Group is the lessee, are charged to the income statement on a straight line basis over the period of the lease.
Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases are recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.
2.34 Events after the balance sheet date
The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date are disclosed, but do not result in an adjustment of the financial statements themselves.
3 Critical accounting estimates and judgment in applying accounting policies
Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. There can be no assurance that actual results will not differ materially from those estimates. Accounting policies that are critical to the financial statement presentation and that require complex estimates or significant judgment are described in the following sections.
Valuation of assets and liabilities arising from life insurance contracts
The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions or on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation. All contracts are subject to liability adequacy testing which reflects managements current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in equity.
174 | Notes to the consolidated financial statements Note 3 |
Some insurance contracts without a guaranteed or fixed contractual term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force are recorded as DPAC and VOBA assets respectively, and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may require write-offs due to unrecoverability.
Actuarial and economic assumptions
The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender rates may be considered.
Mortality tables applied are generally developed based on a blend of company experience and industry wide studies, taking into consideration product characteristics, own risk selection criteria, target market and past experience. Mortality experience is monitored through regular studies, the results of which are fed into the pricing cycle for new products and reflected in the liability calculation when appropriate. For contracts insuring survivorship, allowance may be made for further longevity improvements. Morbidity assumptions are based on own claims severity and frequency experience, adjusted where appropriate for industry information.
Investment assumptions are prescribed by the local regulator, market observable or based on managements future expectations. In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
Assumptions on future expenses are based on the current level of expenses, adjusted for expected expense inflation if appropriate.
Surrender rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor and policyholder behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
Actuarial assumption and model updates
Assumptions are reviewed periodically, typically in the 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 2015, Aegon implemented actuarial assumption and model updates resulting in a net EUR 181 million charge to income before tax (2014: EUR 352 million). Assumption updates resulted in a net EUR 24 million gain to income before tax. Model updates had an adverse impact on income before tax of EUR 205 million. Refer to note 5 Segment information for further details.
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For 2015, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8% (December 31, 2014: 8%). The long-term assumption for 10-year US Treasury yields remains at 4.25% and the uniform grading period was 10 years. Aegons assumed returns for US separate account bond fund remains at 4% over the next 10 years and 6% thereafter. The 90-day Treasury yield was 0.16% at December 31, 2015, and is assumed to remain level for the next six months followed by a 9.5 year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
For 2014, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8% (December 31, 2013: 8%). The long-term assumption for 10-year US Treasury yields remained at 4.25% and the uniform grading period was 10 years. Aegons assumed returns for US separate account bond fund remained at 4% over the next 10 years and 6% thereafter. The 90-day Treasury yield was 0.04% at December 31, 2014, and was assumed to remain level for the next two years followed by an eight year grade to 2.5%. These assumptions have been set for the relevant reporting period. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
In the third quarter of 2013, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4% over the next 10 years and 6% thereafter from its previous assumptions of 4% over the next 5 years and 6% thereafter. In addition, Aegon changed its long-term equity market return assumption for the estimated gross profit in variable life and variable annuity products in the Americas from 9% to 8%. In total, these assumption changes led to a negative impact on earnings of EUR 405 million in the third quarter of 2013. Both the assumptions for the bond fund and that for the long-term equity market are gross assumptions from which asset management and policy fees are deducted to determine the policyholder return. The 90-day Treasury yield was 0.07% at December 31, 2013, and was assumed to remain level for the next two years followed by an eight year grade to 2.5%. These assumptions have been set for the relevant reporting period.
Sensitivity on variable annuities and variable life insurance products in the United States
A 1% decrease in the expected long-term equity growth rate with regard to Aegons variable annuities and variable life insurance products in the United States would result in a decrease in DPAC and VOBA balances and reserve strengthening of approximately EUR 147 million (2014: EUR 130 million). The DPAC and VOBA balances for these products in the United States amounted to EUR 3.0 billion at December 31, 2015 (2014: EUR 2.6 billion).
A relative increase ranging from 5% to 10% to the mortality assumption, dependent on the block of business, would reduce net income by approximately EUR 103 million (2014: EUR 63 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 76 million (2014: EUR 71 million).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 37 million (per assumption change) (2014: EUR 32 million).
Determination of fair value and fair value hierarchy
The following is a description of Aegons methods of determining fair value, and a quantification of its exposure to assets and liabilities measured at fair value.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:
¿ | In the principal market for the asset or liability; or |
¿ | In the absence of a principal market, in the most advantageous market for the asset or liability. |
Aegon uses the following hierarchy for measuring and disclosing of the fair value of assets and liabilities:
¿ | Level I: quoted prices (unadjusted) in active markets for identical assets or liabilities that Aegon can access at the measurement date; |
¿ | Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities) using valuation techniques for which all significant inputs are based on observable market data; and |
¿ | Level III: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) using valuation techniques for which any significant input is not based on observable market data. |
176 | Notes to the consolidated financial statements Note 4 |
The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active or quoted market prices are not available, a valuation technique is used.
The degree of judgment used in measuring the fair value of assets and liabilities generally inversely correlates with the level of observable valuation inputs. Aegon maximizes the use of observable inputs and minimizes the use of unobservable valuation inputs when measuring fair value. Financial instruments, for example, with quoted prices in active markets generally have more pricing observability and therefore less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
The assets and liabilities categorization within the fair value hierarchy is based on the lowest input that is significant to the fair value measurement.
The judgment as to whether a market is active may include, although not necessarily determinative, lower transaction volumes, reduced transaction sizes and, in some cases, no observable trading activity for short periods. In inactive markets, assurance is obtained that the transaction price provides evidence of fair value or it is determined that adjustments to transaction prices are necessary to measure the fair value of the instrument.
The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instruments carrying amount is driven by unobservable inputs. Unobservable in this context means that there is little or no current market data available from which to determine the price at which an at arms length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Additional information is provided in the table headed Effect of changes in significant unobservable assumptions to reasonably possible alternatives in note 47 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
To operationalize Aegons fair value hierarchy, individual instruments (both financial and non-financial) are assigned a fair value level based primarily on the type of instrument and the source of the prices (e.g. index, third-party pricing service, broker, internally modeled). Periodically, this logic for assigning fair value levels is reviewed to determine if any modifications are necessary in the context of the current market environment.
General
As an insurance group, Aegon is exposed to a variety of risks. Aegons largest exposures are to changes in financial markets (e.g. foreign currency, interest rate, credit and equity market risks) that affect the value of the investments, liabilities from products that Aegon sells, deferred expenses and value of business acquired. Other risks include insurance related risks, such as changes in mortality and morbidity, which are discussed in note 36 Insurance contracts. Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegons integrated approach to risk management involves similar measurement of risk and scope of risk coverage to allow for aggregation of the Groups risk position.
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Groups exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within the Groups overall tolerance for risk and the Groups financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of derivatives). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Groups overall risk strategy.
Aegon operates a Derivative Use Policy to govern its usage of derivatives. These policies establish the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, these policies stipulate necessary mitigation of credit risk created through these derivatives management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements or through a central clearinghouse.
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As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders equity under both deterministic and stochastic scenarios. Management uses the insight gained through these what if? scenarios to manage the Groups risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Results of Aegons sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegons regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
Each sensitivity analysis reflects the extent to which the shock tested would affect managements critical accounting estimates and judgment in applying Aegons accounting policies. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although managements short-term assumptions may change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses.
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on managements long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders equity. Aegon has classified a significant part of its investment portfolio as available-for-sale, which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal. Aegons target ratio for the composition of its capital base is based on shareholders equity excluding the revaluation reserve.
The sensitivities do not reflect what the net income for the period would have been if risk variables had been different because the analysis is based on the exposures in existence at the reporting date rather than on those that actually occurred during the year. Nor are the results of the sensitivities intended to be an accurate prediction of Aegons future shareholders equity or earnings. The analysis does not take into account the impact of future new business, which is an important component of Aegons future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear. No risk management process can clearly predict future results.
Concentration risk for financial risks are measured and managed at the following levels:
¿ | Concentration per risk type: Risk exposures are measured per risk type as part of Aegons internal economic framework. A risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types; |
¿ | Concentration per counterparty: Risk exposure is measured and risk limits are in place per counterparty as part of the Counterparty Name Limit Policy; and |
¿ | Concentration per sector, geography and asset class: Aegons investment strategy is translated in investment mandates for its internal and external asset managers. Through these investment mandates limits on sector, geography and asset class are set. Compliance monitoring of the investment mandates is done by the insurance operating companies. |
Moreover, concentration of financial risks are measured in Aegon business planning cycle. As part of business planning, the resilience of Aegons business strategy is tested in several extreme event scenarios. In the Depression and Inflation scenario, financial markets are stressed without assuming diversification across different market factors. As part of the Extreme Event Scenario testing, certain management actions are implemented when management deems this necessary.
178 | Notes to the consolidated financial statements Note 4 |
Currency exchange rate risk
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure exists mainly when policies are denominated in currencies other than the issuers functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders equity as a result of translation of subsidiaries into euro, the Groups presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders equity because of these fluctuations.
Aegon operates a Currency Risk Policy which applies currency risk exposure limits both at Group and regional levels, and under which direct currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group Risk and Capital Committee. Assets should be held in the functional currency of the business written or hedged back to that currency. Where this is not possible or practical, remaining currency exposure should be sufficiently documented and limits are placed on the total exposure at both group level and for individual country units.
Information on Aegons three year historical net income/(loss) and shareholders equity in functional currency are shown in the table below:
2015 | 2014 | 2013 | ||||||||||
Net income |
||||||||||||
Americas (in USD) |
(261 | ) | 796 | 560 | ||||||||
The Netherlands (in EUR) |
753 | 62 | 521 | |||||||||
United Kingdom (in GBP) |
(674 | ) | 140 | 65 | ||||||||
Central & Eastern Europe (in EUR) |
24 | 9 | (144 | ) | ||||||||
Spain & Portugal (in EUR) |
22 | 22 | 203 | |||||||||
Asia (in USD) |
(33 | ) | (21 | ) | (9 | ) | ||||||
Asset Management (in EUR) |
121 | 79 | 73 | |||||||||
Equity in functional currency |
||||||||||||
Americas (in USD) |
17,609 | 21,254 | 19,746 | |||||||||
The Netherlands (in EUR) |
5,263 | 4,745 | 3,350 | |||||||||
United Kingdom (in GBP) |
2,981 | 3,975 | 2,998 | |||||||||
Central & Eastern Europe (in EUR) |
396 | 401 | 390 | |||||||||
Spain & Portugal (in EUR) |
464 | 783 | 752 | |||||||||
Asia (in USD) |
674 | 657 | 440 | |||||||||
Asset Management (in EUR) |
444 | 267 | 228 |
The exchange rates for US dollar and UK pound per euro for each of the last five year ends are set forth in the table below:
Closing rates | 2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
USD |
1.09 | 1.21 | 1.38 | 1.32 | 1.30 | |||||||||||||||
GBP |
0.74 | 0.78 | 0.83 | 0.81 | 0.84 |
Aegon Group companies foreign currency exposure from monetary assets and liabilities denominated in foreign currencies is not material.
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegons non-euro currencies relative to the euro on net income and shareholders equity. The effects as included in the following table are due to the translation of subsidiaries, joint ventures and associates in the consolidated financial statements. The 2014 numbers in the sensitivity analysis of net income and shareholders equity to translation risk have been restated as a result of a change in methodology in
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compiling the sensitivities. This year the methodology used for translation risk has been brought in line with the methodology used for calculating the other sensitivities. This restatement had no impact on net income, shareholders equity, total assets, total liabilities or earnings per share.
Sensitivity analysis of net income and shareholders equity to translation risk
Movement of markets 1) | Estimated approximate effects on net income 2) |
Estimated approximate effects equity |
||||||
2015 | ||||||||
Increase by 15% of USD currencies relative to the euro |
71 | 2,161 | ||||||
Increase by 15% of GBP currencies relative to the euro |
(165 | ) | 566 | |||||
Increase by 15% of other non-euro currencies relative to the euro |
(91 | ) | 2,820 | |||||
Decrease by 15% of USD currencies relative to the euro |
(50 | ) | (1,539 | ) | ||||
Decrease by 15% of GBP currencies relative to the euro |
123 | (390 | ) | |||||
Decrease by 15% of other non-euro currencies relative to the euro |
72 | (1,993 | ) | |||||
2014 | ||||||||
Increase by 15% of USD currencies relative to the euro |
84 | 2,019 | ||||||
Increase by 15% of GBP currencies relative to the euro |
42 | 771 | ||||||
Increase by 15% of other non-euro currencies relative to the euro |
117 | 3,123 | ||||||
Decrease by 15% of USD currencies relative to the euro |
(60 | ) | (1,414 | ) | ||||
Decrease by 15% of GBP currencies relative to the euro |
(32 | ) | (544 | ) | ||||
Decrease by 15% of other non-euro currencies relative to the euro |
(82 | ) | (2,187 | ) |
1 | The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31. |
2 | For the sensitivity analysis the book loss of Canada in 2015 has not been taken into account. |
Interest rate risk
Aegon bears interest rate risk with many of its products. In cases where cash flows are highly predictable, investing in assets that closely match the cash flow profile of the liabilities can offset this risk. For some Aegon country units, local capital markets are not well developed, which prevents the complete matching of assets and liabilities for those businesses. For some products, cash flows are less predictable as a result of policyholder actions that can be affected by the level of interest rates.
In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
During periods of sustained low interest rates, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided on policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. Mortgage loans and redeemable bonds in the investment portfolio are more likely to be repaid as borrowers seek to borrow at lower interest rates and Aegon may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, net income declines as a result of a decrease in the spread between returns on the investment portfolio and the interest rates either credited to policyholders or assumed in reserves.
Aegon manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest Rate Risk policy that limits the amount of interest rate risk to which the Group is exposed. All derivative use is governed by Aegons Derivative Use Policy. A detailed description on the use of derivatives within Aegon is included in note 24 Derivatives.
180 | Notes to the consolidated financial statements Note 4 |
The following table shows interest rates at the end of each of the last five years.
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||
3-month US LIBOR |
0.61% | 0.26% | 0.25% | 0.31% | 0.58% | |||||||||||||||
3-month EURIBOR |
(0.13%) | 0.08% | 0.29% | 0.19% | 1.36% | |||||||||||||||
10-year US Treasury |
2.27% | 2.17% | 3.03% | 1.76% | 1.88% | |||||||||||||||
10-year Dutch government |
0.79% | 0.68% | 2.23% | 1.50% | 2.19% |
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders equity arising from the impact on general account investments and offset due to liabilities from insurance and investment contracts. In general, increases in interest rates are beneficial to Aegon. However, timing and valuation differences between assets and liabilities may cause short-term reductions in net income or solvency ratios as rates rise. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. Over time, the medium-term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. Therefore, higher interest rates are not considered a long-term risk to the Group. However, a long sustained period of low interest rates will erode net income due to lower returns earned on reinvestments.
Parallel movement of yield curve | Estimated approximate effects on net income |
Estimated approximate effects on shareholders equity |
||||||
2015 | ||||||||
Shift up 100 basis points |
390 | (4,428 | ) | |||||
Shift down 100 basis points |
(480 | ) | 2,559 | |||||
2014 | ||||||||
Shift up 100 basis points |
456 | (4,010 | ) | |||||
Shift down 100 basis points |
(568 | ) | 2,476 |
Credit risk
As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, Aegon typically bears the risk for investment performance which is equal to the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During financial downturns, Aegon can incur defaults or other reductions in the value of these securities and loans, which could have a materially adverse effect on Aegons business, results of operations and financial condition.
The table that follows shows the Groups maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 49 Transfer of financial assets for further information on collateral given, which may expose the Group to credit risk.
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Supplemental Annual Report 2015 |
181
2015 | Maximum exposure to credit risk |
Cash | Securities | Letters of credit / guaran- tees |
Real estate property |
Master netting agree- ments |
Other | Total collat- eral |
Surplus collateral (or overcollater- alization) |
Net exposure |
||||||||||||||||||||||||||||||
Debt securities -carried at fair value |
107,390 | - | - | 470 | - | - | - | 470 | - | 106,920 | ||||||||||||||||||||||||||||||
Money market and other short-term investments - carried at fair value |
7,444 | - | 984 | - | - | - | - | 984 | - | 6,460 | ||||||||||||||||||||||||||||||
Mortgage loans -carried at amortized cost |
32,899 | 2,070 | - | 1,387 | 45,244 | - | 1 | 48,702 | 15,644 | (159 | ) | |||||||||||||||||||||||||||||
Private loans - carried at amortized cost |
2,847 | - | - | - | - | - | - | - | - | 2,847 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost |
2,517 | - | - | - | - | - | 2,193 | 2,193 | 1,377 | 1,701 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value |
3,932 | - | - | - | - | - | - | - | - | 3,932 | ||||||||||||||||||||||||||||||
Derivatives |
10,643 | 1,510 | 696 | - | - | 7,972 | - | 10,178 | 58 | 523 | ||||||||||||||||||||||||||||||
Reinsurance assets |
11,193 | - | 5,345 | 178 | - | - | - | 5,523 | - | 5,670 | ||||||||||||||||||||||||||||||
At December 31 | 178,864 | 3,580 | 7,025 | 2,035 | 45,244 | 7,972 | 2,193 | 68,049 | 17,079 | 127,894 | ||||||||||||||||||||||||||||||
2014 | Maximum exposure to credit risk |
Cash | Securities | Letters of credit / guaran- tees |
Real estate property |
Master netting agree- ments |
Other | Total collat- eral |
Surplus collateral (or overcollater- alization) |
Net exposure |
||||||||||||||||||||||||||||||
Debt securities -carried at fair value |
103,324 | - | - | 500 | - | - | - | 500 | - | 102,824 | ||||||||||||||||||||||||||||||
Money market and other short-term investments |
||||||||||||||||||||||||||||||||||||||||
- carried at fair value |
7,299 | - | 874 | - | - | - | - | 874 | - | 6,425 | ||||||||||||||||||||||||||||||
Mortgage loans -carried at amortized cost |
31,729 | 1,911 | - | 1,688 | 41,337 | - | 1 | 44,938 | 13,933 | 725 | ||||||||||||||||||||||||||||||
Private loans - carried at amortized cost |
2,058 | - | - | - | - | - | - | - | - | 2,058 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost |
2,516 | - | - | - | - | - | 2,018 | 2,018 | 1,305 | 1,803 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value |
3,380 | - | - | - | - | - | - | - | - | 3,380 | ||||||||||||||||||||||||||||||
Derivatives |
27,183 | 3,932 | 356 | - | - | 22,207 | - | 26,495 | 33 | 721 | ||||||||||||||||||||||||||||||
Reinsurance assets |
9,494 | - | 4,709 | 170 | - | - | - | 4,879 | - | 4,615 | ||||||||||||||||||||||||||||||
At December 31 | 186,983 | 5,843 | 5,939 | 2,358 | 41,337 | 22,207 | 2,019 | 79,704 | 15,271 | 122,551 |
Debt securities
Several bonds in Aegon USAs portfolio are insured by monoline insurers. Further information on the monoline insurers is provided in the section Additional information on credit risk, unrealized losses and impairments.
Money market and short-term investments
The collateral reported for the money market and short-term investments are related to tri-party repurchase agreements (repos). Within tri-party repos Aegon invests under short-term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality, short-term securities and is only accessible for or available to Aegon in the event the counterparty defaults.
182 | Notes to the consolidated financial statements Note 4 |
Mortgage loans
The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the propertys net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands, collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically.
Cash collateral for mortgage loans includes the savings that have been received to redeem the underlying mortgage loans at redemption date. These savings are part of the credit side of the statement of financial position, but reduce the credit risk for the mortgage loan as a whole.
A substantial part of Aegons Dutch residential mortgage loan portfolio benefits from guarantees by a Dutch government-backed trust (Stichting Waarborgfonds Eigen Woning) through the Dutch Mortgage loan Guarantee program (NHG). These guarantees cover all principal losses, missed interest payments and foreclosure costs incurred upon termination and settlement of defaulted mortgage loans when lender-specific terms and conditions of the guarantee are met. When not fully met, the trust may pay claims in part or in full, depending on the severity of the breach of terms and conditions. For each specific loan, the guarantee amortizes in line with an equivalent annuity mortgage loan. When the remaining loan balance at default does not exceed the amortized guarantee, it covers the full loss under its terms and conditions. Any loan balance in excess of this decreasing guarantee profile serves as a first loss position for the lender. For NHG-backed mortgage loans originated after January 1st 2014, a 10% lender-incurred haircut applies on realized losses on each defaulted loan.
Derivatives
The master netting agreements column in the table relates to derivative liability positions which are used in Aegons credit risk management. The offset in the master netting agreements column includes balances where there is a legally enforceable right of offset, but no intention to settle these balances on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes.
Reinsurance assets
The collateral related to the reinsurance assets include assets in trust that are held by the reinsurer for the benefit of Aegon. The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 27 Reinsurance assets.
Other loans
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 22.1 Financial assets, excluding derivatives.
The total collateral includes both under- and over-collateralized positions. To present a net exposure of credit risk, the over-collateralization, which is shown in the surplus collateral column, is extracted from the total collateral.
Credit risk management
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegons legal entities to facilitate Aegons right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated A or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps, credit swaps and other bilateral exposure derivatives. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. In 2015 and 2014, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the
Supplemental Annual Report 2015 |
183
extent that financial liabilities due to the same counterparty will be settled after the assets are realized. New interest rate swap transactions in the US are traded via Central Clearing Houses as required by the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins.
Aegon may also mitigate credit risk in reinsurance contracts by including downgrade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modeling in order to assess the Groups credit risk profile, associated earnings and capital implications due to various credit loss scenarios.
Aegon operates a Credit Name Limit Policy (CNLP) under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moodys and Fitch) and Aegons internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from Aegons Group Risk and Capital Committee (GRCC). The policy is reviewed regularly.
At December 31, 2015 there was one violation of the Credit Name Limit Policy at Group level. This violation will be resolved overtime by reducing the exposure. At December 31, 2014 there were three violations of the Credit Name Limit Policy at Group level. These violations have been resolved in 2015 through reducing the exposure.
At December 31, 2015 Aegons largest corporate credit exposures are to American United Life Insurance Company, Berkshire Hathaway, General Electric, HSBC and JP Morgan. Aegon had large sovereign exposures, the largest being in the USA, the Netherlands, Germany, UK and Austria. Highly rated sovereign assets, that is AAA rated by all three agencies, and sovereign exposure domestically issued and owned in local currency are excluded from the Credit Name Limit Policy.
Aegon group level long-term counterparty exposure limits are as follows:
Group limit | ||||||||
Amounts in EUR million | 2015 | 2014 | ||||||
AAA |
900 | 900 | ||||||
AA |
900 | 900 | ||||||
A |
675 | 675 | ||||||
BBB |
450 | 450 | ||||||
BB |
250 | 250 | ||||||
B |
125 | 125 | ||||||
CCC or lower |
50 | 50 |
184 | Notes to the consolidated financial statements Note 4 |
Credit rating
The ratings distribution of general account portfolios of Aegons major reporting units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Aegon uses a composite rating based on a combination of the ratings of S&P, Moodys, Fitch, Internal and National Association of Insurance Commissioners (NAIC). The rating used is the lower of the external rating and the internal rating.
Americas | The Netherlands | |
United Kingdom |
|
|
Central & Eastern Europe |
|
|
Spain & Portugal |
|
Asia | |
Asset Management |
|
Total 2015 1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit rating general account investments, excluding reinsurance assets 2015 |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Total carrying value |
|||||||||||||||||||||||||||||||||||||||||||||||||||
AAA |
1,528 | 18,643 | 1,489 | 13,361 | - | 736 | - | 3 | - | 12 | - | 782 | - | - | 3,017 | 33,556 | 36,573 | |||||||||||||||||||||||||||||||||||||||||||||||||||
AA |
3,239 | 5,249 | 96 | 4,420 | - | 6,172 | - | 10 | - | 54 | - | 332 | - | - | 3,335 | 16,236 | 19,571 | |||||||||||||||||||||||||||||||||||||||||||||||||||
A |
2,813 | 24,525 | 202 | 2,054 | - | 3,654 | 31 | 73 | 59 | 163 | - | 1,415 | - | - | 3,105 | 31,901 | 35,006 | |||||||||||||||||||||||||||||||||||||||||||||||||||
BBB |
212 | 21,179 | 459 | 3,309 | - | 2,588 | 54 | 109 | 1 | 382 | - | 1,661 | - | - | 725 | 29,229 | 29,954 | |||||||||||||||||||||||||||||||||||||||||||||||||||
BB |
52 | 2,063 | 12 | 201 | - | 187 | 11 | 333 | - | 27 | - | 76 | - | - | 75 | 2,887 | 2,962 | |||||||||||||||||||||||||||||||||||||||||||||||||||
B |
- | 1,198 | - | 26 | - | 2 | 5 | - | - | - | - | 56 | - | - | 5 | 1,281 | 1,286 | |||||||||||||||||||||||||||||||||||||||||||||||||||
CCC or lower |
- | 969 | - | - | - | - | 4 | 8 | - | - | - | 15 | - | - | 4 | 991 | 995 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Assets not rated |
2,195 | 4,203 | 25,229 | 7,849 | - | 628 | 80 | 33 | 3 | 2 | 19 | - | - | 74 | 27,613 | 13,133 | 40,746 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Total |
10,038 | 78,029 | 27,487 | 31,220 | - | 13,968 | 186 | 568 | 62 | 639 | 19 | 4,337 | - | 74 | 37,880 | 129,214 | 167,093 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Past due and / or impaired assets |
23 | 1,479 | 520 | 119 | - | 1 | 154 | 2 | - | - | - | 54 | - | - | 697 | 1,655 | 2,352 | |||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31 | 10,062 | 79,508 | 28,007 | 31,339 | - | 13,969 | 340 | 570 | 62 | 639 | 19 | 4,391 | - | 74 | 38,577 | 130,868 | 169,445 | |||||||||||||||||||||||||||||||||||||||||||||||||||
1 Includes investments of Holding and other activities. |
|
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Supplemental Annual Report 2015 |
185
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Total 2014 1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Credit rating reinsurance assets 2014 |
Amor- cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Am- or- tized cost |
Fair value |
Am- or- tized cost |
Fair value |
Am- or- tized cost |
Fair value |
Am- or- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Total carrying value |
|||||||||||||||||||||||||||||||||||||||||||||||||||||
AAA |
1,418 | 17,059 | 866 | 14,729 | - | 651 | - | 3 | - | 16 | - | 598 | - | - | 2,284 | 33,163 | 35,447 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
AA |
3,281 | 6,184 | 362 | 3,431 | - | 5,413 | - | 8 | - | 49 | - | 253 | - | - | 3,643 | 15,321 | 18,964 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
A |
2,104 | 22,738 | 238 | 2,328 | - | 4,231 | 4 | 99 | 51 | 215 | - | 999 | - | - | 2,397 | 30,624 | 33,021 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BBB |
194 | 20,94 | 185 | 2,558 | - | 2,221 | 105 | 77 | - | 354 | - | 966 | - | - | 483 | 27,117 | 27,6 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BB |
131 | 2,016 | - | 186 | - | 149 | 5 | 359 | - | 23 | - | 48 | - | - | 137 | 2,781 | 2,918 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
B |
9 | 1,297 | - | - | - | 3 | 5 | 2 | - | - | - | 38 | - | - | 14 | 1,34 | 1,354 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
CCC or lower |
- | 861 | - | 18 | - | - | 3 | 11 | - | - | - | 2 | - | - | 3 | 891 | 894 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets not rated |
2,021 | 3,462 | 24,809 | 24,156 | - | 703 | 128 | 28 | 2 | 2 | 23 | - | - | 12 | 26,995 | 29,383 | 56,378 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Total |
9,159 | 74,557 | 26,460 | 47,406 | - | 13,371 | 250 | 587 | 53 | 659 | 23 | 2,904 | - | 12 | 35,956 | 140,621 | 176,576 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Past due and / or impaired assets |
28 | 1,54 | 592 | 122 | - | 2 | 161 | 2 | - | - | - | 21 | - | - | 782 | 1,687 | 2,469 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
At December 31 |
9,187 | 76,097 | 27,052 | 47,528 | - | 13,373 | 411 | 589 | 53 | 659 | 23 | 2,925 | - | 12 | 36,738 | 142,308 | 179,045 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Includes investments of Holding and other activities.
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: |
|
Carrying value 2015 |
Carrying value 2014 |
|||||||
AAA |
7 | 7 | ||||||
AA |
8,033 | 2,376 | ||||||
A |
2,771 | 6,768 | ||||||
Below A |
14 | 14 | ||||||
Not rated |
368 | 329 | ||||||
At December 31 |
11,193 | 9,494 |
186 | Notes to the consolidated financial statements Note 4 |
Credit risk concentration
The tables that follow present specific credit risk concentration information for general account financial assets.
Credit risk concentrations debt securities and money market investments 2015 |
Americas | The Netherlands |
United Kingdom |
Central & |
Spain & Portugal |
Asia | Asset Management |
Total 2015 1) |
Of which past due and / or assets | |||||||||
Residential mortgage-backed securities (RMBSs) |
4,326 | 757 | 21 | - | - | 62 | - | 5,167 | 1,355 | |||||||||
Commercial mortgage-backed securities (CMBSs) |
4,970 | 78 | 590 | - | - | 516 | - | 6,153 | 16 | |||||||||
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans |
959 | 2,055 | - | - | - | 28 | - | 3,041 | 7 | |||||||||
ABSs Other |
2,231 | 342 | 2,018 | - | 2 | 280 | - | 4,873 | 60 | |||||||||
Financial - Banking |
7,617 | 1,578 | 1,321 | 53 | 101 | 715 | - | 11,385 | 4 | |||||||||
Financial - Other |
10,787 | 222 | 920 | 13 | 115 | 431 | 65 | 12,570 | 1 | |||||||||
Industrial |
27,349 | 2,778 | 2,315 | 9 | 106 | 1,880 | - | 34,437 | 31 | |||||||||
Utility |
4,450 | 546 | 977 | 3 | 43 | 204 | - | 6,223 | - | |||||||||
Sovereign exposure |
9,794 | 15,015 | 5,178 | 450 | 271 | 275 | - | 30,984 | 46 | |||||||||
At December 31 |
72,484 | 23,370 | 13,341 | 528 | 638 | 4,391 | 65 | 114,834 | 1,521 | |||||||||
1 Includes investments of Holding and other activities. | ||||||||||||||||||
Credit risk concentrations debt securities and money market investments 2014 |
Americas | The Netherlands |
United Kingdom |
Central & Eastern |
Spain & Portugal |
Asia | Asset Management |
Total 2014 1) |
Of which past due | |||||||||
Residential mortgage-backed securities (RMBSs) |
4,584 | 932 | 21 | - | - | 64 | - | 5,601 | 1,405 | |||||||||
Commercial mortgage-backed securities (CMBSs) |
5,178 | 118 | 434 | - | - | 312 | - | 6,042 | 12 | |||||||||
Asset-backed securities (ABSs) -CDOs backed by ABS, Corp. bonds, Bank loans |
784 | 1,859 | - | - | - | 4 | - | 2,647 | 8 | |||||||||
ABSs Other |
2,229 | 440 | 2,124 | - | 1 | 164 | - | 4,957 | 57 | |||||||||
Financial - Banking |
7,241 | 753 | 1,405 | 66 | 152 | 451 | - | 10,163 | 9 | |||||||||
Financial - Other |
10,423 | 184 | 1,072 | 20 | 77 | 315 | 2 | 12,106 | 3 | |||||||||
Industrial |
26,815 | 2,747 | 2,398 | 7 | 106 | 1,197 | - | 33,270 | 16 | |||||||||
Utility |
4,041 | 615 | 1,010 | 3 | 50 | 112 | - | 5,831 | - | |||||||||
Sovereign exposure |
8,811 | 15,602 | 4,545 | 469 | 272 | 306 | - | 30,005 | 37 | |||||||||
At December 31 |
70,105 | 23,250 | 13,010 | 565 | 657 | 2,925 | 2 | 110,622 | 1,547 | |||||||||
1 Includes investments of Holding and other activities. | ||||||||||||||||||
Credit risk mortgage loans |
Americas | The Netherlands |
United Kingdom |
Central & |
Spain & Portugal |
Asia | Asset Management |
Total 2015 1) |
Of which | |||||||||
Agricultural |
101 | - | - | - | - | - | - | 101 | 10 | |||||||||
Apartment |
2,796 | - | - | - | - | - | - | 2,796 | - | |||||||||
Industrial |
837 | - | - | - | - | - | - | 837 | - | |||||||||
Office |
1,880 | 12 | - | - | - | - | - | 1,892 | 6 | |||||||||
Retail |
1,896 | 13 | - | - | - | - | - | 1,909 | 9 | |||||||||
Other commercial |
351 | 35 | - | - | - | - | - | 386 | 2 | |||||||||
Residential |
26 | 24,720 | - | 231 | 2 | - | - | 24,978 | 625 | |||||||||
At December 31 |
7,888 | 24,779 | - | 231 | 2 | - | - | 32,899 | 653 | |||||||||
1 Includes investments of Holding and other activities. |
|
Supplemental Annual Report 2015 |
187
Credit risk concentrations mortgage loans |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Total 2014 1) |
Of which past | |||||||||||||||||||||||||
Agricultural |
86 | - | - | - | - | - | - | 86 | 9 | |||||||||||||||||||||||||
Apartment |
2,030 | - | - | - | - | - | - | 2,030 | - | |||||||||||||||||||||||||
Industrial |
|
857 |
|
- | - | - | - | - | - | 857 | 2 | |||||||||||||||||||||||
Office |
2,096 | 14 | - | - | - | - | - | 2,110 | 10 | |||||||||||||||||||||||||
Retail |
1,800 | - | - | - | - | - | - | 1,800 | 7 | |||||||||||||||||||||||||
Other commercial |
297 | 53 | - | - | - | - | - | 351 | 4 | |||||||||||||||||||||||||
Residential |
26 | 24,186 | - | 284 | 1 | - | - | 24,496 | 699 | |||||||||||||||||||||||||
At December 31 |
7,192 | 24,253 | - | 284 | 1 | - | - | 31,729 | 731 | |||||||||||||||||||||||||
1 Includes investments of Holding and other activities. |
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2015, amounted to EUR 8,202 million (2014: EUR 7,622 million). The loan to value (LTV) amounted to approximately 55% (2014: 57%). Of the portfolio 0.07% (2014: 0.23%) is in delinquency (defined as 60 days in arrears). In 2015, Aegon Americas recognized EUR 5 million impairments (net of recoveries) (2014: EUR 8 million) on this portfolio. In 2015, Aegon Americas foreclosed upon, or recovered EUR 23 million (2014: EUR 16 million) of real estate. The 2015 additional impairments associated with these loans at the time of foreclosure amounted to EUR 3 million (2014: impairment recoveries of EUR 1 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2015, amounted to EUR 29,181 million (2014: EUR 28,758 million). The LTV amounted to approximately 90% (2014: 95%). A significant part of the portfolio (60%; 2014: 60%) is government guaranteed. Of the portfolio, 0.8% (2014: 0.9%) is in delinquency (defined as 60 days in arrears). Impairments in 2015 amounted to EUR 9 million (2014: EUR 4 million). During the last ten years defaults of the portfolio have been 5 basis points on average.
Unconsolidated structured entities
Aegons investments in unconsolidated structured entities such as RMBSs, CMBSs and ABSs and investment funds are presented in the line item Investments of the statement of financial position. Aegons interests in these unconsolidated structured entities can be characterized as basic interests, Aegon does not have loans, derivatives, guarantees or other interests related to these investments. Any existing commitments such as future purchases of interests in investment funds are disclosed in note 48 Commitments and contingencies.
For debt instruments, specifically for RMBSs, CMBSs and ABSs, the maximum exposure to loss is equal to the carrying amount which is reflected in the credit risk concentration table regarding debt securities and money market investments. To manage credit risk Aegon invests primarily in senior notes of RMBSs, CMBSs and ABSs. Additional information on credit ratings for Aegons investments in RMBSs, CMBSs and ABSs are disclosed in the sections that describe per category of debt securities the composition and impairment assessments. The composition of the RMBSs, CMBSs and ABSs portfolios of Aegon are widely dispersed looking at the individual amount per entity, therefore Aegon only has non-controlling interests in individual unconsolidated structured entities. Furthermore these investments are not originated by Aegon.
Except for commitments as noted in note 48 Commitments and contingencies, Aegon did not provide, nor is required to provide financial or other support to unconsolidated structured entities. Nor does Aegon have intentions to provide financial or other support to unconsolidated structured entities in which Aegon has an interest or previously had an interest.
For RMBSs, CMBSs and ABSs in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegons interests in RMBSs, CMBSs and ABSs.
188 | Notes to the consolidated financial statements Note 4 |
Total income for the year ended December 31, 2015 |
December 31, 2015 |
|||||||||||||||
2015 | Interest income |
Total gains and losses on sale of assets |
Total | Investments | ||||||||||||
Residential mortgage-backed securities |
241 | (42 | ) | 198 | 5,167 | |||||||||||
Commercial mortgage-backed securities |
221 | (12 | ) | 208 | 6,153 | |||||||||||
Asset-backed securities |
63 | 7 | 70 | 3,041 | ||||||||||||
ABSs - Other |
102 | 326 | 428 | 4,873 | ||||||||||||
Total |
626 | 278 | 905 | 19,234 |
Total income for the year ended December 31, 2014 |
December 31, 2014 |
|||||||||||||||
2014 | Interest income |
Total gains and |
Total | Investments | ||||||||||||
Residential mortgage-backed securities |
236 | 181 | 417 | 5,601 | ||||||||||||
Commercial mortgage-backed securities |
220 | 191 | 411 | 6,042 | ||||||||||||
Asset-backed securities |
47 | 3 | 50 | 2,647 | ||||||||||||
ABSs - Other |
170 | 547 | 717 | 4,957 | ||||||||||||
Total |
673 | 922 | 1,594 | 19,248 |
Monoline insurers
About EUR 0.5 billion of the bonds in Aegon USAs portfolio are insured by monoline insurers (2014: EUR 0.5 billion), of which
EUR 265 million of bonds (2014: EUR 261 million) in the EUR 0.9 billion subprime portfolio (2014: EUR 0.9 billion). Expected claims against the monolines amounted to EUR 72 million (2014: EUR 68 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
The following table breaks down bonds in Aegon USAs portfolio that are insured by monoline insurers.
2015 | 2014 | |||||||||||||||||||
Bonds insured by monoline insurers | Amortized cost |
Fair value | Amortized cost |
Fair value |
||||||||||||||||
AAA |
2 | 3 | 4 | 4 | ||||||||||||||||
AA |
7 | 7 | 9 | 9 | ||||||||||||||||
< AA |
464 | 446 | 497 | 475 | ||||||||||||||||
At December 31 |
473 | 456 | 510 | 488 | ||||||||||||||||
The rating that is provided by the rating agencies on these guaranteed bonds is the higher of the guarantors rating or the rating of the underlying bond itself. | ||||||||||||||||||||
Of the EUR 473 million (2014: EUR 510 million) indirect exposure on the monoline insurers, 38% relates to Municipal Bond Insurance Association, Inc. (MBIA), 14% to Ambac Financial Group, inc. (AMBAC), and 38% to Financial Security Assurance Inc. (FSA) (2014: 40% related to MBIA, 14% to AMBAC, and 36% to FSA). | ||||||||||||||||||||
At the end of 2015, Aegon USA had one indirect exposure of EUR 24 million via wrapped bonds via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are Aegons counterparty (2014: EUR 22 million). |
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189
Additional information on credit risk, unrealized losses and impairments | ||||||||||||
Debt instruments | ||||||||||||
The amortized cost and fair value of debt securities, money market investments and other, included in Aegons available-for-sale (AFS) portfolios, are as follows as of December 31, 2015, and December 31, 2014: |
2015 | Amortized cost |
Unrealized gains |
Unrealized losses |
Total fair value |
Fair value of instruments with unrealized gains |
Fair value
of unrealized |
||||||||||||||||||
Debt securities and money market instruments |
||||||||||||||||||||||||
United States government |
8,351 | 866 | (140 | ) | 9,077 | 6,266 | 2,811 | |||||||||||||||||
Dutch government |
4,245 | 822 | - | 5,068 | 5,049 | 19 | ||||||||||||||||||
Other government |
14,308 | 2,297 | (18 | ) | 16,587 | 15,497 | 1,090 | |||||||||||||||||
Mortgage-backed securities |
9,991 | 437 | (163 | ) | 10,265 | 6,239 | 4,025 | |||||||||||||||||
Asset-backed securities |
8,432 | 548 | (128 | ) | 8,852 | 5,171 | 3,682 | |||||||||||||||||
Corporate |
52,585 | 4,066 | (1,348 | ) | 55,302 | 40,336 | 14,967 | |||||||||||||||||
Money market investments |
7,141 | - | - | 7,141 | 7,141 | - | ||||||||||||||||||
Other |
1,120 | 232 | (56 | ) | 1,297 | 1,234 | 63 | |||||||||||||||||
Total | 106,173 | 9,268 | (1,852 | ) | 113,589 | 86,932 | 26,657 | |||||||||||||||||
Of which held by Aegon Americas, NL and UK |
100,715 | 9,029 | (1,766 | ) | 107,979 | 83,616 | 24,363 | |||||||||||||||||
2014 | Amortized cost |
Unrealized gains |
Unrealized losses |
Total fair value |
Fair value of instruments with unrealized gains |
Fair value of instruments with unrealized losses |
||||||||||||||||||
Debt securities and money market instruments |
||||||||||||||||||||||||
United States government |
6,731 | 1,092 | (22 | ) | 7,801 | 6,693 | 1,108 | |||||||||||||||||
Dutch government |
4,705 | 1,025 | (1 | ) | 5,729 | 5,707 | 23 | |||||||||||||||||
Other government |
13,439 | 2,559 | (29 | ) | 15,969 | 15,510 | 459 | |||||||||||||||||
Mortgage-backed securities |
10,017 | 637 | (124 | ) | 10,530 | 8,559 | 1,971 | |||||||||||||||||
Asset-backed securities |
8,011 | 696 | (123 | ) | 8,584 | 5,672 | 2,912 | |||||||||||||||||
Corporate |
47,561 | 5,758 | (435 | ) | 52,884 | 46,566 | 6,318 | |||||||||||||||||
Money market investments |
6,799 | - | - | 6,799 | 6,799 | - | ||||||||||||||||||
Other |
1,136 | 204 | (30 | ) | 1,310 | 1,140 | 170 | |||||||||||||||||
Total |
98,399 | 11,971 | (764 | ) | 109,606 | 96,646 | 12,960 | |||||||||||||||||
Of which held by Aegon Americas, NL and UK |
94,530 | 11,665 | (743 | ) | 105,453 | 93,142 | 12,311 |
190 | Notes to the consolidated financial statements Note 4 |
Unrealized bond losses by sector | ||||||||||||||||||||
The composition by industry category of Aegons available-for-sale (AFS) debt securities and money market investments in an unrealized loss position at December 31, 2015, and December 31, 2014, is presented in the following table: | ||||||||||||||||||||
December 31, 2015 | December 31, 2014 | |||||||||||||||||||
Unrealized losses - debt securities and money market investments |
Carrying instruments unrealized |
Gross unrealized losses |
Carrying value of instruments with unrealized losses |
Gross unrealized losses |
||||||||||||||||
Residential mortgage - backed securities (RMBSs) |
1,823 | (155 | ) | 1,249 | (145 | ) | ||||||||||||||
Commercial mortgage - backed securities (CMBSs) |
2,152 | (39 | ) | 987 | (18 | ) | ||||||||||||||
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans |
1,710 | (38 | ) | 1,552 | (54 | ) | ||||||||||||||
ABSs - Other |
1,501 | (47 | ) | 980 | (26 | ) | ||||||||||||||
Financial Industry - Banking |
1,919 | (169 | ) | 1,228 | (179 | ) | ||||||||||||||
Financial Industry - Insurance |
678 | (43 | ) | 242 | (15 | ) | ||||||||||||||
Financial Industry - Other |
711 | (31 | ) | 325 | (15 | ) | ||||||||||||||
Industrial |
9,036 | (976 | ) | 3,835 | (197 | ) | ||||||||||||||
Utility |
1,019 | (57 | ) | 239 | (11 | ) | ||||||||||||||
Sovereign |
3,753 | (154 | ) | 1,505 | (51 | ) | ||||||||||||||
Total held by Aegon Americas, NL and UK | 24,300 | (1,710 | ) | 12,142 | (713 | ) | ||||||||||||||
Held by other segments |
2,294 | (86 | ) | 648 | (21 | ) | ||||||||||||||
Total |
26,594 | (1,796 | ) | 12,790 | (734 | ) |
As of December 31, 2015, there are EUR 8,797 million (December 31, 2014: EUR 11,452 million) of gross unrealized gains and EUR 1,710 million (December 31, 2014: EUR 713 million) of gross unrealized losses in the AFS debt securities portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. One issuer represents more than 4% of the total unrealized loss position. The unrealized loss is EUR 140 million and relates to securities issued by the government of the United States of America.
Financial and credit market conditions were mixed over the course of 2015. Developed-world growth remains positive, but generally below potential, despite policy-makers efforts to generate a strong recovery. Emerging Market growth, including China, has fallen, generating weak market returns in those countries. US equity markets had modest returns, while global markets were mixed. The US dollar strengthened materially against most currencies. In December, the US Federal Reserve ended its zero interest rate policy and tightened the Fed Funds rate by 25 basis points. Longer term US Treasury rates, though, were only modestly higher for the year. Corporate default rates have remained relatively low due largely to readily available access to funding and strong corporate balance sheet fundamentals. However, credit spreads widened significantly during 2015, reflecting credit concerns in the energy, metals and mining sector and general risk aversion. Oil prices fell to multi-year lows late 2015. The increase in US Treasury rates, coupled with wider spreads, caused the market values of fixed income holdings to decrease relative to their carrying values.
Impairment of financial assets
Aegon regularly monitors industry sectors and individual debt securities for indicators of impairment. These indicators may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations by the issuer, 5) high probability of bankruptcy of the issuer, or 6) internationally recognized credit rating agency downgrades. Additionally, for asset-backed securities, cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that not all amounts due (both principal and interest) will be collected as contractually scheduled.
In the sections below a description is provided on the composition of the categories of debt securities and money market investments. Individual issuers rated below investment grade in any sector which have unrealized loss positions greater than EUR 25 million are disclosed separately. Furthermore, quality ratings of investment portfolios are based on a composite of the main rating agencies (S&P, Moodys and Fitch) and Aegons internal rating of the counterparty.
Residential mortgage-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,011 million (December 31, 2014: EUR 5,449 million) of residential mortgage-backed securities available-for-sale (RMBS), of which EUR 4,233 million (December 31, 2014: EUR 4,499 million) is held by Aegon Americas, EUR 757 million (December 31, 2014: EUR 932 million) by Aegon the Netherlands, and EUR 21 million
|
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191
(December 31, 2014: EUR 21 million) by Aegon UK. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USAs RMBS available-for-sale portfolio. Additionally, Aegon USA has investments in RMBS of EUR 93 million (December 31, 2014: EUR 88 million), which are classified as fair value through profit or loss.
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
GSE guaranteed |
1,471 | - | - | - | - | 1,471 | 1,493 | |||||||||||||||||||||
Prime jumbo |
- | 1 | 1 | 13 | 199 | 213 | 224 | |||||||||||||||||||||
Alt-A |
- | - | 30 | 3 | 476 | 509 | 596 | |||||||||||||||||||||
Negative amortization floaters |
- | - | - | 1 | 781 | 782 | 807 | |||||||||||||||||||||
Reverse mortgage RMBS |
- | - | - | 190 | 46 | 237 | 171 | |||||||||||||||||||||
Subprime mortgage 1) |
1 | 43 | 119 | 79 | 600 | 843 | 908 | |||||||||||||||||||||
Manufactured housing 1) |
- | - | 1 | 15 | 19 | 35 | 33 | |||||||||||||||||||||
Other housing 1) |
- | - | - | - | - | - | - | |||||||||||||||||||||
At December 31, 2015 | 1,472 | 44 | 151 | 301 | 2,121 | 4,090 | 4,232 | |||||||||||||||||||||
Of which insured |
- | - | 30 | - | 15 | 45 | 49 | |||||||||||||||||||||
1 Reported as part of asset-backed securities in the table on page 189. |
| |||||||||||||||||||||||||||
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
GSE guaranteed |
1,564 | - | - | - | - | 1,564 | 1,615 | |||||||||||||||||||||
Prime jumbo |
1 | 1 | 1 | 14 | 221 | 238 | 244 | |||||||||||||||||||||
Alt-A |
- | - | 31 | 3 | 489 | 523 | 632 | |||||||||||||||||||||
Negative amortization floaters |
- | - | - | 15 | 745 | 760 | 850 | |||||||||||||||||||||
Reverse mortgage RMBS |
- | - | - | 141 | 102 | 243 | 175 | |||||||||||||||||||||
Subprime mortgage 1) |
6 | 57 | 168 | 96 | 536 | 864 | 944 | |||||||||||||||||||||
Manufactured housing 1) |
- | - | 1 | 14 | 21 | 36 | 37 | |||||||||||||||||||||
Other housing 1) |
2 | - | - | - | - | 2 | 2 | |||||||||||||||||||||
At December 31, 2014 | 1,573 | 58 | 201 | 283 | 2,114 | 4,230 | 4,499 | |||||||||||||||||||||
Of which insured |
- | - | 146 | 1 | 224 | 372 | 355 |
1 | Reported as part of asset-backed securities in the table on page 189. |
RMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and stress-case scenarios. Aegons RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to- value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific securitys collateral attributes and historical performance.
Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegons modeling process for Prime Jumbo, Alt-A and Negative Amortization RMBS are as follows: prepayment assumptions range from approximately 0.5% to 35% with a weighted average of approximately 5.2% (December 31, 2014: 4.8%), assumed defaults on delinquent loans range from 53% to 100% with a weighted average of approximately 85.8% (December 31, 2014: 86.3%), assumed defaults on current loans are dependent on the specific securitys collateral attributes and historical performance, while loss severity assumptions range from approximately 13.9% to 75%, with a weighted average of approximately 55.7% (December 31, 2014: 54.7%). Additionally, quantitative ranges of significant assumptions within Aegons modeling process for the RMBS subprime mortgage portfolio are as follows: prepayment assumptions range from approximately 3% to 16% with a weighted average of
192 | Notes to the consolidated financial statements Note 4 |
approximately 6.1% (December 31, 2014: 6.2%), assumed defaults on delinquent loans range from 68% to 100% with a weighted average of approximately 89.6% (December 31, 2014: 89.9%), assumed defaults on current loans are dependent on the specific securitys collateral attributes and historical performance, while loss severity assumptions range from approximately 20% to 103%, with a weighted average of approximately 72.1% (December 31, 2014: 73.3%).
Once the entire pool is modeled, the results are closely analyzed by Aegons asset specialists to determine whether or not Aegons particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held. Aegon impairs its particular tranche to fair value where it would not be able to receive all contractual cash flows.
The total gross unrealized loss on AFS RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 155 million (December 31, 2014: 145 million), of which EUR 147 million (December 31, 2014: EUR 142 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS was EUR 159 million (December 31, 2014: EUR 309 million), including a EUR 145 million (December 31, 2014: EUR 269 million) net unrealized gain relating to positions of Aegon USA. The housing market in the United States has continued to improve as evidenced by rising home prices and sales volume. The pace of improvement has slowed considerably from the rapid pace seen post-financial crisis, and is expected to continue to moderate in the coming years. However, the positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated for subprime loans but are starting to show signs of improvement for other RMBS sectors. The improving housing market and underlying loan credit performance has led to credit spreads tightening across the asset class for the past few years, but the upside going forward is limited.
There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than EUR 25 million.
The fair values of Aegon USAs RMBS instruments (AFS and FVTPL) were determined as follows:
Level II | Level III | Total 2015 | Level II | Level III | Total 2014 | |||||||||||||||||||
RMBS |
4,068 | 258 | 4,326 | 4,320 | 264 | 4,584 |
Commercial mortgage-backed securities
As of December, 31, 2015, Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,636 million (December 31, 2014: EUR 5,701 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 4,969 million (December 31, 2014: EUR 5,149 million) is held by Aegon USA, EUR 590 million (December 31, 2014: EUR 434 million) by Aegon UK and EUR 78 million (December 31, 2014: EUR 118 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The companys CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations (CRE CDOs), collateralized debt obligations (CDOs), government agency, and franchise loan receivable trusts.
The total gross unrealized loss on AFS CMBS of Aegon Americas amounted to EUR 39 million as of December 31, 2015 (December 31, 2014: EUR 18 million). The total net unrealized gain on the available-for-sale CMBS as of December 31, 2015, is EUR 181 million (December 31, 2014: EUR 275 million), of which EUR 61 million (December 31, 2014: EUR 167 million) relates to positions of Aegon USA, followed by Aegon UK at EUR 119 million and Aegon the Netherlands at EUR 1 million. Throughout 2015, CMBS fundamentals continued to improve as the pace of credit deterioration moderated, commercial real estate valuations continued to improve and there was a greater availability of financing. Liquidity has improved within the CMBS market; however, credit spreads on many legacy subordinate CMBS tranches remain at wide levels.
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The tables below summarize the credit quality of Aegon USAs AFS CMBS portfolio. Additionally, Aegon USA has investments in CMBS of EUR 1 million (December 31, 2014: EUR 29 million), which are classified as fair value through profit or loss.
CMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
CMBS |
3,879 | 705 | 87 | 119 | 117 | 4,908 | 4,969 | |||||||||||||||||||||
At December 31, 2015 |
3,879 | 705 | 87 | 119 | 117 | 4,908 | 4,969 | |||||||||||||||||||||
CMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
CMBS |
4,038 | 548 | 103 | 119 | 173 | 4,981 | 5,149 | |||||||||||||||||||||
At December 31, 2014 |
4,038 | 548 | 103 | 119 | 173 | 4,981 | 5,149 |
CMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegons internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegons real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
Securities are impaired to fair value when Aegon expects that it will not receive all contractual cash flows on its tranches. As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2015.
There are no individual issuers rated below investment grade in the CMBS sector which have unrealized loss position greater than EUR 25 million.
The fair values of Aegon USAs CMBS instruments (AFS and FVTPL) were determined as follows:
Level II | Level III | Total 2015 | Level II | Level III | Total 2014 | |||||||||||||||||||
CMBS |
4,910 | 60 | 4,970 | 5,119 | 5,178 | 59 |
Asset-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 7,213 million (December 31, 2014: EUR 7,420 million) of AFS ABS instruments of which EUR 3,178 million (December 31, 2014: EUR 2,997 million) is held by Aegon USA, EUR 2,396 million (December 31, 2014: EUR 2,300 million) by Aegon the Netherlands and EUR 1,639 million (December 31, 2014 EUR 2,124 million) by Aegon UK. Additionally, Aegon Americas has investments in ABS of EUR 12 million (December 31, 2014: EUR 16 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
The total gross unrealized loss on AFS ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to EUR 85 million as of December 31, 2015 (December 31, 2014: EUR 80 million). Aegon USA has EUR 55 million (December 31, 2014: EUR 38 million) of this gross unrealized loss and Aegon the Netherlands EUR 29 million (December 31, 2014: EUR 41 million). The stronger financial and economic conditions have helped stabilize in the US and Europe, the performance of the underlying collateral backing many of these securities. The European ABS market had a reasonable strong start of the year. Towards the mid-part of 2015, the sentiment started to turn due to macroeconomic concerns about a slowdown in global economic growth and the oil turmoil. The combination of these factors has led to wider credit spreads over 2015. In the US, increasing investor demand has been met with new issuance in the asset-backed sector. The combination of these factors has led to varied performance by sector, with most sectors exhibiting wider credit spreads over the course of the year.
194 | Notes to the consolidated financial statements Note 4 |
The breakdown by quality of the available-for-sale ABS portfolio of Aegon USA, Aegon the Netherlands and Aegon UK is as follows:
ABS US, NL and UK | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
Credit cards |
392 | 63 | 36 | - | - | 491 | 505 | |||||||||||||||||||||
Autos |
246 | 18 | 13 | 20 | - | 297 | 297 | |||||||||||||||||||||
Small business loans |
- | 3 | 12 | - | 151 | 166 | 154 | |||||||||||||||||||||
CDOs backed by ABS, Corp. bonds, Bank loans |
1,747 | 744 | 304 | 128 | 107 | 3,031 | 3,005 | |||||||||||||||||||||
Other ABS | 738 | 424 | 1,708 | 333 | 53 | 3,256 | 3,636 | |||||||||||||||||||||
At December 31, 2015 |
3,122 | 1,252 | 2,074 | 482 | 312 | 7,241 | 7,596 | |||||||||||||||||||||
ABS US, NL and UK | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
Credit cards |
382 | 36 | 77 | 42 | - | 536 | 556 | |||||||||||||||||||||
Autos |
220 | 11 | 15 | 4 | - | 251 | 252 | |||||||||||||||||||||
Small business loans |
- | 5 | 23 | 51 | 114 | 193 | 187 | |||||||||||||||||||||
CDOs backed by ABS, Corp. bonds, Bank loans |
1,277 | 750 | 357 | 117 | 179 | 2,680 | 2,643 | |||||||||||||||||||||
Other ABS |
771 | 442 | 1,657 | 367 | 34 | 3,271 | 3,782 | |||||||||||||||||||||
At December 31, 2014 |
2,650 | 1,243 | 2,129 | 581 | 327 | 6,931 | 7,420 |
There were no individual issuers rated below investment grade in this ABS sector which has unrealized loss position greater than EUR 25 million.
The fair values of Aegon USA, Aegon the Netherlands and Aegon UK ABS instruments (AFS and FVTPL) were determined as follows:
Level II | Level III | Total 2015 | Level II | Level III | Total 2014 | |||||||||||||||||||
ABSs |
4,443 | 3,161 | 7,605 | 4,467 | 2,969 | 7,436 |
Corporate - Financial sector
The Corporate Financial sector is further subdivided into banking, brokerage, insurance, REITs and Financial Other sub-sectors. A majority of the gross unrealized loss in Aegons available-for-sale portfolio is from the banking sub-sector.
Corporate Financial sector Banking sub-sector
The Banking sub-sector in Aegons portfolio is relatively large, diverse, and of high quality. Aegon holds EUR 9,157 million (December 31, 2014: EUR 9,458 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounted to EUR 169 million (December 31, 2014: EUR 181 million) and the net unrealized gain on these bonds amounted to EUR 327 million (December 31, 2014: EUR 489 million).
Bank regulators have implemented a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity in an effort to reduce systemic risk. Many banks already meet new capital and liquidity requirements, well ahead of regulatory deadlines. In addition, regulators and central governments are adopting new bank guidelines, which are designed to reduce systemic risk by tapping loss-absorbing capital, as needed, to recapitalize or resolve a bank without using taxpayer money. Globally, risk concentrations on bank balance sheets continue to exist, and ratings for some banks remain under pressure, but central banks are accommodative and confidence in the sector has increased materially since the financial crisis.
Within the Banking sub-sector, Aegon holds EUR 1,053 million (December 31, 2014: EUR 1,116 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 119 million (December 31, 2014 EUR 114 million).
There is one individual issuer rated below investment grade in the Banking sub-sector which has unrealized losses greater than EUR 25 million.
Category | Fair value | Unrealized loss |
Rating | Aging of unrealized loss |
||||||||||||||||
Belfius Bank SA |
Banking | 90 | 36 | BB | > 24 months |
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Aegons available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 90 million as of December 31, 2015 (December 31, 2014: EUR 74 million). These below investment grade securities had gross unrealized losses of EUR 36 million as of December 31, 2015 (December 31, 2014: EUR 39 million). Belfius Bank SA was created as a result of the financial crisis, Belfius Bank has been 100% owned by the Belgium Government since it was split out of Dexia in October, 2011. The bank operates as a bank - insurer, providing public finance, project finance and other financial services to local governments, the public welfare sector and retail and corporate clients. Historically, the banks credit risk has been centered on three areas: 1) an oversized bond investment portfolio (wholesale funded); 2) a large amount of credit guarantees provided by Belfius and reinsured with monolines on bonds issued by entities principally active in infrastructure and public utilities projects; and 3) a significant level of funding exposure to Dexia Group. The funding provided to Dexia was repaid in February, 2015 and the bond portfolio and credit guarantees have declined in scale and will be run-down to a risk level in line with Belfius core franchise business. The material de-risking by the bank since 2011, combined with a relatively stable bank-insurance business model, has lessened Aegons concern with Belfius. Aegon evaluated the near-term prospects of the issuer and it believes that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
Corporate Industrial sector
The Corporate Industrial sector is further subdivided into various sub-sectors. A majority of Aegons available-for-sale portfolio gross unrealized loss is in the Basic Industry and Consumer Non-Cyclical sub-sectors.
Corporate Industrial sector Basic Industry sub-sector
The Basic Industry sector encompasses various sub-sectors including metals and mining, chemicals and paper and forest products, with the majority of the gross unrealized loss relating to metals and mining. Fundamentals for the metals and mining industry have been negatively impacted by falling prices for base metals, ferrous metals, precious metals, iron ore and coal. Slowing economic data out of China has resulted in reduced demand for the base metals and bulk steel-making commodities as the country comprises from 40% - 60% of global consumption for most of these commodities. The lack of a sufficient response on the supply side for these commodities has driven significant pricing pressure. The top line pressure companies are experiencing combined with their willingness to take on additional debt when commodity prices were rising has resulted in a substantial deterioration in credit metrics for the majority of the metals and mining industry. Chemicals have been positively impacted by continued low natural gas prices within the US, but given the global scale of most players in the industry, they have also been harmed by a slowdown in global growth as well as volatility in raw material costs, increasing competition from global peers and the potential for lower margins given falling oil prices. Paper and forest products have shown some improvement as the housing recovery takes hold in the United States, but more traditional paper products, such as newsprint, remain challenged. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2015.
There is one individual issuer rated below investment grade in the Basic Industry sub-sector which has unrealized losses greater than EUR 25 million.
Category | Fair value | Unrealized loss |
Rating | Aging of loss |
||||||||||||||||
Teck Resources Ltd. |
Basic Industry | 28 | 37 | BB | > 24 months |
Aegons available-for-sale debt securities for Teck Resources Limited have a fair value of EUR 28 million as of December 31, 2015. These below investment grade securities had gross unrealized losses of EUR 37 million as of December 31, 2015 (December 31, 2014: EUR 7 million). Teck Resources Limited is a diversified mining company with assets in Canada, the United States, Peru and Chile. The decline in value has been due to the weakness in pricing for metallurgical coal, copper and zinc, which are Tecks three main commodity exposures. The reduction in earnings relates to falling commodity prices, which is compounded by sizable capital expenditure commitments. Tecks liquidity position continues to remain solid. The weaker Canadian dollar and lower oil prices are helping to offset some of the top line pressure by driving down unit costs for Tecks commodity production. While pressure is expected to remain on commodity prices, Tecks maturity profile is not overly onerous relative to its liquidity position, providing it with an ample runway to wait out an improvement in commodity prices, therefore Aegon evaluated that the contractual terms of this investment will be met and was not impaired as of December 31, 2015.
Corporate Industrial sector Consumer Non-Cyclical sub-sector
The Consumer Non-Cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food and beverage and pharmaceuticals. Food and Beverage balance sheets have begun to modestly weaken as mergers and acquisitions have picked up in the sector. The activity has been in
196 | Notes to the consolidated financial statements Note 4 |
response to less impactful cost savings programs in a continued low volume, slow growth environment. While showing signs of stabilization, the pharmaceutical sector continues to deal with some patent cliff issues. As drugs roll off their patents, generic competition takes market share and pulls down margins. Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. Merger and acquisition activity continues to be prevalent in the sector, at times resulting in additional leverage. Finally, some companies have analyzed their business models and decided to spin off business lines, in an effort to concentrate on their core competencies. In certain instances, this has resulted in smaller, less diversified companies. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
Corporate Industrial sector Consumer Cyclical sub-sector
The Consumer Cyclical sub-sector encompasses various industries ranging from retailers to home construction. The more significant of these sub-sectors from an unrealized loss perspective are retailers, leisure, home construction and automotive. Within the retail sector, merger and acquisition activity has resulted in additional leverage and a more risky profile of some specific companies. As these companies realize synergies and right-size their capital structure with further debt reduction, operating metrics should show signs of stabilization. Lower fuel prices provide potential for additional consumer discretionary spending, especially in the lower-income demographic. The leisure sector should benefit from historically low fuel prices for both operators via lower operating costs, and consumers with additional cash in their wallets. The cruise line sector specifically also stands to benefit from increased customer penetration off a very low base, and entry into the high-potential Chinese market. The home construction sector continues to benefit from the housing recovery. In general, home closings and orders continue to grow at a healthy pace in most markets. However, companies are starting to note accelerated softness in oil and gas related housing markets. This, along with labor shortage issues and rising land costs, have negatively impacted recent results for some companies. Most enterprises still remain optimistic with the housing cycle and are continuing to invest in land to grow its business. Therefore, leverage remains elevated and companies are relying on the capital markets to address near term obligations. Within the automotive sector, the underlying fundamentals driving sales and earnings performance of the automotive industry continue to be supported by relatively strong consumer confidence, high credit availability, low oil prices and financing rates and continued demand for high-margin full-size pickups and SUVs. Lower fixed cost structures have improved the profitability and lowered the breakeven production and sales levels for the industry. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
Corporate Industrial sector Capital Goods sub-sector
The Capital Goods sub-sector encompasses various sub-sectors including building materials, diversified manufacturing, aerospace/ defense, packaging, environmental and construction machinery. The more significant of these sub-sectors from an unrealized loss perspective are building materials, diversified manufacturing and aerospace/defense. In general, the building material industry continues to benefit from growth in overall construction spending. Growth has been tempered lately by labor shortage issues, which is contributing to project delays and higher costs. However, most companies maintain a favorable outlook and continue to use excess cash or incremental borrowings to fund growth initiatives. Therefore, given the business is highly cyclical, the recent softness in pockets of the economy has weighed on companies with constrained liquidity and near term debt maturities. The diversified manufacturing space has shown signs of weakness due to lower capital spending by customers engaged in the oil & gas markets. With oil prices at historically low levels, customers are reluctant to take on additional projects or spend capital to improve their infrastructure. Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. In the aerospace/ defense sector, demand for commercial aircraft has been weaker than expected, as low fuel prices have pushed out demand and may put pressure on historically low order cancellation rates for more fuel efficient commercial aircraft. Additionally, the business jet market has seen signs of weakness and deliveries are expected to be lower in 2016 compared to 2015. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
Corporate Industrial sector Transportation sub-sector
The Transportation sub-sector can be further divided into airlines, railroads and transportation services. The majority of the gross unrealized loss relates to completed and operating private infrastructure, such as airports, ports and toll roads. These investments tend to trade at tighter yields than the broader transportation sector due to limited competition and the benefit of security in long-life asset. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments impaired as of December 31, 2015.
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Corporate Industrial sector Communication sub-sector
The Communication sector encompasses various sub-sectors including cable satellite, media entertainment, wireless and wirelines. Merger and acquisition speculation and activity created volatility in each of the sub-sectors during the year. In addition, several issuers in the communications sector are among the largest issuers in the market and were negatively impacted by the sell-off in liquid securities. On a fundamental basis, the competitive environment in the wireless market remains challenging. The wireline market continues to see a gradual secular decline, whereas cable continues to benefit from the demand for broadband. Media is experiencing an evolution away from traditional media to digital. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
There are no remaining individual issuers rated below investment grade in the Corporate Industrial sector which have unrealized loss positions greater than EUR 25 million.
Corporate Energy industry sector
The Energy Industry sector encompasses various sub-sectors including integrated oil and gas producers, independent oil and gas producers, midstream processing and transport, oil field services and drilling, and refining. The majority of the gross unrealized loss relates to independent oil and gas producers, as well as oil field services and drilling. Falling oil prices, and continued low natural gas prices, have reduced cash flow for upstream oil and gas producers. Oil field service and drilling companies have been pressured by the prospect of margin pressure resulting from new capacity additions and the prospect of lower capital spending by their upstream client base. Commodity price pressure stems from strong non-OPEC supply growth, softening global demand, and shifting OPEC policy. Companies have responded with capital spending and cost reduction programs, but cash flows and credit metrics continue to weaken. Some issuers have also initiated debt exchange offers that have put additional pressure on security pricing. Midstream processing and transport companies have begun to be impacted by weaker volume growth, higher capital costs, counterparty concerns, and in some cases, commodity price exposure. Refiners have seen positive near term impacts from lower feedstock costs and stronger demand. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2015.
There is one individual issuer rated below investment grade in the Energy Industry sector which has unrealized losses greater than EUR 25 million.
Category | Fair value | Unrealized loss |
Rating | Aging of unrealized loss |
||||||||||||||||
Transocean Inc. |
Energy | 27 | 26 | BB | > 24 months |
Aegons available-for-sale debt securities for Transocean Inc. have a fair value of EUR 27 million as of December 31, 2015. These below investment grade securities had gross unrealized losses of EUR 26 million as of December 31, 2015 (December 31, 2014: EUR 9 million). Transocean is an offshore drilling contractor, leasing rigs to the energy industry. Transocean is wholly dependent on the financial standing and capital spending of its customers engaged in exploring and producing oil and natural gas. The weak oil prices have negatively affected the outlook for 2016 and 2017 upstream capital spending. Also, negative rig supply and demand dynamics have affected pricing and utilization. As a result, Transoceans near-term EBITDA throughout 2016 and 2017 is expected to fall materially. The negative fundamental landscape and negative ratings migration has led to the decline in bond prices. Transocean currently has a strong liquidity position. Also, the elimination of Transoceans dividend and the delay of capital spending has better matched its cash flow outspend. Lastly, there is likely secured financing available to Transocean over this timeframe as it has contracted rigs through 2020+ with IG customers that are currently unencumbered. This last step may be needed in 2018, by which time we expect oil prices and upstream capital expenditures to be a bit more favorable than the current environment. As a result, no impairment is warranted at this time.
Corporate Utility sector
The Utility sector is further subdivided into electric, natural gas and other sub-sectors, with a majority of the gross unrealized losses in electrics domiciled in the United States.
Within the Electric sub-sector, regulated electric utilities, which account for the majority of debt issuance in the sector, continue to produce predictable cash flow and credit trends have been stable to improving for most companies operating in the United States. The low natural gas price environment has generally been beneficial for regulated utilities because it has had the effect of decreasing the fuel component on customers bills. Lower all in cost to the customer generally enables increases in other operating costs to be passed through with less regulatory lag. Unregulated merchant power generators operating in the United States have been negatively
198 | Notes to the consolidated financial statements Note 4 |
impacted by low natural gas prices and the corresponding low electricity prices as well as reduced customer usage. These companies have experienced margin pressure for their coal and nuclear generation assets. Absent a recovery in electricity prices, credit fundamentals for merchant generators could show further deterioration as hedges continue to roll-off. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
There are no individual issuers rated below investment grade in this sub-sector which have unrealized loss positions greater than EUR 25 million.
Sovereign
Aegon Americas, Aegon the Netherlands and Aegon UKs government issued available-for-sale debt securities include emerging market sovereign bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2015.
There are no individual issuers rated below investment grade in the sovereign sector which have unrealized loss positions greater than EUR 25 million.
Unrealized loss by maturity
The table below shows the composition by maturity of all available-for-sale debt securities in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
December 31, 2015 | December 31, 2014 | |||||||||||||||
Carrying value of |
Gross unrealized losses |
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
|||||||||||||
One year or less |
1,172 | (22 | ) | 674 | (6 | ) | ||||||||||
Over 1 through 5 years |
5,011 | (225 | ) | 3,178 | (136 | ) | ||||||||||
Over 5 through 10 years |
7,496 | (386 | ) | 3,891 | (145 | ) | ||||||||||
Over 10 years |
10,621 | (1,077 | ) | 4,268 | (425 | ) | ||||||||||
Total |
24,300 | (1,710 | ) | 12,011 | (713 | ) |
Unrealized loss by credit quality
The table below shows the composition by credit quality of debt securities, available-for-sale, in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
December 31, 2015 | December 31, 2014 | |||||||||||||||
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
|||||||||||||
AAA |
6,740 | (188 | ) | 2,980 | (44 | ) | ||||||||||
AA |
2,381 | (54 | ) | 1,209 | (25 | ) | ||||||||||
A |
4,127 | (204 | ) | 2,080 | (93 | ) | ||||||||||
BBB |
8,021 | (752 | ) | 3,570 | (250 | ) | ||||||||||
BB |
1,420 | (287 | ) | 1,060 | (172 | ) | ||||||||||
B |
812 | (91 | ) | 615 | (41 | ) | ||||||||||
Below B |
799 | (134 | ) | 498 | (89 | ) | ||||||||||
Total |
24,300 | (1,710 | ) | 12,011 | (713 | ) |
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The table below provides the length of time an available-for-sale security has been below cost and the respective unrealized loss.
At December 31, 2015 | ||||||||||||||||
Investment grade of securities with
gross |
Below investment grade carrying value of securities with gross unrealized losses |
Investment grade unrealized loss |
Below investment grade unrealized loss |
|||||||||||||
0 6 months |
12,890 | 1,458 | (516 | ) | (121 | ) | ||||||||||
6 12 months |
4,334 | 357 | (267 | ) | (80 | ) | ||||||||||
> 12 months |
4,045 | 1,216 | (416 | ) | (311 | ) | ||||||||||
Total |
21,269 | 3,031 | (1,198 | ) | (512 | ) | ||||||||||
At December 31, 2014 | ||||||||||||||||
Investment grade carrying value of securities with gross unrealized losses |
Below investment grade carrying value of securities with gross unrealized losses |
Investment grade unrealized loss |
Below investment grade unrealized loss |
|||||||||||||
0 6 months |
4,799 | 1,058 | (104 | ) | (58 | ) | ||||||||||
6 12 months |
637 | 104 | (21 | ) | (9 | ) | ||||||||||
> 12 months |
4,403 | 1,011 | (286 | ) | (234 | ) | ||||||||||
Total |
9,839 | 2,173 | (411 | ) | (302 | ) |
The unrealized loss worsened during 2015 due to rising interest rates and widening credit spreads in the US and UK.
Aging and severity unrealized losses
The table below provides the length of time a below investment grade security has been in an unrealized loss and the percentage of carrying value (CV) to amortized cost in Aegon Americas, Aegon the Netherlands and Aegon UK.
2015 | 2014 | |||||||||||||||
Aging and severity unrealized losses |
Carrying |
Unrealized losses |
Carrying value |
Unrealized losses |
||||||||||||
CV 70-100% of amortized cost |
1,422 | (97 | ) | 1,054 | (55 | ) | ||||||||||
CV 40-70% of amortized cost |
33 | (16 | ) | 4 | (3 | ) | ||||||||||
CV < 40% of amortized cost |
4 | (8 | ) | - | - | |||||||||||
0-6 months |
1,458 | (121 | ) | 1,058 | (58 | ) | ||||||||||
CV 70-100% of amortized cost |
308 | (45 | ) | 104 | (9 | ) | ||||||||||
CV 40-70% of amortized cost |
48 | (33 | ) | - | - | |||||||||||
CV < 40% of amortized cost |
1 | (2 | ) | - | - | |||||||||||
6-12 months |
357 | (80 | ) | 104 | (9 | ) | ||||||||||
CV 70-100% of amortized cost |
337 | (46 | ) | 137 | (9 | ) | ||||||||||
CV 40-70% of amortized cost |
73 | (58 | ) | 17 | (14 | ) | ||||||||||
CV < 40% of amortized cost |
5 | (22 | ) | - | (1 | ) | ||||||||||
12-24 months |
415 | (125 | ) | 154 | (24 | ) | ||||||||||
CV 70-100% of amortized cost |
761 | (143 | ) | 713 | (118 | ) | ||||||||||
CV 40-70% of amortized cost |
26 | (13 | ) | 136 | (76 | ) | ||||||||||
CV < 40% of amortized cost |
15 | (29 | ) | 7 | (16 | ) | ||||||||||
> 24 months
|
802 | (185 | ) | 857 | (210 | ) | ||||||||||
Total |
3,031 | (512 | ) | 2,173 | (302 | ) |
There are three individual issuers, Belfius Bank SA, Teck Resources and Transocean Inc. rated below investment grade that have an unrealized loss greater than EUR 25 million. These issuers have been separately disclosed above in the Corporate Financial sector and Industrial sector portions of note 4.
200 | Notes to the consolidated financial statements Note 4 |
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK The following table provides the realized gains and losses on the debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK for the twelve months ended December 31, 2015, and December 31, 2014.
|
| |||||||||||||
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK | Gross realized gains |
Gross realized losses |
||||||||||||
December 31, 2015 | ||||||||||||||
Debt securities |
553 | (207 | ) | |||||||||||
December 31, 2014 |
||||||||||||||
Debt securities |
584 | (124 | ) | |||||||||||
The table below provides the length of time the security was below cost prior to the sale and the respective realized loss for assets not considered impaired.
|
| |||||||||||||
Gross realized losses | ||||||||||||||
0 -12 months | >12 months | Total | ||||||||||||
December 31, 2015 | ||||||||||||||
Debt securities |
(154 | ) | (53 | ) | (207 | ) | ||||||||
December 31, 2014 |
||||||||||||||
Debt securities |
(58 | ) | (66 | ) | (124 | ) | ||||||||
Impairment losses and recoveries The composition of Aegon Americas, Aegon the Netherlands and Aegon UKs bond impairment losses and recoveries by issuer for the periods ended December 31, 2015, and December 31, 2014, is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted. |
|
2015 | 2014 | |||||||
(Impairment) / recovery |
(Impairment) / recovery |
|||||||
Impairments: | ||||||||
Other (none individually greater than EUR 25 million) |
(32 | ) | (36 | ) | ||||
Subtotal |
(32 | ) | (36 | ) | ||||
Recoveries: |
||||||||
Total recoveries |
110 | 56 | ||||||
Sub-total
|
110 | 56 | ||||||
Net (impairments) and recoveries |
77 | 20 |
Net (impairments) and recoveries
Net recoveries for the twelve months ended December 31, 2015, totaled EUR 77 million (twelve months ended December 31, 2014: EUR 20 million net recoveries).
For the twelve months ended December 31, 2015, Aegon recognized EUR 110 million (twelve months ended December 31,
2014: EUR 56 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
In 2015, Aegon recognized EUR 83 million in recoveries on an investment, Countrywide, which is based on the Bank of America legal settlement process stemming from the financial crisis.
Past due and impaired assets
The tables that follow provide information on past due and individually impaired financial assets for the whole Aegon Group. An asset is past due when a counterparty has failed to make a payment when contractually due. Assets are impaired when an impairment loss
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has been charged to the income statement relating to this asset. After the impairment loss is reversed in subsequent periods, the asset is no longer considered to be impaired. When the terms and conditions of financial assets have been renegotiated, the terms and conditions of the new agreement apply in determining whether the financial assets are past due.
Aegons policy is to pursue realization of the collateral in an orderly manner as and when liquidity permits. Aegon generally does not use the non-cash collateral for its own operations.
2015 | 2014 | |||||||||||||||||||||||||||||||
Past due but not impaired assets | 0-6 months |
6-12 months |
> 1 year | Total | 0-6 months |
6-12 months |
> 1 year | Total | ||||||||||||||||||||||||
Debt securities - carried at fair value |
51 | 3 | 53 | 108 | 10 | 53 | 14 | 77 | ||||||||||||||||||||||||
Mortgage loans |
58 | 4 | 6 | 68 | 51 | 4 | 6 | 61 | ||||||||||||||||||||||||
Other loans |
29 | - | - | 29 | 38 | - | 1 | 40 | ||||||||||||||||||||||||
Accrued interest |
- | - | 6 | 7 | - | 3 | 1 | 4 | ||||||||||||||||||||||||
At December 31 |
138 | 8 | 65 | 211 | 99 | 60 | 23 | 182 |
Impaired financial assets |
Carrying amount 2015 |
Carrying amount 2014 |
||||||
Shares |
128 | 132 | ||||||
Debt securities - carried at fair value |
1,413 | 1,470 | ||||||
Mortgage loans |
584 | 670 | ||||||
Private Loans |
9 | 7 | ||||||
Other loans |
7 | 4 | ||||||
Other financial assets - carried at fair value |
5 | 8 | ||||||
At December 31 |
2,147 | 2,291 |
Equity instruments classified as available-for-sale
Objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. Significant or prolonged decline is generally defined within Aegon as an unrealized loss position for more than six months or a fair value of less than 80% of the cost price of the investment. Additionally, as part of an ongoing process, the equity analysts actively monitor earnings releases, company fundamentals, new developments and industry trends for any signs of possible impairment.
These factors typically require significant management judgment. The impairment review process has resulted in EUR 4 million of impairment charges for the twelve months ended December 31, 2015 (twelve months ended December 31, 2014: EUR 3 million) for Aegon Americas, Aegon the Netherlands and Aegon UK.
As of December 31, 2015, there are EUR 121 million of gross unrealized gains and EUR 13 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2014: EUR 180 million of gross unrealized gains and EUR 12 million of gross unrealized losses). There are no securities held by Aegon with an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
Cost basis | Carrying value | Net unrealized gains / (losses) |
Carrying value of securities with gross unrealized gains |
Gross unrealized gains |
Carrying value of securities with
gross |
Gross unrealized losses |
||||||||||||||||||||||
December 31, 2015 | ||||||||||||||||||||||||||||
Shares |
593 | 794 | 201 | 747 | 214 | 47 | (13 | ) | ||||||||||||||||||||
December 31, 2014 |
||||||||||||||||||||||||||||
Shares |
444 | 610 | 166 | 538 | 177 | 72 | (11 | ) |
202 | Notes to the consolidated financial statements Note 4 |
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK at December 31, 2015, and December 31, 2014 is presented in the table below.
2015 | 2014 | |||||||||||||||
Unrealized losses on shares | Carrying value of instruments with unrealized losses |
Gross unrealized losses |
Carrying value of instruments with unrealized losses |
Gross unrealized losses |
||||||||||||
Consumer |
- | - | 12 | - | ||||||||||||
Financials |
47 | (13 | ) | 54 | (11 | ) | ||||||||||
Funds |
- | - | 5 | (1 | ) | |||||||||||
Total |
47 | (13 | ) | 72 | (11 | ) |
Impairment losses on shares
The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to their impairment in 2015 and 2014.
In million EUR | 0-6 months | |||
2015 | ||||
Shares |
- | |||
2014 |
||||
Shares |
(2 | ) |
Equity market risk and other investments risk
Fluctuations in the equity, real estate and capital markets have affected Aegons profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for policyholders where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
The general account equity, real estate and other non-fixed-income portfolio of Aegon is as follows:
Equity, real estate and non-fixed income exposure |
Americas | The Netherlands |
United Kingdom |
Central & |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Total 2015 |
|||||||||||||||||||||||||||
Equity funds |
152 | 470 | 31 | 24 | 1 | - | - | - | 679 | |||||||||||||||||||||||||||
Common shares 1) |
303 | - | 475 | 14 | - | - | - | 114 | 907 | |||||||||||||||||||||||||||
Preferred shares |
228 | - | - | 2 | - | - | - | - | 230 | |||||||||||||||||||||||||||
Investments in real estate |
840 | 1,148 | - | 2 | - | - | - | - | 1,990 | |||||||||||||||||||||||||||
Hedge funds |
1,581 | 1 | - | - | - | - | 2 | - | 1,585 | |||||||||||||||||||||||||||
Other alternative investments |
1,385 | - | - | - | - | - | - | 10 | 1,395 | |||||||||||||||||||||||||||
Other financial assets |
585 | - | 4 | 1 | - | - | 7 | - | 596 | |||||||||||||||||||||||||||
At December 31 |
5,074 | 1,619 | 509 | 44 | 2 | - | 9 | 124 | 7,382 |
1 | Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 1 million. |
|
Supplemental Annual Report 2015 |
203
Equity, real estate and non-fixed income exposure |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holding and other activities |
Total 2014 |
|||||||||||||||||||||||||||
Equity funds |
141 | 518 | - | 12 | 1 | - | 2 | - | 674 | |||||||||||||||||||||||||||
Common shares 1) |
272 | 7 | 196 | 9 | - | - | - | 105 | 591 | |||||||||||||||||||||||||||
Preferred shares |
254 | - | - | 2 | - | - | - | - | 256 | |||||||||||||||||||||||||||
Investments in real estate |
721 | 1,069 | - | 2 | - | - | - | - | 1,792 | |||||||||||||||||||||||||||
Hedge funds |
786 | 1 | - | - | - | - | - | - | 787 | |||||||||||||||||||||||||||
Other alternative investments |
1,408 | - | - | - | - | - | - | - | 1,408 | |||||||||||||||||||||||||||
Other financial assets |
645 | - | 134 | 1 | - | - | 7 | - | 786 | |||||||||||||||||||||||||||
At December 31 |
4,227 | 1,596 | 330 | 25 | 2 | - | 9 | 105 | 6,295 | |||||||||||||||||||||||||||
1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 1 million.
|
| |||||||||||||||||||||||||||||||||||
Market risk concentrations shares |
Americas | The Nether- lands |
United Kingdom |
Central & |
Spain & Portugal |
Asia | Asset Manage- ment |
Total 2015 1) |
Of which impaired assets |
|||||||||||||||||||||||||||
Communication |
43 | - | - | - | - | - | - | 48 | - | |||||||||||||||||||||||||||
Consumer |
25 | - | - | - | - | - | - | 43 | - | |||||||||||||||||||||||||||
Financials |
557 | 4 | 190 | - | - | - | - | 775 | 6 | |||||||||||||||||||||||||||
Funds |
- | 129 | 316 | 36 | 1 | - | - | 547 | 121 | |||||||||||||||||||||||||||
Industries |
12 | - | - | - | - | - | - | 16 | - | |||||||||||||||||||||||||||
Other |
14 | 4 | - | 2 | - | - | 2 | 31 | 2 | |||||||||||||||||||||||||||
At December 31 |
652 | 136 | 506 | 38 | 2 | - | 2 | 1,460 | 128 | |||||||||||||||||||||||||||
1 Includes investments of Holding and other activities.
|
| |||||||||||||||||||||||||||||||||||
Market risk concentrations shares |
Americas | The Nether- lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Total 2014 1) |
Of which impaired assets |
|||||||||||||||||||||||||||
Communication |
40 | 1 | - | - | - | - | - | 43 | - | |||||||||||||||||||||||||||
Consumer |
16 | 2 | - | - | - | - | - | 30 | 2 | |||||||||||||||||||||||||||
Financials |
545 | 5 | - | 2 | - | - | - | 578 | 1 | |||||||||||||||||||||||||||
Funds |
- | 146 | 196 | 17 | 2 | - | - | 408 | 124 | |||||||||||||||||||||||||||
Industries |
24 | 1 | - | 1 | - | - | - | 36 | - | |||||||||||||||||||||||||||
Other |
11 | 6 | - | - | - | - | 2 | 29 | 5 | |||||||||||||||||||||||||||
At December 31 |
636 | 161 | 196 | 21 | 2 | - | 2 | 1,123 | 132 | |||||||||||||||||||||||||||
1 Includes investments of Holding and other activities. |
|
The table that follows sets forth the closing levels of certain major indices at the end of the last five years.
|
|
|||||||||||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | ||||||||||||||||||||||||
S&P 500 |
2,044 | 2,059 | 1,848 | 1,426 | 1,258 | |||||||||||||||||||||||
Nasdaq |
5,007 | 4,736 | 4,177 | 3,020 | 2,605 | |||||||||||||||||||||||
FTSE 100 |
6,242 | 6,566 | 6,749 | 5,898 | 5,572 | |||||||||||||||||||||||
AEX |
442 | 424 | 402 | 343 | 312 |
The sensitivity analysis of net income and shareholders equity to changes in equity prices is presented in the table below. The sensitivity of shareholders equity and net income to changes in equity markets reflects changes in the market value of Aegons portfolio, changes in DPAC amortization, contributions to pension plans for Aegons employees and the strengthening of the guaranteed minimum benefits, when applicable. The results of equity sensitivity tests are non-linear. The main reason for this is due to equity options sold to clients that are embedded in some of these products and that more severe scenarios could cause accelerated DPAC amortization and guaranteed minimum benefits provisioning, while moderate scenarios may not. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon holds options in its portfolio to provide protection for equity market declines. In 2015 Aegon added options to the portfolio to provide additional protection.
204 | Notes to the consolidated financial statements Note 4 |
Sensitivity analysis of net income and shareholders equity to equity markets Immediate change of |
Estimated approximate effects on net income |
Estimated approximate effects on shareholders equity |
||||||
2015 | ||||||||
Equity increase 10% |
132 | 237 | ||||||
Equity decrease 10% |
25 | (99 | ) | |||||
Equity increase 20% |
279 | 504 | ||||||
Equity decrease 20% |
104 | (132 | ) | |||||
2014 |
||||||||
Equity increase 10% |
107 | 244 | ||||||
Equity decrease 10% |
(115 | ) | (247 | ) | ||||
Equity increase 20% |
146 | 413 | ||||||
Equity decrease 20% |
(209 | ) | (474 | ) |
Liquidity risk
Liquidity risk is inherent in much of Aegons business. Each asset purchased and liability incurred has its own liquidity characteristics. Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity. If Aegon requires significant amounts of cash on short notice in excess of normal cash requirements and existing credit facilities, it may have difficulty selling these investments at attractive prices or in a timely manner.
Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegons financial strength due to multiple downgrades of the Groups credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All legal entities and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario.
Aegon held EUR 36,521 million of general account investments in cash, money market products and sovereign bonds that are readily saleable or redeemable on demand (2014: EUR 35,604 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back-up credit facilities, as disclosed in note 39 Borrowings, amounting to EUR 3,568 million which were unused at the end of the reporting period (2014: EUR 4,404 million).
The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category On demand. If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.
To manage the liquidity risk arising from financial liabilities, Aegon holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. For this reason, Aegon believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk.
|
Supplemental Annual Report 2015 |
205
Maturity analysis gross undiscounted contractual
cash (for non-derivatives) |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount |
||||||||
2015 |
||||||||||||||
Trust pass-through securities |
- | 9 | 38 | 47 | 169 | 263 | ||||||||
Subordinated loans |
- | 28 | 112 | 112 | 1,183 | 1,435 | ||||||||
Borrowings |
- | 2,665 | 7,117 | 430 | 3,833 | 14,045 | ||||||||
Investment contracts 1) |
10,285 | 2,140 | 2,056 | 1,062 | 1,683 | 17,225 | ||||||||
Investment contracts for account of policyholders 1) |
32,786 | 3,261 | - | - | 282 | 36,329 | ||||||||
Other financial liabilities |
7,291 | 2,757 | 871 | 12 | 29 | 10,962 | ||||||||
2014 | ||||||||||||||
Trust pass-through securities |
- | 8 | 34 | 42 | 160 | 244 | ||||||||
Subordinated loans |
- | 28 | 112 | 140 | 1,134 | 1,414 | ||||||||
Borrowings |
- | 3,684 | 6,472 | 1,884 | 3,527 | 15,568 | ||||||||
Investment contracts 1) |
8,795 | 2,171 | 2,516 | 1,320 | 1,058 | 15,861 | ||||||||
Investment contracts for account of policyholders 1) |
29,911 | 3,427 | - | - | 114 | 33,453 | ||||||||
Other financial liabilities |
10,407 | 3,935 | 162 | 5 | 24 | 14,532 |
1 | Excluding investment contracts with discretionary participating features. |
Aegons liquidity management is based on expected claims and benefit payments rather than on the contractual maturities. The projected cash benefit payments in the table below are based on managements best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefit payments are based on mortality, morbidity and lapse assumptions based on Aegons historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance.
Financial liabilities relating to insurance and investment contracts 1) |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount |
||||||||
2015 |
||||||||||||||
Insurance contracts |
- | 5,130 | 21,353 | 22,153 | 131,584 | 180,220 | ||||||||
Insurance contracts for account of policyholders |
- | 7,205 | 30,668 | 31,314 | 97,230 | 166,417 | ||||||||
Investment contracts |
- | 3,213 | 6,570 | 4,381 | 5,776 | 19,941 | ||||||||
Investment contracts for account of policyholders
|
255
|
11,489
|
28,422
|
26,050
|
64,509
|
|
130,725
|
| ||||||
2014 | ||||||||||||||
Insurance contracts |
- | 4,962 | 20,261 | 21,348 | 117,892 | 164,463 | ||||||||
Insurance contracts for account of policyholders |
- | 6,580 | 27,434 | 26,771 | 85,482 | 146,267 | ||||||||
Investment contracts |
- | 2,367 | 6,581 | 4,154 | 4,756 | 17,858 | ||||||||
Investment contracts for account of policyholders |
289 | 9,948 | 27,591 | 25,372 | 72,461 | 135,661 |
1 | The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts. |
206 | Notes to the consolidated financial statements Note 5 |
The following table details the Groups liquidity analysis for its derivative financial instruments, based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2015 |
On demand |
< 1 yr |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount | ||||||||||||||||
Gross settled |
||||||||||||||||||||||
Cash inflows |
- | 15,428 | 10,166 | 16,984 | 32,890 | 75,468 | ||||||||||||||||
Cash outflows |
- | (15,812 | ) | (11,179 | ) | (16,871 | ) | (29,622 | ) | (73,485) | ||||||||||||
Net settled | ||||||||||||||||||||||
Cash inflows |
- | 175 | 993 | 1,742 | 4,493 | 7,403 | ||||||||||||||||
Cash outflows |
- | (89 | ) | (447 | ) | (823 | ) | (4,935 | ) | (6,294) | ||||||||||||
1 Derivatives includes all financial derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only, cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows.
| ||||||||||||||||||||||
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2014 |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount | ||||||||||||||||
Gross settled | ||||||||||||||||||||||
Cash inflows |
- | 17,004 | 10,957 | 20,187 | 45,628 | 93,777 | ||||||||||||||||
Cash outflows |
- | (16,832 | ) | (11,270 | ) | (20,123 | ) | (41,463 | ) | (89,689) | ||||||||||||
Net settled | ||||||||||||||||||||||
Cash inflows |
- | 149 | 922 | 1,671 | 4,455 | 7,196 | ||||||||||||||||
Cash outflows |
- | (85 | ) | (510 | ) | (879 | ) | (4,079 | ) | (5,552) | ||||||||||||
1 Derivatives includes all financial derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows. |
As disclosed in note 2.4 Segment reporting Aegon changed its segment reporting. The following will be reported from 2016 onwards:
¿ | Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units activities located outside these countries; |
¿ | Europe: which covers the following operating segments: The Netherlands, United Kingdom (including VA Europe), Central & Eastern Europe, Spain & Portugal; |
¿ | Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units activities located outside these countries; |
¿ | Asset Management: one operating segment which covers business activities from Aegon Asset Management; |
¿ | Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies. |
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. For Europe, the underlying businesses (the Netherlands, United Kingdom including VA Europe, Central & Eastern Europe and Spain & Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this segment note. The change in segment reporting does not have an impact on the financial position, results of operations or cash flows of Aegon.
Aegons segment information is prepared by consolidating on a proportionate basis Aegons joint ventures and associated companies.
Performance Measure
A performance measure of reporting segments utilized by the Company is underlying earnings before tax. Underlying earnings before tax reflects Aegons profit from underlying business operations and excludes 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.
|
Supplemental Annual Report 2015 |
207
Aegon believes that its performance measure underlying earnings before tax provides meaningful information about the underlying results of Aegons business, including insight into the financial measures that Aegons senior management uses in managing the business. Among other things, Aegons senior management is compensated based in part on Aegons results against targets using underlying earnings before tax. While many other insurers in Aegons peer group present substantially similar performance measures, the performance measures presented in this document may nevertheless differ from the performance measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards.
The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the tables in this note.
The items that are excluded from underlying earnings before tax as described further below are: fair value items, realized gains or losses on investments, impairment charges/reversals, other income or charges, run-off businesses and share in earnings of joint ventures and associates.
During 2015, Aegon implemented actuarial assumption and model updates resulting in a net EUR 181 million charge to income before tax.
Assumption updates resulted in a net EUR 24 million gain to income before tax. Charges arising from actuarial assumption updates included in underlying earnings before tax in 2015 amounted to EUR 77 million:
¿ | A charge for actuarial assumption updates in the Americas Life & Protection business amounted to EUR 17 million, and was primarily related to updated mortality assumptions of active lives and updated lapse assumptions. |
¿ | Actuarial assumption updates in the Americas Investments & Retirement business resulted in a charge of EUR 60 million and was primarily related to expense assumption updates related to fixed and variable annuity contracts. |
Actuarial assumption changes not included in underlying earnings before tax had a favorable impact on income before tax of EUR 101 million. This has been recorded in fair value items and is primarily reflecting an update of the risk free yield curve to determine Aegons liabilities for certain variable annuity contracts as well as economic scenario updates for both fixed and variable annuity contracts.
In 2015, management decided to change the measurement of underlying earnings before tax by including the impact of model updates as part of Other income/(charges) rather than as part of underlying earnings before tax. The models are used to support calculations of Aegons liabilities for insurance and investment contracts sold to policyholders and related assets. Model updates could result in either a strengthening of reserves or a release of reserves held to cover for insurance or investment contracts inforce and the related treatment of deferred acquisition costs or costs of value of business acquired. The reason for this change in measurement is that management believes that these model updates are expected not to be recurring.
Model updates not included in underlying earnings before tax had an adverse impact on income before tax of EUR 205 million:
¿ | A charge of EUR 275 million in the Americas Life & Protection business for enhancing the modeling of universal life policies. |
¿ | Model updates in the Americas Investments & Retirement business resulted in a gain of EUR 132 million. |
¿ | A charge of EUR 61 million regarding model updates in Asia. |
The impact of this change in measurement on 2014 would have been an increase in Aegon Group consolidated underlying earnings before tax of EUR 82 million and a decrease in Other income/(charges) for the same amount for segment reporting purposes. The impact is split between the Americas (EUR 57 million) and Asia (EUR 26 million). The presentation of the items in the IFRS income statement remained unchanged and continue to be part of the line Policyholder claims and benefits.
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 before tax. 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 before tax exclude any
208 | Notes to the consolidated financial statements Note 5 |
over- or underperformance compared to managements 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 and the total return annuities and guarantees on variable annuities. The earnings on these products are impacted by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings before tax is a long-term expected return on these products and excluded is any over- or underperformance compared to managements 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 United Kingdom) are excluded from underlying earnings before tax, 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 Aegons credit spread used in the valuation of these bonds are excluded from underlying earnings before tax and reported under fair value items.
Realized gains or losses on investments
Includes realized gains and losses on available-for-sale investments, mortgage loans and other loan portfolios.
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 including the effect of deferred policyholder acquisition costs when the returns are part of a product grouping where DPAC is amortized based on gross profits. 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.
As of 2015, the impact of model updates used to support calculations of Aegons liabilities for insurance and investment contracts sold to policyholders and related assets are reported under this caption as well.
Other charges may include restructuring charges that are considered other charges for segment reporting purposes because they are outside the normal course of business. In the consolidated income 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 before tax.
|
Supplemental Annual Report 2015 |
209
Share in earnings of joint ventures and associates
Earnings from Aegons joint ventures in the Netherlands, Mexico, Spain, Portugal, China and Japan and Aegons associates in India, Brazil, the Netherlands, United Kingdom, Mexico and France are reported on an underlying earnings before tax basis.
Income Underlying |
Americas | The Netherlands |
United Kingdom |
Central & |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Segment total |
Joint ventures and associates eliminations |
Consolidated | ||||||||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,200 | 537 | (27 | ) | 37 | 12 | 20 | 170 | (163 | ) | 2 | 1,789 | 34 | 1,824 | ||||||||||||||||||||||||||||||||||
Fair value items |
(589 | ) | 175 | (25 | ) | - | - | 7 | - | (68 | ) | - | (500 | ) | (59 | ) | (559 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
(74 | ) | 306 | 103 | 2 | - | 7 | 3 | - | - | 346 | (8 | ) | 338 | ||||||||||||||||||||||||||||||||||
Impairment charges |
(43 | ) | (25 | ) | - | (2 | ) | - | - | - | - | - | (70 | ) | (21 | ) | (91 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
114 | 5 | - | - | - | - | - | - | - | 119 | - | 119 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(938 | ) | (22 | ) | (1,247 | ) | (2 | ) | 17 | (61 | ) | (1 | ) | - | - | (2,254 | ) | 21 | (2,233 | ) | ||||||||||||||||||||||||||||
Run-off businesses |
88 | - | - | - | - | - | - | - | - | 88 | - | 88 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
(241 | ) | 977 | (1,196 | ) | 35 | 29 | (27 | ) | 172 | (230 | ) | 2 | (481 | ) | (33 | ) | (514 | ) | |||||||||||||||||||||||||||||
Income tax (expense) / benefit |
6 | (223 | ) | 268 | (11 | ) | (7 | ) | (3 | ) | (50 | ) | 71 | - | 51 | 33 | 83 | |||||||||||||||||||||||||||||||
Net income / (loss) | (235 | ) | 753 | (928 | ) | 24 | 22 | (30 | ) | 121 | (159 | ) | 2 | (431 | ) | - | (431 | ) | ||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(220 | ) | (55 | ) | (63 | ) | (14 | ) | - | 77 | 264 | 10 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2015 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
7,046 | 2,240 | 8,465 | 477 | 174 | 1,713 | - | 4 | (106 | ) | 20,013 | (431 | ) | 19,583 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
2,266 | 234 | 47 | 1 | 64 | 105 | - | 6 | (6 | ) | 2,717 | (14 | ) | 2,703 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 473 | - | 164 | 80 | - | - | 2 | - | 720 | (80 | ) | 640 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
9,312 | 2,947 | 8,512 | 642 | 317 | 1,819 | - | 13 | (112 | ) | 23,450 | (524 | ) | 22,925 | ||||||||||||||||||||||||||||||||||
Investment income |
3,680 | 2,277 | 2,331 | 45 | 41 | 194 | 7 | 392 | (391 | ) | 8,576 | (51 | ) | 8,525 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,704 | 351 | 98 | 39 | 13 | 62 | 650 | - | (284 | ) | 2,633 | (195 | ) | 2,438 | ||||||||||||||||||||||||||||||||||
Other revenues |
9 | - | - | - | 2 | - | - | 7 | - | 19 | (5 | ) | 14 | |||||||||||||||||||||||||||||||||||
Total revenues | 14,705 | 5,575 | 10,941 | 726 | 373 | 2,076 | 657 | 412 | (787 | ) | 34,677 | (775 | ) | 33,902 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
24 | 2 | - | - | - | 85 | 101 | 261 |
210 | Notes to the consolidated financial statements Note 5 |
Income statement - Underlying earnings |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Segment total |
Joint eliminations |
Consolidated | ||||||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,134 | 558 | 125 | 60 | 28 | (17 | ) | 115 | (139 | ) | 1 | 1,865 | (9 | ) | 1,856 | |||||||||||||||||||||||||||||||||
Fair value items |
(497 | ) | (766 | ) | (31 | ) | 8 | - | 3 | - | (82 | ) | - | (1,366 | ) | 2 | (1,364 | ) | ||||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
85 | 431 | 164 | 9 | 2 | 5 | 1 | - | - | 697 | (3 | ) | 694 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(38 | ) | (19 | ) | - | (42 | ) | - | (1 | ) | - | - | - | (100 | ) | (23 | ) | (123 | ) | |||||||||||||||||||||||||||||
Impairment reversals |
58 | 7 | - | - | - | - | - | - | - | 66 | - | 66 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
(52 | ) | (113 | ) | (49 | ) | (26 | ) | (1 | ) | 4 | (1 | ) | (3 | ) | - | (240 | ) | 22 | (218 | ) | |||||||||||||||||||||||||||
Run-off businesses |
6 | - | - | - | - | - | - | - | - | 6 | - | 6 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
696 | 99 | 209 | 9 | 28 | (7 | ) | 115 | (223 | ) | 1 | 927 | (10 | ) | 916 | |||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(97 | ) | (37 | ) | (35 | ) | - | (7 | ) | (9 | ) | (36 | ) | 60 | - | (161 | ) | 10 | (151 | ) | ||||||||||||||||||||||||||||
Net income / (loss) | 599 | 62 | 173 | 9 | 22 | (16 | ) | 79 | (164 | ) | 1 | 766 | - | 766 | ||||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (58 | ) | (54 | ) | (17 | ) | - | 55 | 229 | 18 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,461 | 3,982 | 5,057 | 524 | 196 | 1,097 | - | - | (70 | ) | 17,246 | (351 | ) | 16,896 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,874 | 233 | 56 | 1 | 60 | 102 | - | 6 | (6 | ) | 2,326 | (11 | ) | 2,316 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 501 | - | 152 | 72 | - | - | - | - | 725 | (72 | ) | 653 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
8,334 | 4,716 | 5,113 | 678 | 328 | 1,199 | - | 6 | (76 | ) | 20,298 | (433 | ) | 19,864 | ||||||||||||||||||||||||||||||||||
Investment income |
3,312 | 2,568 | 2,077 | 54 | 49 | 124 | 4 | 332 | (329 | ) | 8,191 | (42 | ) | 8,148 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,485 | 324 | 94 | 41 | 8 | 53 | 475 | - | (243 | ) | 2,237 | (100 | ) | 2,137 | ||||||||||||||||||||||||||||||||||
Other revenues |
2 | - | - | - | 2 | - | - | 5 | - | 10 | (3 | ) | 7 | |||||||||||||||||||||||||||||||||||
Total revenues | 13,134 | 7,608 | 7,284 | 773 | 387 | 1,376 | 479 | 342 | (648 | ) | 30,735 | (578 | ) | 30,157 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
16 | - | - | - | - | 70 | 228 | 333 |
|
Supplemental Annual Report 2015 |
211
Income statement - Underlying earnings |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Segment total |
Joint eliminations |
Consolidated | ||||||||||||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,314 | 454 | 94 | 57 | 33 | 34 | 95 | (109 | ) | (3 | ) | 1,968 | (50 | ) | 1,918 | |||||||||||||||||||||||||||||||||
Fair value items |
(980 | ) | (41 | ) | (21 | ) | 1 | - | (16 | ) | - | (61 | ) | - | (1,118 | ) | 37 | (1,082 | ) | |||||||||||||||||||||||||||||
Realized gains / (losses) on investments |
110 | 342 | 48 | 1 | 1 | - | (2 | ) | - | - | 500 | - | 500 | |||||||||||||||||||||||||||||||||||
Impairment charges |
(111 | ) | (40 | ) | (31 | ) | (17 | ) | - | 1 | - | - | - | (198 | ) | - | (198 | ) | ||||||||||||||||||||||||||||||
Impairment reversals |
67 | 8 | - | - | - | - | - | - | - | 75 | - | 75 | ||||||||||||||||||||||||||||||||||||
Other income / (charges) |
72 | (36 | ) | (46 | ) | (210 | ) | 174 | (8 | ) | 12 | (11 | ) | - | (52 | ) | 6 | (47 | ) | |||||||||||||||||||||||||||||
Run-off businesses |
68 | - | - | - | - | - | - | - | - | 68 | - | 68 | ||||||||||||||||||||||||||||||||||||
Income / (loss) before tax |
540 | 687 | 44 | (168 | ) | 209 | 11 | 105 | (181 | ) | (3 | ) | 1,244 | (8 | ) | 1,236 | ||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(119 | ) | (166 | ) | 33 | 24 | (5 | ) | (18 | ) | (32 | ) | 42 | - | (240 | ) | 8 | (233 | ) | |||||||||||||||||||||||||||||
Net income / (loss) | 422 | 521 | 77 | (144 | ) | 203 | (7 | ) | 73 | (139 | ) | (3 | ) | 1,003 | - | 1,003 | ||||||||||||||||||||||||||||||||
Inter-segment underlying earnings |
(173 | ) | (54 | ) | (54 | ) | (23 | ) | - | 54 | 221 | 29 | ||||||||||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,187 | 3,515 | 6,537 | 517 | 223 | 609 | - | 14 | (73 | ) | 17,529 | (416 | ) | 17,112 | ||||||||||||||||||||||||||||||||||
Accident and health insurance |
1,787 | 243 | - | 1 | 62 | 107 | - | 8 | (8 | ) | 2,200 | (10 | ) | 2,190 | ||||||||||||||||||||||||||||||||||
General insurance |
- | 487 | - | 150 | 44 | - | - | - | - | 681 | (44 | ) | 637 | |||||||||||||||||||||||||||||||||||
Total gross premiums |
7,975 | 4,245 | 6,537 | 668 | 329 | 717 | - | 22 | (82 | ) | 20,410 | (471 | ) | 19,939 | ||||||||||||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,057 | 57 | 68 | 101 | 4 | 342 | (342 | ) | 7,968 | (58 | ) | 7,909 | ||||||||||||||||||||||||||||||||||
Fee and commission income |
1,273 | 328 | 129 | 49 | 9 | 49 | 432 | - | (244 | ) | 2,026 | (76 | ) | 1,950 | ||||||||||||||||||||||||||||||||||
Other revenues |
4 | - | (1 | ) | - | 2 | - | - | 4 | - | 10 | (3 | ) | 6 | ||||||||||||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,722 | 774 | 408 | 867 | 437 | 368 | (668 | ) | 30,413 | (608 | ) | 29,805 | ||||||||||||||||||||||||||||||||||
Inter-segment revenues |
20 | 1 | 1 | - | - | 71 | 226 | 348 |
The Group uses underlying earnings before tax in its segment reporting as an important indicator of its financial performance. The reconciliation of this measure to the income before tax is shown below. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate Aegons business relative to the businesses of its peers.
212 | Notes to the consolidated financial statements Note 5 |
Note | 2015 | 2014 | 2013 | |||||||||||||
Underlying earnings before tax |
1,824 | 1,856 | 1,918 | |||||||||||||
Fair value items |
(503 | ) | (425 | ) | (967 | ) | ||||||||||
Realized gains and (losses) on financial investments |
10 | 349 | 697 | 500 | ||||||||||||
Gains and (losses) on investments in real estate |
10 | 145 | (4 | ) | (49 | ) | ||||||||||
Fair value changes on economic hedges for which no hedge accounting is applied |
10 | (41 | ) | (799 | ) | 65 | ||||||||||
Ineffective portion of hedge transactions for which hedge accounting is applied |
10 | 8 | 43 | 12 | ||||||||||||
Realized gains and (losses) on repurchased debt |
10 | 2 | 3 | - | ||||||||||||
Net foreign currency gains and (losses) |
10 | (5 | ) | - | - | |||||||||||
Fair value movements of guarantees related to liabilities for insurance contracts |
12 | (183 | ) | (150 | ) | (143 | ) | |||||||||
DPAC / VOBA offset 1) |
14 | (31 | ) | (26 | ) | (22 | ) | |||||||||
Impairment (charges)/reversals |
15 | (1,250 | ) | (79 | ) | (296 | ) | |||||||||
Other income / (charges) |
11, 12, 14, 17 | (917 | ) | (205 | ) | 149 | ||||||||||
Run-off businesses |
5 | 88 | 6 | 68 | ||||||||||||
Income before tax |
(514 | ) | 916 | 1,236 |
1 | Including a fair value adjustment of EUR 21 million (2014: EUR 28 million; 2013: EUR 1 million). |
Other selected income statement items |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Total | |||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
731 | 39 | 377 | 80 | - | 34 | - | - | 1,261 | |||||||||||||||||||||||||||
Depreciation |
31 | 17 | 23 | 9 | 2 | 1 | - | - | 84 | |||||||||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables |
(68 | ) | 20 | - | 2 | 21 | - | - | - | (24 | ) | |||||||||||||||||||||||||
Impairment charges / (reversals) on non-financial assets and receivables |
- | 2 | 191 | - | - | - | - | - | 192 | |||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
545 | 53 | 224 | 78 | - | 10 | - | 1 | 909 | |||||||||||||||||||||||||||
Depreciation |
28 | 21 | 18 | 9 | 2 | 1 | - | - | 78 | |||||||||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables |
(11 | ) | 12 | - | 42 | 23 | - | - | - | 66 | ||||||||||||||||||||||||||
Impairment charges / (reversals) on non-financial assets and receivables |
- | 8 | 6 | 7 | - | - | - | - | 21 | |||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
525 | 58 | 242 | 115 | 1 | 20 | - | - | 960 | |||||||||||||||||||||||||||
Depreciation |
35 | 20 | 14 | 8 | 1 | 1 | 1 | - | 82 | |||||||||||||||||||||||||||
Impairment charges / (reversals) on financial assets, excluding receivables |
48 | 32 | 31 | 17 | - | - | - | - | 127 | |||||||||||||||||||||||||||
Impairment charges / (reversals) on non- financial assets and receivables |
(5 | ) | 1 | - | 168 | 1 | - | - | 2 | 167 |
|
Supplemental Annual Report 2015 |
213
Number of employees | Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Total | |||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||
Number of employees - headcount |
12,701 | 4,503 | 2,478 | 2,470 | 534 | 7,163 | 1,382 | 299 | 31,530 | |||||||||||||||||||||||||||
Of which agents |
2,035 | 277 | 57 | 522 | 26 | 5,516 | - | - | 8,433 | |||||||||||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates |
545 | - | - | - | 33 | 1,264 | 141 | - | 1,983 | |||||||||||||||||||||||||||
2014 |
||||||||||||||||||||||||||||||||||||
Number of employees - headcount |
12,865 | 4,426 | 2,644 | 2,495 | 433 | 4,189 | 1,276 | 274 | 28,602 | |||||||||||||||||||||||||||
Of which agents |
1,802 | 280 | 66 | 586 | 24 | 2,955 | - | - | 5,713 | |||||||||||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates |
568 | - | - | - | 25 | 935 | 86 | - | 1,614 | |||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||
Number of employees - headcount |
12,256 | 4,282 | 2,612 | 2,470 | 375 | 3,305 | 1,289 | 302 | 26,891 | |||||||||||||||||||||||||||
Of which agents |
1,655 | 293 | 63 | 616 | - | 2,126 | - | - | 4,753 | |||||||||||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates |
441 | - | - | - | 28 | 916 | 77 | - | 1,462 |
Summarized assets and liabilities per segment |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Total | ||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||
Investments |
87,620 | 52,681 | 13,850 | 911 | 702 | 4,409 | 74 | 230 | - | 160,478 | ||||||||||||||||||||||||||||||
Investments for account of |
||||||||||||||||||||||||||||||||||||||||
policyholders |
101,164 | 26,756 | 70,760 | 1,468 | 87 | - | - | - | (8 | ) | 200,226 | |||||||||||||||||||||||||||||
Investments in joint |
||||||||||||||||||||||||||||||||||||||||
ventures |
7 | 837 | - | - | 505 | 101 | 109 | 3 | - | 1,561 | ||||||||||||||||||||||||||||||
Investments in associates |
75 | 19 | 9 | - | - | 12 | 126 | - | - | 242 | ||||||||||||||||||||||||||||||
Deferred expenses |
8,686 | 97 | 1,375 | 84 | 1 | 745 | - | 9 | - | 10,997 | ||||||||||||||||||||||||||||||
Other assets |
18,282 | 10,928 | 2,715 | 186 | 99 | 2,169 | 131 | 29,444 | (31,637 | ) | 32,317 | |||||||||||||||||||||||||||||
Cash and Cash equivalents |
428 | 6,324 | 1,114 | 52 | 24 | 156 | 173 | 1,323 | - | 9,594 | ||||||||||||||||||||||||||||||
Total assets | 216,262 | 97,642 | 89,822 | 2,701 | 1,417 | 7,592 | 613 | 31,010 | (31,645 | ) | 415,415 | |||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||
Insurance contracts |
73,637 | 32,709 | 11,159 | 495 | 718 | 6,310 | - | 91 | (2,077 | ) | 123,042 | |||||||||||||||||||||||||||||
Insurance contracts for account of policyholders |
71,322 | 25,830 | 14,219 | 1,219 | 89 | - | - | - | - | 112,679 | ||||||||||||||||||||||||||||||
Investment contracts |
9,911 | 7,340 | 457 | 8 | - | 2 | - | - | - | 17,718 | ||||||||||||||||||||||||||||||
Investment contracts for account of policyholders |
29,842 | 2,424 | 57,598 | 255 | - | - | - | - | - | 90,119 | ||||||||||||||||||||||||||||||
Other liabilities |
15,337 | 24,076 | 2,344 | 329 | 146 | 660 | 164 | 4,669 | (2,118 | ) | 45,607 | |||||||||||||||||||||||||||||
Total liabilities |
200,048 | 92,379 | 85,778 | 2,305 | 953 | 6,972 | 164 | 4,761 | (4,195 | ) | 389,165 |
214 | Notes to the consolidated financial statements Note 5 |
Summarized assets and liabilities per segment |
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Total | ||||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||||
Investments |
83,519 | 51,463 | 13,341 | 1,002 | 712 | 2,947 | 12 | 224 | (1 | ) | 153,219 | |||||||||||||||||||||||||||||||
Investments for account of policyholders |
91,138 | 29,209 | 69,391 | 1,646 | 94 | - | - | - | (10 | ) | 191,467 | |||||||||||||||||||||||||||||||
Investments in joint ventures |
9 | 789 | - | - | 523 | 73 | 74 | 1 | - | 1,468 | ||||||||||||||||||||||||||||||||
Investments in associates |
91 | 19 | 24 | - | - | 6 | - | - | - | 140 | ||||||||||||||||||||||||||||||||
Deferred expenses |
6,758 | 114 | 2,533 | 113 | 2 | 493 | - | 5 | - | 10,019 | ||||||||||||||||||||||||||||||||
Assets held for sale |
9,532 | - | - | - | 347 | - | 3 | - | - | 9,881 | ||||||||||||||||||||||||||||||||
Other assets |
15,951 | 27,242 | 2,707 | 189 | 79 | 1,976 | 250 | 35,044 | (36,131 | ) | 47,308 | |||||||||||||||||||||||||||||||
Cash and Cash equivalents |
455 | 7,382 | 1,137 | 39 | 32 | 129 | 146 | 1,290 | - | 10,610 | ||||||||||||||||||||||||||||||||
Total assets | 207,453 | 116,217 | 89,133 | 2,989 | 1,788 | 5,624 | 485 | 36,564 | (36,142 | ) | 424,112 | |||||||||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||||||||||||
Insurance contracts |
65,788 | 31,795 | 10,598 | 526 | 668 | 4,323 | - | 4 | (1,776 | ) | 111,927 | |||||||||||||||||||||||||||||||
Insurance contracts for account of policyholders |
64,139 | 28,569 | 8,092 | 1,357 | 94 | - | - | - | - | 102,250 | ||||||||||||||||||||||||||||||||
Investment contracts |
9,319 | 5,663 | 374 | 1 | - | 2 | - | - | - | 15,359 | ||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders |
26,999 | 2,237 | 62,324 | 289 | - | - | - | - | - | 91,849 | ||||||||||||||||||||||||||||||||
Liabilities held for sale |
7,806 | - | - | - | - | - | 3 | - | - | 7,810 | ||||||||||||||||||||||||||||||||
Other liabilities |
15,834 | 43,208 | 2,624 | 415 | 243 | 757 | 210 | 8,877 | (4,932 | ) | 67,235 | |||||||||||||||||||||||||||||||
Total liabilities |
189,886 | 111,472 | 84,011 | 2,588 | 1,005 | 5,081 | 213 | 8,881 | (6,708 | ) | 396,429 |
|
Supplemental Annual Report 2015 |
215
Investments | Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Total | ||||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||||||
Shares |
652 | 136 | 506 | 38 | 2 | - | 2 | 124 | - | 1,460 | ||||||||||||||||||||||||||||||
Debt securities |
65,284 | 23,370 | 13,185 | 525 | 636 | 4,391 | - | - | - | 107,390 | ||||||||||||||||||||||||||||||
Loans |
10,062 | 27,692 | - | 340 | 62 | 19 | - | 88 | - | 38,263 | ||||||||||||||||||||||||||||||
Other financial assets |
10,783 | 335 | 160 | 6 | 2 | - | 72 | 18 | - | 11,376 | ||||||||||||||||||||||||||||||
Investments in real estate |
840 | 1,148 | - | 2 | - | - | - | - | - | 1,990 | ||||||||||||||||||||||||||||||
Investments general account |
87,620 | 52,681 | 13,850 | 911 | 702 | 4,409 | 74 | 230 | - | 160,478 | ||||||||||||||||||||||||||||||
Shares |
- | 9,174 | 17,274 | 247 | 12 | - | - | - | (8 | ) | 26,699 | |||||||||||||||||||||||||||||
Debt securities |
4,967 | 14,642 | 11,728 | 256 | 13 | - | - | - | - | 31,606 | ||||||||||||||||||||||||||||||
Unconsolidated investment funds |
96,187 | 17 | 37,622 | 959 | 61 | - | - | - | - | 134,845 | ||||||||||||||||||||||||||||||
Other financial assets |
10 | 2,923 | 3,115 | 6 | 1 | - | - | - | - | 6,054 | ||||||||||||||||||||||||||||||
Investments in real estate |
- | - | 1,022 | - | - | - | - | - | - | 1,022 | ||||||||||||||||||||||||||||||
Investments for account of policyholders |
101,164 | 26,756 | 70,760 | 1,468 | 87 | - | - | - | (8 | ) | 200,226 | |||||||||||||||||||||||||||||
Investments on balance sheet |
188,784 | 79,437 | 84,610 | 2,379 | 789 | 4,409 | 74 | 230 | (8 | ) | 360,704 | |||||||||||||||||||||||||||||
Off-balance sheet investments third parties |
212,704 | 897 | 830 | 2,855 | 508 | 2,317 | 213,320 | - | (87,059 | ) | 346,371 | |||||||||||||||||||||||||||||
Total revenue-generating investments |
401,487 | 80,334 | 85,440 | 5,234 | 1,297 | 6,727 | 213,394 | 230 | (87,067 | ) | 707,075 | |||||||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale |
72,761 | 22,479 | 13,534 | 545 | 638 | 4,370 | 65 | 18 | - | 114,409 | ||||||||||||||||||||||||||||||
Loans |
10,062 | 27,692 | - | 340 | 62 | 19 | - | 88 | - | 38,263 | ||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss |
105,121 | 28,119 | 70,054 | 1,493 | 88 | 21 | 9 | 124 | (8 | ) | 205,020 | |||||||||||||||||||||||||||||
Investments in real estate |
840 | 1,148 | 1,022 | 2 | - | - | - | - | - | 3,012 | ||||||||||||||||||||||||||||||
Total investments on balance sheet |
188,784 | 79,437 | 84,610 | 2,379 | 789 | 4,409 | 74 | 230 | (8 | ) | 360,704 | |||||||||||||||||||||||||||||
Investments in joint ventures |
7 | 837 | - | - | 505 | 101 | 109 | 3 | - | 1,561 | ||||||||||||||||||||||||||||||
Investments in associates |
75 | 19 | 9 | - | - | 12 | 126 | - | - | 242 | ||||||||||||||||||||||||||||||
Other assets |
27,396 | 17,349 | 5,204 | 322 | 124 | 3,070 | 304 | 31,020 | (31,881 | ) | 52,908 | |||||||||||||||||||||||||||||
Consolidated total assets |
216,262 | 97,642 | 89,822 | 2,701 | 1,417 | 7,592 | 613 | 31,254 | (31,889 | ) | 415,415 |
216 | Notes to the consolidated financial statements Note 5 |
Investments | Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Management |
Holding and other activities |
Eliminations | Total | ||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||
Shares |
636 | 161 | 196 | 21 | 2 | - | 2 | 105 | (1 | ) | 1,122 | |||||||||||||||||||||||||||||
Debt securities |
63,130 | 23,250 | 12,800 | 562 | 657 | 2,925 | - | - | - | 103,324 | ||||||||||||||||||||||||||||||
Loans |
9,187 | 26,618 | - | 411 | 53 | 23 | - | 11 | - | 36,303 | ||||||||||||||||||||||||||||||
Other financial assets |
9,845 | 366 | 344 | 6 | - | - | 9 | 107 | - | 10,678 | ||||||||||||||||||||||||||||||
Investments in real estate |
721 | 1,069 | - | 2 | - | - | - | - | - | 1,792 | ||||||||||||||||||||||||||||||
Investments general account |
83,519 | 51,463 | 13,341 | 1,002 | 712 | 2,947 | 12 | 224 | (1 | ) | 153,219 | |||||||||||||||||||||||||||||
Shares |
- | 9,487 | 17,122 | 353 | 67 | - | - | - | (10 | ) | 27,019 | |||||||||||||||||||||||||||||
Debt securities |
4,585 | 19,320 | 12,920 | 223 | 22 | - | - | - | - | 37,070 | ||||||||||||||||||||||||||||||
Unconsolidated investment funds |
86,525 | - | 34,573 | 1,062 | - | - | - | - | - | 122,159 | ||||||||||||||||||||||||||||||
Other financial assets |
28 | 401 | 3,674 | 9 | 5 | - | - | - | - | 4,117 | ||||||||||||||||||||||||||||||
Investments in real estate |
- | - | 1,101 | - | - | - | - | - | - | 1,101 | ||||||||||||||||||||||||||||||
Investments for account of policyholders |
91,138 | 29,209 | 69,391 | 1,646 | 94 | - | - | - | (10 | ) | 191,467 | |||||||||||||||||||||||||||||
Investments on balance sheet |
174,658 | 80,672 | 82,732 | 2,648 | 806 | 2,947 | 12 | 224 | (11 | ) | 344,686 | |||||||||||||||||||||||||||||
Off-balance sheet investments third parties |
139,295 | 868 | 570 | 2,894 | 451 | 1,709 | 166,872 | - | (99,451 | ) | 213,208 | |||||||||||||||||||||||||||||
Total revenue-generating investments |
313,953 | 81,540 | 83,302 | 5,542 | 1,256 | 4,656 | 166,883 | 224 | (99,463 | ) | 557,894 | |||||||||||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||||||||||||||
Available-for-sale |
69,851 | 23,197 | 13,015 | 570 | 657 | 2,923 | 2 | 12 | - | 110,229 | ||||||||||||||||||||||||||||||
Loans |
9,187 | 26,618 | - | 411 | 53 | 23 | - | 11 | - | 36,303 | ||||||||||||||||||||||||||||||
Financial assets at fair value through profit or loss |
94,898 | 29,788 | 68,615 | 1,665 | 95 | 1 | 9 | 200 | (11 | ) | 195,261 | |||||||||||||||||||||||||||||
Investments in real estate |
721 | 1,069 | 1,101 | 2 | - | - | - | - | - | 2,893 | ||||||||||||||||||||||||||||||
Total investments on balance sheet |
174,658 | 80,672 | 82,732 | 2,648 | 806 | 2,947 | 12 | 224 | (11 | ) | 344,686 | |||||||||||||||||||||||||||||
Investments in joint ventures |
9 | 789 | - | - | 523 | 73 | 74 | 1 | - | 1,468 | ||||||||||||||||||||||||||||||
Investments in associates |
91 | 19 | 24 | - | - | 6 | - | - | - | 140 | ||||||||||||||||||||||||||||||
Other assets |
32,696 | 34,737 | 6,378 | 342 | 460 | 2,598 | 399 | 36,339 | (36,131 | ) | 77,818 | |||||||||||||||||||||||||||||
Consolidated total assets |
207,453 | 116,217 | 89,133 | 2,989 | 1,788 | 5,624 | 485 | 36,564 | (36,142 | ) | 424,112 |
|
Supplemental Annual Report 2015 |
217
6 Premium income and premiums paid to reinsurers
Gross premium income | Premiums paid to reinsurers | |||
2015 | ||||
Life |
19,583 | 2,694 | ||
Non-life |
3,342 | 286 | ||
Total | 22,925 | 2,979 | ||
2014 | ||||
Life |
16,896 | 2,701 | ||
Non-life |
2,968 | 310 | ||
Total | 19,864 | 3,011 | ||
2013 | ||||
Life |
17,112 | 2,756 | ||
Non-life |
2,827 | 351 | ||
Total |
19,939 | 3,108 |
2015 | 2014 | 2013 | ||||||||||
Interest income |
7,087 | 6,759 | 6,842 | |||||||||
Dividend income |
1,306 | 1,265 | 957 | |||||||||
Rental income |
133 | 124 | 110 | |||||||||
Total investment income |
8,525 | 8,148 | 7,909 | |||||||||
Investment income related to general account |
6,099 | 5,717 | 5,632 | |||||||||
Investment income for account of policyholders |
2,426 | 2,431 | 2,277 | |||||||||
Total |
8,525 | 8,148 | 7,909 | |||||||||
Included in interest income is EUR 223 million (2014: EUR 265 million; 2013: EUR 238 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 5,951 million (2014: EUR 5,498 million; 2013: EUR 5,437 million).
|
| |||||||||||
Total investment income from: | 2015 | 2014 | 2013 | |||||||||
Shares |
1,306 | 1,265 | 957 | |||||||||
Debt securities and money market instruments |
5,332 | 5,067 | 5,248 | |||||||||
Loans |
1,760 | 1,674 | 1,605 | |||||||||
Real estate |
133 | 124 | 110 | |||||||||
Other |
(6 | ) | 19 | (11 | ) | |||||||
Total |
8,525 | 8,148 | 7,909 | |||||||||
Investment income from financial assets held for general account: | 2015 | 2014 | 2013 | |||||||||
Available-for-sale |
4,235 | 3,889 | 3,917 | |||||||||
Loans |
1,760 | 1,674 | 1,605 | |||||||||
Financial assets designated at fair value through profit or loss |
115 | 127 | 123 | |||||||||
Real estate |
61 | 54 | 52 | |||||||||
Derivatives |
(96 | ) | (19 | ) | (26 | ) | ||||||
Other |
25 | (8 | ) | (39 | ) | |||||||
Total |
6,099 | 5,717 | 5,632 |
218 | Notes to the consolidated financial statements Note 8 |
|
Supplemental Annual Report 2015 |
219
Realized gains and losses on financial investments comprise: | 2015 | 2014 | 2013 | |||||||||
Available-for-sale investments |
330 | 662 | 451 | |||||||||
Loans |
20 | 35 | 48 | |||||||||
Total | 349 | 697 | 500 | |||||||||
Net fair value change of derivatives comprise: | 2015 | 2014 | 2013 | |||||||||
Net fair value change on economic hedges where no hedge accounting is applied |
(500 | ) | 3,092 | (1,166 | ) | |||||||
Net fair value change on bifurcated embedded derivatives |
614 | (2,073 | ) | 143 | ||||||||
Ineffective portion of hedge transactions to which hedge accounting is applied |
8 | 43 | 12 | |||||||||
Total | 123 | 1,062 | (1,011 | ) | ||||||||
Net fair value change on economic hedges where no hedge accounting is applied includes a loss of EUR 139 million related to fair value movements of derivatives (2014: loss of EUR 241 million, 2013: loss of EUR 108 million) that is classified for segment reporting purposes as non-underlying earnings.
|
| |||||||||||
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: |
2015 | 2014 | 2013 | |||||||||
Fair value change on hedging instruments in a fair value hedge |
(49 | ) | (120 | ) | 52 | |||||||
Fair value change on hedged items in a fair value hedge |
54 | 165 | (39 | ) | ||||||||
Ineffectiveness fair value hedge |
5 | 45 | 13 | |||||||||
Ineffectiveness cash flow hedges |
4 | (2 | ) | (1 | ) | |||||||
Total | 8 | 43 | 12 | |||||||||
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: |
2015 | 2014 | 2013 | |||||||||
Shares |
706 | 1,349 | 3,857 | |||||||||
Debt securities and money market investments |
(529 | ) | 3,744 | (1,090 | ) | |||||||
Unconsolidated investment funds |
(356 | ) | 5,625 | 13,002 | ||||||||
Derivatives |
69 | 507 | (198 | ) | ||||||||
Other |
- | 2 | - | |||||||||
Total | (110 | ) | 11,226 | 15,571 | ||||||||
The change of the net fair value change on for account of policyholder financial assets at fair value through profit or loss in 2015 compared to 2014 is mainly driven by equity markets and interest rates movements. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts in note 12 Policyholder claims and benefits.
|
| |||||||||||
2015 | 2014 | 2013 | ||||||||||
Other income |
83 | 61 | 393 | |||||||||
Other income in 2015 included a release of EUR 38 million of the earn out provision regarding Liberbank in Spain. In addition, other income included the results from the sale of Clark Consulting and the 25.1% share in platform provider and discretionary fund manager Seven Investment Management (7IM) which is accounted for as an associate. The 7IM transaction led to a net gain of EUR 10 million (GBP 7 million) and was recorded as an associate in the books of Aegon. The sale of Clark led to a book gain of EUR 7 million (USD 8 million). Please see also note 51 Business combinations for more details.
Other income in 2014 mainly reflected the release of EUR 23 million regarding the earn out provision of Liberbank in Spain and the guarantee fund payments release of EUR 14 million related to the sale of sovereign assets in Poland to the state, following pension legislation changes introduced in 2013. |
|
220 | Notes to the consolidated financial statements Note 12 |
|
Supplemental Annual Report 2015 |
221
Amortization of deferred expenses included a charge of EUR 28 million (2014: charge EUR 22 million, 2013: charge EUR 35 million), which is classified as non-underlying earnings for segment reporting purposes. This is offset against realized gains and losses and impairments on financial investments.
Amortization of VOBA and future servicing rights include a charge of EUR 3 million (2014: charge EUR 4 million; 2013: gain EUR 13 million) that is classified as non-underlying earnings for segment reporting purposes.
Employee expenses | 2015 | 2014 | 2013 | |||||||||
Salaries |
1,462 | 1,295 | 1,286 | |||||||||
Post-employment benefit costs |
335 | 272 | 292 | |||||||||
Social security charges |
145 | 129 | 133 | |||||||||
Other personnel costs |
320 | 337 | 309 | |||||||||
Shares, share appreciation rights, share options |
17 | 33 | 41 | |||||||||
Total | 2,280 | 2,067 | 2,060 |
An amount of EUR 51 million is included in employee expenses relating to defined contributions (2014: EUR 43 million; 2013: EUR 39 million).
Long-term incentive plans
Senior managers within Aegon, not classified as Identified Staff, have been granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted at the beginning of the year at the average share price on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The performance indicators apply over a performance period of one year and consist of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Following the performance year, shares are allocated based on actual performance. A vesting period of two years applies after which the shares are transferred to the individual employees. In specific circumstances Aegons Supervisory Board has the right to reclaim variable compensation that has already been paid out or vested.
Variable compensation Identified Staff
Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as Identified Staff in accordance with the rules applicable to them and their interpretation by relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft), the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) and the guidelines issued by the European Banking Authority (EBA) and its predecessor (CEBS) issued under the successive European CRD frameworks (in particular CRD III and IV) are prominent examples. The rules have been adopted in Aegons Global Remuneration Framework. After the performance period, and based on the framework, variable compensation, if any, is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the average share price on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and/or reporting unit targets (both financial and non-financial) set by the Supervisory Board or the local remuneration committees and personal/strategic targets. The conditional grant of variable compensation is also dependent on continued employment of the individual employee to whom the rights have been granted. An ex-post assessment is applicable to determine whether allocated (unvested) variable compensation should become unconditional or should be adjusted. In addition, in specific circumstances Aegons Supervisory Board has the right to reclaim variable compensation that has already been paid out or vested. For members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting, the variable compensation is transferred to the individual employees. Additional holding periods of up to three years may apply for vested shares. Members of the Executive Board and the members of the Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares sold to meet income tax obligations).
In compliance with regulations under Dutch law, no transactions regarding the shares can be exercised in blackout periods.
222 | Notes to the consolidated financial statements Note 14 |
Below an overview is provided of active plans for Long-term incentive and Variable compensation Identified Staff.
2007 | 2011 1) | 2012 1) | 2013 1) | 2014 1) | 2015 1) | Total | ||||||||||||||||||||||
Number of shares conditionally granted 2) |
18,506 | 4,075,460 | 9,195,284 | 5,735,046 | 5,306,037 | 5,178,633 | 29,508,966 | |||||||||||||||||||||
Number of shares allocated |
18,506 | 6,452,535 | 13,392,200 | 8,536,076 | 4,714,569 | - | 33,113,886 | |||||||||||||||||||||
Unvested at January 1, 2014 |
9,253 | 6,015,593 | 12,660,673 | 5,735,046 | - | - | 24,420,565 | |||||||||||||||||||||
Number of shares conditionally granted 2) |
- | - | - | - | 5,306,037 | - | 5,306,037 | |||||||||||||||||||||
Number of shares allocated |
- | - | - | 2,801,030 | - | - | 2,801,030 | |||||||||||||||||||||
Number of shares forfeited |
- | 59,497 | 141,702 | 101,436 | - | - | 302,635 | |||||||||||||||||||||
Number of shares vested |
- | 4,098,081 | 271,159 | 420,597 | - | - | 4,789,837 | |||||||||||||||||||||
Unvested at December 31, 2014 | 9,253 | 1,858,015 | 12,247,812 | 8,014,043 | 5,306,037 | - | 27,435,160 | |||||||||||||||||||||
Number of shares conditionally granted 2) |
- | - | - | - | - | 5,178,633 | 5,178,633 | |||||||||||||||||||||
Number of shares allocated |
- | - | - | - | (591,468 | ) | - | (591,468 | ) | |||||||||||||||||||
Number of shares forfeited |
- | - | 350,398 | 364,159 | 74,384 | - | 788,941 | |||||||||||||||||||||
Number of shares vested |
- | 1,858,015 | 5,312,631 | 191,494 | 267,780 | - | 7,629,920 | |||||||||||||||||||||
Unvested at December 31, 2015 | 9,253 | - | 6,584,783 | 7,458,390 | 4,372,405 | 5,178,633 | 23,603,464 | |||||||||||||||||||||
Average share price used for grant in EUR |
4.727 | 3.126 | 4.917 | 6.739 | 6.106 | |||||||||||||||||||||||
3.915 to | 2.260 to | 3.900 to | 5.840 to | 5.159 to | ||||||||||||||||||||||||
Fair value of shares at grant date in EUR |
4.581 | 2.886 | 4.684 | 6.658 | 6.018 |
1 | Performance year for both Long-term incentive plans and Variable compensation Identified Staff |
2 | Number of shares conditionally granted based on the at target number of grants made that could increase or decrease subject to the actual performance attained |
Share appreciation rights and share options
Senior executives of Aegon companies, as well as other Aegon employees, have been offered both share appreciation rights (SARs) and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 - 2008 vest after three years and can only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, while stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
After 2008, no share options or share appreciation rights were granted. As of March 11, 2015 all outstanding share appreciation rights and share options have expired and have not been exercised.
In compliance with regulations under Dutch law, share appreciation rights and share options cannot be exercised in blackout periods.
Share appreciation rights
The following tables present the movements in number of SARs outstanding, as well as the breakdown by the year in which they were granted.
Number of SARs |
Weighted average exercise price in EUR |
Weighted average remaining contractual term in years |
Aggregate intrinsic in EUR million |
|||||||||||||
Outstanding at January 1, 2014 |
287,900 | 11.35 | 0.81 | - | ||||||||||||
Forfeited |
(9,000 | ) | 9.94 | |||||||||||||
Expired |
(113,700 | ) | 14.98 | |||||||||||||
Outstanding at December 31, 2014 | 165,200 | 8.93 | 0.21 | - | ||||||||||||
Forfeited |
- | - | ||||||||||||||
Expired |
(165,200 | ) | 8.93 | |||||||||||||
Outstanding at December 31, 2015 | - | - | - | - | ||||||||||||
Exercisable at December 31, 2015 | - | - | - | - |
|
Supplemental Annual Report 2015 |
223
SARs | Original number granted | Outstanding January 1, 2015 |
Outstanding December 31, 2015 |
Exercise price in EUR |
Exercise period | |||||||||||||||
2008 |
300,300 | 165,200 | - | 8.93 | until March 11, 2015 | |||||||||||||||
Total | 300,300 | 165,200 | - |
Refer to note 47 Fair value for a further description of the method used to estimate the fair value and a description of the significant assumptions. The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model.
The liability related to SARs is valued at fair value at each balance sheet date. There were no costs related to the share appreciation rights in 2015 (2014: nil; 2013: nil).
Share options
The following tables present the movements in number of share options, as well as the breakdown by the year in which they were granted.
Number of share options |
Weighted average exercise price in EUR |
Weighted average remaining contractual term in years |
Aggregate intrinsic in EUR million |
|||||||||||||
Outstanding at January 1, 2014 |
8,495,768 | 11.15 | 0.84 | - | ||||||||||||
Forfeited/Cancelled |
(571,228 | ) | 9.96 | |||||||||||||
Expired |
(3,024,454 | ) | 14.97 | |||||||||||||
Outstanding at December 31, 2014 | 4,900,086 | 8.93 | 0.21 | - | ||||||||||||
Forfeited/Cancelled |
(1,216,186 | ) | 8.93 | |||||||||||||
Expired |
(3,683,900 | ) | 8.93 | |||||||||||||
Outstanding at December 31, 2015 | - | - | - | - | ||||||||||||
Exercisable at December 31, 2015 | - | - | - | - |
Share options | Original number granted | Outstanding January 1, 2015 |
Outstanding December 31, 2015 |
Exercise price in EUR |
Exercise period | |||||||||||||||
2008 |
10,269,900 | 4,900,086 | - | 8.93 | until March 11, 2015 | |||||||||||||||
Total | 10,269,900 | 4,900,086 | - |
The costs related to the share options amount to EUR nil million (2014: EUR nil million; 2013: EUR 1 million) and are recognized in the income statement as part of Commissions and expenses.
Share appreciation rights and share options
No SARs and share options were granted after 2008. With regard to the SARs and options granted before 2009, no share options were exercised and no SARs were paid during 2013, 2014, and 2015. Similarly, no cash is received from exercise of share options during 2013, 2014, and 2015. As of March 11, 2015 all outstanding share appreciation rights and share options have expired and have not been exercised.
The exposure from the issued SARs and share options was economically hedged by part of the position in treasury shares. There have been no modifications to the plans during the financial year.
Refer to note 53 Related party transactions for detailed information on conditional shares and share options granted to the Executive Board.
224 | Notes to the consolidated financial statements Note 15 |
15 Impairment charges / (reversals)
|
Supplemental Annual Report 2015 |
225
| ||||||||
2015 | 2014 | 2013 | ||||||
Other charges | 774 | 172 | 134 | |||||
Other charges of EUR 774 million in 2015 mainly relate to the book loss on the sale of Aegons Canadian life insurance business. For the sale of Canada refer to note 51 Business combinations.
Other charges of EUR 172 million in 2014 mainly included EUR 95 million related to the settlement with Optas, EUR 29 million related to provision for the modification of unit-linked policies in Poland, EUR 23 million related to a provision for the closed block of European direct marketing activities and EUR 15 million related to the reduction of the carrying amount of non-current financial assets related to the sale of the Canada operations, subject to regulatory approval.
Other charges of EUR 134 million in 2013 mainly included EUR 71 million related to an increase in reserves in connection with the Companys use of the Social Security Administrations death master-file in the United States. Additionally, it included a loss of EUR 22 million related to the sale of national independent financial advisor Positive Solutions in the United Kingdom.
Other charges is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4 Segment reporting).
| ||||||||
Note | 2015 | 2014 | 2013 | |||||
Current tax | ||||||||
Current year |
111 | 66 | 374 | |||||
Adjustments to prior years |
(70) | 38 | (479) | |||||
42 | 104 | (105) | ||||||
Deferred tax |
43 | |||||||
Origination / (reversal) of temporary differences |
(169) | 133 | (154) | |||||
Changes in tax rates / bases |
(22) | (12) | (54) | |||||
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences |
(8) | (63) | 1 | |||||
Non-recognition of deferred tax assets |
22 | 17 | 65 | |||||
Adjustments to prior years |
53 | (28) | 479 | |||||
(125) | 47 | 336 | ||||||
Income tax for the period (income) / charge | (83) | 151 | 233 | |||||
Adjustments to prior years include shifts between current and deferred tax. In 2013 the shift between current and deferred tax is mainly caused by an agreement with tax authorities, resulting in an increased current tax receivable and a decreased deferred tax asset. |
226 | Notes to the consolidated financial statements Note 18 |
Reconciliation between standard and effective income tax: | 2015 | 2014 | 2013 | |||||||||
Income before tax |
(514 | ) | 916 | 1,236 | ||||||||
Income tax calculated using weighted average applicable statutory rates |
(57 | ) | 274 | 377 | ||||||||
Difference due to the effects of: |
||||||||||||
Non-taxable income |
43 | (101 | ) | (114 | ) | |||||||
Non-tax deductible expenses |
49 | 52 | 33 | |||||||||
Changes in tax rate/base |
(22 | ) | (12 | ) | (54 | ) | ||||||
Different tax rates on overseas earnings |
6 | (22 | ) | (14 | ) | |||||||
Tax credits |
(100 | ) | (35 | ) | (56 | ) | ||||||
Other taxes |
14 | 43 | 20 | |||||||||
Adjustments to prior years |
(17 | ) | 10 | - | ||||||||
Origination and change in contingencies |
3 | 5 | - | |||||||||
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences |
(8 | ) | (63 | ) | 1 | |||||||
Non-recognition of deferred tax assets |
22 | 17 | 65 | |||||||||
Tax effect of (profit) / losses from joint ventures and associates |
(8 | ) | (8 | ) | (4 | ) | ||||||
Other |
(9 | ) | (11 | ) | (20 | ) | ||||||
(27 | ) | (123 | ) | (144 | ) | |||||||
Income tax for the period (income) / charge | (83 | ) | 151 | 233 |
The weighted average applicable statutory tax rate for 2015 is 11.0% (2014: 29.9%; 2013: 30.5%). The weighted average applicable statutory tax rate in 2015 is impacted by a disproportional loss in the UK. This is also the main reason for the decrease in weighted average applicable tax rate compared to the prior years.
Non-taxable income in 2015 is negatively impacted by the non-deductible loss on the sale of Aegons Canadian life insurance business.
In the UK, the corporate income tax rate decreased from 21% to 20% as from April 1, 2015. As per April 1, 2017 the tax rate in the UK will further decrease to 19%. A beneficial impact of these changes is reflected in the change in tax rate/base. In Spain the corporate income tax rate decreased from 30% to 28% as from 2015 and will further decrease to 25% as from 2016. The impact of the change of the Spanish tax rate was included in the 2014 change in tax rate/base.
Tax credits in 2015 include tax benefits related to solar investments in the United States.
As in previous years, Other mainly consists of tax effects of the UK life company that have no direct correlation to the IFRS result and also consists of the effect of the various tax rates, other than the statutory tax rate, that are applicable to income of the UK life company.
The following table presents income tax related to components of other comprehensive income.
2015 | 2014 | 2013 | ||||||||||
Items that will not be reclassified to profit and loss: | ||||||||||||
Changes in revaluation reserve real estate held for own use |
(2 | ) | (2 | ) | 1 | |||||||
Remeasurements of defined benefit plans |
(75 | ) | 335 | (202 | ) | |||||||
(77 | ) | 333 | (201 | ) | ||||||||
Items that may be reclassified subsequently to profit and loss: | ||||||||||||
Gains / losses on revaluation of available-for-sale investments |
810 | (1,752 | ) | 1,013 | ||||||||
Gains / losses transferred to the income statement on disposal and impairment of available-for-sale investments |
124 | 148 | 69 | |||||||||
Changes in cash flow hedging reserve |
(98 | ) | (364 | ) | 192 | |||||||
Movement in foreign currency translation and net foreign investment hedging reserve |
(52 | ) | (50 | ) | 21 | |||||||
783 | (2,018 | ) | 1,295 | |||||||||
Total income tax related to components of other comprehensive income | 706 | (1,685 | ) | 1,094 |
|
Supplemental Annual Report 2015 |
227
Basic earnings per share
Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared, coupons on perpetual securities and non-cumulative subordinated notes, and coupons and premium on convertible core capital securities by the weighted average number of common shares, excluding common shares purchased by the Company and held as treasury shares (refer to note 32.1 Share capital par value and 32.3 Treasury shares respectively).
2015 | 2014 | 2013 | ||||||||||
Net income / (loss) attributable to equity holders |
(432 | ) | 765 | 1,001 | ||||||||
Dividends on preferred shares |
- | - | (83 | ) | ||||||||
Coupons on perpetual securities |
(111 | ) | (128 | ) | (146 | ) | ||||||
Coupons on non-cumulative subordinated notes |
(28 | ) | (24 | ) | (21 | ) | ||||||
Net income / (loss) attributable to equity holders for basic earnings per share calculation | (571 | ) | 613 | 751 | ||||||||
Net income / (loss) attributable to common shareholders |
(567 | ) | 609 | 747 | ||||||||
Net income / (loss) attributable to common shareholders B |
(4 | ) | 4 | 3 | ||||||||
Weighted average number of common shares outstanding (in million) |
2,101 | 2,094 | 2,035 | |||||||||
Weighted average number of common shares B outstanding (in million) |
584 | 580 | 366 | |||||||||
Basic earnings per common share (EUR per share) |
(0.27 | ) | 0.29 | 0.37 | ||||||||
Basic earnings per common share B (EUR per share) |
(0.01 | ) | 0.01 | 0.01 |
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the average number of shares outstanding for share options. For the purpose of calculating diluted earnings per share, Aegon assumes that all dilutive share options have been exercised at the exercise price, or adjusted exercise price if necessary. A share option is considered dilutive if the exercise price was lower than the average market price for the period. The assumed proceeds from the exercise of share options are regarded as having been received from the issue of common shares at the average market price of the Aegon N.V. share during the year. The difference between the number of dilutive options considered exercised and the number of common shares that would have been issued at the average market price has been treated as an issue of common shares for no consideration.
The number of share options that has not been included in the weighted average number of common shares used in the calculation of diluted earnings per share amounted to nil (2014: 4,900,086; 2013: 8,495,768). In 2015, 2014 and 2013, the average share price did not exceed the exercise prices in these option contracts. At year end, Aegon has no share options outstanding as all outstanding share options have expired as of March 11, 2015. Aegon has no share options on common shares B.
The diluted earnings per share equaled the basic earnings per share for all years disclosed since there were no share options considered dilutive as mentioned above.
It will be proposed to the Annual General Meeting of Shareholders on May 20, 2016, absent unforeseen circumstances, to pay a final dividend for the year 2015 of EUR 0.13 per common share. After taking into account the interim dividend 2015 of EUR 0.12 per common share, this will result in a total 2015 dividend of EUR 0.25 per common share. Proposed dividend for the year and proposed final dividend 2015 per common share B are EUR 0.00625 and EUR 0.00325 respectively.
The interim dividend 2015 was paid in cash or stock at the election of the shareholder. The cash dividend amounted to EUR 0.12 per common share, the stock dividend amounted to one new Aegon common share for every 45 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 18, 2015. The interim dividend 2015 for common shares B amounted to 1/40th of the dividend paid on common shares.
57% of holders of common shares elected to receive the cash dividend. The remaining 43% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2015 interim dividend paid in shares.
To neutralize the dilutive effect of the 2015 interim dividend paid in shares, Aegon executed a share buyback program to repurchase
228 | Notes to the consolidated financial statements Note 20 |
20,136,673 common shares. Between September 16, 2015, and October 13, 2015, these common shares were repurchased at an average price of EUR 5.2777 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Final dividend 2014
The Annual General Meeting of Shareholders on May 20, 2015, approved a final dividend over 2014 of EUR 0.12 per common share payable in either cash or stock, related to the second half of 2014, paid in the first half of 2015. The stock dividend amounted to one new Aegon common share for every 55 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 42% of shareholders elected to receive the stock dividend. The remaining 58% opted for cash dividend. To neutralize the dilutive effect of the 2014 final dividend paid in shares, Aegon executed a program to repurchase 16,279,933 common shares. Between June 17, 2015, and July 14, 2015, these common shares were repurchased at an average price of EUR 6.6324 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
Interim dividend 2014
The interim dividend 2014 was paid in cash or stock at the election of the shareholder. 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. The interim dividend was payable as of September 19, 2014. The interim dividend 2014 for common shares B amounted to 1/40th of the dividend paid on common shares.
Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares 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 are held as treasury shares and will be used to cover future stock dividends.
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 60% of holders of commons shares elected to receive the cash dividend. The remaining 40% opted for stock 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.
Interim dividend 2013
The interim dividend 2013 on common shares was paid in cash or stock at the election of the shareholder. Stock dividend amounted to one new Aegon common share for every 50 common shares held. The stock dividend and cash dividend were approximately equal in value. The interim dividend was payable as of September 13, 2013. The interim dividend 2013 for common shares B was fully paid in cash.
Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2013 interim dividend paid in shares. Between September 17, 2013, and October 14, 2013, 19,047,358 common shares were repurchased under the share buyback program, at an average price of EUR 5.6233 per share.
|
Supplemental Annual Report 2015 |
229
Net book value | Goodwill | VOBA | Future servicing rights |
Software | Other | Total | ||||||||||||||||||
At January 1, 2014 |
211 | 1,768 | 239 | 50 | 4 | 2,272 | ||||||||||||||||||
At December 31, 2014 |
216 | 1,546 | 255 | 50 | 5 | 2,073 | ||||||||||||||||||
At December 31, 2015 | 299 | 1,472 | 57 | 61 | 12 | 1,901 | ||||||||||||||||||
Cost | ||||||||||||||||||||||||
At January 1, 2015 |
412 | 6,757 | 657 | 336 | 80 | 8,242 | ||||||||||||||||||
Additions |
- | 2 | - | 33 | 17 | 52 | ||||||||||||||||||
Acquisitions through business combinations |
66 | - | 5 | - | - | 71 | ||||||||||||||||||
Capitalized subsequent expenditure |
- | - | - | 2 | - | 2 | ||||||||||||||||||
Disposals |
- | - | (398 | ) | (1 | ) | - | (399 | ) | |||||||||||||||
Net exchange differences |
28 | 703 | 49 | 11 | 9 | 801 | ||||||||||||||||||
At December 31, 2015 | 507 | 7,462 | 314 | 381 | 105 | 8,769 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | ||||||||||||||||||||||||
At January 1, 2015 |
197 | 5,211 | 402 | 285 | 75 | 6,169 | ||||||||||||||||||
Amortization through income statement |
- | 139 | 12 | 26 | 1 | 178 | ||||||||||||||||||
Shadow accounting adjustments |
- | (102 | ) | - | - | - | (102 | ) | ||||||||||||||||
Disposals |
- | - | (184 | ) | (1 | ) | - | (185 | ) | |||||||||||||||
Impairment losses |
- | 191 | - | - | 9 | 200 | ||||||||||||||||||
Net exchange differences |
12 | 551 | 27 | 10 | 8 | 608 | ||||||||||||||||||
At December 31, 2015 | 208 | 5,990 | 257 | 320 | 93 | 6,868 | ||||||||||||||||||
Cost | ||||||||||||||||||||||||
At January 1, 2014 |
388 | 6,758 | 596 | 278 | 69 | 8,090 | ||||||||||||||||||
Additions |
- | 1 | 4 | 23 | 2 | 30 | ||||||||||||||||||
Acquisitions through business combinations |
2 | - | - | - | - | 2 | ||||||||||||||||||
Capitalized subsequent expenditure |
- | - | - | 2 | - | 2 | ||||||||||||||||||
Disposals |
- | - | - | (5 | ) | - | (5 | ) | ||||||||||||||||
Net exchange differences |
28 | 793 | 57 | 12 | 9 | 899 | ||||||||||||||||||
Transfers to disposal groups |
- | (795 | ) | - | - | - | (795 | ) | ||||||||||||||||
Other movements |
(5 | ) | (2 | ) | - | 26 | - | 19 | ||||||||||||||||
At December 31, 2014 | 412 | 6,757 | 657 | 336 | 80 | 8,242 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | ||||||||||||||||||||||||
At January 1, 2014 |
177 | 4,991 | 358 | 228 | 66 | 5,819 | ||||||||||||||||||
Amortization through income statement |
- | 123 | 17 | 24 | - | 164 | ||||||||||||||||||
Shadow accounting adjustments |
- | 72 | - | - | - | 72 | ||||||||||||||||||
Disposals |
- | - | - | (5 | ) | - | (5 | ) | ||||||||||||||||
Impairment losses |
14 | 2 | - | - | - | 15 | ||||||||||||||||||
Net exchange differences |
10 | 618 | 27 | 11 | 9 | 675 | ||||||||||||||||||
Transfers to disposal groups |
- | (592 | ) | - | - | - | (592 | ) | ||||||||||||||||
Other movements |
(4 | ) | (2 | ) | - | 28 | - | 22 | ||||||||||||||||
At December 31, 2014 | 197 | 5,211 | 402 | 285 | 75 | 6,169 |
In 2015, impairment losses include a charge of EUR 210 million resulting from the premium deficiency due to the restructuring of the business and operations in the UK.
Amortization and depreciation through income statement is included in Commissions and expenses. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities.
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 10 years (2014: 10 years). Future servicing rights are amortized over an average period up to 30 years, of which 10 years remain at December 31, 2015 (2014: 9 years). Software is generally depreciated over an average period of 5 years. At December 31, 2015, the remaining average amortization period was 3 years (2014: 3 years).
230 | Notes to the consolidated financial statements Note 21 |
Goodwill
The goodwill balance has been allocated across the cash-generating units which are expected to benefit from the synergies inherent in the goodwill. Goodwill is tested for impairment both annually and when there are specific indicators of a potential impairment. The recoverable amount is the higher of the value in use and fair value less costs of disposal for a cash-generating unit. The operating assumptions used in all the calculations are best estimate assumptions and based on historical data where available.
The economic assumptions used in all the calculations are based on observable market data and projections of future trends. All the cash-generating units tested showed that the recoverable amounts were higher than their carrying values, including goodwill. A reasonably possible change in any key assumption is not expected to cause the carrying value of the cash-generating units to exceed its recoverable amount.
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows:
2015 | 2014 | |||||
Americas |
202 | 121 | ||||
Central & Eastern Europe |
39 | 41 | ||||
Asset Management |
35 | 31 | ||||
The Netherlands |
23 | 22 | ||||
At December 31 | 299 | 216 |
Goodwill in Aegon USA is allocated to its divisions. Value in use calculations of Aegon USA have been actuarially determined based on business plans covering a period of typically five years and pre-tax risk adjusted discount rates. The value in use test in the USA for the Investments & Retirement cash-generating unit (EUR 134 million; 2014: EUR 120 million) assumes business plans covering a period of five years further extrapolated to ten years where the new business levels for years 6-10 assumed a 5% growth rate (2014: 5%) and pre-tax risk adjusted discount rate of 17% (2014: 17%).
To determine the recoverable amounts of the cash generating units of Aegon Central & Eastern Europe (CEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 5 years further extrapolated to 20 years where the new business levels for years 6-20 assumed a growth rate based on the business plan of the fifth year, prudentially decreased by 20%-40% (2014: 15%-20%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 8.4%-16.4% (2014: 9.0%-16.2%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
Following the acquisition of Mercer, goodwill was recognized for an amount of EUR 66 million reflecting the expected profitability of new business.
VOBA
The movement in VOBA over 2015 can be summarized and compared to 2014 as follows:
2015 | 2014 | |||||||
At January 1 |
1,546 | 1,768 | ||||||
Additions |
2 | 1 | ||||||
Amortization / depreciation through income statement |
(139 | ) | (123 | ) | ||||
Shadow accounting adjustments |
102 | (72 | ) | |||||
Impairment losses |
(191 | ) | (2 | ) | ||||
Net exchange differences |
153 | 176 | ||||||
Transfers to disposal groups |
- | (203 | ) | |||||
At December 31 | 1,472 | 1,546 |
|
Supplemental Annual Report 2015 |
231
A geographical summary of the lines of business to which the VOBA is allocated is as follows:
Americas | The lands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset ment |
Total | |||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||
Life |
1,036 | - | - | - | - | 10 | - | 1,046 | ||||||||||||||||||||||||
Individual savings and retirement products |
189 | - | - | - | - | - | - | 189 | ||||||||||||||||||||||||
Pensions |
11 | 27 | 159 | - | - | - | - | 197 | ||||||||||||||||||||||||
Distribution |
- | 10 | - | - | - | - | - | 10 | ||||||||||||||||||||||||
Run-off businesses |
31 | - | - | - | - | - | - | 31 | ||||||||||||||||||||||||
Total VOBA | 1,267 | 36 | 159 | - | - | 10 | - | 1,472 | ||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||
Life |
909 | - | - | - | - | 10 | - | 919 | ||||||||||||||||||||||||
Individual savings and retirement products |
179 | - | - | - | - | - | - | 179 | ||||||||||||||||||||||||
Pensions |
11 | 31 | 373 | - | - | - | - | 415 | ||||||||||||||||||||||||
Distribution |
- | 11 | - | - | - | - | - | 11 | ||||||||||||||||||||||||
Run-off businesses |
22 | - | - | - | - | - | - | 22 | ||||||||||||||||||||||||
Total VOBA | 1,121 | 42 | 373 | - | - | 10 | - | 1,546 |
Future servicing rights
Future servicing rights reduced compared to December 31, 2014 following the sale of Clark Consulting in the third quarter of 2015.
Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
Note | 2015 | 2014 | ||||||||||
Available-for-sale (AFS) |
114,409 | 110,229 | ||||||||||
Loans |
38,263 | 36,303 | ||||||||||
Financial assets at fair value through profit or loss (FVTPL) 1) |
5,816 | 4,895 | ||||||||||
Total financial assets, excluding derivatives | 22.1 | 158,488 | 151,427 | |||||||||
Investments in real estate |
22.2 | 1,990 | 1,792 | |||||||||
Total investments for general account | 160,478 | 153,219 |
1 | Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss. |
232 | Notes to the consolidated financial statements Note 22 |
22.1 Financial assets, excluding derivatives
AFS | FVTPL | Loans | Total | Fair value | ||||||||||||||||
2015 | ||||||||||||||||||||
Shares |
820 | 640 | - | 1,460 | 1,460 | |||||||||||||||
Debt securities |
105,151 | 2,239 | - | 107,390 | 107,390 | |||||||||||||||
Money market and other short-term investments |
7,141 | 303 | - | 7,444 | 7,444 | |||||||||||||||
Mortgage loans |
- | - | 32,899 | 32,899 | 37,648 | |||||||||||||||
Private loans |
- | - | 2,847 | 2,847 | 3,165 | |||||||||||||||
Deposits with financial institutions |
- | - | 106 | 106 | 106 | |||||||||||||||
Policy loans |
- | - | 2,201 | 2,201 | 2,201 | |||||||||||||||
Other |
1,297 | 2,635 | 210 | 4,141 | 4,141 | |||||||||||||||
At December 31, 2015 | 114,409 | 5,816 | 38,263 | 158,488 | 163,555 | |||||||||||||||
2014 |
||||||||||||||||||||
Shares |
623 | 499 | - | 1,122 | 1,122 | |||||||||||||||
Debt securities |
101,497 | 1,826 | - | 103,324 | 103,324 | |||||||||||||||
Money market and other short-term investments |
6,799 | 500 | - | 7,299 | 7,299 | |||||||||||||||
Mortgage loans |
- | - | 31,729 | 31,729 | 36,692 | |||||||||||||||
Private loans |
- | - | 2,058 | 2,058 | 2,454 | |||||||||||||||
Deposits with financial institutions |
- | - | 349 | 349 | 349 | |||||||||||||||
Policy loans |
- | - | 2,028 | 2,028 | 2,028 | |||||||||||||||
Other |
1,310 | 2,070 | 139 | 3,519 | 3,519 | |||||||||||||||
At December 31, 2014 | 110,229 | 4,895 | 36,303 | 151,427 | 156,785 | |||||||||||||||
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 14,828 million is current (2014: EUR 13,998 million).
Refer to note 47 Fair value for information on fair value measurement.
Other Movement on the loan allowance account during the year were as follows:
|
| |||||||||||||||||||
2015 | 2014 | |||||||||||||||||||
At January 1 |
(249 | ) | (240 | ) | ||||||||||||||||
Addition charged to income statement |
(37 | ) | (68 | ) | ||||||||||||||||
Reversal to income statement |
9 | 10 | ||||||||||||||||||
Amounts written off |
33 | 46 | ||||||||||||||||||
Net exchange differences |
(5 | ) | 3 | |||||||||||||||||
Other |
106 | - | ||||||||||||||||||
At December 31 | (142 | ) | (249 | ) |
Other includes the impact of the conversion of the mortgage loans in Hungary, which were formerly denominated in a foreign currency, into HUF denominated loans as required by Hungarian law. As a result of the changed conditions, the former mortgage loans were derecognized and the new mortgage loans have been subsequently recognized at fair value.
Refer to note 49 Transfers of financial assets for a discussion of collateral received and paid.
|
Supplemental Annual Report 2015 |
233
22.2 Investments in real estate
2015 | 2014 | |||||||
At January 1 |
1,792 | 1,532 | ||||||
Additions |
77 | 369 | ||||||
Subsequent expenditure capitalized |
7 | 7 | ||||||
Transfers from other headings |
24 | 18 | ||||||
Disposals |
(163 | ) | (224 | ) | ||||
Fair value gains / (losses) |
145 | (4 | ) | |||||
Net exchange differences |
83 | 91 | ||||||
Other |
25 | 3 | ||||||
At December 31 | 1,990 | 1,792 |
In 2015, 95% of the value of Aegons properties, both for general account and for account of policyholders, were appraised (2014: 78%), of which 99% was performed by independent external appraisers (2014: 100%).
Aegon USA has entered into a commercial property portfolio, consisting of office, retail and industrial buildings. These non-cancellable leases have remaining lease terms up to 20 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions.
Aegon the Netherlands has entered into long-term residential property leases that can be terminated subject to a short-term notice. Under Dutch law, the maximum annual rent increase on residential property rented in the affordable housing segment is specified by the Dutch national government and equals the annual inflation rate plus a small margin.
Refer to note 48 Commitments and contingencies for a description of non-cancellable lease rights.
Rental income of EUR 61 million (2014: EUR 54 million; 2013: EUR 52 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 97 million (2014: EUR 72 million; 2013: EUR 80 million). In 2015, EUR 1 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2014: EUR 11 million; 2013: nil).
Transfers from other headings mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 48 Commitments and contingencies for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
234 | Notes to the consolidated financial statements Note 23 |
23 Investments for account of policyholders
Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate.
Note | 2015 | 2014 | ||||||||||||||
Shares |
26,699 | 27,019 | ||||||||||||||
Debt securities |
31,606 | 37,070 | ||||||||||||||
Money market and other short-term investments |
1,907 | 795 | ||||||||||||||
Deposits with financial institutions |
1,222 | 2,908 | ||||||||||||||
Unconsolidated investment funds |
134,845 | 122,159 | ||||||||||||||
Other |
2,925 | 415 | ||||||||||||||
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 1) | 199,204 | 190,366 | ||||||||||||||
Investments in real estate |
23.1 | 1,022 | 1,101 | |||||||||||||
Total investments for account of policyholders | 200,226 | 191,467 | ||||||||||||||
1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss. | ||||||||||||||||
23.1 Investments in real estate for account of policyholders
|
||||||||||||||||
2015 | 2014 | |||||||||||||||
At January 1 |
1,101 | 996 | ||||||||||||||
Additions |
271 | 56 | ||||||||||||||
Subsequent expenditure capitalized |
9 | 10 | ||||||||||||||
Disposals |
(488 | ) | (86 | ) | ||||||||||||
Fair value gains / (losses) |
67 | 53 | ||||||||||||||
Net exchange differences |
60 | 73 | ||||||||||||||
At December 31 | 1,022 | 1,101 | ||||||||||||||
The investment property is leased out under operating leases.
Rental income of EUR 72 million (2014: EUR 70 million; 2013: EUR 59 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 7 million in 2015 (2014: EUR 6 million, 2013: EUR 8 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 48 Commitments and contingencies for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
|
| |||||||||||||||
Derivative asset | Derivative liability | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Derivatives for general account | ||||||||||||||||
Derivatives not designated in a hedge |
9,001 | 24,962 | 10,068 | 24,571 | ||||||||||||
Derivatives designated as fair value hedges |
44 | 39 | 188 | 183 | ||||||||||||
Derivatives designated as cash flow hedges |
1,516 | 1,421 | 331 | 279 | ||||||||||||
Derivatives designated as Net foreign investment hedges |
82 | 762 | 77 | 789 | ||||||||||||
10,643 | 27,183 | 10,664 | 25,823 | |||||||||||||
Derivatives for account of policyholders | ||||||||||||||||
Derivatives not designated in a hedge |
903 | 830 | 226 | 226 | ||||||||||||
|
903
|
|
|
830
|
|
|
226
|
|
|
226
|
| |||||
Total derivatives 1) | 11,545 | 28,014 | 10,890 | 26,048 | ||||||||||||
1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss. |
|
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235
The fair value of derivatives on both the asset and liability side of the consolidated statement of financial position decreased during 2015 mainly due to the unwind of mutually offsetting derivatives and changes in interest rates and other market movements during the year. See note 47 Fair value for details on fair value measurement of derivatives.
Of the derivatives EUR 726 million (2014: EUR 1.247 million) and EUR 1.179 million (2014: EUR 2.591 million) are current derivative assets and liabilities respectively.
Aegon the Netherlands has a derivative position to partially hedge its longevity risk. The derivative, with a notional amount of EUR 12 billion, becomes in the money if - in 2032 - realized mortality rates are more than 7.5% lower than pre-defined mortality tables. To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative. This derivative will pay out in 2035 if some combination of higher than expected mortality rates in the United States and/or lower than expected mortality rates in the Netherlands persists over the next 20 years from 2013 and, at that time, is expected to continue to do so.
As a next step in the hedge program Aegon the Netherlands bought a third longevity hedge in 2015. The floating leg is a single payout in 2065 and is linked to an index which is constructed as the aggregate benefit payments over the term of 50 years on an underlying book of Dutch annuities of EUR 15 billion, which includes a significant portion of deferred annuities. The hedge provides out-of-the-money protection. In 2015, Aegon entered into the first tranche of this hedge for an amount of EUR 6 billion with Canada Life Re. This first tranche covers 40% of the best estimate value of liabilities of EUR 15 billion.
The derivatives are measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivatives are calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on underwriting risk included in note 36 Insurance contracts and the paragraph on derivatives included in note 47 Fair value.
Use of derivatives
Derivatives not designated in a hedge - general account
Derivative asset | Derivative liability | |||||||||||||||
Derivatives not designated in a hedge general account | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Derivatives held as an economic hedge |
8,826 | 24,797 | 7,875 | 21,474 | ||||||||||||
Bifurcated embedded derivatives |
32 | 20 | 2,172 | 3,123 | ||||||||||||
Other |
143 | 145 | 22 | (26 | ) | |||||||||||
Total | 9,001 | 24,962 | 10,068 | 24,571 |
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk. In all cases, these are in accordance with internal risk guidelines and are closely monitored for continuing compliance.
Bifurcated embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the consolidated statement of financial position. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit-linked insurance contracts in the form of guarantees for minimum benefits. Please refer to note 38 Guarantees in insurance contracts for more disclosures about these guarantees.
236 | Notes to the consolidated financial statements Note 24 |
CDSs
Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were:
2015 | 2014 | |||||||||||||||
CDSs | Notional | Fair value | Notional | Fair value | ||||||||||||
CDSs |
4,401 | 23 | 3,119 | 60 | ||||||||||||
Total | 4,401 | 23 | 3,119 | 60 |
2015 | 2014 | |||||||||||||||
Credit derivative disclosure by quality | Notional | Fair value | Notional | Fair value | ||||||||||||
AA |
779 | 5 | 362 | 5 | ||||||||||||
A |
407 | 3 | 735 | 10 | ||||||||||||
BBB |
2,866 | 12 | 1,789 | 27 | ||||||||||||
BB |
310 | 2 | 207 | 16 | ||||||||||||
B or lower |
40 | 1 | 26 | 2 | ||||||||||||
Total | 4,401 | 23 | 3,119 | 60 |
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps. Another strategy used is to synthetically replicate corporate and sovereign credit exposures with credit derivatives. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
Derivatives designated as fair value hedges
Aegons fair value hedges consist mainly of interest rate swaps, swaptions, equity and fixed income total return swaps, equity options, equity futures, bond futures and variance swaps that are used to protect against changes in the fair value of interest rate and equity sensitive instruments or liabilities. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement. As a result, only the net accounting ineffectiveness has an impact on the net result.
Aegon has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis (generally to six months or less LIBOR). These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. These agreements involve the payment or receipt of fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities.
Aegon has entered into cross-currency interest rate swap agreements that effectively convert certain foreign currency fixed-rate and floating-rate assets and liabilities to US dollar floating-rate assets and liabilities. These agreements involve the exchange of the underlying principal amounts.
For the years ended December 31, 2015, 2014, and 2013, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR (17) million, EUR 45 million and EUR 10 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
Derivatives designated as cash flow hedges
Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegons portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon hedges its exposure to the variability of future cash flows from the interest rate movements for terms up to 29 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
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Aegon uses forward starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction. Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to the variability of future cash flows from interest rate movements for terms up to 28 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 37 years. For the year ended December 31, 2015, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 388 million (2014: EUR 146 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. During the year ended December 31, 2015, none of Aegons cash flow hedges were discontinued, as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today.
In addition, Aegon also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 12 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2015, Aegon recognized a gain of EUR 4 million of hedge ineffectiveness on cash flow hedges. In 2014 and 2013, respectively, losses of EUR 2 million and EUR 1 million as a result of hedge ineffectiveness were recorded in the income statement. In 2015, EUR 13 million gain was reclassified from equity into investment income (2014: EUR 12 million gain, 2013: EUR 26 million gain). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 44 million gain.
The periods when the cash flows are expected to occur are as follows:
< 1 year | 1 5 years | 5 10 years | > 10 years | 2015 Total | ||||||||||||||||
Cash inflows |
481 | 1,647 | 1,395 | 6,394 | 9,917 | |||||||||||||||
Cash outflows |
- | 1 | 1 | 3 | 5 | |||||||||||||||
Net cash flows | 481 | 1,646 | 1,394 | 6,390 | 9,911 | |||||||||||||||
< 1 year |
1 5 years | 5 10 years | > 10 years | 2014 Total | ||||||||||||||||
Cash inflows |
553 | 1,677 | 1,348 | 5,421 | 8,999 | |||||||||||||||
Cash outflows |
- | 1 | 1 | 3 | 5 | |||||||||||||||
Net cash flows | 553 | 1,676 | 1,347 | 5,418 | 8,994 |
Net foreign investment hedges
Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the eurozone, the United States, the United Kingdom and Canada are funded in euros. When the debt funding of investments is not in the functional currency of the investment, Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
238 | Notes to the consolidated financial statements Note 25 |
25 Investments in joint ventures
2015 | 2014 | |||||||
At January 1 |
1,468 | 1,426 | ||||||
Additions |
38 | 100 | ||||||
Disposals |
- | (47) | ||||||
Share in net income |
142 | 56 | ||||||
Share in changes in joint ventures equity (note 32.6) |
(8 | ) | 22 | |||||
Impairment losses |
(21 | ) | (23) | |||||
Dividend |
(68 | ) | (74) | |||||
Net exchange difference |
10 | 9 | ||||||
At December 31 | 1,561 | 1,468 |
All joint ventures are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in joint ventures include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in joint ventures. The financial statements of the principal joint ventures have the same reporting date as the Group. Refer to note 52 Group companies for a listing of the investments in joint ventures and the Groups percentage holding.
Caja Badajoz Vida
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 sale resulted in a book gain of EUR 7 million. Upon disposal an amount of EUR 12 million related to a positive revaluation reserve has been recycled from equity through profit and loss account. The transaction with Ibercaja Banco S.A. was completed in the third quarter of 2014 after obtaining regulatory approval.
Strategic partnership with Santander Totta
On July 30, 2014, Aegon signed a new 25-year agreement to distribute both protection and general insurance products through Banco Santander Tottas approximately 600 branches in Portugal. The transaction with Banco Santander Totta was completed in the fourth quarter of 2014 after obtaining regulatory approval. Under the terms of the agreement, Aegon acquired a 51% stake in both a life insurance company as well as a non-life insurance company for a consideration of EUR 42.5 million.
|
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239
Summarized financial information of material joint ventures
Aegon considers its investment in AMVEST Vastgoed B.V. (AMVEST) a material joint venture. The summarized financial information presented in the following table is included in the IFRS financial statements of AMVEST on a 100% basis.
AMVEST | ||||||||
2015 | 2014 | |||||||
Summarized statement of financial position | ||||||||
Cash and cash equivalents |
176 | 111 | ||||||
Other current assets |
206 | 221 | ||||||
Total current assets | 382 | 332 | ||||||
Non-current assets |
2,070 | 1,739 | ||||||
Total assets | 2,452 | 2,071 | ||||||
Other current liabilities |
138 | 55 | ||||||
Total current liabilities | 138 | 55 | ||||||
Non-current financial liabilities excluding trade payables and other provisions |
426 | 428 | ||||||
Other non-current liabilities |
- | 10 | ||||||
Total non-current financial liabilities | 426 | 438 | ||||||
Total liabilities | 564 | 494 | ||||||
Net assets | 1,888 | 1,577 | ||||||
Summarized statement of comprehensive income | ||||||||
Revenue |
78 | 73 | ||||||
Results from financial transactions |
133 | (19 | ) | |||||
Interest expense |
(10 | ) | (11 | ) | ||||
Profit or loss |
183 | 40 | ||||||
Income tax (expense) or income |
(1 | ) | 6 | |||||
Post-tax profit or (loss) | 182 | 46 | ||||||
Other comprehensive income |
5 | - | ||||||
Total comprehensive income | 187 | 46 | ||||||
Dividends received |
43 | 59 | ||||||
A reconciliation of the summarized financial information to the carrying amount of AMVEST is as follows:
|
| |||||||
AMVEST | ||||||||
2015 | 2014 | |||||||
Net assets of joint venture as presented above |
1,888 | 1,577 | ||||||
Group share of net assets of joint venture, excluding fair value adjustments |
837 | 789 | ||||||
Carrying amount | 837 | 789 | ||||||
Summarized financial information of other joint ventures
|
||||||||
2015 | 2014 | |||||||
Post-tax profit or loss |
66 | 33 | ||||||
Other comprehensive income |
(10 | ) | 22 | |||||
Total comprehensive income | 56 | 55 | ||||||
Carrying amount |
724 | 679 |
The summarized financial information of other joint ventures presented above is based on the Groups relative holding.
240 | Notes to the consolidated financial statements Note 26 |
2015 | 2014 | |||||||
At January 1 |
140 | 470 | ||||||
Additions |
138 | 9 | ||||||
Disposals |
(15 | ) | - | |||||
Share in net income |
5 | 24 | ||||||
Share in changes in associates equity (note 32.6) |
(1 | ) | 7 | |||||
Dividend |
(8 | ) | (1 | ) | ||||
Net exchange difference |
(19 | ) | 3 | |||||
Revaluation reserve recycled through profit or loss |
- | (18 | ) | |||||
Transfers to disposal groups |
- | (353 | ) | |||||
Other |
- | (1 | ) | |||||
At December 31 | 242 | 140 |
All associates are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in associates include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in associates. The financial statements of the principal associates have the same reporting date as the Group. Refer to note 52 Group companies for a listing of the investments in associates and the Groups percentage holding.
La Banque Postale
On June 4, 2015 Aegon completed a strategic asset management partnership with La Banque Postale. Under the terms of the agreement, Aegon has acquired a 25% stake in La Banque Postale Asset Management (LBPAM) for a consideration of EUR 117 million.
La Mondiale Participations
On March 3, 2015, Aegon completed the sale of its 35% share in La Mondiale Participations following the granting of approval by the French Competition Authority (Autorité de la Concurrence). The agreement to sell Aegons stake in La Mondiale Participations to La Mondiale for EUR 350 million was announced on November 24, 2014. Proceeds from the sale were added to Aegons excess capital buffer. In 2014, an amount of EUR 353 million was transferred to held for sale.
Summarized financial information of associates
December 31, 2015 |
December 31, 2014 |
|||||||
Post-tax profit or loss |
5 | 5 | ||||||
Other comprehensive income |
(1 | ) | 2 | |||||
Total comprehensive income | 5 | 7 | ||||||
Carrying amount |
242 | 140 |
The summarized financial information of associates presented above is based on the Groups relative holding.
Assets arising from reinsurance contracts related to: | 2015 | 2014 | ||||||
Life insurance general account |
9,677 | 8,184 | ||||||
Life insurance for account of policyholders |
64 | 99 | ||||||
Non-life insurance |
1,503 | 1,297 | ||||||
Investment contracts |
12 | 13 | ||||||
At December 31 | 11,257 | 9,593 |
Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in note 30 Other assets and receivables.
|
Supplemental Annual Report 2015 |
241
EUR 18 million of the reinsurance assets are current (2014: EUR 11 million).
Movements during the year in reinsurance assets relating to life insurance: | |
Life insurance general account |
|
|
Life insurance for account of policyholders |
|
|
Total life insurance |
| |||
At January 1, 2015 |
8,184 | 99 | 8,283 | |||||||||
Gross premium and deposits existing and new business |
2,257 | 67 | 2,325 | |||||||||
Unwind of discount / interest credited |
373 | 4 | 377 | |||||||||
Insurance liabilities released |
(2,748 | ) | (112 | ) | (2,860 | ) | ||||||
Fund charges released |
(10 | ) | - | (10 | ) | |||||||
Changes to valuation of expected future benefits |
23 | - | 23 | |||||||||
Policy transfers |
647 | - | 647 | |||||||||
Net exchange differences |
910 | 6 | 916 | |||||||||
Other movements |
40 | - | 40 | |||||||||
At December 31, 2015 | 9,677 | 64 | 9,741 | |||||||||
At January 1, 2014 |
8,859 | 90 | 8,949 | |||||||||
Gross premium and deposits existing and new business |
2,249 | 63 | 2,311 | |||||||||
Unwind of discount / interest credited |
345 | 15 | 360 | |||||||||
Insurance liabilities released |
(3,253 | ) | (75 | ) | (3,328 | ) | ||||||
Fund charges released |
(4 | ) | - | (4 | ) | |||||||
Changes to valuation of expected future benefits |
(22 | ) | - | (22 | ) | |||||||
Policy transfers |
(22 | ) | - | (22 | ) | |||||||
Net exchange differences |
1,037 | 6 | 1,044 | |||||||||
Transfers to disposal groups |
(1,015 | ) | - | (1,015 | ) | |||||||
Transfer to / (from) insurance contracts for account of policyholders |
8 | - | 8 | |||||||||
At December 31, 2014 | 8,184 | 99 | 8,283 |
Movements during the year in reinsurance assets relating to non-life insurance: | 2015 | 2014 | ||||||
At January 1 |
1,297 | 1,093 | ||||||
Gross premium and deposits existing and new business |
126 | 126 | ||||||
Unwind of discount / interest credited |
80 | 61 | ||||||
Insurance liabilities released |
(110 | ) | (100 | ) | ||||
Changes to valuation of expected future benefits |
1 | 28 | ||||||
Changes in unearned premiums |
(44 | ) | (63 | ) | ||||
Incurred related to current year |
77 | 63 | ||||||
Incurred related to prior years |
41 | 21 | ||||||
Release for claims settled current year |
(8 | ) | (4 | ) | ||||
Release for claims settled prior years |
(88 | ) | (82 | ) | ||||
Change in IBNR |
(5 | ) | (11 | ) | ||||
Shadow accounting adjustment |
- | (13 | ) | |||||
Net exchange differences |
147 | 153 | ||||||
Other movements |
(10 | ) | 26 | |||||
At December 31 | 1,503 | 1,297 |
242 | Notes to the consolidated financial statements Note 28 |
2015 | 2014 | |||||||||||
DPAC for insurance contracts and investment contracts with discretionary participation features |
|
10,457 | 9,523 | |||||||||
Deferred cost of reinsurance |
|
72 | 86 | |||||||||
Deferred transaction costs for investment management services |
|
467 | 409 | |||||||||
At December 31 | 10,997 | 10,019 | ||||||||||
Current |
|
990 | 814 | |||||||||
Non-current |
|
10,007 | 9,205 | |||||||||
DPAC | |
Deferred costs of reinsurance |
|
|
Deferred transaction costs |
| ||||||
At January 1, 2015 |
9,523 | 86 | 409 | |||||||||
Costs deferred during the year |
1,485 | - | 48 | |||||||||
Disposal of group assets |
(34 | ) | - | - | ||||||||
Amortization through income statement |
(1,055 | ) | (23 | ) | (30 | ) | ||||||
Shadow accounting adjustments |
664 | - | - | |||||||||
Impairments |
(1,083 | ) | - | - | ||||||||
Net exchange differences |
957 | 9 | 40 | |||||||||
At December 31, 2015 | 10,457 | 72 | 467 | |||||||||
DPAC | Deferred costs of reinsurance |
Deferred transaction costs |
||||||||||
At January 1, 2014 |
9,229 | 84 | 356 | |||||||||
Costs deferred during the year |
1,428 | - | 37 | |||||||||
Amortization through income statement |
(766 | ) | (9 | ) | (26 | ) | ||||||
Shadow accounting adjustments |
(542 | ) | - | - | ||||||||
Net exchange differences |
1,028 | 11 | 43 | |||||||||
Transfers to disposal groups |
(853 | ) | - | - | ||||||||
Other |
- | 1 | - | |||||||||
At December 31, 2014 | 9,523 | 86 | 409 |
In the following table a breakdown is provided of DPAC balances by line of business and reporting segment:
|
| |||||||||||||||||||||||||||||||||||
Americas | The Netherlands |
United Kingdom |
Central & Eastern Europe |
Spain & Portugal |
Asia | Asset Manage- ment |
Holdings and other activities |
Total | ||||||||||||||||||||||||||||
2015 | ||||||||||||||||||||||||||||||||||||
Life |
6,010 | 34 | 163 | 84 | 1 | 745 | - | 9 | 7,046 | |||||||||||||||||||||||||||
Individual savings and retirement products |
1,924 | - | - | - | - | - | - | - | 1,924 | |||||||||||||||||||||||||||
Pensions |
- | 63 | 1,101 | - | - | - | - | - | 1,164 | |||||||||||||||||||||||||||
Run-off business |
323 | - | - | - | - | - | - | - | 323 | |||||||||||||||||||||||||||
At December 31 | 8,258 | 97 | 1,264 | 84 | 1 | 745 | - | 9 | 10,457 | |||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||
Life |
4,479 | 48 | 147 | 113 | 2 | 493 | - | 5 | 5,287 | |||||||||||||||||||||||||||
Individual savings and retirement products |
1,587 | - | - | - | - | - | - | - | 1,587 | |||||||||||||||||||||||||||
Pensions |
- | 66 | 2,270 | - | - | - | - | - | 2,337 | |||||||||||||||||||||||||||
Run-off business |
313 | - | - | - | - | - | - | - | 313 | |||||||||||||||||||||||||||
At December 31 | 6,379 | 114 | 2,417 | 113 | 2 | 493 | - | 5 | 9,523 |
|
Supplemental Annual Report 2015 |
243
29 Assets and liabilities held for sale
Assets and liabilities held for sale include disposal groups whose carrying amount will be recovered principally through a sale transaction rather than through continuing operations. This relates to businesses for which a sale is agreed upon or a sale is highly probable at the balance sheet date, but for which the transaction has not yet fully closed.
The sales of the Canadian operations and La Mondiale Participations were completed in 2015 and are no longer classified as assets and liabilities held for sale at year end 2015. As a result, no unrealized gains relating to assets and liabilities held for sale are included in other comprehensive income, as of December 31, 2015 (December 31, 2014: EUR 477 million).
Canada
On October 15, 2014, Aegon reached an agreement to sell its Canadian operations for a total considerations of CAD 600 million (EUR 428 million). The Canadian operations were classified as held for sale per December 31, 2014. On July 31, 2015, after obtaining regulatory approval, Aegon completed the sale. The Canadian operations were included in the Americas segment (note 5 Segment information). For more information related to the transaction, refer to note 51 Business combinations.
La Mondiale
On March 3, 2015, after obtaining regulatory approval, Aegon completed the sale of La Mondiale Participations which was classified as held for sale per December 31, 2014. The operations of La Mondiale were included in the Spain & Portugal segment (note 5 Segment information). For more information related to the transaction, refer to note 26 Associates.
The table below presents the major types of assets and liabilities included in assets and liabilities classified as held for sale on the consolidated statement of financial position per December 2014.
Assets | December 31, 2014 |
|||
Intangible assets |
203 | |||
Investments |
5,646 | |||
Investments for account of policyholders |
1,496 | |||
Investments in associates |
347 | |||
Reinsurance assets |
1,015 | |||
Deferred expenses and rebates |
853 | |||
Other assets and receivables |
278 | |||
Cash and cash equivalents |
43 | |||
Total | 9,881 | |||
Liabilities | December 31, 2014 |
|||
Insurance contracts |
5,136 | |||
Insurance contracts for account of policyholders |
1,375 | |||
Investment contracts |
57 | |||
Investment contracts for account of policyholders |
122 | |||
Derivatives |
35 | |||
Other liabilities |
1,086 | |||
Total | 7,810 |
244 | Notes to the consolidated financial statements Note 30 |
Fair value measurement
The fair value hierarchy of financial assets and liabilities (measured at fair value), which were presented as held for sale per December 31, 2014 is included below. The fair value hierarchy consists of three levels. Reference is made to note 3 Critical accounting estimates and judgment in applying accounting policies for more details on the fair value hierarchy.
|
Supplemental Annual Report 2015 |
245
30.1 Real estate held for own use and equipment
Net book value |
|
General account real estate held for own use |
|
Equipment | Total | |||||||
At January 1, 2014 |
288 | 199 | 487 | |||||||||
At December 31, 2014 |
293 | 216 | 509 | |||||||||
At December 31, 2015 | 338 | 237 | 575 | |||||||||
Cost |
||||||||||||
At January 1, 2015 |
384 | 485 | 869 | |||||||||
Additions |
15 | 73 | 87 | |||||||||
Capitalized subsequent expenditure |
3 | - | 3 | |||||||||
Disposals |
- | (30 | ) | (30 | ) | |||||||
Unrealized gains/(losses) through equity |
8 | - | 8 | |||||||||
Net exchange differences |
25 | 26 | 50 | |||||||||
Other |
10 | (10 | ) | - | ||||||||
At December 31, 2015 | 442 | 544 | 986 | |||||||||
Accumulated depreciation and impairment losses |
||||||||||||
At January 1, 2015 |
91 | 269 | 360 | |||||||||
Depreciation through income statement |
8 | 50 | 57 | |||||||||
Disposals |
- | (22 | ) | (22 | ) | |||||||
Net exchange differences |
6 | 12 | 18 | |||||||||
Other |
1 | (1 | ) | - | ||||||||
At December 31, 2015 | 104 | 307 | 411 | |||||||||
Cost | ||||||||||||
At January 1, 2014 |
370 | 468 | 838 | |||||||||
Additions |
- | 70 | 70 | |||||||||
Capitalized subsequent expenditure |
7 | - | 7 | |||||||||
Disposals |
(6 | ) | (49 | ) | (55 | ) | ||||||
Unrealized gains/(losses) through equity |
5 | - | 5 | |||||||||
Net exchange differences |
26 | 25 | 51 | |||||||||
Transfers to disposal groups |
- | (2 | ) | (2 | ) | |||||||
Other |
(19 | ) | (26 | ) | (45 | ) | ||||||
At December 31, 2014 | 384 | 485 | 869 | |||||||||
Accumulated depreciation and impairment losses |
||||||||||||
At January 1, 2014 |
82 | 269 | 351 | |||||||||
Depreciation through income statement |
7 | 47 | 54 | |||||||||
Disposals |
- | (43 | ) | (43 | ) | |||||||
Impairment losses |
2 | - | 2 | |||||||||
Net exchange differences |
6 | 11 | 17 | |||||||||
Transfers to disposal groups |
- | (2 | ) | (2 | ) | |||||||
Other |
(6 | ) | (14 | ) | (20 | ) | ||||||
At December 31, 2014 | 91 | 269 | 360 |
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounted to EUR 358 million (2014: EUR 309 million).
43% of the value of the general account real estate held for own use was last revalued in 2015 (2014: 26%), based on market value appraisals by qualified internal and external appraisers. 98% of the appraisals in 2015 were performed by independent external appraisers (2014: 96%).
General account real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses are recorded in Commissions and expenses in the income statement. The useful lives of buildings range between 40 and 50 years.
246 | Notes to the consolidated financial statements Note 31 |
None of the equipment is held for lease (2014: none). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement. Equipment is generally depreciated over a period of three to five years.
30.2 Receivables
2015 | 2014 | |||||||
Finance lease assets |
9 | 7 | ||||||
Receivables from policyholders |
1,291 | 1,834 | ||||||
Receivables from brokers and agents |
286 | 241 | ||||||
Receivables from reinsurers |
209 | 30 | ||||||
Cash outstanding from assets sold |
36 | 98 | ||||||
Trade receivables |
1,001 | 668 | ||||||
Cash collateral |
215 | 814 | ||||||
Reverse repurchase agreements |
778 | 903 | ||||||
Income tax receivable |
321 | 101 | ||||||
Other |
1,155 | 787 | ||||||
Provision for doubtful debts |
(107 | ) | (115 | ) | ||||
At December 31 | 5,195 | 5,367 | ||||||
Current |
5,162 | 5,337 | ||||||
Non-current |
33 | 30 | ||||||
The movements in the provision for doubtful debts during the year were as follows:
|
||||||||
2015 | 2014 | |||||||
At January 1 |
(115 | ) | (111 | ) | ||||
Additions charged to earnings |
(14 | ) | (9 | ) | ||||
Unused amounts reversed through the income statement |
12 | 4 | ||||||
Used during the year |
13 | 5 | ||||||
Net exchange differences |
(3 | ) | (3 | ) | ||||
At December 31 | (107 | ) | (115 | ) |
30.3 Accrued income
2015 | 2014 | |||||||
Accrued interest |
1,760 | 1,673 | ||||||
Other |
19 | 14 | ||||||
At December 31 | 1,779 | 1,687 |
EUR 1,761 million of accrued income is current (2014: EUR 1,687 million).
2015 | 2014 | |||||||
Cash at bank and in hand |
2,199 | 1,650 | ||||||
Short-term deposits |
3,614 | 4,876 | ||||||
Money market investments |
3,318 | 3,544 | ||||||
Short-term collateral |
463 | 539 | ||||||
At December 31 | 9,594 | 10,610 |
The carrying amounts disclosed reasonably approximate the fair values as at the year end.
|
Supplemental Annual Report 2015 |
247
EUR 8 billion (2014: EUR 11 billion) of cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 44 Other liabilities). Refer to note 49 Transfer of financial assets for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. EUR 463 million (2014: EUR 539 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 8 million (2014: EUR 7 million; 2013: EUR 8 million).
The weighted effective interest rate on short-term deposits was 0.21% (2014: 0.03%) and these deposits have an average maturity of 32.84 days (2014: 20.97 days).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
Note | 2015 | 2014 | ||||||||||
Cash and cash equivalents |
9,594 | 10,610 | ||||||||||
Cash classified as Assets held for sale |
29 | - | 43 | |||||||||
Bank overdrafts |
44 | - | (4 | ) | ||||||||
Net cash and cash equivalents | 9,593 | 10,649 | ||||||||||
Cash and cash equivalents include cash and demand balances held at the Dutch Central Bank. The Dutch Central Bank requires Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed twelve times per year, based on an updated valuation of total assets. During 2015 the interest rate was unchanged at 0.05% (2014: 0.05%). The average minimum required balance on deposit by the Dutch Central Bank was EUR 49 million (2014: EUR 39 million). These deposits are therefore not freely available.
|
| |||||||||||
Summary IFRS cash flow statement | 2015 | 2014 | 2013 | |||||||||
Net cash flows from operating activities |
914 | 4,122 | (2,011 | ) | ||||||||
Net cash flows from investing activities |
615 | (71 | ) | 516 | ||||||||
Net cash flows from financing activities |
(2,785 | ) | 715 | (2,271 | ) | |||||||
Net increase in cash and cash equivalents | (1,257 | ) | 4,766 | (3,766 | ) |
Net cash and cash equivalents at December 31, 2015, are positively impacted by effects of changes in exchange rates of EUR 200 million (2014: EUR 231 million; 2013: EUR (79) million).
Analysis of IFRS cash flows
2015 compared to 2014
Net cash flows from operating activities
Total net cash flows from operating activities decreased by EUR 3,208 million to a EUR 914 million inflow (2014: EUR 4,122 million inflow). The decrease is mainly driven by an outflow from changes in accruals and changes in cash collateral. These cash outflows are partly offset by the increase in results from financial transactions and net purchase of investments for account of policyholders and the money market investments.
Net cash flows from investing activities
Net cash flows from investing activities increased by EUR 685 million to a EUR 615 million inflow (2014: EUR 71 million outflow). The increase is mainly driven by the sale of La Mondiale, Canada, Clark Consulting and 7IM. This increase is partly offset by the acquisition of Mercer and a 25% stake in La Banque Postale Asset Management.
Net cash flows from financing activities
Net cash flows from financing activities decreased by EUR 3,500 million to a EUR 2,785 million outflow (2014: EUR 715 million inflow). The decrease is mainly a result of proceeds and repayments of borrowings (refer to note 39 Borrowings).
248 | Notes to the consolidated financial statements Note 32 |
2014 compared to 2013
Net cash flows from operating activities
Total net cash flows from operating activities increased by EUR 6,133 million to a EUR 4,122 million inflow (2013: EUR 2,011 million outflow). The increase is mainly driven by higher results from financial transactions, a higher inflow from the change in accruals, lower net purchase of investments and derivatives and an inflow from the change in cash collateral. These cash inflows are partly offset by the net purchase of money market investments.
Net cash flows from investing activities
Net cash flows from investing activities decreased by EUR 587 million to a EUR 71 million outflow (2013: EUR 516 million outflow). The decrease is mainly driven by a lower cash inflow from disposals of joint ventures and associates.
Net cash flows from financing activities
Net cash flows from financing activities increased by EUR 2,986 million to a EUR 715 million inflow (2013: EUR 2,271 million inflow). The increase is mainly a result of two transactions executed under the Dutch SAECURE program to sell Class A mortgage backed securities (refer to note 39 Borrowings) and the issuance of new subordinated notes (refer to note 34 Subordinated borrowings), partly offset by the repurchase of perpetual capital securities.
Issued share capital and reserves attributable to shareholders of Aegon N.V.
Note | 2015 | 2014 | 2013 | |||||||||||||
Share capital par value |
32.1 | 328 | 327 | 325 | ||||||||||||
Share premium |
32.2 | 8,059 | 8,270 | 8,375 | ||||||||||||
Total share capital | 8,387 | 8,597 | 8,701 | |||||||||||||
Retained earnings |
8,100 | 8,958 | 8,635 | |||||||||||||
Treasury shares |
32.3 | (269 | ) | (319 | ) | (292 | ) | |||||||||
Total retained earnings | 7,832 | 8,639 | 8,345 | |||||||||||||
Revaluation reserves |
32.4 | 6,471 | 8,308 | 3,023 | ||||||||||||
Remeasurement of defined benefit plans |
32.5 | (1,532 | ) | (1,611 | ) | (706 | ) | |||||||||
Other reserves |
32.6 | 1,283 | (86 | ) | (1,773 | ) | ||||||||||
Total shareholders equity | 22,441 | 23,847 | 17,589 |
In June 2015, Aegon distributed to its shareholders who elected stock dividend a total number of 16,279,933 common shares in respect to the final dividend for 2014. This stock dividend distribution was fully paid from treasury shares (note 32.3 Treasury shares).
In September 2015, Aegon distributed to its shareholders 20,136,673 common shares as interim dividend 2015 in the form of stock. This stock dividend distribution was paid from 19,047,358 treasury shares (note 32.3 Treasury shares) and with the issuance of 1,089,315 common shares with a par value of EUR 0.12.
In 2015, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2014 final dividend and 2015 interim dividend paid in shares, and repurchased a total of 36,416,606 common shares.
Furthermore, in 2015, Aegon issued a total of 3,696,440 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegons shareholding caused by the issuance of shares on January 1, 2015 and May 21, 2015, in connection with the Long Term Incentive Plans for senior management.
In 2014, Aegon issued 14,488,648 common shares with a par value of EUR 0.12 in respect of the final dividend for 2013 which was paid in June 2014. In September 2014, Aegon distributed to its shareholders 16,319,939 common shares as interim dividend 2014 in the form of stock. This last stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and no common shares were issued as a result. In 2014, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2013 final dividend and 2014 interim dividend paid in shares, and repurchased a total of 30,808,587 common shares.
Furthermore, in 2014, Aegon issued 2,320,280 common shares B with a par value of EUR 0.12 to compensate for the dilution of Vereniging Aegons shareholding caused by the issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
|
Supplemental Annual Report 2015 |
249
In 2013, Aegon issued 19,668,540 and 19,047,386 common shares with a par value of EUR 0.12 in respect of the final dividend for 2012, which was paid in June 2013 and the interim dividend paid in September 2013, respectively.
In July 2013, Vereniging Aegon exercised its option right to purchase 12,691,745 common shares B with a par value of EUR 0.12 to mitigate the dilution caused by the issuance of shares on May 1, 2013 and May 16, 2013, in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend.
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013. For details refer to the major shareholders section included in the other information to the financial statements of Aegon N.V.
The simplified capital structure entailed, but was not limited to, the amendment of the Articles of Association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,694 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
The simplified capital structure also included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
32.1 Share capital par value
2015 | 2014 | 2013 | ||||||||||||||
Common shares |
258 | 258 | 256 | |||||||||||||
Common shares B |
70 | 70 | 69 | |||||||||||||
At December 31 | 328 | 327 | 325 | |||||||||||||
Common shares | 2015 | 2014 | 2013 | |||||||||||||
Authorized share capital |
720 | 720 | 720 | |||||||||||||
Number of authorized shares (in million) |
6,000 | 6,000 | 6,000 | |||||||||||||
Par value in cents per share |
12 | 12 | 12 | |||||||||||||
Common shares B | 2015 | 2014 | 2013 | |||||||||||||
Authorized share capital |
360 | 360 | 360 | |||||||||||||
Number of authorized shares (in million) |
3,000 | 3,000 | 3,000 | |||||||||||||
Par value in cents per share |
12 | 12 | 12 | |||||||||||||
Common shares | Common shares B | |||||||||||||||
|
Number of shares |
|
Total amount | |
Number of shares |
|
Total amount | |||||||||
At January 1, 2013 | 1,972,030 | 236 | - | - | ||||||||||||
Shares issued |
120,713 | 14 | 579,005 | 69 | ||||||||||||
Dividend |
38,716 | 5 | - | - | ||||||||||||
At December 31, 2013 | 2,131,459 | 256 | 579,005 | 69 | ||||||||||||
Shares issued |
- | - | 2,320 | - | ||||||||||||
Dividend |
14,489 | 2 | - | - | ||||||||||||
At December 31, 2014 | 2,145,948 | 258 | 581,326 | 70 | ||||||||||||
Shares issued |
- | - | 3,696 | - | ||||||||||||
Dividend |
1,089 | - | - | - | ||||||||||||
At December 31, 2015 | 2,147,037 | 258 | 585,022 | 70 |
250 | Notes to the consolidated financial statements Note 32 |
Weighted average number of common shares (thousands) |
|
Weighted average number of common shares B (thousands) |
| |||||||||
2013 | 2,064,737 | 366,439 | ||||||||||
2014 | 2,139,160 | 580,391 | ||||||||||
2015 | 2,146,261 | 583,608 |
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to Other information for further information on dividend rights.
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued common shares B.
Preferred shares
Preferred shares A | Preferred shares B | |||||||||||||||
|
Number of shares |
|
Total amount |
|
Number of shares (thousands) |
|
Total amount | |||||||||
At January 1, 2013 | 211,680 | 53 | 118,093 | 30 | ||||||||||||
Shares issued |
- | - | - | - | ||||||||||||
Conversion |
(211,680 | ) | (53 | ) | (118,093 | ) | (30 | ) | ||||||||
At December 31, 2013 | - | - | - | - | ||||||||||||
Shares issued |
- | - | - | - | ||||||||||||
Conversion |
- | - | - | - | ||||||||||||
At December 31, 2014 | - | - | - | - | ||||||||||||
Shares issued |
- | - | - | - | ||||||||||||
Conversion |
- | - | - | - | ||||||||||||
At December 31, 2015 | - | - | - | - |
Under the terms of the 1983 Amended Merger Agreement, dated May 2003, Vereniging Aegon (Association Aegon) had the option to acquire class B preferred shares to prevent a dilution of its voting rights in the case of new common shares being issued, unless, by exercising this option, the Association would increase its share of voting right to more than 33%.
With regard to granted share appreciation rights and option rights and their valuation refer to note 14 Commissions and expenses.
32.2 Share premium
2015 | 2014 | 2013 | ||||||||||
At January 1 |
8,270 | 8,375 | 8,780 | |||||||||
Additions |
- | - | - | |||||||||
Repayment |
- | - | (400) | |||||||||
Share dividend |
(211 | ) | (106 | ) | (5) | |||||||
At December 31 | 8,059 | 8,270 | 8,375 | |||||||||
Share premium relating to: |
||||||||||||
- Common shares |
6,406 | 6,617 | 6,723 | |||||||||
- Common shares B |
1,653 | 1,653 | 1,653 | |||||||||
Total share premium | 8,059 | 8,270 | 8,375 |
The share premium account reflects the balance of paid-in amounts above par value at issuance of new shares less the amounts charged for share dividends.
|
Supplemental Annual Report 2015 |
251
32.3 Treasury shares
On the balance sheet date, Aegon N.V. and its subsidiaries held 44,531,558 (2014: 51,317,190) of its own common shares with a par value of EUR 0.12 each.
Movements in the number of treasury shares of Aegon N.V. were as follows:
2015 | 2014 | 2013 | ||||||||||
Number of shares (thousands) |
Number of shares (thousands) |
Number of shares |
||||||||||
At January 1 |
49,537 | 39,837 | 26,981 | |||||||||
Transactions in 2015: | ||||||||||||
Sale: 1 transaction, price EUR 7.24 |
(7,628 | ) | ||||||||||
Sale: 1 transaction, price EUR 6.62 |
(16,280 | ) | ||||||||||
Purchase: transactions, average price EUR 6.63 |
16,280 | |||||||||||
Sale: 1 transaction, price EUR 5.40 |
(19,047 | ) | ||||||||||
Purchase: transactions, average price EUR 5.28 |
20,137 | |||||||||||
Transactions in 2014: | ||||||||||||
Sale: 1 transaction, price EUR 6.33 |
(4,788 | ) | ||||||||||
Purchase: transactions, average price EUR 6.43 |
14,489 | |||||||||||
Sale: 1 transaction, price EUR 6.37 |
(16,320 | ) | ||||||||||
Purchase: transactions, average price EUR 6.49 |
16,320 | |||||||||||
Transactions in 2013: | ||||||||||||
Sale: 1 transaction, price EUR 5.02 |
(5,408 | ) | ||||||||||
Sale: 1 transaction, price EUR 4.99 |
(783 | ) | ||||||||||
Purchase: transactions, average price EUR 5.62 |
19,047 | |||||||||||
At December 31 | 42,998 | 49,537 | 39,837 |
As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are (de)recognized at the consideration paid or received.
2015 | 2014 | 2013 | ||||||||||||||||||||||
Number of shares |
Total amount |
Number of shares |
Total amount | Number of shares (thousands) |
Total amount | |||||||||||||||||||
Held by Aegon N.V. |
42,998 | 257 | 49,537 | 306 | 39,837 | 278 | ||||||||||||||||||
Held by subsidiaries |
1,534 | 12 | 1,780 | 13 | 1,471 | 14 | ||||||||||||||||||
At December 31 | 44,532 | 269 | 51,317 | 319 | 41,308 | 292 |
Aegon does not hold common shares B as treasury shares.
Weighted average number of treasury shares, including |
||||
2013 | 29,497 | |||
2014 | 44,742 | |||
2015 | 45,097 |
252 | Notes to the consolidated financial statements Note 32 |
32.4 Revaluation reserves
Available- for-sale investments |
Real estate held for own use |
Cash flow hedging reserve |
Total | |||||||||
At January 1, 2015 |
6,741 | 42 | 1,525 | 8,308 | ||||||||
Gross revaluation |
(2,479) | 8 | 278 | (2,193) | ||||||||
Net (gains) / losses transferred to income statement |
(485) | - | (13 | ) | (498) | |||||||
Disposal of a business |
(468) | - | - | (468) | ||||||||
Foreign currency translation differences |
307 | 5 | 181 | 492 | ||||||||
Tax effect |
934 | (2 | ) | (98 | ) | 833 | ||||||
Other |
(3) | - | - | (3) | ||||||||
At December 31, 2015 | 4,546 | 52 | 1,873 | 6,471 | ||||||||
At January 1, 2014 |
2,287 | 35 | 702 | 3,023 | ||||||||
Gross revaluation |
6,438 | 5 | 1,036 | 7,479 | ||||||||
Net (gains) / losses transferred to income statement |
(702) | - | (12 | ) | (714) | |||||||
Foreign currency translation differences |
327 | 5 | 165 | 497 | ||||||||
Tax effect |
(1,604) | (2 | ) | (364 | ) | (1,970) | ||||||
Other |
(6) | - | - | (7) | ||||||||
At December 31, 2014 | 6,741 | 42 | 1,525 | 8,308 | ||||||||
At January 1, 2013 |
5,013 | 39 | 1,065 | 6,116 | ||||||||
Gross revaluation |
(3,263) | (4 | ) | (496 | ) | (3,763) | ||||||
Net (gains) / losses transferred to income statement |
(435) | - | (26 | ) | (461) | |||||||
Foreign currency translation differences |
(114) | (1 | ) | (33 | ) | (149) | ||||||
Tax effect |
1,082 | 1 | 192 | 1,275 | ||||||||
Other |
3 | - | - | 3 | ||||||||
At December 31, 2013 | 2,287 | 35 | 702 | 3,023 | ||||||||
The revaluation accounts for both available-for-sale investments and for real estate held for own use include unrealized gains and losses on these investments, net of tax. Upon sale, the amounts realized are recognized in the income statement (for available-for-sale investments) or transferred to retained earnings (for real estate held for own use). Upon impairment, unrealized losses are recognized in the income statement.
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments:
| ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Shares |
139 | 126 | 247 | |||||||||
Debt securities |
4,354 | 6,549 | 2,004 | |||||||||
Other |
53 | 66 | 36 | |||||||||
Revaluation reserve for available-for-sale investments | 4,546 | 6,741 | 2,287 | |||||||||
The cash flow hedging reserve includes (un)realized gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the hedged cash flow. No amounts have been released from equity to be included in the initial measurement of non-financial assets or liabilities.
32.5 Remeasurement of defined benefit plans
| ||||||||||||
2015 | 2014 | 2013 | ||||||||||
At January 1 |
(1,611 | ) | (706 | ) | (1,085) | |||||||
Remeasurements of defined benefit plans |
234 | (1,156 | ) | 562 | ||||||||
Tax effect |
(75 | ) | 335 | (202) | ||||||||
Net exchange differences |
(86 | ) | (84 | ) | 19 | |||||||
Disposal of a business |
6 | - | - | |||||||||
Total remeasurement of defined benefit plans | (1,532 | ) | (1,611 | ) | (706) |
|
Supplemental Annual Report 2015 |
253
32.6 Other reserves
Foreign currency translation reserve |
Net foreign investment hedging reserve |
Equity movements of joint ventures and associates |
Total | |||||||||||||
At January 1, 2015 |
268 | (382 | ) | 27 | (86 | ) | ||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
1,687 | (181 | ) | - | 1,506 | |||||||||||
Disposal of a business |
(127 | ) | 51 | - | (76 | ) | ||||||||||
Tax effect |
(98 | ) | 45 | - | (52 | ) | ||||||||||
Equity movements of joint ventures |
- | - | (8 | ) | (8 | ) | ||||||||||
Equity movements of associates |
- | - | (1 | ) | (1 | ) | ||||||||||
At December 31, 2015 | 1,731 | (467 | ) | 19 | 1,283 | |||||||||||
At January 1, 2014 |
(1,588 | ) | (214 | ) | 28 | (1,773 | ) | |||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
1,962 | (224 | ) | - | 1,738 | |||||||||||
Tax effect |
(106 | ) | 56 | - | (50 | ) | ||||||||||
Recycling of revaluation reserve on disposal of joint ventures and associates |
- | - | (30 | ) | (30 | ) | ||||||||||
Equity movements of joint ventures |
- | - | 22 | 22 | ||||||||||||
Equity movements of associates |
- | - | 7 | 7 | ||||||||||||
At December 31, 2014 | 268 | (382 | ) | 27 | (86 | ) | ||||||||||
At January 1, 2013 |
(807 | ) | (274 | ) | (23 | ) | (1,103 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(821 | ) | 79 | - | (741 | ) | ||||||||||
Tax effect |
40 | (20 | ) | - | 21 | |||||||||||
Recycling of revaluation reserve on disposal of joint ventures and associates |
- | - | 18 | 18 | ||||||||||||
Equity movements of joint ventures |
- | - | 22 | 22 | ||||||||||||
Equity movements of associates |
- | - | 10 | 10 | ||||||||||||
At December 31, 2013 | (1,588 | ) | (214 | ) | 28 | (1,773 | ) |
The foreign currency translation reserve includes the currency results from investments in non-euro denominated subsidiaries. The amounts are released to the income statement upon the sale of the subsidiary.
The net foreign investment hedging reserve is made up of gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the net foreign investment.
The equity movements of joint ventures and associates reflect Aegons share of changes recognized directly in the joint ventures and associates equity.
254 | Notes to the consolidated financial statements Note 33 |
Junior perpetual capital securities |
Perpetual cumulative subordinated bonds |
Share options and incentive plans 1) |
Non-cumulative subordinated notes |
Total | ||||||||||||||||
At January 1, 2015 |
3,008 | 454 | 94 | 271 | 3,827 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 26 | - | 26 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (53 | ) | - | (53 | ) | |||||||||||||
At December 31, 2015 | 3,008 | 454 | 68 | 271 | 3,800 | |||||||||||||||
At January 1, 2014 |
4,192 | 454 | 99 | 271 | 5,015 | |||||||||||||||
Redemption of junior perpetual capital securities |
(1,184 | ) | - | - | - | (1,184 | ) | |||||||||||||
Shares granted / Share options cost incurred |
- | - | 29 | - | 29 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (34 | ) | - | (34 | ) | |||||||||||||
At December 31, 2014 | 3,008 | 454 | 94 | 271 | 3,827 | |||||||||||||||
At January 1, 2013 |
4,192 | 453 | 102 | 271 | 5,018 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 54 | - | 54 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (57 | ) | - | (57 | ) | |||||||||||||
At December 31, 2013 | 4,192 | 454 | 99 | 271 | 5,015 |
1 | Share options and incentive plans include the shares and options granted to personnel which are not yet vested. |
Junior perpetual capital securities |
Coupon rate | Coupon date, as of |
Year of |
2015 | 2014 | 2013 | ||||||||||||||||||
USD 1,050 million |
7.25% | Quarterly, December 15 | - | - | 745 | |||||||||||||||||||
USD 500 million |
6.50% | Quarterly, December 15 | 2016 | 424 | 424 | 424 | ||||||||||||||||||
USD 250 million |
floating LIBOR rate 1) | Quarterly, December 15 | 2016 | 212 | 212 | 212 | ||||||||||||||||||
USD 550 million |
6.875% | Quarterly, September 15 | - | - | 438 | |||||||||||||||||||
USD 500 million |
floating CMS rate 2) | Quarterly, July 15 | 2016 | 402 | 402 | 402 | ||||||||||||||||||
USD 1 billion |
6.375% | Quarterly, June 15 | 2016 | 821 | 821 | 821 | ||||||||||||||||||
EUR 950 million |
floating DSL rate 3) | Quarterly, July 15 | 2016 | 950 | 950 | 950 | ||||||||||||||||||
EUR 200 million |
6.0% | Annually, July 21 | 2016 | 200 | 200 | 200 | ||||||||||||||||||
At December 31 | 3,008 | 3,008 | 4,192 |
1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
2 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
3 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
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 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 was repaid with accrued interest. The cumulative foreign currency result at redemption was recorded directly in retained earnings.
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255
Perpetual cumulative subordinated bonds |
Coupon rate | Coupon date | Year of next call | 2015 | 2014 | 2013 | ||||||||||||||||||
EUR 136 million |
5.185% 1), 4) | Annual, October 14 | 2018 | 136 | 136 | 136 | ||||||||||||||||||
EUR 203 million |
4.260% 2), 4) | Annual, March 4 | 2021 | 203 | 203 | 203 | ||||||||||||||||||
EUR 114 million |
1.506% 3), 4) | Annual, June 8 | 2025 | 114 | 114 | 114 | ||||||||||||||||||
At December 31 | 454 | 454 | 454 |
1 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018. |
2 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
3 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015 and 1.506% until 2025. |
4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points. |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral.
Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the year of next call.
Non-cumulative subordinated notes |
Coupon rate | Coupon date | Year of next call | 2015 | 2014 | 2013 | ||||||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 271 | 271 | 271 | ||||||||||||||||||
At December 31 | 271 | 271 | 271 |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2015, the equity component amounted to EUR 271 million (2014: EUR 271 million), subordinated borrowings amounted to EUR 65 million (2014: EUR 54 million) and a deferred tax liability amounting to EUR 105 million (2014: EUR 95 million).
Refer to note 34 Subordinated borrowings for details of the component classified as subordinated borrowings.
Coupon rate | Coupon date | Year of next call | 2015 | 2014 | ||||||||||||||||
Fixed floating subordinated notes | ||||||||||||||||||||
EUR 700 million |
4% | Annually, April 25 | 2024 | 694 | 693 | |||||||||||||||
Non-cumulative subordinated notes | ||||||||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 65 | 54 | |||||||||||||||
At December 31 | 759 | 747 |
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.
256 | Notes to the consolidated financial statements Note 35 |
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds, fixed floating subordinated notes and non-cumulative subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
Subordinated borrowings include a liability of EUR 65 million (2014: EUR 54 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 33 Other equity instruments.
35 Trust pass-through securities
Coupon rate | Coupon rate | Year of issue | Year of maturity | Year of next call | 2015 | 2014 | ||||||||||||||||||||||
USD 225 million 1) |
7.65 | % | Semi-annually, December 1 | 1996 | 2026 | n.a. | 111 | 102 | ||||||||||||||||||||
USD 190 million 1) |
7.625 | % | Semi-annually, November 15 | 1997 | 2037 | n.a. | 46 | 41 | ||||||||||||||||||||
At December 31 | 157 | 143 |
1 | Issued by a subsidiary of, and guaranteed by Aegon N.V. |
Trust pass-through securities are securities through which the holder participates in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by Transamerica Corporation. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of 10 consecutive semi-annual periods. The trust pass-through securities are subordinated to all other unsubordinated borrowings and liabilities of Transamerica Corporation.
There were no defaults or breaches of conditions during the period.
The fair value of these loans amounted to EUR 146 million (2014: EUR 139 million).
36.1 Underwriting risk
Aegons earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability. This could have a materially adverse effect on Aegons business, results of operations and financial condition.
Sources of underwriting risk include policyholder behavior (such as lapses or surrender of policies) and policy claims (such as mortality and morbidity). In general, Aegon is at risk if policy lapses increase as sometimes Aegon is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed by management.
Aegon monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. Aegons units also perform experience studies for underwriting risk assumptions, comparing Aegons experience to industry experience as well as combining Aegons experience and industry experience based on the depth of the history of each source to Aegons underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses as the basis for modifying these charges, with a view to maintain a balance between policyholder and shareholder interests. Aegon also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation.
Sensitivity analysis of net income and shareholders equity to various underwriting risks is shown in the table that follows. The sensitivities represent an increase or decrease of mortality (net of longevity) and morbidity rates over best estimate. Increases in
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Supplemental Annual Report 2015 |
257
mortality rates lead to an increase in the level of benefits and claims. The impact on net income and shareholders equity of sales transactions of investments required to meet the higher cash outflow is reflected in the sensitivities. A change in actual experience with mortality or morbidity rates may not lead to a change in the assumptions underlying the measurement of the insurance liabilities as management may recognize that the change is temporary. Life insurers are also exposed to longevity risk. Increased life expectation above Aegons assumed life expectation at the time of underwriting negatively impacts its results.
Sensitivity analysis of net income and shareholders equity to changes in various underwriting risks Estimated approximate effect |
2015 | 2014 | ||||||||||||||
On shareholders equity |
On net income | On shareholders equity |
On net income | |||||||||||||
20% increase in lapse rates |
(43 | ) | (43 | ) | (59 | ) | (48 | ) | ||||||||
20% decrease in lapse rates |
46 | 45 | 62 | 51 | ||||||||||||
10% increase in mortality rates |
(24 | ) | (55 | ) | (21 | ) | (43 | ) | ||||||||
10% decrease in mortality rates |
11 | 40 | 10 | 34 | ||||||||||||
10% increase in morbidity rates |
(103 | ) | (104 | ) | (84 | ) | (78 | ) | ||||||||
10% decrease in morbidity rates |
100 | 95 | 82 | 75 |
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. In 2012, Aegon the Netherlands bought a longevity index derivative, which will pay out if in 2032 the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract. Payout of the derivative is defined based on a cumulative cash index, which represents the cumulative payout to a predefined (synthetic) insured population in relation to the expected payout (in the base scenario) to this same population. Both parties in the contract have the possibility to terminate the contract after 10 years (early termination clause). The payout is maximized at a predetermined percentage compared to the base scenario.
To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, in 2013 Aegon bought an additional longevity index derivative. This derivative will pay out in 2035 if some combination of higher than expected mortality rates in the US and/or lower than expected mortality rates in the Netherlands persists over the next twenty years from 2013 and, at that time, is expected to continue to do so. Payout of the derivative is defined based on a terminal present value, which represents the sum of 1) the cumulative payout to a predefined (synthetic) insured population over the years and 2) the remaining expected liability on this same population. The preceding sum is compared to amounts set at the moment of signing the contract to determine the actual payout.
As a next step in the hedge program Aegon the Netherlands bought a third fixed for floating longevity hedge in 2015. The floating leg is a single payout in 2065. The payout depends on an index which is constructed as the aggregate benefit payments over the term of 50 years on an underlying book of annuities. This book has a best estimate value of liabilities of EUR 15 billion and has a significant portion of deferred annuities. The development of the index only depends on Dutch population mortality. The hedge provides out-of-the-money protection. The payout depends on where the index ends up relative to contractually agreed attachment and detachment points. In 2015, Aegon entered into the first tranche of this hedge for an amount of EUR 6 billion with Canada Life Re. This first tranche covers 40% of the best estimate value of liabilities of EUR 15 billion.
258 | Notes to the consolidated financial statements Note 36 |
36.2 Insurance contracts for general account
2015 | 2014 | |||||||
Life insurance |
109,884 | 100,539 | ||||||
Non-life insurance |
||||||||
- Unearned premiums and unexpired risks |
5,202 | 4,572 | ||||||
- Outstanding claims |
2,412 | 2,292 | ||||||
- Incurred but not reported claims |
1,002 | 737 | ||||||
Incoming reinsurance |
4,542 | 3,786 | ||||||
At December 31 | 123,042 | 111,927 | ||||||
2015 | 2014 | |||||||
Non-life insurance: |
||||||||
- Accident and health insurance |
7,993 | 6,974 | ||||||
- General insurance |
623 | 627 | ||||||
Total non-life insurance | 8,616 | 7,601 | ||||||
Movements during the year in life insurance: | 2015 | 2014 | ||||||
At January 1 |
100,539 | 91,930 | ||||||
Acquisitions |
83 | 27 | ||||||
Portfolio transfers and acquisitions |
(70 | ) | 273 | |||||
Gross premium and deposits existing and new business |
7,168 | 8,127 | ||||||
Unwind of discount / interest credited |
4,708 | 4,121 | ||||||
Insurance liabilities released |
(10,263 | ) | (9,986 | ) | ||||
Changes in valuation of expected future benefits |
(464 | ) | 2,814 | |||||
Shadow accounting adjustments |
(867 | ) | 641 | |||||
Net exchange differences |
7,235 | 8,031 | ||||||
Transfer (to) / from insurance contracts for account of policyholders |
1,046 | (401 | ) | |||||
Transfers to disposal groups |
- | (5,053 | ) | |||||
Other |
769 | 15 | ||||||
At December 31 | 109,884 | 100,539 |
In the Netherlands, decreasing interest rates led to a deficiency in the liability adequacy test of EUR 230 million recorded in the line shadow accounting adjustments in 2014. This deficiency is recognized in the revaluation reserve as shadow loss recognition is applied. In 2015, this deficiency in the liability adequacy test did no longer exist and therefore the shadow accounting adjustment reversed in the line shadow accounting adjustments in 2015. Accounting policies are disclosed in note 2.19 f Liability adequacy testing.
Supplemental Annual Report 2015 |
259
Movements during the year in non-life insurance: | 2015 | 2014 | ||||||
At January 1 |
7,601 | 6,555 | ||||||
Acquisitions / Additions |
2 | - | ||||||
Gross premiums existing and new business |
2,216 | 2,130 | ||||||
Unwind of discount / interest credited |
369 | 280 | ||||||
Insurance liabilities released |
(989 | ) | (902 | ) | ||||
Changes in valuation of expected future claims |
2 | 31 | ||||||
Change in unearned premiums |
(1,250 | ) | (1,238 | ) | ||||
Change in unexpired risks |
3 | (13 | ) | |||||
Incurred related to current year |
783 | 696 | ||||||
Incurred related to prior years |
232 | 357 | ||||||
Release for claims settled current year |
(321 | ) | (272 | ) | ||||
Release for claims settled prior years |
(775 | ) | (703 | ) | ||||
Shadow accounting adjustments |
(105 | ) | 69 | |||||
Loss recognized as a result of liability adequacy testing |
16 | 2 | ||||||
Change in IBNR |
193 | (32 | ) | |||||
Net exchange differences |
700 | 725 | ||||||
Other |
(63 | ) | - | |||||
Transfers to disposal groups |
- | (83 | ) | |||||
At December 31 | 8,616 | 7,601 | ||||||
Movements during the year in incoming reinsurance: | 2015 | 2014 | ||||||
At January 1 |
3,786 | 3,284 | ||||||
Gross premium and deposits existing and new business |
1,609 | 1,428 | ||||||
Unwind of discount / interest credited |
231 | 193 | ||||||
Insurance liabilities released |
(1,675 | ) | (1,561 | ) | ||||
Change in unearned premiums |
5 | 5 | ||||||
Changes in valuation of expected future benefits |
(51 | ) | (30 | ) | ||||
Loss recognized as a result of liability adequacy |
(2 | ) | 7 | |||||
Net exchange differences |
438 | 460 | ||||||
Other |
200 | - | ||||||
At December 31 | 4,542 | 3,786 | ||||||
36.3 Insurance contracts for account of policyholders | ||||||||
Insurance contracts for account of policyholders | 2015 | 2014 | ||||||
At January 1 |
102,250 | 84,311 | ||||||
Portfolio transfers and acquisitions |
79 | (345 | ) | |||||
Gross premium and deposits existing and new business |
14,407 | 11,727 | ||||||
Unwind of discount / interest credited |
603 | 6,392 | ||||||
Insurance liabilities released |
(9,320 | ) | (6,808 | ) | ||||
Fund charges released |
(1,710 | ) | (1,377 | ) | ||||
Changes in valuation of expected future benefits |
(1,178 | ) | 1,144 | |||||
Transfer (to) / from insurance contracts |
(1,020 | ) | 409 | |||||
Transfer (to) / from investment contracts for account of policyholders |
911 | 75 | ||||||
Transfers to disposal groups |
- | (1,375 | ) | |||||
Net exchange differences |
7,644 | 8,080 | ||||||
Other |
13 | 17 | ||||||
At December 31 | 112,679 | 102,250 |
260 | Notes to the consolidated financial statements Note 37 |
37.1 Investment contracts for general account
Without discretionary participation features |
With discretionary participation features |
Total | ||||||||||
At January 1, 2015 |
14,985 | 374 | 15,359 | |||||||||
Portfolio transfers and acquisitions |
16 | - | 16 | |||||||||
Deposits |
5,560 | - | 5,560 | |||||||||
Withdrawals |
(4,698 | ) | - | (4,698 | ) | |||||||
Investment contracts liabilities released |
- | 65 | 65 | |||||||||
Interest credited |
276 | - | 276 | |||||||||
Fund charges released |
(3 | ) | - | (3 | ) | |||||||
Movements related to fair value hedges |
(46 | ) | - | (46 | ) | |||||||
Net exchange differences |
1,052 | 19 | 1,071 | |||||||||
Other |
119 | - | 119 | |||||||||
At December 31, 2015 | 17,260 | 457 | 17,718 | |||||||||
At January 1, 2014 |
14,079 | 466 | 14,545 | |||||||||
Portfolio transfers and acquisitions |
(28 | ) | - | (28 | ) | |||||||
Deposits |
3,299 | - | 3,299 | |||||||||
Withdrawals |
(3,756 | ) | - | (3,756 | ) | |||||||
Investment contracts liabilities released |
- | (122 | ) | (122 | ) | |||||||
Interest credited |
266 | - | 266 | |||||||||
Fund charges released |
(5 | ) | - | (5 | ) | |||||||
Movements related to fair value hedges |
(26 | ) | - | (26 | ) | |||||||
Net exchange differences |
1,186 | 29 | 1,215 | |||||||||
Transfers to disposal groups |
(57 | ) | - | (57 | ) | |||||||
Other |
26 | - | 26 | |||||||||
At December 31, 2014 | 14,985 | 374 | 15,359 | |||||||||
Investment contracts consist of the following: | 2015 | 2014 | ||||||||||
Institutional guaranteed products |
3,300 | 3,207 | ||||||||||
Fixed annuities |
6,468 | 5,960 | ||||||||||
Savings accounts |
7,101 | 5,414 | ||||||||||
Investment contracts with discretionary participation features |
457 | 374 | ||||||||||
Other |
392 | 404 | ||||||||||
At December 31 | 17,718 | 15,359 |
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261
37.2 Investment contracts for account of policyholders
Without discretionary participation features |
With discretionary participation features |
Total | ||||||||||
At January 1, 2015 |
38,220 | 53,629 | 91,849 | |||||||||
Gross premium and deposits existing and new business |
9,863 | 2,164 | 12,027 | |||||||||
Withdrawals |
(10,859 | ) | - | (10,859) | ||||||||
Interest credited |
11 | 2,859 | 2,869 | |||||||||
Investment contracts liabilities released |
- | (10,930 | ) | (10,930) | ||||||||
Fund charges released |
(238 | ) | - | (238) | ||||||||
Net exchange differences |
3,496 | 2,943 | 6,439 | |||||||||
Transfer (to) / from insurance contracts for account of policyholders |
- | (911 | ) | (911) | ||||||||
Other |
(128 | ) | - | (128) | ||||||||
At December 31, 2015 | 40,365 | 49,754 | 90,119 | |||||||||
At January 1, 2014 |
32,628 | 49,981 | 82,608 | |||||||||
Gross premium and deposits existing and new business |
8,961 | 2,326 | 11,287 | |||||||||
Withdrawals |
(8,569 | ) | - | (8,569) | ||||||||
Interest credited |
1,859 | 4,513 | 6,372 | |||||||||
Investment contracts liabilities released |
- | (6,799 | ) | (6,799) | ||||||||
Fund charges released |
(196 | ) | - | (196) | ||||||||
Net exchange differences |
3,782 | 3,608 | 7,390 | |||||||||
Transfers to disposal groups |
(122 | ) | - | (122) | ||||||||
Transfer (to) / from insurance contracts for account of policyholders |
(75 | ) | - | (75) | ||||||||
Other |
(48 | ) | - | (48) | ||||||||
At December 31, 2014 | 38,220 | 53,629 | 91,849 |
38 Guarantees in insurance contracts
For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees:
¿ | Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (note 2.9 and note 47 Fair value); |
¿ | Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (note 2.19); |
¿ | Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting (ASC 944, Financial Services - Insurance) together with the underlying insurance contracts (note 2.19); and |
¿ | Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (note 2.19 and note 47 Fair value). |
In addition to the guarantees mentioned above, Aegon has traditional life insurance contracts that include minimum guarantees that are not valued explicitly; however, the adequacy of all insurance liabilities, net of VOBA and DPAC, and including all guarantees, are assessed periodically (note 2.19).
a. Financial guarantees
In the United States and in the United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customers need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder.
In the Netherlands, individual variable unit-linked products have a minimum benefit guarantee if premiums are invested in certain funds. The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return (in the range of 3% to 4%) if the premium has been paid for a consecutive period of at least ten years and is invested in a mixed fund and/or fixed-income funds. No guarantees are given for equity investments only.
262 | Notes to the consolidated financial statements Note 38 |
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees:
2015 | 2014 | |||||||||||||||||||||||||||||||||||||||
United States 1) |
Canada 1) | The Netherlands 2) |
United Kingdom |
Total 3) | United States 1) |
Canada 1) | The Netherlands 2) |
United Kingdom |
Total 3) | |||||||||||||||||||||||||||||||
At January 1 |
1,087 | - | 1,733 | 53 | 2,873 | (72 | ) | 6 | 1,181 | (4 | ) | 1,112 | ||||||||||||||||||||||||||||
Incurred guarantee benefits 4) |
(686 | ) | - | (301 | ) | - | (987 | ) | 1,065 | 26 | 552 | 57 | 1,700 | |||||||||||||||||||||||||||
Paid guarantee benefits |
- | - | - | (2 | ) | (2 | ) | - | - | - | - | - | ||||||||||||||||||||||||||||
Transfers to disposal groups |
- | - | - | - | - | - | (32 | ) | - | - | (32 | ) | ||||||||||||||||||||||||||||
Net exchange differences |
109 | - | - | - | 109 | 94 | - | - | - | 94 | ||||||||||||||||||||||||||||||
At December 31 |
510 | - | 1,432 | 51 | 1,993 | 1,087 | - | 1,733 | 53 | 2,873 | ||||||||||||||||||||||||||||||
Account value 5) |
33,182 | - | 7,624 | 1,446 | 42,252 | 28,088 | - | 7,743 | 1,293 | 37,124 | ||||||||||||||||||||||||||||||
Net amount at risk 6) |
222 | - | 1,636 | (56 | ) | 1,803 | 97 | - | 1,967 | 53 | 2,118 |
1 | Guaranteed minimum accumulation and withdrawal benefits. |
2 | Fund plan and unit-linked guarantees. |
3 | Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 24 Derivatives. |
4 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year. |
5 | Account value reflects the actual fund value for the policyholders. |
6 | The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value. |
The decrease of incurred guarantee benefits mainly relates to fair value movements due to increasing interest rates and tightening of treasury swaps spreads.
Aegon Americas mitigates the exposure from the elective guaranteed minimum withdrawal benefit rider issued with a ceding companys variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least 14 years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2015, the reinsured account value was EUR 2.5 billion (2014: EUR 2.6 billion) and the guaranteed remaining balance was EUR 1.7 billion (2014: EUR 1.7 billion).
The reinsurance contract is accounted for as a derivative and is carried in Aegons statement of financial position at fair value. At December 31, 2015, the contract had a value of EUR 69 million (2014: EUR 59 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts (S&P 500, Midcap, Russell 2000, and the MCSI EAFE index in accordance with Aegons exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
b. Total return annuities
Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists in both the fixed annuity and life reinsurance lines of business and in both cases represents closed blocks. The reinsurance contract is in the form of modified coinsurance.
Product balances as of December 31, 2015, were EUR 365 million in fixed annuities (2014: EUR 380 million) and EUR 122 million in life reinsurance (2014: EUR 118 million).
c. Life contingent guarantees in the United States
Certain variable insurance contracts in the United States also provide guaranteed minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB). Under a GMDB, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The net amount at risk for GMDB contracts is defined as the current GMDB in excess of the capital account balance at the balance sheet date.
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Supplemental Annual Report 2015 |
263
The GMIB feature provides for minimum payments if the contract holder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the contract holder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
The additional liability for guaranteed minimum benefits that are not bifurcated are determined (based on ASC 944) each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
The following table provides information on the liabilities for guarantees for minimum benefits that are included in the valuation of the host contracts:
2015 | 2014 | |||||||||||||||||||||||
GMDB 1) |
GMIB 2) | Total 4) | GMDB 1) | GMIB 2) | Total 4) | |||||||||||||||||||
At January 1 |
419 | 782 | 1,201 | 323 | 644 | 967 | ||||||||||||||||||
Incurred guarantee benefits 5) |
147 | (19 | ) | 127 | 103 | 67 | 170 | |||||||||||||||||
Paid guarantee benefits |
(72 | ) | (35 | ) | (107 | ) | (56 | ) | (22 | ) | (78 | ) | ||||||||||||
Net exchange differences |
49 | 88 | 137 | 49 | 94 | 143 | ||||||||||||||||||
At December 31 |
544 | 816 | 1,359 | 419 | 782 | 1,201 | ||||||||||||||||||
GMDB 1),3) | GMIB 2),3) | GMDB 1),3) | GMIB 2),3) | |||||||||||||||||||||
Account value 6) |
52,346 | 5,760 | 48,074 | 6,581 | ||||||||||||||||||||
Net amount at risk 7) |
2,934 | 641 | 1,755 | 529 | ||||||||||||||||||||
Average attained age of contract holders |
69 | 69 | 68 | 69 |
1 | Guaranteed minimum death benefit in the United States. |
2 | Guaranteed minimum income benefit in the United States. |
3 | Note that the variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive. |
4 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 36 Insurance contracts. |
5 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and value changes as a consequence of interest movements during the reporting year. |
6 | Account value reflects the actual fund value for the policyholders. |
7 | The net amount at risk is defined as the present value of the minimum guaranteed annuity payments available to the contract holder determined in accordance with the terms of the contract in excess of the current account balance. |
d. Minimum investment return guarantees in the Netherlands
The traditional life and pension products offered by Aegon in the Netherlands include various products that accumulate a cash value. Premiums are paid by customers at inception or over the term of the contract. The accumulation products pay benefits on the policy maturity date, subject to survival of the insured. In addition, most policies also pay death benefits if the insured dies during the term of the contract. The death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product. Minimum interest guarantees exist for all generations of traditional accumulation products written. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3% and in 2013 the guarantee decreased to 0%.
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
264 | Notes to the consolidated financial statements Note 38 |
These guarantees are valued at fair value and are included as part of insurance liabilities with the underlying host insurance contracts in note 36 Insurance contracts.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees:
2015 | 2014 | |||||||
GMI 1), 2) |
GMI 1), 2) |
|||||||
At January 1 |
|
5,433 |
|
|
2,462 |
| ||
Incurred guarantee benefits 3) |
(692 | ) | 2,971 | |||||
At December 31 |
4,741 | 5,433 | ||||||
Account value 4) |
18,112 | 18,794 | ||||||
Net amount at risk 5) |
4,205 | 4,871 |
1 | Guaranteed minimum investment return in the Netherlands. |
2 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 36 Insurance contracts. |
3 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year. |
4 | Account value reflects the liability value of the insurance contracts as a whole. |
5 | The net amount at risk represents the sum of the differences between the guaranteed and actual amount that is credited to the policyholders. For Individual policies only positive differences are included, for Group pensions contracts carry forwards of negative differences are recognized. |
Fair value measurement of guarantees in insurance contracts
The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 47 Fair value.
For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 24.2% at December 31, 2015, and 24.3% at December 31, 2014. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
These assumptions are reviewed at each valuation date, and updated based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions. Disclosure on interest rate risk, including interest rate risk sensitivity is included in note 4 Financial risks.
Aegon utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees.
Guarantees valued at fair value contributed a net gain before tax of EUR 21 million (2014: loss of EUR 189 million) to earnings. The main drivers of this gain before tax are positive results related to decreases in risk free rates of EUR 543 million (2014: EUR 4,927 million loss) and DPAC offset and other contributed a gain of EUR 493 million (2014: EUR 248 million gain) partly offset by hedges related to the guarantee reserves contributed fair value loss of EUR 670 million to income before tax (2014: EUR 4,346 million gain), a loss of EUR 202 million related to decreasing own credit spread (2014: EUR 428 million loss), a loss of EUR 114 million related to a decrease in equity markets (2014: EUR 583 million gain) and a loss of EUR 11 million related to increases in equity volatilities (2014: EUR 10 million loss).
Guarantee reserves decreased EUR 1,526 million in 2015 (2014: increase of EUR 4,775 million).
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265
39 Borrowings | ||||||||
2015 | 2014 | |||||||
Capital funding |
2,015 | 2,338 | ||||||
Operational funding |
10,430 | 11,821 | ||||||
At December 31 | 12,445 | 14,158 | ||||||
Current |
2,587 | 3,636 | ||||||
Non-current |
9,858 | 10,522 | ||||||
Fair value of borrowings |
12,811 | 14,627 |
Aegons borrowings are defined separately as capital funding and operational funding. Capital funding includes debt securities that are issued for general corporate purposes and for capitalizing its business units. Capital funding is part of the Companys total capitalization that is used for financing its subsidiaries and the cash held at the holding company. Operational funding includes debt securities that are issued for financing of dedicated pools of assets. These assets are either legally segregated or tracked as separate portfolios.
Capital funding
On December 1, 2015, Aegon redeemed senior unsecured notes with a coupon of 4.625% issued in 2009. The principal amount of USD 500 million was repaid with accrued interest.
A detailed composition of capital funding is included in the following table:
(sorted at maturity) | Coupon rate | Coupon date | Issue /Maturity | 2015 | 2014 | |||||||||||||||
USD 500 million Senior Unsecured Notes |
4.625% | Semi-annually | 2009 / 15 | - | 413 | |||||||||||||||
EUR 500 million Unsecured Notes |
3% | July 18 | 2012 / 17 | 499 | 499 | |||||||||||||||
EUR 75 million Medium-Term Notes 1) |
4.625% | December 9 | 2004 / 19 | 86 | 88 | |||||||||||||||
USD 500 million Senior Notes 1), 2) |
5.75% | Semi-annually | 2005 / 20 | 530 | 483 | |||||||||||||||
GBP 250 million Medium-Term Notes |
6.125% | December 15 | 1999 / 31 | 337 | 320 | |||||||||||||||
GBP 400 million Senior Unsecured Notes |
6.625% | Semi-annually | 2009 / 39 | 536 | 508 | |||||||||||||||
Other |
27 | 27 | ||||||||||||||||||
At December 31 | 2,015 | 2,338 |
1 | Measured at fair value. |
2 | Issued by subsidiaries of, and guaranteed by, Aegon N.V. |
These loans are considered senior debt in calculating financial leverage in note 46 Capital and solvency.
Operational funding
In 2015, Aegon redeemed the EUR 1,500 million ECB LTRO (Long Term Refinancing Operations) with a floating coupon and repurchased the mortgage loans from SAECURE 7 and SAECURE 11 for EUR 1,378 million. On November 11, 2015, Aegon borrowed EUR 450 million under a new ECB LTRO program with a floating coupon. Moreover, Aegon used its MRO (Main Refinancing Operations) facility and borrowed EUR 225 million on December 30, 2015. The USD 305 million Note issue agreement was derecognised as part of the sale of Clark Consulting.
In October 2015, Aegon established a EUR 5 billion Conditional Pass-Through Covered Bond (CPTCB) Programme, secured by prime Dutch residential mortgage loans. This programme is UCITS and CRD IV compliant and registered with the Dutch Central Bank. On November 24, 2015, Aegon placed its inaugural 5-year, EUR 750 million Conditional Pass Through Covered Bonds at 8 basis points over mid swaps resulting in an effective yield of 0.267%.
266 | Notes to the consolidated financial statements Note 39 |
(sorted at maturity) | Coupon rate | Coupon date | Issue /Maturity | 2015 | 2014 | |||||||||||||||
Revolving Loan Facility Warehouse Mortgage Loans 1) |
Floating | Monthly | - / 2017-18 | 481 | 114 | |||||||||||||||
EUR 1,018 million SAECURE 7 RMBS Note 1), 2) |
Floating | Quarterly | 2010 / 15 | - | 772 | |||||||||||||||
EUR 212 / USD 600 SAECURE 11 RMBS Note 1), 5) |
Floating | Quarterly | 2012 / 15 | - | 620 | |||||||||||||||
EUR 1,500 million ECB LTRO 1) |
Floating | At Maturity | 2012 / 15 | - | 1,500 | |||||||||||||||
EUR 450 million ECB LTRO 1) |
Floating | At Maturity | 2015 / 16 | 450 | - | |||||||||||||||
EUR 225 million ECB MRO 1) |
Floating | At Maturity | 2015 / 16 | 225 | - | |||||||||||||||
EUR 842 million SAECURE 9 RMBS Note 1), 7) |
Floating | Quarterly | 2010 / 16 | 564 | 624 | |||||||||||||||
EUR 1,500 million SAECURE 10 RMBS Note 1), 6) |
Floating | Quarterly | 2011 / 16 | 1,094 | 1,196 | |||||||||||||||
EUR 1,365 million SAECURE 12 RMBS Note 1), 8) |
Floating | Quarterly | 2012 / 17 | 1,140 | 1,233 | |||||||||||||||
EUR 750 million SAECURE 13 RMBS Note 1), 9) |
Floating | Quarterly | 2013 / 18 | 962 | 1,041 | |||||||||||||||
EUR 1,367 million SAECURE 14 RMBS Note 1), 10) |
Floating | Quarterly | 2014 / 19 | 1,230 | 1,319 | |||||||||||||||
EUR 1,443 million SAECURE 15 RMBS Note 1), 11) |
Floating | Quarterly | 2014 / 20 | 1,376 | 1,440 | |||||||||||||||
EUR 750 million Conditional Pass-Through Covered Bond 1), 4) |
0.267% | Annual | 2015 / 20 | 747 | - | |||||||||||||||
USD 305 million Note issue agreement 1) |
5.54% /8.88% | Quarterly | 2002 / 22 | - | 46 | |||||||||||||||
USD 292 million Senior Secured Note 1) |
Floating | Quarterly | 2012 / 23 | 264 | 236 | |||||||||||||||
USD 1.54 billion Variable Funding Surplus Note 3), 12) |
Floating | Quarterly | 2006 / 36 | 1,448 | 1,275 | |||||||||||||||
USD 550 million Floating Rate Guaranteed Note 3), 13) |
Floating | Quarterly | 2007 / 37 | 437 | 393 | |||||||||||||||
Other |
12 | 11 | ||||||||||||||||||
At December 31 | 10,430 | 11,821 |
1 | Issued by a subsidiary of Aegon N.V. |
2 | The first optional redemption date is August 2015; the legal maturity date is August 2093. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
3 | Outstanding amounts can vary up to the maximum stated nominal amount. |
4 | The maturity date is 1 December 2020; the extended due for payment date is 2052. |
5 | The first optional redemption date is July 2015; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
6 | The first optional redemption date is February 2016; the legal maturity date is February 2094. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
7 | The first optional redemption date is March 2016; the legal maturity date is September 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
8 | The first optional redemption date is October 2017; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
9 | The first optional redemption date is February 2018; the legal maturity date is November 2093. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
10 | The first optional redemption date is January 2019; the legal maturity date is January 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
11 | The first optional redemption date is January 2020; the legal maturity date is January 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
12 | This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by Aegon N.V. - refer to note 48 Commitments and contingencies. |
13 | This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. |
Other
Borrowings measured at fair value amounted to EUR 616 million (2014: EUR 571 million). For the year 2015, Aegons credit spread had a negative impact of EUR 4 million on income before tax (2014: negative impact of EUR 19 million) and a negative impact of EUR 3 million on shareholders equity (2014: negative impact of EUR 12 million). The cumulative negative impact of Aegons credit spread for borrowings in portfolio at year end, based on observable market data, on income before tax amounted to EUR 11 million (2014: EUR 7 million).
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amounted to EUR 66 million (2014: EUR 67 million).
Undrawn committed borrowing facilities: | 2015 | 2014 | ||||||
Floating-rate |
||||||||
- Expiring within one year |
230 | 2,404 | ||||||
- Expiring beyond one year |
3,338 | 2,000 | ||||||
At December 31 | 3,568 | 4,404 |
There were no defaults or breaches of conditions during the period.
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267
2015 | 2014 | |||||
At January 1 |
322 | 182 | ||||
Additional provisions |
91 | 230 | ||||
Disposals |
(7 | ) | (1) | |||
Unused amounts reversed through the income statement |
(50 | ) | (26) | |||
Unwinding of discount and change in discount rate |
4 | 3 | ||||
Used during the year |
(190 | ) | (62) | |||
Net exchange differences |
6 | 3 | ||||
Other |
- | (5) | ||||
At December 31 | 175 | 322 | ||||
Current |
115 | 230 | ||||
Non-current |
61 | 92 | ||||
The decrease of the provisions is mainly due to the settlement in 2015 of EUR 80 million related to a Dutch Court ruling for a request jointly filed by Aegon and BPHV with respect to the harbor workers former pension fund Optas and to the release of the earn out provision regarding Liberbank in Spain of EUR 38 million. Furthermore, the decrease is due to the utilization of a provision regarding the mandatory conversion of the Hungarian foreign currency mortgage debt of EUR 20 million and the utilization of the restructuring provision in the UK of EUR 46 million. In 2015, a restructuring provision of EUR 37 million was established for Aegon Americas.
The remaining provisions mainly consist of provisions regarding Aegons decision to abolish back-end loaded fees on unit-linked policies in Poland of EUR 12 million (2014: EUR 17 million), restructuring provisions of EUR 68 million (2014: EUR 69 million), provisions for unearned commission of EUR 27 million (2014: EUR 31 million), litigation provisions of EUR 14 million (2014: EUR 20 million) and other provisions of EUR 54 million (2014: EUR 34 million) mainly consisting of the remaining provision related to the harbor workers former pension fund Optas as menioned above.
| ||||||
2015 | 2014 | |||||
Retirement benefit plans |
4,135 | 4,095 | ||||
Other post-employment benefit plans |
296 | 272 | ||||
Total defined benefit plans | 4,430 | 4,366 | ||||
Retirement benefit plans in surplus |
41 | 38 | ||||
Other post-employment benefit plans in surplus |
- | - | ||||
Total defined benefit assets | 41 | 38 | ||||
Retirement benefit plans in deficit |
4,176 | 4,133 | ||||
Other post-employment benefit plans in deficit |
296 | 272 | ||||
Total defined benefit liabilities | 4,471 | 4,404 |
2015 | 2014 | |||||||||||||||||||||
Movements during the year in defined benefit plans |
Retirement benefit plans |
Other post- employment benefit plans |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | ||||||||||||||||
At January 1 |
4,095 | 272 | 4,366 | 2,790 | 236 | 3,026 | ||||||||||||||||
Defined benefit expenses |
246 | 40 | 286 | 153 | 24 | 177 | ||||||||||||||||
Remeasurements of defined benefit plans |
(209 | ) | (25 | ) | (234 | ) | 1,156 | - | 1,156 | |||||||||||||
Contributions paid |
(23 | ) | - | (23 | ) | (21 | ) | - | (22) | |||||||||||||
Benefits paid |
(106 | ) | (17 | ) | (122 | ) | (99 | ) | (13 | ) | (111) | |||||||||||
Net exchange differences |
131 | 25 | 157 | 123 | 27 | 150 | ||||||||||||||||
Transfers to disposal groups |
- | - | - | (7 | ) | (4 | ) | (11) | ||||||||||||||
At December 31 | 4,135 | 296 | 4,430 | 4,095 | 272 | 4,366 |
268 | Notes to the consolidated financial statements Note 41 |
The amounts recognized in the statement of financial position are determined as follows:
|
|
|||||||||||||||||||||||
2015 | 2014 | |||||||||||||||||||||||
Retirement benefit plans |
Other post- |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | |||||||||||||||||||
Present value of wholly or partly funded obligations |
4,731 | - | 4,731 | 4,471 | - | 4,471 | ||||||||||||||||||
Fair value of plan assets |
(3,569 | ) | - | (3,569 | ) | (3,426 | ) | - | (3,426) | |||||||||||||||
1,161 | - | 1,161 | 1,045 | - | 1,045 | |||||||||||||||||||
Present value of wholly unfunded obligations 1) |
2,973 | 296 | 3,269 | 3,050 | 272 | 3,321 | ||||||||||||||||||
At December 31 | 4,135 | 296 | 4,430 | 4,095 | 272 | 4,366 |
1 Assets held by Aegon the Netherlands backing retirement benefits of EUR 2,635 million (2014: EUR 2,555 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegons own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 2015 and 2014.
|
2015 | 2014 | |||||||||||||||||||||||
Defined benefit expenses | Retirement benefit plans |
Other post- |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | ||||||||||||||||||
Current year service cost |
134 | 10 | 144 | 94 | 8 | 102 | ||||||||||||||||||
Net interest on the net defined benefit liability (asset) |
119 | 10 | 129 | 110 | 10 | 121 | ||||||||||||||||||
Past service cost |
(7 | ) | 20 | 13 | (51 | ) | 6 | (45 | ) | |||||||||||||||
Total defined benefit expenses | 246 | 40 | 286 | 153 | 24 | 177 | ||||||||||||||||||
2013 | ||||||||||||||||||||||||
Retirement benefit plans |
Other
post- |
Total | ||||||||||||||||||||||
Current year service cost |
88 | 10 | 98 | |||||||||||||||||||||
Net interest on the net defined benefit liability (asset) |
124 | 9 | 134 | |||||||||||||||||||||
Past service cost |
1 | - | 1 | |||||||||||||||||||||
Total defined benefit expenses | 214 | 19 | 233 |
Defined benefit expenses are included in Commissions and expenses in the income statement.
Movements during the year of the present value of the defined benefit obligations | 2015 | 2014 | ||||||||||
At January 1 |
7,792 | 5,935 | ||||||||||
Current year service cost |
144 | 102 | ||||||||||
Interest expense |
268 | 258 | ||||||||||
Remeasurements of the defined benefit obligations: |
||||||||||||
- Actuarial gains and losses arising from changes in demographic assumptions |
(12 | ) | 210 | |||||||||
- Actuarial gains and losses arising from changes in financial assumptions |
(315 | ) | 1,146 | |||||||||
Past service cost |
13 | (45 | ) | |||||||||
Contributions by plan participants |
11 | 11 | ||||||||||
Benefits paid |
(366 | ) | (279 | ) | ||||||||
Net exchange differences |
465 | 491 | ||||||||||
Transfers to disposal groups |
- | (36 | ) | |||||||||
At December 31 | 8,000 | 7,792 |
|
Supplemental Annual Report 2015 |
269
Movements during the year in plan assets for retirement benefit plans | 2015 | 2014 | ||||||||||||||
At January 1 |
3,426 | 2,909 | ||||||||||||||
Interest income (based on discount rate) |
138 | 137 | ||||||||||||||
Remeasurements of the net defined liability (asset) |
(93 | ) | 199 | |||||||||||||
Contributions by employer |
34 | 32 | ||||||||||||||
Benefits paid |
(244 | ) | (167 | ) | ||||||||||||
Net exchange differences |
308 | 341 | ||||||||||||||
Transfers to disposal groups |
- | (25 | ) | |||||||||||||
At December 31 | 3,569 | 3,426 | ||||||||||||||
|
2015 |
|
|
2014 |
| |||||||||||
Breakdown of plan assets for retirement benefit plans | Quoted | Unquoted | Quoted | Unquoted | ||||||||||||
Equity instruments |
246 | 7 | 274 | 10 | ||||||||||||
Debt instrument |
499 | 723 | 481 | 666 | ||||||||||||
Derivatives |
- | 117 | - | 97 | ||||||||||||
Investment funds |
7 | 1,602 | 13 | 1,553 | ||||||||||||
Structured securities |
- | 3 | - | 7 | ||||||||||||
Other |
11 | 354 | 9 | 315 | ||||||||||||
At December 31 | 764 | 2,806 | 778 | 2,648 |
Defined benefit plans are mainly operated by Aegon USA, Aegon the Netherlands and Aegon UK. The following sections contain a general description of the plans in each of these subsidiaries and a summary of the principal actuarial assumptions applied in determining the value of defined benefit plans.
Aegon USA
Aegon USA has defined benefit plans covering substantially all its employees that are qualified under the Internal Revenue Service Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of Managers of Aegon USA. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employees eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans were unfunded by EUR 863 million at December 31, 2015 (2014: EUR 709 million unfunded).
Investment strategies are established based on asset and liability studies by actuaries which are updated as they consider appropriate. These studies, along with the investment policy, assist to develop the appropriate investment criteria for the plan, including asset allocation mix, return objectives, investment risk and time horizon, benchmarks and performance standards, and restrictions and prohibitions. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. Aegon believes that the asset allocation is an important factor in determining the long-term performance of the plan. The plan uses multiple asset classes as well as sub-classes to meet the asset allocation and other requirements of the investment policy, which minimizes investment risk. From time to time the actual asset allocation may deviate from the desired asset allocation ranges due to different market performance among the various asset categories. If it is determined that rebalancing is required, future additions and withdrawals will be used to bring the allocation to the desired level.
Aegon USA maintains minimum required funding levels as set forth by the Internal Revenue Code. If contributions are required, the funding would be provided from the Companys general account assets. Pension plan contributions were not required for Aegon USA in 2015 or 2014.
Aegon USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal retirement benefits. The plans are unfunded and are not qualified under the Internal Revenue Code. The supplemental retirement plans are governed by either Aegon USA, LLC, or the Compensation Committee of the Board of Directors of Aegon US Holding Corporation.
270 | Notes to the consolidated financial statements Note 41 |
Aegon USA, LLC, or the Compensation Committee of the Board of Directors has the full power and discretion to apply all of the plans provisions, including such responsibilities as, but not limited to, interpret the plan provisions, to make factual determinations under the plan, to determine plan benefits, and to comply with any statutory reporting and disclosure requirements. The benefits are based on years of service and the employees eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The company funds the benefit payments of the supplemental retirement plans from its general account assets. The unfunded amount related to these plans, for which a liability has been recorded, was EUR 284 million (2014: EUR 269 million).
Aegon USA provides health care benefits to retired employees, which are unfunded plans. The post-retirement health care plans are administered by Aegon USA, LLC (Aegon USA), which has delegated the claims administration to third-party administrators. Aegon USA maintains two plans which provide retiree medical benefits. For each plan, Aegon USA has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. Under the Employee Retirement Income Security Act (ERISA), Aegon USA has the fiduciary responsibility to monitor the quality of services provided by the third-party claims administrator and to replace the third-party administrator if needed. In addition, Aegon USA has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon USA reviews the terms of the plans and makes changes to the plans if and when appropriate. Aegon USA funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 235 million (2014: EUR 226 million).
The weighted average duration of the defined benefit obligation is 13.2 years (2014: 14.0 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2015 | 2014 | ||||||
Demographic actuarial assumptions |
||||||||
Mortality |
US mortality table 1) | US mortality table 2) | ||||||
Financial actuarial assumptions |
||||||||
Discount rate |
4.25% | 4.00% | ||||||
Salary increase rate |
3.91% | 3.91% | ||||||
Health care trend rate |
8.00% | 8.25% |
1 | U.S. Society of Actuaries RP2014 mortality table with Scale MP2015. |
2 | U.S. Society of Actuaries RP2014 mortality table with Scale MP2014. |
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
Estimated approximate effects on the defined benefit obligation | ||||
2015 | 2014 | |||
Demographic actuarial assumptions |
||||
10% increase in mortality rates |
(72) | (67) | ||
10% decrease in mortality rates |
79 | 74 | ||
Financial actuarial assumptions |
||||
100 basis points increase in discount rate |
(428) | (418) | ||
100 basis points decrease in discount rate |
530 | 524 | ||
100 basis points increase in salary increase rate |
50 | 40 | ||
100 basis points decrease in salary increase rate |
(43) | (35) | ||
100 basis points increase in health care trend rate |
17 | 18 | ||
100 basis points decrease in health care trend rate |
(15) | (16) |
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Supplemental Annual Report 2015 |
271
The previous table in which a sensitivity analysis is presented is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
| ||
Target allocation of plan assets for retirement benefit plans for the next annual period is: | ||
Equity instruments |
15 - 55% | |
Debt instruments |
30 - 50% | |
Other |
12 - 30% |
Aegon the Netherlands
Aegon the Netherlands has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are governed by the Management Board of Aegon the Netherlands. The Management Board has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as plan assets as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. Aegon the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions.
Investment strategies are established based on asset and liability studies. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk. These studies use for example return objectives and various investment instruments. Investment restrictions are updated regularly and they result in asset allocation mix and hedges.
The contributions to the retirement benefit plan of Aegon the Netherlands are paid by both the employees and the employer, with the employer contribution being variable. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average salary system. The defined benefit plans were unfunded by EUR 2,683 million at December 31, 2015 (2014: EUR 2,774 million). As the assets held by Aegon the Netherlands for retirement benefits do not meet the definition of plan assets, they were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets do not form part of the calculation of defined benefit expenses.
Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, the Aegon the Netherlands has the responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Netherlands reviews the terms of the plans and makes changes to the plans if and when appropriate. The liability related to this plan amounted to EUR 61 million at December 31, 2015 (2014: EUR 46 million).
The weighted average duration of the defined benefit obligation is 18.6 years (2014: 19.1 years).
Plan amendments 2014
The Dutch government has reduced the limits for tax-free pension accruals with effect from January 1, 2015. For career average pension arrangements the maximum permitted accrual rate is 1.875% which is capped for salaries above EUR 100,000. Aegon adjusted its pension arrangement for Aegon employees in the Netherlands to reflect these governmental changes. Besides this, Aegon adjusted the indexation scheme for both current (active members) and former employees (pensioners and deferred members) as of January 1, 2015. The defined benefit obligation as at December 31, 2014 was remeasured including these adjustments, which resulted in an increase in profit or loss of EUR 45 million before tax in 2014.
272 | Notes to the consolidated financial statements Note 41 |
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2015 | 2014 | ||
Demographic actuarial assumptions |
Aegon table | Aegon table | ||
Mortality |
2013 1) | 2013 1) | ||
Financial actuarial assumptions |
||||
Discount rate |
2.61% | 2.25% | ||
Salary increase rate |
1.76% | 1.95% | ||
Price inflation |
1.76% | 1.95% | ||
1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
| ||||
Estimated approximate effects on the defined benefit obligation | ||||
2015 | 2014 | |||
Demographic actuarial assumptions |
||||
10% increase in mortality rates |
(67) | (74) | ||
10% decrease in mortality rates |
75 | 83 | ||
Financial actuarial assumptions |
||||
100 basis points increase in discount rate |
(442) | (526) | ||
100 basis points decrease in discount rate |
587 | 564 | ||
100 basis points increase in salary increase rate |
15 | 16 | ||
100 basis points decrease in salary increase rate |
(14) | (16) | ||
100 basis points increase in price inflation |
- | 2 | ||
100 basis points decrease in price inflation |
- | (2) |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit obligation recognized within the statement of financial position.
Aegon UK
Aegon UK operated a defined benefit pension scheme providing benefits for staff based on final pensionable salary and years of service. The scheme closed to new entrants a number of years ago and closed to future accrual on March 31, 2013. Aegon UK now offers a defined contribution pension scheme to all employees.
The pension scheme is administered separately from Aegon UK and is governed by Trustees, who are required to act in the best interests of the pension scheme members.
The pension scheme Trustees are required to carry out triennial valuations on the schemes funding position, with the latest valuation being as at March 31, 2013. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit. Under IAS 19, the defined benefit plan has a deficit of EUR 298 million at December 31, 2015 (2014: EUR 336 million).
The investment strategy for the scheme is determined by the trustees in consultation with Aegon UK. Currently 40% of assets are invested in growth assets (i.e. primarily equities) and 60% are liability driven investments where the investments are a portfolio of fixed interest and inflation-linked bonds and related derivatives, selected to broadly match the interest rate and inflation profile of liabilities.
|
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273
Under the scheme rules, pensions in payment increase in line with the UK Retail Price Index, and deferred benefits increase in line with the UK Consumer Price Index. The pension scheme is therefore exposed to UK inflation changes as well as interest rate risks, investment returns and changes in the life expectancy of pensioners.
The weighted average duration of the defined benefit obligation is 23.0 years (2014: 24.0 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2015 | 2014 | ||
Demographic actuarial assumptions |
UK mortality | UK mortality | ||
Mortality |
table 1) | table 2) | ||
Financial actuarial assumptions |
||||
Discount rate |
3.90% | 3.80% | ||
Price inflation |
3.10% | 3.10% | ||
1 SAPS S1NA light -2 years CMI 2014 1.50%-1.25% p.a. 2 SAPS S1NA light -2 years CMI 2012 1.25% p.a.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
| ||||
Estimated approximate effects on the defined benefit obligation | ||||
2015 | 2014 | |||
Demographic actuarial assumptions |
||||
10% increase in mortality rates |
(37) | (35) | ||
10% decrease in mortality rates |
42 | 39 | ||
Financial actuarial assumptions |
||||
100 basis points increase in discount rate |
(341) | (333) | ||
100 basis points decrease in discount rate |
470 | 463 | ||
100 basis points increase in price inflation |
192 | 193 | ||
100 basis points decrease in price inflation |
(347) | (313) | ||
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
| ||||
Target allocation of plan assets for
retirement benefit plans for the next annual period is: | ||||
Equity instruments |
40% | |||
Debt instruments |
60% |
All other operating segments
Businesses included in all other operating segments mostly operate defined contribution plans.
274 | Notes to the consolidated financial statements Note 42 |
|
||||||||
2015 | 2014 | |||||||
At January 1 |
82 | 88 | ||||||
Income deferred |
40 | 1 | ||||||
Release to income statement |
(14 | ) | (13 | ) | ||||
Net exchange differences |
4 | 6 | ||||||
At December 31 | 112 | 82 | ||||||
|
||||||||
2015 | 2014 | |||||||
Deferred tax assets |
25 | 27 | ||||||
Deferred tax liabilities |
2,252 | 2,906 | ||||||
Total net deferred tax liability / (asset) | 2,227 | 2,879 | ||||||
Deferred tax assets comprise temporary differences on: | 2015 | 2014 | ||||||
Financial assets |
(5 | ) | (13 | ) | ||||
Deferred expenses, VOBA and other intangible assets |
2 | 2 | ||||||
Defined benefit plans |
3 | 4 | ||||||
Losses |
15 | 19 | ||||||
Other |
10 | 14 | ||||||
At December 31 | 25 | 27 | ||||||
Deferred tax liabilities comprise temporary differences on: | 2015 | 2014 | ||||||
Real estate |
434 | 360 | ||||||
Financial assets |
2,730 | 3,449 | ||||||
Insurance and investment contracts |
(2,500 | ) | (3,109 | ) | ||||
Deferred expenses, VOBA and other intangible assets |
3,009 | 3,505 | ||||||
Defined benefit plans |
(685 | ) | (664 | ) | ||||
Losses |
(485 | ) | (143 | ) | ||||
Other |
(252 | ) | (492 | ) | ||||
At December 31 | 2,252 | 2,906 |
|
Supplemental Annual Report 2015 |
275
The following table provides a movement schedule of net deferred tax broken-down by those items for which a deferred tax asset or liability has been recognized.
Real estate |
Financial assets |
Insurance and investment contracts |
Deferred expenses, VOBA and other intangible assets |
Defined benefit plans |
Losses | Other | Total | |||||||||||||||||||||||||
At January 1, 2015 |
360 | 3,461 | (3,109 | ) | 3,503 | (668 | ) | (161 | ) | (507 | ) | 2,879 | ||||||||||||||||||||
Disposal of a business |
- | - | - | (73 | ) | - | - | - | (73 | ) | ||||||||||||||||||||||
Charged to income statement |
66 | (240 | ) | 889 | (814 | ) | (33 | ) | (327 | ) | 333 | (125 | ) | |||||||||||||||||||
Charged to equity |
2 | (834 | ) | - | - | 81 | - | (1 | ) | (752 | ) | |||||||||||||||||||||
Net exchange differences |
6 | 292 | (279 | ) | 360 | (68 | ) | (13 | ) | (55 | ) | 242 | ||||||||||||||||||||
Other |
- | 56 | (1 | ) | 32 | 1 | 1 | (32 | ) | 56 | ||||||||||||||||||||||
At December 31, 2015 | 434 | 2,735 | (2,500 | ) | 3,008 | (688 | ) | (500 | ) | (261 | ) | 2,227 | ||||||||||||||||||||
At January 1, 2014 |
370 | 1,812 | (2,129 | ) | 2,707 | (386 | ) | (720 | ) | (394 | ) | 1,260 | ||||||||||||||||||||
Charged to income statement |
(18 | ) | (412 | ) | (821 | ) | 530 | 93 | 601 | 75 | 47 | |||||||||||||||||||||
Charged to equity |
2 | 1,724 | - | (1 | ) | (332 | ) | - | 2 | 1,394 | ||||||||||||||||||||||
Net exchange differences |
6 | 303 | (278 | ) | 374 | (66 | ) | (41 | ) | (51 | ) | 246 | ||||||||||||||||||||
Transfers to disposal groups |
- | (35 | ) | 123 | (211 | ) | 1 | - | (4 | ) | (127 | ) | ||||||||||||||||||||
Other |
- | 71 | (4 | ) | 104 | 23 | (1 | ) | (134 | ) | 58 | |||||||||||||||||||||
At December 31, 2014 | 360 | 3,461 | (3,109 | ) | 3,503 | (668 | ) | (161 | ) | (507 | ) | 2,879 |
In 2015, the decrease of deferred income tax liabilities primarily relates to a decrease of unrealized profits in respect of financial assets mainly driven by higher interest rates and widening credit spread.
In 2014, the increase of deferred corporate income tax liabilities primarily related to an increase of unrealized profits in respect of financial assets mainly driven by lower interest rates.
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 294 million; tax EUR 59 million (2014: gross EUR 366 million; tax EUR 71 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized:
Gross amounts | Not recognized deferred tax assets |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
< 5 years |
113 | 114 | 28 | 26 | ||||||||||||
³ 5 10 years |
28 | 24 | 6 | 5 | ||||||||||||
³ 10 15 years |
94 | 101 | 45 | 53 | ||||||||||||
³ 15 20 years |
- | - | - | - | ||||||||||||
Indefinitely |
605 | 670 | 144 | 141 | ||||||||||||
At December 31 | 841 | 909 | 222 | 225 | ||||||||||||
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For the following amounts relating to Available-for-sale financial assets, Defined benefit plans and Other items the recognition of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences:
|
|
276 | Notes to the consolidated financial statements Note 44 |
Gross amounts | Deferred tax assets | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Deferred corporate income tax asset dependent on retaining bonds and similar investments until the earlier of market recovery or maturity |
1,766 | 641 | 617 | 224 | ||||||||||||
Deferred corporate income tax asset dependent on the realization of capital profits |
558 | 543 | 195 | 190 | ||||||||||||
Other |
52 | 17 | 12 | 3 | ||||||||||||
At December 31 | 2,376 | 1,201 | 824 | 417 |
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Financial assets and Other items for the amount of gross EUR 46 million; tax EUR 9 million (2014: gross EUR 32 million; tax EUR 6 million).
Deferred corporate income tax liabilities have not been recognized for withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. The unremitted earnings totaled gross EUR 1,769 million; tax EUR 442 million (2014: gross EUR 1,767 million; tax EUR 441 million).
All deferred corporate income taxes are non-current by nature.
2015 | 2014 | |||||||
Payables due to policyholders |
766 | 1,161 | ||||||
Payables due to brokers and agents |
979 | 1,571 | ||||||
Payables out of reinsurance |
792 | 888 | ||||||
Social security and taxes payable |
179 | 159 | ||||||
Income tax payable |
5 | 165 | ||||||
Investment creditors |
180 | 602 | ||||||
Cash collateral |
6,576 | 9,233 | ||||||
Repurchase agreements |
1,728 | 1,782 | ||||||
Commercial paper |
125 | 124 | ||||||
Bank overdrafts |
- | 4 | ||||||
Other creditors |
2,742 | 2,466 | ||||||
At December 31 | 14,074 | 18,152 | ||||||
Current
|
13,145 | 17,886 | ||||||
Non-current |
930 | 266 | ||||||
The carrying amounts disclosed reasonably approximate the fair values at year end, given the predominantly current nature of the other liabilities.
|
| |||||||
|
||||||||
2015 | 2014 | |||||||
Accrued interest |
155 | 160 | ||||||
Accrued expenses |
117 | 112 | ||||||
At December 31 | 272 | 272 |
The carrying amounts disclosed reasonably approximate the fair values as at the year end.
|
Supplemental Annual Report 2015 |
277
Aegons total capitalization reflects the capital employed in insurance activities and consists of shareholders capital and total gross financial leverage. Aegon aims to keep total gross financial leverage below 30% of total capitalization as measured by the gross financial leverage ratio. The gross financial leverage ratio is calculated by dividing the total gross financial leverage by the total capitalization (based on IFRS as adopted by the EU). At December 31, 2015, the gross financial leverage ratio was 28.4% (2014: 28.9%).
Additionally, Aegon manages capital adequacy at the level of the Company, its business units and the individual legal entities. The goal is to ensure that Aegon units maintain their financial strength. Aegon maintains its companies capital adequacy levels at which ever is the higher of local regulatory requirements and, for rated entities, rating agency requirements for very strong capitalization, and any additionally self-imposed internal requirements.
The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio:
Note | 2015 | 2014 | ||||||||||
Total shareholders equity based on IFRS as adopted by the EU |
2 | 22,684 | 24,183 | |||||||||
Non-controlling interests, share options and incentive plans not yet exercised |
33, SOFP 2) | 77 | 103 | |||||||||
Revaluation reserves |
32 | (6,471 | ) | (8,308 | ) | |||||||
Remeasurement of defined benefit plans |
32 | 1,532 | 1,611 | |||||||||
Shareholders capital | 17,822 | 17,589 | ||||||||||
Junior perpetual capital securities |
33 | 3,008 | 3,008 | |||||||||
Perpetual cumulative subordinated bonds |
33 | 454 | 454 | |||||||||
Non-cumulative subordinated notes (Other equity instruments) |
33 | 271 | 271 | |||||||||
Fixed floating subordinated notes |
34 | 694 | 693 | |||||||||
Non-cumulative subordinated notes (Subordinated borrowings) |
34 | 65 | 54 | |||||||||
Trust pass-through securities |
35 | 157 | 143 | |||||||||
Currency revaluation other equity instruments 1) |
269 | 23 | ||||||||||
Hybrid leverage | 4,918 | 4,646 | ||||||||||
Senior debt 3) |
39 | 2,015 | 2,367 | |||||||||
Commercial paper and other short term debt |
44 | 125 | 124 | |||||||||
Senior leverage | 2,140 | 2,490 | ||||||||||
Total gross financial leverage | 7,057 | 7,137 | ||||||||||
Total capitalization | 24,879 | 24,726 | ||||||||||
Gross financial leverage ratio | 28.4% | 28.9% |
1 | Other equity instruments that are denominated in foreign currencies are, for purpose of calculating hybrid leverage, revalued to the period-end exchange rate. |
2 | Non-controlling interests are disclosed in the statement of financial position. |
3 | Senior debt for the gross financial leverage calculation also contains swaps for an amount of EUR nil million (2014: EUR 29 million). |
Aegon N.V. is subject to certain financial covenants in some of its financial agreements (such as issued debentures, credit facilities and ISDA agreements). Under these financial covenants, an event of default may occur if and when any financial indebtedness of any member of the Group is not paid when due, or not paid within any applicable grace period. The financial agreements may also include a cross default provision which may be triggered if and when any financial indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default.
All financial agreements are closely monitored periodically to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. On the basis of this assessment, a breach of any such covenant has not occurred.
Insurance, reinsurance, investment management and banking companies are required to maintain a minimum solvency margin based on applicable local regulations. Aegons Insurance Group Directive ratio (IGD ratio) was 220% at the end of 2015 (2014: 208%). The 2015 end of year IGD ratio was the last to be reported and filed as Aegons capitalization will be measured on a Solvency II basis as of January 1, 2016. The calculation of the IGD ratio was based on Solvency I capital requirements for entities within the EU (Pillar 1 for Aegon UK), and local regulatory solvency measurements for non-EU entities. Specifically, for the IGD ratio, required capital for the life insurance companies in the US was calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the United States. The calculation of the IGD ratio excluded the available and required capital of the UK with-profits funds.
278 | Notes to the consolidated financial statements Note 46 |
In the United States, regulation of the insurance business is principally at the state level. State insurance regulators and the National Association of Insurance Commissioners have adopted risk-based capital (RBC) requirements for insurance companies. RBC calculations measure the ratio of a companys statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula, as used for calculating the IGD ratio, applied a covariance calculation to determine the appropriate risk-based capital. Life reinsurance is treated as life insurance. The most pertinent RBC measure is the Company Action Level (CAL) risk-based capital. This is the highest regulatory intervention level and is the level at which a company has to submit a plan to its state regulators. The CAL is 200% of the authorized control level (ACL), the level at which regulators are permitted to seize control of the Company. At the end of 2015, the combined risk-based capital ratio of Aegons life insurance subsidiaries in the United States was approximately 460% of the CAL risk-based capital.
For the insurance and reinsurance undertakings of Aegon in the EU, the European Solvency I directives as implemented in the relevant member states were applicable up to December 31, 2015. Solvency I allowed member states to require solvency standards, exceeding the minimum requirements set by the Solvency I directives. For life insurance companies the Solvency I capital requirement was by and large the sum of 4% of insurance and investment liabilities for general account and 1% of insurance and investment liabilities for account policyholders if no guaranteed investment returns were given. At the end of 2015, Aegon the Netherlands consolidated solvency capital ratio based on IFRS was approximately 240%, excluding Aegon bank.
The Prudential Regulation Authority (PRA) regulates insurance companies in the United Kingdom under the Financial Services and Markets Act 2000 and sets minimum solvency standards. Up to the end of 2015, companies had to manage their solvency positions according to the most stringent of the published Solvency I measure (Pillar 1) and a privately submitted economic capital measure (Pillar 2). At December 31, 2015, the published measure was the most stringent requirement. The Pillar 1 ratio in the United Kingdom, including the with-profits funds, was approximately 165% at the end of 2015 (with-profits funds included at unaudited June 30, 2015, values). The local regulator (PRA) requires the total required capital number of the with-profits funds to be equal to the available capital.
Aegon N.V. is subject to legal restrictions on the amount of dividends it can pay to its shareholders. Under Dutch law, the amount that is available to pay dividends consists of total shareholders equity less the issued and outstanding capital and less the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve and other, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable reserves under Dutch law amounted to EUR 12,431 million at December 31, 2015 (2014: EUR 10,025 million).
The ability of Aegons subsidiaries, principally insurance companies, to pay dividends to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance regulatory authorities. Based on the capitalization level of the local subsidiary, local insurance regulators are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the need for these subsidiaries to have sufficient shareholders equity as determined by law. The capitalization level and shareholders equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of subsidiaries to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations.
The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the subsidiaries to pay dividends to the holding company. In order to ensure the holding companys ability to fulfil its cash obligations, it is the Companys policy that, the holding company holds liquid assets in reserve to fund at least 1.5 years of holding company operating and funding expenses, without having to rely on the receipt of dividends from its subsidiaries.
Optas N.V., an indirect subsidiary of Aegon N.V., held statutory reserves of EUR 1,050 million per December 31, 2014 which were restricted. Aegon announced in April 2014 that it had reached agreement with BPVH a foundation representing Dutch harbor workers and employers on removing restrictions on the capital of the harbors former pension fund Optas pensioenen N.V., thereby ending a long-lasting dispute. After approval by the court, which was granted in January 2015, restrictions were removed three months after the date of the court ruling, when the appeal period expired. As the restrictions were removed, both the statutory reserve of
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EUR 1,050 million per December 31, 2014 and the amounts included in the legal reserves were transferred to retained earnings. Included in Aegon N.V.s legal reserves was an amount of EUR 510 million per December 31, 2014 related to Optas N.V. which represented the increase in statutory reserves since the acquisition of Optas N.V. by Aegon. The statutory reserves of Optas N.V. were linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
The estimated fair values of Aegons assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arms length basis. Fair value is not determined based upon a forced liquidation or distressed sale.
Valuation techniques are used when Aegon determines the market is inactive or quoted market prices are not available for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). Therefore, unobservable inputs reflect Aegons own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available.
Aegon employs an oversight structure over valuation of financial instruments that includes appropriate segregation of duties. Senior management, independent of the investing functions, is responsible for the oversight of control and valuation policies and for reporting the results of these policies. For fair values determined by reference to external quotation or evidenced pricing parameters, independent price determination or validation is utilized to corroborate those inputs. Further details of the validation processes are set out below.
Valuation of assets and liabilities is based on a pricing hierarchy, in order to maintain a controlled process that will systematically promote the use of prices from sources in which Aegon has the most confidence, where the least amount of manual intervention exists and to embed consistency in the selection of price sources. Depending on asset type the pricing hierarchy consists of a waterfall that starts with making use of market prices from indices and follows with making use of third-party pricing services or brokers.
280 | Notes to the consolidated financial statements Note 47 |
Fair value hierarchy
The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy:
Level I | Level II | Level III | Total 2015 | |||||||||||||
Assets carried at fair value |
||||||||||||||||
Available-for-sale |
||||||||||||||||
Shares |
29 | 498 | 293 | 820 | ||||||||||||
Debt securities |
28,701 | 72,307 | 4,144 | 105,151 | ||||||||||||
Money market and other short-term instruments |
- | 7,141 | - | 7,141 | ||||||||||||
Other investments at fair value |
31 | 337 | 928 | 1,297 | ||||||||||||
28,761 | 80,283 | 5,365 | 114,409 | |||||||||||||
Fair value through profit or loss |
||||||||||||||||
Shares |
254 | 385 | - | 640 | ||||||||||||
Debt securities |
16 | 2,217 | 6 | 2,239 | ||||||||||||
Money market and other short-term instruments |
- | 303 | - | 303 | ||||||||||||
Other investments at fair value |
2 | 1,368 | 1,265 | 2,635 | ||||||||||||
Investments for account of policyholders 1) |
121,227 | 76,232 | 1,745 | 199,204 | ||||||||||||
Derivatives |
54 | 11,270 | 222 | 11,545 | ||||||||||||
Investments in real estate |
- | - | 1,990 | 1,990 | ||||||||||||
Investments in real estate for policyholders |
- | - | 1,022 | 1,022 | ||||||||||||
121,552 | 91,775 | 6,250 | 219,577 | |||||||||||||
Revalued amounts |
||||||||||||||||
Real estate held for own use |
- | - | 338 | 338 | ||||||||||||
- | - | 338 | 338 | |||||||||||||
Total assets at fair value |
150,313 | 172,058 | 11,954 | 334,325 | ||||||||||||
Liabilities carried at fair value |
||||||||||||||||
Investment contracts for account of policyholders 2) |
16,943 | 23,266 | 156 | 40,365 | ||||||||||||
Borrowings 3) |
- | 617 | - | 617 | ||||||||||||
Derivatives |
4 | 8,782 | 2,104 | 10,890 | ||||||||||||
Total liabilities at fair value |
16,946 | 32,665 | 2,260 | 51,871 |
1 | The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. |
2 | The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. |
3 | Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule. |
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Level I | Level II | Level III | Total 2014 | |||||||||||||
Assets carried at fair value |
||||||||||||||||
Available-for-sale |
||||||||||||||||
Shares |
26 | 316 | 280 | 623 | ||||||||||||
Debt securities |
27,491 | 70,203 | 3,803 | 101,497 | ||||||||||||
Money market and other short-term instruments |
- | 6,799 | - | 6,799 | ||||||||||||
Other investments at fair value |
31 | 345 | 934 | 1,310 | ||||||||||||
27,548 | 77,662 | 5,018 | 110,229 | |||||||||||||
Fair value through profit or loss |
||||||||||||||||
Shares |
217 | 282 | - | 499 | ||||||||||||
Debt securities |
48 | 1,761 | 17 | 1,826 | ||||||||||||
Money market and other short-term instruments |
95 | 405 | - | 500 | ||||||||||||
Other investments at fair value |
1 | 832 | 1,237 | 2,070 | ||||||||||||
Investments for account of policyholders 1) |
114,490 | 73,919 | 1,956 | 190,366 | ||||||||||||
Derivatives |
52 | 27,642 | 320 | 28,014 | ||||||||||||
Investments in real estate |
- | - | 1,792 | 1,792 | ||||||||||||
Investments in real estate for policyholders |
- | - | 1,101 | 1,101 | ||||||||||||
114,903 | 104,842 | 6,423 | 226,168 | |||||||||||||
Revalued amounts |
||||||||||||||||
Real estate held for own use |
- | - | 293 | 293 | ||||||||||||
- | - | 293 | 293 | |||||||||||||
Total assets at fair value |
142,451 | 182,504 | 11,734 | 336,690 | ||||||||||||
Liabilities carried at fair value |
||||||||||||||||
Investment contracts for account of policyholders 2) |
15,371 | 22,683 | 165 | 38,220 | ||||||||||||
Borrowings 3) |
- | 571 | - | 571 | ||||||||||||
Derivatives |
31 | 23,007 | 3,010 | 26,048 | ||||||||||||
Total liabilities at fair value |
15,403 | 46,261 | 3,175 | 64,839 |
1 | The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. |
2 | The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. |
3 | Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule. |
Significant transfers between Level I, Level II and Level III
Aegons policy is to record transfers of assets and liabilities between Level I, Level II and Level III at their fair values as of the beginning of each reporting period.
The table below shows transfers between Level I and Level II for financial assets and financial liabilities recorded at fair value on a recurring basis.
Total 2015 | Total 2014 | |||||||||||||||
Transfers Level I to Level II |
Transfers Level II to Level I |
Transfers Level I to Level II |
Transfers Level II to Level I |
|||||||||||||
Assets carried at fair value |
||||||||||||||||
Available-for-sale |
||||||||||||||||
Debt securities |
14 | 156 | - | 45 | ||||||||||||
14 | 156 | - | 45 | |||||||||||||
Fair value through profit or loss |
||||||||||||||||
Shares |
- | 40 | - | - | ||||||||||||
Investments for account of policyholders |
(3 | ) | 209 | 163 | 1 | |||||||||||
(3 | ) | 248 | 163 | 1 | ||||||||||||
Total assets at fair value |
11 | 405 | 163 | 46 |
Transfers are identified based on transaction volume and frequency, which are indicative of an active market.
282 | Notes to the consolidated financial statements Note 47 |
Movements in Level III financial instruments measured at fair value
The following table summarizes the change of all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level III), including realized and unrealized gains (losses) of all assets and liabilities and unrealized gains (losses) of all assets and liabilities still held at the end of the respective period.
Assets carried at fair value |
At January 1, 2015 |
Total gains / losses in income state- ment 1) |
Total gains / losses in OCI 2) |
Pur-chases | Sales | Settle- ments |
Net change ence |
Reclas- sifica- tion |
Trans- fers |
Trans- fers to |
Trans- fers to |
At ber 31, |
Total unrealized |
|||||||||||||||||||||||||||||||||||||||
Available-for-sale |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
280 | 32 | 30 | 92 | (124 | ) | (33 | ) | 16 | - | - | - | - | 293 | - | |||||||||||||||||||||||||||||||||||||
Debt securities |
3,803 | (2 | ) | 29 | 842 | (367 | ) | (198 | ) | 212 | - | 182 | (359 | ) | - | 4,144 | - | |||||||||||||||||||||||||||||||||||
Other investments at fair value |
934 | (206 | ) | 9 | 179 | (72 | ) | (18 | ) | 102 | - | - | - | - | 928 | - | ||||||||||||||||||||||||||||||||||||
5,018 | (176 | ) | 69 | 1,113 | (563 | ) | (249 | ) | 330 | - | 182 | (359 | ) | - | 5,365 | - | ||||||||||||||||||||||||||||||||||||
Fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities |
17 | - | - | - | (2 | ) | - | 2 | - | - | (9 | ) | - | 6 | - | |||||||||||||||||||||||||||||||||||||
Other investments at fair value |
1,237 | (20 | ) | - | 179 | (397 | ) | - | 139 | - | 291 | (162 | ) | - | 1,265 | 17 | ||||||||||||||||||||||||||||||||||||
Investments for account of policyholders |
1,956 | 126 | - | 486 | (773 | ) | - | 33 | - | - | (83 | ) | - | 1,745 | 85 | |||||||||||||||||||||||||||||||||||||
Derivatives |
320 | (173 | ) | - | 12 | 48 | - | 15 | - | - | - | - | 222 | (176 | ) | |||||||||||||||||||||||||||||||||||||
Investments in real estate |
1,792 | 145 | - | 133 | (163 | ) | - | 83 | - | - | - | - | 1,990 | 15 | ||||||||||||||||||||||||||||||||||||||
Investments in real estate for policyholders |
1,101 | 67 | - | 280 | (488 | ) | - | 60 | - | - | - | - | 1,022 | 59 | ||||||||||||||||||||||||||||||||||||||
6,423 | 146 | - | 1,090 | (1,775 | ) | - | 332 | - | 291 | (255 | ) | - | 6,250 | - | ||||||||||||||||||||||||||||||||||||||
Revalued amounts |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use |
293 | (2 | ) | 8 | 21 | - | - | 19 | - | - | - | - | 338 | (2 | ) | |||||||||||||||||||||||||||||||||||||
293 | (2 | ) | 8 | 21 | - | - | 19 | - | - | - | - | 338 | (2 | ) | ||||||||||||||||||||||||||||||||||||||
Total assets at fair value |
11,734 | (32 | ) | 77 | 2,224 | (2,339 | ) | (249 | ) | 681 | - | 473 | (614 | ) | - | 11,954 | (2 | ) | ||||||||||||||||||||||||||||||||||
Liabilities carried at fair value |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders |
165 | 3 | - | 12 | (34 | ) | - | 14 | - | - | (5 | ) | - | 156 | 3 | |||||||||||||||||||||||||||||||||||||
Derivatives |
3,010 | (925 | ) | - | - | (98 | ) | - | 116 | - | - | - | - | 2,104 | (972 | ) | ||||||||||||||||||||||||||||||||||||
3,175 | (922 | ) | - | 13 | (131 | ) | - | 131 | - | - | (5 | ) | - | 2,260 | (969 | ) |
1 | Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement. |
2 | Total gains and losses are recorded in line items: Gains / (losses) on revaluation of available-for-sale investments, (Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
3 | Total gains / (losses) for the period during which the financial instrument was in Level III. |
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283
Assets carried at fair value | At January 1, 2014 |
Total gains / losses in income state- ment 1) |
Total gains / losses in OCI 2) |
Pur- chases |
Sales | Settle- ments |
Net ex- change differ- ence |
Reclas- sification |
Trans- fers from levels I and II |
Trans- fers to levels I and II |
Trans- fers to disposal groups |
At Decem- ber 31, 2014 |
Total unrealized |
|||||||||||||||||||||||||||||||||||||||
Available-for-sale |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares |
322 | 47 | (12 | ) | 60 | (153 | ) | - | 17 | - | - | (1 | ) | - | 280 | - | ||||||||||||||||||||||||||||||||||||
Debt securities |
3,162 | 28 | 45 | 1,419 | (504 | ) | (268 | ) | 226 | - | 258 | (503 | ) | (60 | ) | 3,803 | - | |||||||||||||||||||||||||||||||||||
Other investments at fair value |
826 | (116 | ) | 2 | 155 | (52 | ) | (9 | ) | 112 | - | 17 | - | (1 | ) | 934 | - | |||||||||||||||||||||||||||||||||||
4,310 | (41 | ) | 35 | 1,634 | (708 | ) | (277 | ) | 354 | - | 275 | (503 | ) | (61 | ) | 5,018 | - | |||||||||||||||||||||||||||||||||||
Fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt securities |
17 | (1 | ) | - | 6 | - | (9 | ) | 2 | - | 2 | - | - | 17 | 1 | |||||||||||||||||||||||||||||||||||||
Other investments at fair value |
1,217 | 21 | - | 57 | (269 | ) | - | 156 | - | 118 | (62 | ) | - | 1,237 | 25 | |||||||||||||||||||||||||||||||||||||
Investments for account of policyholders |
1,989 | 92 | - | 534 | (640 | ) | - | 38 | - | 90 | (148 | ) | - | 1,956 | 85 | |||||||||||||||||||||||||||||||||||||
Derivatives |
328 | 66 | - | - | (17 | ) | - | 17 | (75 | ) | - | - | - | 320 | (76 | ) | ||||||||||||||||||||||||||||||||||||
Investments in real estate |
1,532 | (4 | ) | - | 397 | (224 | ) | - | 91 | - | - | - | - | 1,792 | 27 | |||||||||||||||||||||||||||||||||||||
Investments in real estate for policyholders |
996 | 53 | - | 66 | (86 | ) | - | 73 | - | - | - | - | 1,101 | 55 | ||||||||||||||||||||||||||||||||||||||
6,079 | 226 | - | 1,060 | (1,236 | ) | (9 | ) | 377 | (75 | ) | 210 | (209 | ) | - | 6,423 | 118 | ||||||||||||||||||||||||||||||||||||
Revalued amounts |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use |
287 | - | 5 | (14 | ) | (5 | ) | - | 20 | - | - | - | - | 293 | (2 | ) | ||||||||||||||||||||||||||||||||||||
287 | - | 5 | (14 | ) | (5 | ) | - | 20 | - | - | - | - | 293 | (2 | ) | |||||||||||||||||||||||||||||||||||||
Total assets at fair value |
10,677 | 185 | 40 | 2,680 | (1,949 | ) | (286 | ) | 751 | (75 | ) | 485 | (713 | ) | (61 | ) | 11,734 | 116 | ||||||||||||||||||||||||||||||||||
Liabilities carried at fair value |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders |
114 | 4 | - | 32 | (1 | ) | - | 16 | - | - | - | - | 165 | 4 | ||||||||||||||||||||||||||||||||||||||
Derivatives |
1,431 | 1,622 | - | - | (41 | ) | - | 106 | (75 | ) | - | - | (32 | ) | 3,010 | 1,752 | ||||||||||||||||||||||||||||||||||||
1,545 | 1,626 | - | 32 | (42 | ) | - | 122 | (75 | ) | - | - | (32 | ) | 3,175 | 1,756 |
1 | Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement. |
2 | Total gains and losses are recorded in line items: Gains / (losses) on revaluation of available-for-sale investments, (Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments and Changes in revaluation reserve real estate held for own use of the statement of other comprehensive income. |
3 | Total gains / (losses) for the period during which the financial instrument was in Level III. |
284 | Notes to the consolidated financial statements Note 47 |
During 2015, Aegon transferred certain financial instruments from Level I and 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 I and 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 473 million (2014: EUR 485 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 2015, Aegon transferred certain 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. Transfers from Level III amounted to EUR 619 million (2014: EUR 712 million).
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285
Significant unobservable assumptions
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level III financial instruments.
Valuation technique 1) |
Significant unobservable input 2) |
December 31, 2015 |
Range (weighted average) |
December 31, 2014 |
Range (weighted average) |
|||||||||||||||||||
Assets carried at fair value |
||||||||||||||||||||||||
Available-for-sale |
||||||||||||||||||||||||
Shares |
Net asset value | n.a. | 132 | n.a. | 134 | n.a. | ||||||||||||||||||
Other | n.a. | 161 | n.a. | 147 | n.a. | |||||||||||||||||||
293 | 280 | |||||||||||||||||||||||
Debt securities |
||||||||||||||||||||||||
Broker quote | n.a. | 3,640 | n.a. | 3,201 | n.a. | |||||||||||||||||||
Discounted cash flow | Discount rate | - | - | 199 | 3% - 8% (7.9%) | |||||||||||||||||||
Discounted cash flow | Credit spread | 219 | 1.5% - 3.8% (2.8%) | 223 | 0.8% - 3% (2.7%) | |||||||||||||||||||
Other | n.a. | 285 | n.a. | 180 | n.a. | |||||||||||||||||||
4,144 | 3,803 | |||||||||||||||||||||||
Other investments at fair value |
||||||||||||||||||||||||
Tax credit investments |
Discounted cash flow | Discount rate | 785 | 7.4% | 759 | 8.5% | ||||||||||||||||||
Investment funds |
Net asset value | n.a. | 97 | n.a. | 104 | n.a. | ||||||||||||||||||
Other |
Other | n.a. | 45 | n.a. | 72 | n.a. | ||||||||||||||||||
928 | 934 | |||||||||||||||||||||||
At December 31 |
5,365 | 5,018 | ||||||||||||||||||||||
Fair value through profit or loss |
||||||||||||||||||||||||
Debt securities |
Other | n.a. | 6 | n.a. | 17 | n.a. | ||||||||||||||||||
6 | 17 | |||||||||||||||||||||||
Other investments at fair value |
||||||||||||||||||||||||
Investment funds |
Net asset value | n.a. | 1,260 | n.a. | 1,231 | n.a. | ||||||||||||||||||
Other |
Other | n.a. | 6 | n.a. | 6 | n.a. | ||||||||||||||||||
1,265 | 1,237 | |||||||||||||||||||||||
Derivatives 3) |
||||||||||||||||||||||||
Longevity swap |
Discounted cash flow | Mortality | 86 | n.a. | 82 | n.a. | ||||||||||||||||||
Other |
Other | n.a. | 23 | n.a. | 110 | n.a. | ||||||||||||||||||
109 | 191 | |||||||||||||||||||||||
Real estate |
||||||||||||||||||||||||
Investments in real estate |
|
Direct capitalization technique |
|
|
Capitalization rate |
|
640 | 4.8% - 10.5% (6.3%) | 580 | 4.5% - 11% (7%) | ||||||||||||||
Appraisal value | n.a. | 1,148 | n.a. | 1,069 | n.a. | |||||||||||||||||||
Other | n.a. | 202 | n.a. | 143 | n.a. | |||||||||||||||||||
1,990 | 1,792 | |||||||||||||||||||||||
At December 31 |
3,370 | 3,237 | ||||||||||||||||||||||
Revalued amounts |
||||||||||||||||||||||||
Real estate held for own use |
|
Direct capitalization technique |
|
|
Capitalization rate |
|
163 | |
6.5% - 9.5% (7.9%) 6.5% - 9.5% (7.9%) |
|
137 | |
6.5% - 9.5% (7.9%) |
| ||||||||||
Appraisal value | n.a. | 116 | n.a. | 100 | n.a. | |||||||||||||||||||
Other | n.a. | 60 | n.a. | 56 | n.a. | |||||||||||||||||||
At December 31 |
338 | 293 | ||||||||||||||||||||||
Total assets at fair value 3) |
9,073 | 8,547 | ||||||||||||||||||||||
Liabilities carried at fair value |
||||||||||||||||||||||||
Derivatives |
||||||||||||||||||||||||
Embedded derivatives in insurance contracts |
Discounted cash flow | |
Own credit spread |
|
2,072 | 0.3% - 0.4% (0.3%) | 2,939 | 0.3% | ||||||||||||||||
Other |
Other | n.a. | 32 | n.a. | 71 | n.a. | ||||||||||||||||||
Total liabilities at fair value |
2,104 | 3,010 |
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 Aegons 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 113 million (2014: EUR 129). |
286 | Notes to the consolidated financial statements Note 47 |
For reference purposes, the valuation techniques included in the table above are described in more detail on the following pages.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
December 31, 2015 |
Effect of reasonably possible alternative assumptions (+/-) |
December 31, 2014 |
Effect of reasonably possible alternative assumptions (+/-) |
|||||||||||||||||||||||||
Increase | Decrease | Increase | Decrease | |||||||||||||||||||||||||
Financial liabilities carried at fair value |
||||||||||||||||||||||||||||
Embedded derivatives in insurance contracts |
a | 2,072 | 196 | (187 | ) | 2,939 | 180 | (171 | ) |
The table above presents the impact on a fair value measurement of a change in an unobservable input for embedded derivatives in insurance contracts. It is estimated that changing one or more of the unobservable inputs to reflect reasonable possible alternatives in valuation of other Level III financial investments would have no significant impact for the Group. The impact of changes in inputs may not be independent, therefore the descriptions provided below indicate the impact of a change in an input in isolation:
a. | To determine the fair value of the bifurcated embedded derivatives related to guarantees, a discount rate is used including own credit spread. An increase in own credit spread results in lower valuation, while a decrease results in a higher valuation of the embedded derivatives. Aegon increased or decreased its own credit spread by 20 basis points. |
Fair value information about assets and liabilities not measured at fair value
The following table presents the carrying values and estimated fair values of assets and liabilities, excluding assets and liabilities which are carried at fair value on a recurring basis.
2015 | Carrying amount December 31, 2015 |
Estimated fair value hierarchy | Total estimated fair value December 31, |
|||||||||||||||||
Level I | Level II | Level III | ||||||||||||||||||
Assets |
||||||||||||||||||||
Mortgage loans - held at amortized cost |
32,899 | - | - | 37,648 | 37,648 | |||||||||||||||
Private loans - held at amortized cost |
2,847 | - | 79 | 3,086 | 3,165 | |||||||||||||||
Other loans - held at amortized cost |
2,517 | - | 2,301 | 215 | 2,517 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Trust pass-through securities - held at amortized cost |
157 | - | 146 | - | 146 | |||||||||||||||
Subordinated borrowings - held at amortized cost |
759 | 681 | 147 | - | 828 | |||||||||||||||
Borrowings - held at amortized cost |
11,829 | 1,735 | 706 | 9,753 | 12,194 | |||||||||||||||
Investment contracts - held at amortized cost |
17,260 | - | 7,219 | 10,641 | 17,860 | |||||||||||||||
2014 | Carrying amount December 31, 2014 |
Estimated fair value hierarchy | Total estimated fair value December 31, 2014 |
|||||||||||||||||
Level I | Level II | Level III | ||||||||||||||||||
Assets |
||||||||||||||||||||
Mortgage loans - held at amortized cost |
31,729 | - | - | 36,692 | 36,692 | |||||||||||||||
Private loans - held at amortized cost |
2,058 | - | 73 | 2,381 | 2,454 | |||||||||||||||
Other loans - held at amortized cost |
2,516 | - | 2,144 | 372 | 2,516 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Trust pass-through securities - held at amortized cost |
143 | - | 139 | - | 139 | |||||||||||||||
Subordinated borrowings - held at amortized cost |
747 | 734 | 94 | - | 828 | |||||||||||||||
Borrowings - held at amortized cost |
13,588 | 2,208 | 1,532 | 10,316 | 14,056 | |||||||||||||||
Investment contracts - held at amortized cost |
14,985 | - | 5,542 | 9,951 | 15,492 |
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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.
Fair value measurement
The description of Aegons methods of determining fair value and the valuation techniques are described on the following pages.
Shares
When available, Aegon uses quoted market prices in active markets to determine the fair value of its investments in shares. Fair 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 lack of liquidity are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 120 million (2014: EUR 107 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.
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.
Debt securities
The fair values of debt securities are determined by management after taking into consideration several sources of data. When available, Aegon uses quoted market prices in active markets to determine the fair value of its debt securities. As stated previously, Aegons valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. The majority of brokers quotes are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
To understand the valuation methodologies used by third-party pricing services Aegon reviews and monitors the applicable methodology documents of the third-party pricing services. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, Aegon performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that Aegon can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.
Third-party pricing services will often determine prices using recently reported trades for identical or similar securities. The third-party pricing service makes adjustments for the elapsed time from the trade date to the balance sheet date to take into account available market information. Lacking recently reported trades, third-party pricing services and brokers will use modeling techniques to determine a security price where expected future cash flows are developed based on the performance of the underlying collateral and discounted using an estimated market rate.
Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs are reasonable and produce a reasonable estimate of fair value. Aegons asset specialists and investment valuation specialists consider both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or unpriced securities. Additionally, Aegon performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and the transaction price are investigated to explain the cause of the difference.
288 | Notes to the consolidated financial statements Note 47 |
Credit ratings are also an important consideration in the valuation of securities and are included in the internal process for determining Aegons view of the risk associated with each security. However, Aegon does not rely solely on external credit ratings and there is an internal process, based on market observable inputs, for determining Aegons view of the risks associated with each security.
Aegons portfolio of private placement securities (held at fair value under the classification of available-for-sale or fair value through profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegons asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and a liquidity premium to account for the illiquid nature of these securities. The liquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security. The impact of the liquidity premium for private placement securities to the overall valuation is insignificant.
Aegons portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgage-backed securities (CMBS), Asset-backed securities (ABS), Corporate bonds and Sovereign debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
Residential mortgage-backed securities, commercial mortgage-backed securities and asset-backed securities
Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available, Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant unobservable input is liquidity premium which is embedded in the discount rate.
Corporate bonds
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences.
Sovereign debt
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 and/or tax benefits (and the timing of these cash flows). These inputs are unobservable in the market place.
Mortgage loans, policy loans and private loans (held at amortized cost)
For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio.
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The fair value of floating interest rate mortgage loans, policy loans and private placements used for disclosure purposes is assumed to be approximated by their carrying amount, adjusted for changes in credit risk. Credit risk adjustments are based on market observable credit spreads if available, or managements estimate if not market observable.
Money market and other short-term investments and deposits with financial institutions
The fair value of assets maturing within a year is assumed to be approximated by their carrying amount adjusted for credit risk where appropriate. Credit risk adjustments are based on market observable credit spreads if available, or managements estimate if not market observable.
Derivatives
Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that a typical market participant would consider and are based on observable market data when available. Models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices.
Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices in active markets. Fair values for over-the-counter (OTC) derivative financial instruments represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivatives are valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services. Most valuations are derived from swap and volatility matrices, which are constructed for applicable indices and currencies using current market data from many industry standard sources. Option pricing is based on industry standard valuation models and current market levels, where applicable. The pricing of complex or illiquid instruments is based on internal models or an independent third party. For long-dated illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. To value OTC derivatives, management uses observed market information, other trades in the market and dealer prices.
Aegons valuation of its euro-denominated derivatives positions in the Netherlands is based on the Overnight Index Swap (OIS) curve.
Some OTC derivatives are so-called longevity derivatives. The payout of longevity derivatives is linked to publicly available mortality tables. The derivatives are measured using the present value of the best estimate of expected payouts of the derivative plus a risk margin. The best estimate of expected payouts is determined using best estimate of mortality developments. Aegon determined the risk margin by stressing the best estimate mortality developments to quantify the risk and applying a cost-of-capital methodology. Depending on the duration of the longevity swaps either the projected mortality development or discount rate are the most significant unobservable inputs.
Aegon normally mitigates counterparty credit risk in derivative contracts by entering into collateral agreements where practical and in ISDA master netting agreements for each of the Groups legal entities to facilitate Aegons right to offset credit risk exposure. Changes in the fair value of derivatives attributable to changes in counterparty credit risk were not significant.
Embedded derivatives in insurance contracts including guarantees
Bifurcated guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include Guaranteed minimum withdrawal benefits (GMWB) in the United States and United Kingdom which are offered on some variable annuity products and are also assumed from a ceding company; minimum investment return guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are based on discounted cash flows calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic models under a variety of market return scenarios. A variety of factors are considered, including own credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is own credit spread. The weighted average own credit spread used in the valuations of embedded derivatives in insurance contracts remained stable at 0.3% (2014: 0.3%).
290 | Notes to the consolidated financial statements Note 47 |
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments over other creditors). Aegons assumptions are set by region to reflect differences in the valuation of the guarantee embedded in the insurance contracts.
Aegon extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegons major currencies (EUR, USD and GBP) is set at 30 years.
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 38 Guarantees in insurance contracts for more details about Aegons guarantees.
Real estate
Valuations of both investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the balance sheet date. Appraisals are different for each specific local market, but are based on market guidelines such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the propertys net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single years net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been rented to a third party.
Investment contracts
Investment contracts issued by Aegon are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). These contracts are not quoted in active markets and their fair values are determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling or in relation to the unit price of the underlying assets. All models are validated and calibrated. A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments.
Similar to embedded derivatives in insurance contracts, certain investment products are not quoted in active markets and their fair values are determined by using valuation techniques. Because of the dynamic and complex nature of these cash flows, stochastic or similar techniques under a variety of market return scenarios are often used. A variety of factors are considered, including expected market rates of return, market volatility, correlations of market returns, discount rates and actuarial assumptions.
The expected returns are based on risk-free rates, such as the current London Interbank Offered Rate (LIBOR) swap rates and associated forward rates, the Overnight Index Swap (OIS) curve or the current rates on local government bonds. Market volatility assumptions for each underlying index are based on observed market implied volatility data and/or observed market performance. Correlations of market returns for various underlying indices are based on observed market returns and their inter-relationships over a number of years preceding the valuation date. Current risk-free spot rates are used to determine the present value of expected future cash flows produced in the stochastic projection process.
Assumptions on customer behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Trust pass-through securities and subordinated borrowings
Trust pass-through securities and subordinated borrowings are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). For the determination of the fair value of these instruments, the level hierarchy as described by IFRS is used. The preferred
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method of obtaining the fair value of the fair value option bonds is the quoted price (Level I). In case markets are less liquid or the quoted prices are not available, an internal model is used, based on parameters which are market observable (Level II). Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rates and 3-month swap rates. In addition, Aegon includes own credit spread based on Aegons credit default swap curve.
Summary of total financial assets and financial liabilities at fair value through profit or loss
The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss.
2015 | 2014 | |||||||||||||||
Trading | Designated | Trading | Designated | |||||||||||||
Investments for general account |
74 | 5,742 | 150 | 4,746 | ||||||||||||
Investments for account of policyholders |
- | 199,204 | - | 190,366 | ||||||||||||
Derivatives with positive values not designated as hedges |
9,885 | - | 25,789 | - | ||||||||||||
Total financial assets at fair value through profit or loss |
9,959 | 204,947 | 25,940 | 195,112 | ||||||||||||
Investment contracts for account of policyholders |
- | 40,365 | - | 38,220 | ||||||||||||
Derivatives with negative values not designated as hedges |
9,852 | - | 24,186 | - | ||||||||||||
Borrowings |
- | 617 | - | 571 | ||||||||||||
Total financial liabilities at fair value through profit or loss |
9,852 | 40,981 | 24,186 | 38,791 |
Investments for general account
The Group manages certain portfolios on a total return basis which have been designated at fair value through profit or loss. This includes portfolios of investments in limited partnerships and limited liability companies (primarily hedge funds) for which the performance is assessed internally on a total return basis. In addition, some investments that include an embedded derivative that would otherwise have required bifurcation, such as convertible instruments, preferred shares and credit linked notes, have been designated at fair value through profit or loss.
Investments for general account backing insurance and investment liabilities, that are carried at fair value with changes in the fair value recognized in the income statement, are designated at fair value through profit or loss. The Group elected to designate these investments at fair value through profit or loss, as a classification of financial assets as available-for-sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity, while changes to the liability would be reflected in net income (accounting mismatch).
Investments for account of policyholders
Investments held for account of policyholders comprise assets that are linked to various insurance and investment contracts for which the financial risks are borne by the customer. Under the Groups accounting policies these insurance and investment liabilities are measured at the fair value of the linked assets with changes in the fair value recognized in the income statement. To avoid an accounting mismatch the linked assets have been designated as at fair value through profit or loss.
In addition, the investment for account of policyholders include with profit assets, where an insurer manages these assets together with related liabilities on a fair value basis in accordance with a documented policy of asset and liability management. In accordance with the Groups accounting policies, these assets have been designated as at fair value through profit or loss.
Investment contracts for account of policyholders
With the exception of the financial liabilities with discretionary participating features that are not subject to the classification and measurement requirements for financial instruments, all investment contracts for account of policyholders that are carried at fair value or at the fair value of the linked assets are included in the table above.
Derivatives
With the exception of derivatives designated as a hedging instrument, all derivatives held for general account and held for account of policyholders are included in the table above.
292 | Notes to the consolidated financial statements Note 48 |
Borrowings
Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (note 39 Borrowings).
Gains and losses recognized in the income statement on financial assets and financial liabilities classified as at fair value through profit or loss can be summarized as follows:
2015 | 2014 | |||||||||||||
Trading | Designated | Trading | Designated | |||||||||||
Net gains and (losses) |
(1,350 | ) | 1,228 | 8,160 | 4,839 |
No loans and receivables were designated at fair value through profit or loss.
Changes in the fair value of investment contracts for account of policyholders designated at fair value through profit or loss were not attributable to changes in Aegons credit spread. There are also no differences between the carrying amounts of these financial liabilities and the contractual amounts payable at maturity (net of surrender penalties).
Refer to note 39 Borrowings for the impact of Aegons own credit spread on the fair value of the borrowings designated at fair value through profit or loss.
48 Commitments and contingencies
Investments contracted
In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2016. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position.
2015 | 2014 | |||||||||||||
Purchase | Sale | Purchase | Sale | |||||||||||
Real estate |
- | 70 | - | 34 | ||||||||||
Mortgage loans |
488 | 56 | 388 | 60 | ||||||||||
Private loans |
98 | - | 122 | - | ||||||||||
Other |
670 | - | 422 | - |
Mortgage loans commitments represent undrawn mortgage loan facility provided and outstanding proposals on mortgages. The sale of mortgage loans relates to pre-announced redemptions on mortgage loans. Private loans represents deals on Aegons portfolio of private placement securities that Aegon has committed to, but have not yet settled and funded. Other commitments include future purchases of interests in investment funds and limited partnerships.
Other commitments and contingencies
2015 | 2014 | |||||||||
Guarantees |
708 | 732 | ||||||||
Standby letters of credit |
29 | 30 | ||||||||
Share of contingent liabilities incurred in relation to interests in joint ventures |
27 | 18 | ||||||||
Other guarantees |
24 | 22 | ||||||||
Other commitments and contingent liabilities |
20 | 25 |
Guarantees include those guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.
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Contractual obligations
An Aegon N.V. indirect US life subsidiary has a net worth maintenance agreement with its subsidiary Transamerica Life (Bermuda) Ltd, pursuant to which Transamerica Life Insurance Company, a US life insurance subsidiary, will provide capital sufficient to maintain a S&P AA financial strength rating and capital sufficient to comply with the requirements of the countries in which its branches are located.
Transamerica Corporation, a wholly-owned subsidiary of Aegon N.V., has provided a parental guarantee to TLIC Riverwood Reinsurance, Inc. (TRRI), an affiliated captive reinsurer, for the cash payments required fulfilling reinsurance payments to Transamerica Life Insurance Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As of December 31, 2015, this amounted to EUR 1,842 million (2014 EUR: 1,595 million).
Aegon N.V. entered into a contingent capital letter for an amount of JPY 7.5 billion (EUR 57 million) to support its joint venture Aegon Sony Life Insurance Company meeting local statutory requirements.
Aegon N.V. has guaranteed and is severally liable for the following:
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, 2015, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 3,750 million (2014: EUR 2,403 million); as of that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements for subsidiaries amounted to EUR 235 million (2014: EUR 114 million); as of that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2015 amounted to EUR 3,467 million (2014: EUR 3,099 million). As of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,448 million (2014: EUR 1,275 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line USD 1.54 billion Variable Funding Surplus Note; |
¿ | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 615 million (2014: EUR 552 million); and |
¿ | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2015. |
Legal and arbitration proceedings, regulatory investigations and actions
Aegon is involved in litigation in the ordinary course of business, including litigation where compensatory or punitive damages and mass or class relief are sought. Current and former customers, both institutional as well as individual, and groups representing customers, initiate litigation. Also, certain groups encourage others to bring lawsuits in respect of products. Aegon has established litigation policies to deal with claims, defending when the claim is without merit and seeking to settle in certain circumstances. There can be no assurances that Aegon will be able to resolve existing litigation in the manner it expects or that existing or future litigation will not result in unexpected liability.
Certain of the products we sell are complex and involve significant investment risks that may be passed on to Aegons customers. Aegon has, from time to time, received claims from certain current and former customers, and groups representing customers, in respect of certain products. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes as we believed appropriate.
In addition, the insurance industry has routinely been the subject of litigation, investigations, regulatory activity and challenges by various governmental and enforcement authorities and policyholder advocate groups involving wide-ranging subjects such as transparency of disclosure - issues and the charges included in products, employment or third party relationships, adequacy of internal operational controls and processes, environmental matters, anti-competition, privacy, information security and intellectual property infringement. For example, unclaimed property administrators and state insurance regulators performed examinations of the life insurance industry in the United States, including certain of Aegons subsidiaries. This included multi-state examinations. Additionally, some states conducted separate examinations or instituted separate enforcement actions under their unclaimed property laws and related claims settlement practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas initially established reserves to this
294 | Notes to the consolidated financial statements Note 48 |
matter in 2011, which have been partially released on a quarterly basis as policy level reconciliation efforts are completed, with a reserve of approximately EUR 16 million remaining at year end 2015. Like various other major insurers in the United States, Aegon subsidiaries in the United States entered into settlements with insurance regulators regarding claims settlement practices. While Aegon believes the reserves it has established for these unclaimed property matters are adequate to cover expected obligations, there can be no assurances that actual exposures will not exceed reserve amounts or that additional sources of liability related to those examinations or other unclaimed property-related matters will not arise in the future.
Aegon subsidiaries have received inquiries from local authorities and policyholder advocate groups in various jurisdictions including the United States, the United Kingdom and the Netherlands. In the normal course of business, reviews of processes and procedures are undertaken to ensure that customers have been treated fairly, and to respond to matters raised by policyholders and their representatives. There is a risk that Aegon is not able to resolve some or all such matters in the manner that it expects. In certain instances, Aegon subsidiaries modified business practices in response to such inquiries or the findings thereof. Regulators may seek fines or other monetary penalties or changes in the way Aegon conducts its business. For example, in 2014 the UK Financial Conduct Authority fined Aegon GBP 8.3 million for past sales practices related to accident insurance products sold by an affinity marketing unit that was active in several European countries and as to which Aegon elected to cease writing new business.
Aegon has defended and Aegon intends to continue defending itself vigorously when Aegon believes claims are without merit. Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in The Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the best of class principles of the Dutch Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply its principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition, Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. At the time of that acceleration, that decision was expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening (the Netherlands financial services industry ombudsman) supported the arrangements reached with customer interest groups, the public debate over the adequacy generally of these and other arrangements, as well as discussions in the Dutch Parliament, continue and may lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of these matters, including what actions, if any, Aegon may take in response thereto, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegons business, results of operations and financial position. For example, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten or AFM) issued a request to the insurance industry to contact certain customers to determine whether unit-linked products sold in the past, actually perform as originally contemplated. Aegon has actively responded to that request by contacting customers to assess the performance of these products in the context of the then current objectives of that customer and to solicit an informed decision by those customers whether or not to continue with, make changes to or terminate these products (activeren van klanten). This process is actively monitored by the AFM, including the percentage of customers contacted. Sanctions may be imposed if the AFM determines that an insurer did not conduct this process adequately as well as timely. The Dutch Parliament introduced specific legislation in this respect and closely monitors the process. Any changes in legislation, regulatory requirements or perceptions of commercial necessity may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
In general, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the level of fees and other charges included in products sold by the insurance industry (including Aegon), as well as the transparency of disclosure regarding such fees and charges and other product features and risks. In 2013, the Dutch Supreme Court denied Aegons appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the KoersPlan product. Between 1989 and 1998, Aegon issued, sold or advised on approximately 600,000 KoersPlan policies. In 2011, the Court of Appeal ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in those products. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to KoersPlan customers. As a result of the Dutch Supreme Courts denial of appeal, Aegon compensated the approximately 35,000 holders of KoersPlan products who were plaintiffs in the litigation and took a charge of EUR 25 million in 2013 in connection therewith. In 2014, Aegon announced that it would voluntarily compensate holders of KoersPlan products that were not plaintiffs in the litigation. The compensation amounts to the difference, if any, between the amount of premium charged by Aegon for a comparable risk in a product providing only death benefit coverage over the same period, and the premium
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(if higher) actually charged by Aegon in connection with the KoersPlan product. This voluntary product improvement was supported by the consumer interest group that initiated the court action over the KoersPlan product, Stichting Koersplandewegkwijt. This improvement was extended to all tontine saving plan products (Spaarkassen). However, another interest group, Stichting Woekerpolisproces, announced in 2014 that it expected in the future to file a claim in court against Aegon, alleging that the compensation is too low and should be paid not only to all KoersPlan policyholders, but also to all holders of other products sold by Aegon with a death benefit (and corresponding premium payment obligation). It is not yet possible to determine what actions, if any, Aegon may take in connection with any such expectations, or demands or claims, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegons business, results of operations and financial position.
Aegon expects this to remain an industry issue for the foreseeable future. In 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in The Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID filed by customers over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decisions would not have a material adverse effect on Aegons results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
In April 2015, the European Court of Justice ruled on preliminary questions raised in a court case pending before the District Court in Rotterdam against another insurance company in The Netherlands. The main preliminary question considered by the European Court of Justice was whether European law permits the application of information requirements based on general principles of Dutch law that potentially extend beyond information requirements as explicitly prescribed by local laws and regulations in force at the time the policy was written. The European Court ruled that member states may impose on insurers obligations of transparency of disclosure in addition to those existing under European law, provided that those additional obligations are sufficiently clear and concrete as well as known to an insurer in advance. The European Court has left it to the national court to decide in specific cases whether the obligations under Dutch law meet those principles. It is possible that a judgment, although it would address a question of legal principle only and would be rendered in a case against another insurer, may ultimately be used by plaintiffs against Aegon or to support potential claims against Aegon. Future claims based on emerging legal theories could have a material adverse effect on Aegons businesses, results of operations and financial condition.
Proceedings in which Aegon is involved
In March 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit-linked products that Aegon sold in the past, including products over which Aegon was involved in litigation in the past, like the KoersPlan product. While the number of products to which the claim may relate was reduced by the court in its interlocutory ruling of October 28, 2015, it still concerns the majority of Aegons unit-linked portfolio. The claim challenges a variety of elements of these products, on multiple legal grounds, including allegations made in earlier court cases. There can be no assurance that the claim from Vereniging Woekerpolis.nl may not ultimately have a material adverse effect on Aegons results of operations or financial position.
Holders of unit-linked policies filed claims in civil court against Aegon in Poland over the fees payable by a customer at the time of the initial purchase for certain products or retrospectively due on surrender for other products. While fees were explicitly disclosed to policyholders in policy documentation at the time of investment, the plaintiffs allege they are too high or that there is no contractual basis to charge fees altogether. In October 2014, the Polish Office of Competition and Consumer Protection fined Aegon for an amount of EUR 6 million in relation to its communication around early surrender fees. While this fine was not directly related to the civil claims, for reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the early surrender fee structure. Aegon recorded a charge of EUR 23 million in the fourth quarter of 2014 in connection therewith. In December 2015, Aegon reached a settlement with the Polish Office of Competition and Consumer Protection on reducing the fees payable by a customer at the time of the initial purchase, and took a related charge of EUR 11 million. There can be no assurances that ultimately the exposure to Aegon in connection with allegations such as those underlying the claims in Poland, would not have a material adverse effect on Aegons results of operations or financial position.
Aegon subsidiaries and other US industry participants have been named in representative and purported class action lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. Matters like these are being defended vigorously; however, at this time, due to the nature and the type of claims, it is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any. There can be no assurance that such claims may not have a material adverse effect on Aegons results of operations or financial position.
296 | Notes to the consolidated financial statements Note 49 |
Aegons US operations also face employment-related lawsuits from time to time. Aegon is defending a suit filed by self-employed independent insurance agents associated with one of Aegons financial marketing units who have claimed that they are, in fact, employees of the organization. While Aegon believes these independent contractors are not employees, if Aegon were not to prevail on that point, there can be no assurance that the outcome would not have a material effect on Aegons results of operations and financial condition. It is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any.
A former subsidiary of Transamerica Corporation was involved in a contractual dispute with a Nigerian travel broker over an alleged contract dispute that arose in 1976. That dispute was resolved in Delaware court for USD 235,000 plus interest. The plaintiff took the Delaware judgment relating to the 1976 dispute to a Nigerian court and alleged that it was entitled to approximately the same damages for 1977 through 1984 despite the absence of any contract relating to those years. The Nigerian court recently issued a judgment in favor of the plaintiff of the alleged actual damages as well as pre-judgment interest of approximately USD 120 million. Aegon believes the Nigerian court decided the matter incorrectly and intends to appeal the decision in Nigeria as well as to contest any effort by the plaintiff to collect on the judgment. Aegon has no material assets located in Nigeria.
Future lease payments
2015 | 2014 | |||||||||||||||||||
Future lease payments |
Not later than 1 year |
1-5 years |
Later than 5 years |
Not later than 1 year |
1-5 years | Later than 5 years |
||||||||||||||
Operating lease obligations |
79 | 186 | 254 | 79 | 170 | 231 | ||||||||||||||
Operating lease rights |
62 | 156 | 56 | 64 | 150 | 59 |
The operating lease obligations relate mainly to office space leased from third parties.
The operating lease rights relate to non-cancellable commercial property leases.
49 Transfers of financial assets
Transfers of financial assets occur when Aegon transfers contractual rights to receive cash flows of financial assets or when Aegon retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement.
In the normal course of business Aegon is involved in the following transactions:
¿ | Transferred financial assets that are not derecognized in their entirety: |
¿ | Securities lending; whereby Aegon legally (but not economically) transfers assets and receives cash and non-cash collateral. The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. The non-cash collateral is not recognized on the balance sheet; and |
¿ | Repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability. |
¿ | Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale); |
¿ | Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement; |
¿ | Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions; and |
¿ | Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions. |
The following disclosures provide details for transferred financial assets that are not derecognized in their entirety, transferred financial asset that are derecognized in their entirety, but where Aegon has a continuing involvement and assets accepted and pledged as collateral.
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49.1 Transferred financial assets that have not been derecognized in their entirety
The following table reflects the carrying amount of financial assets that have been transferred to another party in such a way that part or all of the transferred financial assets do not qualify for derecognition. Furthermore, it reflects the carrying amounts of the associated liabilities.
2015 | ||||||||||||||||
Available-for-sale financial assets |
Financial assets at fair value through profit or loss |
|||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of policyholders |
|||||||||||||
Carrying amount of transferred assets |
171 | 7,001 | 33 | 589 | ||||||||||||
Carrying amount of associated liabilities |
180 | 7,141 | 35 | 608 | ||||||||||||
2014 |
||||||||||||||||
Available-for-sale financial assets |
Financial assets at fair value through profit or loss |
|||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of policyholders |
|||||||||||||
Carrying amount of transferred assets |
250 | 7,840 | 24 | 645 | ||||||||||||
Carrying amount of associated liabilities |
264 | 7,999 | 25 | 660 |
Securities lending and repurchase activities
The table above includes financial assets that have been transferred to another party under securities lending and repurchase activities.
Aegon retains substantially all risks and rewards of those transferred assets, this includes credit risk, settlement risk, country risk and market risk. The assets are transferred in return for cash collateral or other financial assets. Non-cash collateral is not recognized in the statement of financial position. Cash collateral is recorded on the statement of financial position as an asset and an offsetting liability is established for the same amount as Aegon is obligated to return this amount upon termination of the lending arrangement. Cash collateral is usually invested in pre-designated high quality investments. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned. Refer to note 49.3 Assets accepted and note 49.4 Assets pledged for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements.
49.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement
Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirely as per year-end 2015 and 2014.
49.3 Assets accepted
Aegon receives collateral related to securities lending, reverse repurchase activities and derivative transactions. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
The following tables present the fair value of the assets received in relation to securities lending and reverse repurchase activities:
Securities lending | 2015 | 2014 | ||||||
Carrying amount of transferred financial assets |
6,069 | 6,966 | ||||||
Fair value of cash collateral received |
4,232 | 4,145 | ||||||
Fair value of non-cash collateral received |
1,998 | 2,457 | ||||||
Net exposure | (161 | ) | 364 | |||||
Non-cash collateral that can be sold or repledged in the absence of default |
1,390 | 1,689 | ||||||
Non-cash collateral that has been sold or transferred |
- | - |
298 | Notes to the consolidated financial statements Note 49 |
Reverse repurchase agreements | 2015 | 2014 | ||||||
Cash paid for reverse repurchase agreements |
4,416 | 4,722 | ||||||
Fair value of non-cash collateral received |
4,445 | 4,751 | ||||||
Net exposure | (29 | ) | (29 | ) | ||||
Non-cash collateral that can be sold or repledged in the absence of default |
3,462 | 3,877 | ||||||
Non-cash collateral that has been sold or transferred |
- | - |
The above items are conducted under terms that are usual and customary to standard securities lending activities, as well as requirements determined by exchanges where the bank acts as intermediary.
In addition, Aegon can receive collateral related to derivative transactions that it enters into. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. Refer to the credit risk section in note 4 Financial risks for details on collateral received for derivative transactions.
49.4 Assets pledged
Aegon pledges assets that are on its statement of financial position in securities borrowing transactions, in repurchase transactions, in derivative transactions and against long-term borrowings. In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral.
These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary.
Non-cash financial assets that are borrowed or purchased under agreement to resell are not recognized in the statement of financial position.
To the extent that cash collateral is paid, a receivable is recognized for the corresponding amount. If other non-cash financial assets are given as collateral, these are not derecognized.
The following tables present the carrying amount of collateral pledged and the corresponding amounts.
Assets pledged for general account and contingent liabilities | 2015 | 2014 | ||||||
General account (contingent) liabilities |
3,729 | 3,463 | ||||||
Collateral pledged |
5,348 | 4,469 | ||||||
Net exposure | (1,619 | ) | (1,006 | ) | ||||
Non-cash collateral that can be sold or repledged by the counterparty |
- | - | ||||||
Assets pledged for repurchase agreements | 2015 | 2014 | ||||||
Cash received on repurchase agreements |
1,728 | 1,758 | ||||||
Collateral pledged (transferred financial assets) |
1,724 | 1,793 | ||||||
Net exposure | 4 | (35 | ) |
As part of Aegons mortgage loan funding program in the Netherlands, EUR 6.4 billion (2014: EUR 8.2 billion) has been pledged as security for notes issued (note 39 Borrowings). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 1,166 million (2014: EUR 1,419 million).
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50 Offsetting, enforceable master netting arrangements and similar agreements
The following table provides details relating to the effect or potential effect of netting arrangements, including rights of set-off associated with the entitys recognized financial assets and recognized financial liabilities.
Related amounts not set off in position |
||||||||||||||||||||||||
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements |
|
Gross amounts of recognized financial assets |
|
|
Gross amounts of recognized financial liabilities set off in the statement of financial position |
|
|
Net amounts of financial assets presented in the statement of financial position |
|
|
Financial instruments |
|
|
Cash collateral received (excluding surplus collateral) |
|
|
Net amount |
| ||||||
2015 | ||||||||||||||||||||||||
Derivatives |
10,692 | - | 10,692 | 8,458 | 1,721 | 514 | ||||||||||||||||||
At December 31 | 10,692 | - | 10,692 | 8,458 | 1,721 | 514 | ||||||||||||||||||
2014 | ||||||||||||||||||||||||
Derivatives |
27,221 | 1 | 27,220 | 21,885 | 4,034 | 1,300 | ||||||||||||||||||
At December 31 | 27,221 | 1 | 27,220 | 21,885 | 4,034 | 1,300 | ||||||||||||||||||
Related amounts not set off in the statements of financial position |
||||||||||||||||||||||||
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements |
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial assets set off in the statement of financial position |
Net amounts of financial liabilities presented in the statement of financial position |
Financial instruments |
Cash collateral pledged (excluding surplus collateral) |
Net amount |
||||||||||||||||||
2015 | ||||||||||||||||||||||||
Derivatives |
8,336 | - | 8,336 | 7,905 | 190 | 240 | ||||||||||||||||||
At December 31 | 8,336 | - | 8,336 | 7,905 | 190 | 240 | ||||||||||||||||||
2014 | ||||||||||||||||||||||||
Derivatives |
22,638 | 1 | 22,637 | 21,542 | 198 | 897 | ||||||||||||||||||
At December 31 | 22,638 | 1 | 22,637 | 21,542 | 198 | 897 |
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis, or to realize the asset and settle the liability simultaneously.
Aegon mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in ISDA master netting agreements for each of the Aegons legal entities to facilitate Aegons right to offset credit risk exposure. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary.
300 | Notes to the consolidated financial statements Note 51 |
Acquisitions
2015
On June 4, 2015 Aegon completed a strategic asset management partnership with La Banque Postale. Under the terms of the agreement, Aegon has acquired a 25% stake in La Banque Postale Asset Management (LBPAM) for a consideration of EUR 117 million.
On September 25, 2015, Aegon announced that it has acquired Mercers US defined contribution record-keeping business. On December 31, 2015, Aegon completed the acquisition after obtaining regulatory approval. The total purchase price amounted to EUR 70 million (USD 78 million), consisting of EUR 64 million (USD 71 million) cash and EUR 6 million (USD 7 million) contingent consideration.
On December 7, 2015 Aegon announced that it has increased its investment in Aegon Religare Life Insurance Company ARLI from 26 percent to 49 percent. The company has been renamed as Aegon Life Insurance Company Ltd.
2014
There were no material acquisitions during 2014.
2013
On February 8, 2013, Aegon closed the acquisition of 100% of Fidem Life, a life insurance company in Ukraine. Fidem Life was rebranded Aegon Ukraine and is integrated into the governance and management structure of Aegon CEE.
Divestments/Disposals
2015
On March 3, 2015, Aegon completed the sale of its 35% share in La Mondiale Participations following the granting of approval by the French Competition Authority (Autorité de la Concurrence). The agreement to sell Aegons stake in La Mondiale Participations to La Mondiale for EUR 350 million was announced on November 24, 2014. Proceeds from the sale were added to Aegons excess capital buffer, and increased the groups Insurance Group Directive (IGD) solvency ratio by over 4 percentage points at the time of the sale.
On July 31, 2015, Aegon completed the sale of its Canadian life insurance business following regulatory approval. The agreement to sell Aegons Canadian life insurance business for an amount of CAD 600 million (EUR 428 million) was announced on October 16, 2014. The transaction resulted in a book loss of CAD 1,054 million (EUR 751 million) recorded and presented as part of other charges, please refer to Note 17 Other charges. Aegon used the proceeds of this transaction for the redemption of the USD 500 million 4.625% senior bond which was due in December 2015.
The results of the Canadian operations reflect amounts previously recorded in Other Comprehensive Income that were reclassified into the income statement including CAD 178 million (EUR 127 million) release of the foreign currency translation reserve, CAD (72) million (EUR (51) million) release of the net foreign investment hedging reserve and CAD 668 million (EUR 476 million) for the release of the available for sale reserve. The net cash proceeds were CAD 543 million (EUR 387 million) consisting of CAD 600 million (EUR 428 million) cash received and the cash and cash equivalents included in the sale of CAD 57 million (EUR 41 million). Expenses related to the transaction, including cost of sale, amounted to CAD 11 million (EUR 8 million).
On September 1, 2015, Aegon completed the sale of Clark Consulting following regulatory approval. The agreement to sell Clark Consulting for USD 177.5 million (EUR 160 million) was announced on July 10, 2015 and resulted in a gain of USD 8 million (EUR 7 million).
On September 7, 2015, Aegon completed the sale of its 25.1% share in platform provider and discretionary fund manager Seven Investment Management (7IM) for GBP 19 million (EUR 26 million). This transaction has led to a net gain of GBP 7 million (EUR 10 million). 7IM was recorded as an associate in the books of Aegon.
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2014
No divestments were completed in 2014.
2013
On June 12, 2013, Aegon UK announced the sale of national independent financial advisor (IFA) Positive Solutions to Intrinsic Financial Services. The loss on the sale amounted to EUR 22 million. The sale was completed in the third quarter of 2013.
On December 30, 2013, Aegon Czech Republic completed the sale of its local pension business. The consideration amounted to EUR 6 million and resulted in a book loss, in 2013, of EUR 7 million.
Subsidiaries
The principle subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings.
Americas
¿ | Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States); |
¿ | Transamerica Casualty Insurance Company, Columbus, Ohio (United States); |
¿ | Transamerica Corporation, Wilmington, Delaware (United States); |
¿ | Transamerica Financial Life Insurance Company, Inc., Albany, New York (United States); |
¿ | Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States); and |
¿ | Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States). |
Europe
The Netherlands
¿ | Aegon Bank N.V., Utrecht (the Netherlands); |
¿ | Aegon Hypotheken B.V., The Hague (the Netherlands); |
¿ | Aegon Levensverzekering N.V., The Hague (the Netherlands); |
¿ | Aegon Schadeverzekering N.V., The Hague (the Netherlands); |
¿ | Aegon Spaarkas N.V., The Hague (the Netherlands); |
¿ | Optas Pensioenen N.V., Rotterdam (the Netherlands); |
¿ | TKP Pensioen B.V., Groningen (the Netherlands); and |
¿ | Unirobe Meeùs Groep B.V., The Hague (the Netherlands). |
United Kingdom
¿ | Origen Financial Services Ltd., London (United Kingdom); |
¿ | Scottish Equitable plc, Edinburgh (United Kingdom); |
Central & Eastern Europe
¿ | Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Hungary); |
¿ | Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Poland); |
¿ | Private Joint Stock Company Insurance Company Aegon Life Ukraine, Kiev (Ukraine); |
Spain & Portugal
¿ | Aegon España S.A., Madrid (Spain) (99.98%); |
Asia
¿ | Transamerica Life (Bermuda) Ltd., Hamilton, Bermuda. |
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague. Aegon N.V. has issued a statement of liability as meant in article 403 of Book 2 of the Dutch Civil Code for its subsidiary company Aegon Derivatives N.V.
302 | Notes to the consolidated financial statements Note 53 |
Joint ventures
The principal joint ventures are listed by geographical segment.
Europe
Netherlands
¿ | AMVEST Vastgoed B.V., Utrecht (the Netherlands), (50%). |
Spain & Portugal
¿ | Aegon Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), (51%); |
¿ | Aegon Santander Portugal Vida Companhia de Seguros de Vida S.A., Lisbon (Portugal), (51%); |
¿ | Aegon Santander Portugal Não Vida Companhia de Seguros S.A., Lisbon (Portugal), (51%); |
¿ | Aegon Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), (51%); |
¿ | Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain) (50%). |
Asia
¿ | Aegon Industrial Fund Management Co., Ltd, Shanghai (China), (49%); |
¿ | Aegon Sony Life Insurance Co, Tokyo (Japan), (50%); and |
¿ | Aegon-THTF Life Insurance Company Ltd, Shanghai (China), (50%). |
Refer to note 25 Investments in joint ventures for further details on these investments.
Investments in associates
The principal investments in associates are listed by geographical segment.
Americas
¿ | Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), (50%). |
Europe
¿ | N.V. Levensverzekering-Maatschappij De Hoop, The Hague (the Netherlands), (33.3%); |
¿ | La Banque Postale Asset Management, Paris (France), (25%); and |
¿ | Tenet Group Limited, Leeds (United Kingdom), (22%). |
Asia
¿ | Aegon Life Insurance Company, Mumbai (India), (49%). |
Refer to note 26 Investments in associates for further details on these investments.
In the normal course of business, Aegon enters into various transactions with related parties. Parties are considered to be related if one party has the ability to control or exercise significant influence over the other party in making financial or operating decisions. Related parties of Aegon include, amongst others, its associates, joint ventures, key management personnel and the defined benefit and contribution plans. Transactions between related parties have taken place on an arms length basis. Transactions between Aegon and its subsidiaries that are deemed related parties have been eliminated in the consolidation and are not disclosed in the notes.
Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon.
On November 13, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 760 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by a correction to Aegons issuance of shares on May 21, 2015, in connection with the Long Term Incentive Plans for senior management.
On May 21, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,000 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by issuance of shares on May 21, 2015, in connection with the Long Term Incentive Plans for senior management.
|
Supplemental Annual Report 2015 |
303
On January 1, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 9,680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by issuance of shares on January 1, 2015, in connection with the Long Term Incentive Plans for senior management.
On May 22, 2014, and with effect of May 21, 2014, Vereniging Aegon exercised its options rights to purchase in aggregate 2,320,280 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
On July 5, 2013, and with effect of June 14, 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend.
On May 29, 2013, the Articles of Association of Aegon N.V. were amended, which included the conversion of all outstanding 329,773,000 preferred shares A and B with a nominal value of EUR 0.25 each, all owned by Vereniging Aegon, into 120,713,389 common shares and 566,313,694 common shares B with a nominal value of EUR 0.12 each. The financial rights attached to a common share B was determined at 1/40th of the financial rights attached to a common share, (see also the section Major Shareholders).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into an amendment of the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option on common shares B to keep or restore its total stake at 32.6% irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6% (see also the section Major Shareholders).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into a Voting Rights Agreement, which ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and only one vote for every 40 common shares B it holds, (see also the section Major Shareholders).
On February 15, 2013, Aegon N.V. and Vereniging Aegon reached an agreement to simplify the capital structure of Aegon N.V. and to exchange all of Aegons preferred shares for cash and common shares, subject to approval by the Annual General Meeting of Shareholders, which was given on May 15, 2013.
Remuneration of members of the Management Board
The Management Board, which assists the Executive Board in pursuing Aegons strategic goals, is formed by members of the Executive Board, the CEOs of Aegon USA, Aegon the Netherlands, Aegon UK and Aegon Central & Eastern Europe, and Aegons Chief Risk Officer. The total remuneration for the members of the Management Board over 2015 was EUR 15.2 million (2014: EUR 14.9 million; 2013: EUR 15.2 million), consisting of EUR 6.3 million (2014: EUR 5.1 million; 2013: EUR 5.0 million) fixed compensation, EUR 4.9 million variable compensation awards (2014: EUR 5.2 million; 2013: EUR 6.3 million), EUR 1.6 million (2014: EUR 2.0 million; 2013: EUR 1.3 million) other benefits and EUR 2.5 million (2014: EUR 2.6 million; 2013: EUR 1.6 million) pension premiums.
In 2013 a special tax-levy (crisis tax), as introduced by the Dutch government, was accrued for members of the Management Board employed in the Netherlands. In 2013 this amounted to EUR 1.0 million. The special tax levy is no longer applicable as from 2014. Expenses as recognized under IFRS in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19. IFRS expenses related to variable compensation amounted to EUR 5.0 million (2014: EUR 5.6 million; 2013: EUR 6.3 million) and EUR 3.4 million (2014: EUR 2.0 million; 2013: EUR 1.7 million) for pensions.
Additional information on the remuneration and share-based compensation of members of the Executive Board and the remuneration of the Supervisory Board is disclosed in the sections below (all amounts in EUR 000, except where indicated otherwise).
304 | Notes to the consolidated financial statements Note 53 |
Remuneration of members of the Executive Board
The information below reflects the compensation and various related expenses for members of the Executive Board. Under the current remuneration structure, rewards are paid out over a number of years, or in the case of shares, vest over a number of years. This remuneration structure has made it more relevant to present rewards earned during a certain performance year instead of what was received in a certain year.
Fixed compensation
In EUR thousand | 2015 | 2014 | 2013 | |||||||||
Alexander R. Wynaendts |
1,154 | 1,154 | 1,049 | |||||||||
Darryl D. Button 1) |
991 | 753 | 475 | |||||||||
Jan J. Nooitgedagt 2) |
- | - | 434 | |||||||||
Total fixed compensation |
2,145 | 1,907 | 1,958 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board on May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board. In his position as CFO and member of Aegons Executive Board Mr. Button earned in 2015 an annual base salary of USD 1.1 million (2014: USD 1.0 million; 2013: USD 0.6 million). Amounts are based on USD, converted to EUR, based on annual average exchange rates. |
2 | Mr. Nooitgedagts fixed compensation is reflective of his time with Aegon until retirement as of August 1, 2013. |
Conditional variable compensation awards
In EUR thousand | 2015 | 2014 | 2013 | |||||||||
Alexander R. Wynaendts |
923 | 913 | 1,032 | |||||||||
Darryl D. Button 1) |
784 | 600 | 468 | |||||||||
Jan J. Nooitgedagt 2) |
- | - | 434 | |||||||||
Total conditional variable compensation awards |
1,707 | 1,513 | 1,934 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board on May 15, 2013. Conditional variable compensation is disclosed for the period that Mr. Button has been part of the Executive Board. Amounts are based on USD, converted to EUR, based on annual average exchange rates. |
2 | Mr. Nooitgedagts conditional variable compensation is reflective of his time with Aegon until retirement as of August 1, 2013. |
The amounts in the table represent the conditional variable compensation awards earned during the related performance year. Expenses recognized under IFRS accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2015 and previous performance years, expenses under IFRS for Mr. Wynaendts amounted to EUR 900 (2014: EUR 958; 2013: EUR 1,026).
For Mr. Button, the expenses under IFRS with regard to conditionally awarded cash and shares recognized in the income statement during the performance year 2015 for his role as CFO and member of Aegons Executive Board amounted to EUR 683 (2014: EUR 466; 2013: EUR 288). In performance year 2013 and previous performance years Mr. Button has been awarded with variable compensation in his role as CFO of Americas and Head of Corporate Financial Center. The related expenses under IFRS for those awards recognized in 2015 for the period that Mr. Button has been part of the Executive Board amount to EUR 312 (2014: EUR 372; 2013: EUR 500).
In 2013, expenses recognized in the income statement for Mr. Nooitgedagt amounted to EUR 836. Under IFRS, expenses related to conditional variable compensation awards are recognized in full at retirement date. Therefore, expenses under IFRS in 2013 for Mr. Nooitgedagt relate to the conditional variable compensation awards for the performance year 2013 as well as for previous performance years. The vesting conditions and applicable holding periods for the awards of Mr. Nooitgedagt remain nevertheless unchanged. Mr. Nooitgedagt retired on August 1, 2013 and he has been awarded no variable compensation in 2015 or 2014.
2015
Over the performance year 2015, Mr. Wynaendts was awarded EUR 923 in total conditional variable compensation. Mr. Button was awarded EUR 784.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2015, 40% is payable in 2016. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 185 and EUR 157 respectively. The number of shares to be made available in 2016 relating to performance year 2015 is 30,219 and 23,621 for Mr. Wynaendts and Mr. Button respectively. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a future three years, before they are at the disposal of the Executive Board members.
|
Supplemental Annual Report 2015 |
305
The remaining part of variable compensation for the performance year 2015 (60%), for Mr. Wynaendts EUR 277 and 45,330 shares and for Mr. Button EUR 235 and 35,433 shares, is to be paid out in equal portions in 2017, 2018 and 2019, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. The vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
2014
Over the performance year 2014, Mr. Wynaendts was awarded EUR 913 in total conditional variable compensation. Mr. Button was awarded EUR 600.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2014, 40% was payable in 2015. Accordingly, Mr. Wynaendts and Mr. Button received a cash payment of EUR 183 and EUR 120 respectively. The number of shares made available in 2015 relating to performance year 2014 was 27,105 and 17,302 for Mr. Wynaendts and Mr. Button respectively. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a future three years, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2014 (60%), for Mr. Wynaendts EUR 274 and 40,656 shares and for Mr. Button EUR 180 and 25,956 shares, is to be paid out in equal portions in 2016, 2017 and 2018, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. The vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members
2013
During the performance year 2013, Mr. Wynaendts was awarded EUR 1,032 in total conditional variable compensation. Mr. Button was awarded EUR 468 for the period he served as member of the Executive Board.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013, 40% was payable in 2014. Accordingly, Mr. Wynaendts and Mr. Button received a cash payment of EUR 206 and EUR 94 respectively. The number of shares that was made available in 2014 related to performance year 2013 was 41,961 and 19,146 for Mr. Wynaendts and Mr. Button respectively. The vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2013 (60%), for Mr. Wynaendts EUR 309 and 62,943 shares and for Mr. Button EUR 140 and 28,716 shares, is to be paid out in equal portions in 2015, 2016 and 2017, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a further three years, before they are at the disposal of the Executive Board members.
Mr. Nooitgedagt was awarded EUR 434 variable compensation for the period he served as a member of the Executive Board in 2013. Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013, 40% was payable in 2014. Accordingly, Mr. Nooitgedagt received a cash payment of EUR 87. The number of shares to be made available in 2014 related to performance year 2013 is 17,650. Of the remaining 60%, EUR 130 and 26,478 shares is to be paid out in future years and subject to ex-post assessments, which may result in downward adjustments. In each of the years 2015, 2016 and 2017, equal portions of the deferred variable compensation over 2013 may be made available. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt.
306 | Notes to the consolidated financial statements Note 53 |
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned:
Conditional granted performance related remuneration |
Timing of vesting, subject to targets and conditions | |||||||||||||||||||||||||||||||
Shares by reference period | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |||||||||||||||||||||||||
Alexander R. Wynaendts |
||||||||||||||||||||||||||||||||
2007 |
|
9253 6) |
|
|
- |
|
|
- |
|
|
- |
|
|
9,253 |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
2010-2012 |
|
112,0407) |
|
|
112,0407) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20111) |
|
51,912 |
|
|
17,304 |
|
|
17,304 |
|
|
17,304 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20122) |
|
162,776 |
|
|
65,111 |
|
|
32,555 |
|
|
32,555 |
|
|
32,555 |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20133) |
|
104,904 |
|
|
- |
|
|
41,961 |
|
|
20,981 |
|
|
20,981 |
|
|
20,981 |
|
|
- |
|
|
- |
| ||||||||
20144) |
|
67,761 |
|
|
- |
|
|
- |
|
|
27,105 |
|
|
13,552 |
|
|
13,552 |
|
|
13,552 |
|
|
- |
| ||||||||
20155) |
|
75,549 |
|
|
- |
|
|
- |
|
|
- |
|
|
30,219 |
|
|
15,110 |
|
|
15,110 |
|
|
15,110 |
| ||||||||
Total number of shares | 584,195 | 194,455 | 91,820 | 97,945 | 106,560 | 49,643 | 28,662 | 15,110 | ||||||||||||||||||||||||
Darryl D. Button |
||||||||||||||||||||||||||||||||
20133) |
|
47,862 |
|
|
- |
|
|
19,146 |
|
|
9,572 |
|
|
9,572 |
|
|
9,572 |
|
|
- |
|
|
- |
| ||||||||
20144) |
|
43,258 |
|
|
- |
|
|
- |
|
|
17,302 |
|
|
8,652 |
|
|
8,652 |
|
|
8,652 |
|
|
- |
| ||||||||
20155) |
|
59,054 |
|
|
- |
|
|
- |
|
|
- |
|
|
23,621 |
|
|
11,811 |
|
|
11,811 |
|
|
11,811 |
| ||||||||
Total number of shares | 150,174 | - | 19,146 | 26,874 | 41,845 | 30,035 | 20,463 | 11,811 | ||||||||||||||||||||||||
Jan J. Nooitgedagt |
||||||||||||||||||||||||||||||||
2010-2012 |
|
82,4277) |
|
|
82,4277) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20111) |
|
33,750 |
|
|
11,250 |
|
|
11,250 |
|
|
11,250 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20122) |
|
111,851 |
|
|
44,741 |
|
|
22,370 |
|
|
22,370 |
|
|
22,370 |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
20133) |
|
44,128 |
|
|
- |
|
|
17,650 |
|
|
8,826 |
|
|
8,826 |
|
|
8,826 |
|
|
- |
|
|
- |
| ||||||||
Total number of shares | 272,156 | 138,418 | 51,270 | 42,446 | 31,196 | 8,826 | - | - | ||||||||||||||||||||||||
Cash (in EUR) |
||||||||||||||||||||||||||||||||
Alexander R. Wynaendts |
||||||||||||||||||||||||||||||||
2011 |
|
245,385 |
|
|
81,795 |
|
|
81,795 |
|
|
81,795 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
2012 |
|
508,840 |
|
|
203,536 |
|
|
101,768 |
|
|
101,768 |
|
|
101,768 |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
2013 |
|
515,816 |
|
|
- |
|
|
206,327 |
|
|
103,163 |
|
|
103,163 |
|
|
103,163 |
|
|
- |
|
|
- |
| ||||||||
2014 |
|
456,643 |
|
|
- |
|
|
- |
|
|
182,656 |
|
|
91,329 |
|
|
91,329 |
|
|
91,329 |
|
|
- |
| ||||||||
2015 |
|
461,305 |
|
|
- |
|
|
- |
|
|
- |
|
|
184,522 |
|
|
92,261 |
|
|
92,261 |
|
|
92,261 |
| ||||||||
Total cash | 2,187,989 | 285,331 | 389,890 | 469,382 | 480,782 | 286,753 | 183,590 | 92,261 | ||||||||||||||||||||||||
Darryl D. Button |
||||||||||||||||||||||||||||||||
2013 |
|
233,834 |
|
|
- |
|
|
93,533 |
|
|
46,767 |
|
|
46,767 |
|
|
46,767 |
|
|
- |
|
|
- |
| ||||||||
2014 |
|
300,120 |
|
|
- |
|
|
- |
|
|
120,048 |
|
|
60,024 |
|
|
60,024 |
|
|
60,024 |
|
|
- |
| ||||||||
2015 |
|
392,154 |
|
|
- |
|
|
- |
|
|
- |
|
|
156,862 |
|
|
78,431 |
|
|
78,431 |
|
|
78,431 |
| ||||||||
Total cash | 926,108 | - | 93,533 | 166,815 | 263,653 | 185,222 | 138,455 | 78,431 | ||||||||||||||||||||||||
Jan J. Nooitgedagt |
||||||||||||||||||||||||||||||||
2011 |
|
159,540 |
|
|
53,180 |
|
|
53,180 |
|
|
53,180 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
2012 |
|
349,646 |
|
|
139,859 |
|
|
69,929 |
|
|
69,929 |
|
|
69,929 |
|
|
- |
|
|
- |
|
|
- |
| ||||||||
2013 |
|
216,980 |
|
|
- |
|
|
86,792 |
|
|
43,396 |
|
|
43,396 |
|
|
43,396 |
|
|
- |
|
|
- |
| ||||||||
Total cash | 726,166 | 193,039 | 209,901 | 166,505 | 113,325 | 43,396 | - | - |
1 | The number of shares is based on a volume weighted average price of EUR 4.727. After vesting a 3 year holding period applies to shares vested. |
2 | The number of shares is based on a volume weighted average price of EUR 3.126. After vesting a 3 year holding period applies to shares vested. |
3 | The number of shares is based on a volume weighted average price of EUR 4.917. After vesting a 3 year holding period applies to shares vested. |
4 | The number of shares is based on a volume weighted average price of EUR 6.739. After vesting a 3 year holding period applies to shares vested. |
5 | The number of shares is based on a volume weighted average price of EUR 6.106 After vesting a 3 year holding period applies to shares vested. |
6 | During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% will vest in 2016. |
7 | These shares vested in 2013 on basis of actual realized performance and are subject to an additional two year holding period. |
|
Supplemental Annual Report 2015 |
307
Other benefits
In EUR thousand | 2015 | 2014 | 2013 | |||||||||
Alexander R. Wynaendts |
151 | 151 | 132 | |||||||||
Darryl D. Button 1) |
|
528 |
|
|
583 |
|
|
508 |
| |||
Jan J. Nooitgedagt 2) |
|
- |
|
|
- |
|
|
40 |
| |||
Total other benefits | 679 | 734 | 680 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board on May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts other benefits are reflective of his time with Aegon until retirement as of August 1, 2013. |
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group. For Mr. Button, these benefits also include expenses related to his expatriation from the United States to the Netherlands, borne by the Group.
Pension contributions
In EUR thousand | 2015 | 2014 | 2013 | |||||||||
Alexander R. Wynaendts |
1,219 | 1,728 | 652 | |||||||||
Darryl D. Button 1) |
|
215 |
|
|
177 |
|
|
114 |
| |||
Jan J. Nooitgedagt 2) |
|
- |
|
|
- |
|
|
106 |
| |||
Total pension contributions | 1,434 | 1,905 | 872 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board on May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts pension contributions are reflective of his time with Aegon until retirement as of August 1, 2013. |
The amounts as presented in the table are the pension contributions in the related book year. The 2015 number is determined by significant changes to the Dutch fiscal regime for pension contributions as well as contractual changes to the pension arrangements of Mr. Wynaendts upon his reappointment. The 2014 contribution for Mr. Wynaendts to the Aegon pension funds reflects the increase to his fixed salary as well the current low interest rates. Under IFRS, the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amounted to EUR 1,962 (2014: EUR 951; 2013: EUR 736). Service cost for Mr. Button amounted to EUR 215 (2014: EUR 177; 2013: EUR 114) and for Jan J. Nooitgedagt EUR 44 in 2013.
Total
The total amount of remuneration for Mr. Wynaendts related to 2015 was EUR 3,446 (2014: EUR 3,947; 2013: EUR 3,282), for Mr. Button EUR 2,518 (2014: EUR 2,113; 2013: EUR 1,619) and for Mr. Nooitgedagt EUR nil (2014: nil; 2013: EUR 1,203). The remuneration of Mr. Button is charged from his home country to The Netherlands. These charges are subject to Dutch VAT, which is an expense for Aegon. The amount of VAT liable over 2015 is EUR 529 (2014: EUR 444, 2013: EUR 329). The special tax-levy (crisis tax), as introduced by the Dutch government for Dutch employees, is no longer applicable as from 2014. The special tax-levy caused an increase of Aegons total remuneration for Alexander R. Wynaendts of EUR 417 in 2013, for Darryl D. Button EUR 54 in 2013 (disclosed for the period that Mr. Button has been part of the Executive Board) and for Jan J. Nooitgedagt EUR 190 in 2013. The total remuneration for the members of the Executive Board over 2015 was EUR 6.0 million (2014: EUR 6.1 million; 2013: EUR 5.4 million). Total expenses recognized under IFRS accounting treatment in the income statement for Mr. Wynaendts related to 2015 was EUR 4,167 (2014: EUR 3,214; 2013: EUR 3,360), for Mr. Button EUR 2,946 (2014: EUR 2,750; 2013: EUR 1,939) and for Mr. Nooitgedagt nil (2014: nil; 2013: EUR 1,544). Total IFRS expenses for the members of the Executive Board over 2015 was EUR 7,114 million (2014: EUR 5,964 million; 2013: 6,578 million).
Interests in Aegon N.V. held by active members of the Executive Board
Shares held in Aegon at December 31, 2015 by Mr. Wynaendts and Mr. Button amount to 346,301 and 162,469 (2014: 295,734 and 82,340) respectively. For each of the members of the Executive Board, the shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the balance sheet date.
At the balance sheet date, Mr. Wynaendts had mortgage loans with Aegon totaling EUR 249,158 (2014: EUR 735,292) with an interest rate of 4.4%. In 2015 Mr. Wynaendts made repayments totaling to EUR 486,134 relating to his mortgage loans. No other outstanding balances such as loans, guarantees or advanced payments exist.
308 | Notes to the consolidated financial statements Note 53 |
Remuneration of active and retired members of the Supervisory Board
In EUR | 2015 | 2014 | 2013 | |||||||||
Robert J. Routs |
143,000 | 134,000 | 140,000 | |||||||||
Irving W. Bailey, II |
|
135,000 |
|
|
122,750 |
|
|
136,250 |
| |||
Robert W. Dineen (as of May 21, 2014) |
|
121,000 |
|
|
70,125 |
|
|
- |
| |||
Shemaya Levy |
|
101,000 |
|
|
94,125 |
|
|
112,000 |
| |||
Ben J. Noteboom (as of May 20, 2015) |
|
69,250 |
|
|
- |
|
|
- |
| |||
Ben van der Veer |
|
115,000 |
|
|
104,125 |
|
|
105,000 |
| |||
Dirk P.M. Verbeek |
|
112,125 |
|
|
92,000 |
|
|
105,000 |
| |||
Corien M. Wortmann-Kool (as of May 21, 2014) |
|
96,000 |
|
|
55,250 |
|
|
- |
| |||
Dona D. Young (as of May 15, 2013) |
|
121,000 |
|
|
118,000 |
|
|
77,125 |
| |||
Total for active members | 1,013,375 | 790,375 | 675,375 | |||||||||
Antony Burgmans (up to April 1, 2014) |
- | 15,000 | 87,000 | |||||||||
Karla M.H. Peijs (up to September 30, 2013) |
|
- |
|
|
- |
|
|
71,500 |
| |||
Kornelis J. Storm (up to May 21, 2014) |
|
- |
|
|
33,750 |
|
|
91,000 |
| |||
Leo M. van Wijk (up to May 20, 2015) |
|
38,625 |
|
|
86,000 |
|
|
97,000 |
| |||
Total remuneration | 1,052,000 | 925,125 | 1,021,875 | |||||||||
VAT liable on Supervisory Board remuneration |
220,920 | 194,276 | 200,981 | |||||||||
Total | 1,272,920 | 1,119,401 | 1,222,856 |
Aegons Supervisory Board members are entitled to the following:
¿ | A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings (2015: 7 meetings; 2014: 7 meetings; 2013: 7 meetings); |
¿ | An attendance fee of EUR 3,000 for each extra Board meeting attended, be it in person or by video and/or telephone conference; |
¿ | A committee fee for members on each of the Supervisory Boards Committees; |
¿ | An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and |
¿ | An additional fee for attending meetings that require intercontinental travel between the Supervisory Board members home location and the meeting location. |
Not included in the table above is a premium for state health insurance paid on behalf of Dutch Supervisory Board members. There are no outstanding balances such as loans, guarantees or advanced payments. The remuneration for Supervisory Board members is as of 2013 Dutch VAT liability compliant.
Common shares held by Supervisory Board members
Shares held in Aegon at December 31 | 2015 | 2014 | ||||||
Irving W. Bailey, II |
31,389 | 31,389 | ||||||
Ben J. Noteboom |
|
23,500 |
|
|
- |
| ||
Ben van der Veer |
|
1,450 |
|
|
1,450 |
| ||
Dirk P.M. Verbeek |
|
1,011 |
|
|
1,011 |
| ||
Dona D. Young |
|
13,260 |
|
|
13,260 |
| ||
Total | 70,610 | 47,110 |
Shares held by Supervisory Board members are only disclosed for the period for which they have been part of the Supervisory Board.
|
Supplemental Annual Report 2015 |
309
54 Events after the balance sheet date
On January 13, 2016, Aegon announced to repurchase EUR 400 million worth of common shares in 2016, of which a first tranche of EUR 200 million will be repurchased before March 31, 2016. These shares will be repurchased to neutralize the dilutive effect of the cancellation of the preferred shares in 2013. It will be proposed to shareholders at their next Annual General Meeting on May 20, 2016, to cancel any repurchased shares under this program. The shares will be repurchased at or below the daily volume-weighted average price.
On January 18, 2016 Aegon the Netherlands signed an agreement to sell its commercial non-life insurance business, which includes the proxy and co-insurance run-off portfolios, will be sold to Allianz Benelux. This sale is expected to be completed before July 1, 2016. This transaction follows the announcement last year that the commercial line of Aegon the Netherlands was no longer strategically core to the companys non-life business, and that Aegon the Netherlands will continue to invest in income protection and retail non-life insurance. The transaction is still subject to approval by the Dutch Central Bank (De Nederlandsche Bank) and the Dutch Authority for Consumers and Markets (Autoriteit Consument & Markt).
The Hague, the Netherlands, March 25, 2016
Supervisory Board | Executive Board |
|||||
Robert J. Routs | Alexander R. Wynaendts |
|||||
Irving W. Bailey, II |
Darryl D. Button |
|||||
Robert W. Dineen |
||||||
Shemaya Levy |
||||||
Ben J. Noteboom |
||||||
Ben van der Veer |
||||||
Dirk P.M. Verbeek |
||||||
Corien M. Wortmann-Kool |
||||||
Dona D. Young |
310 | Financial statements of Aegon N.V. |
|
Supplemental Annual Report 2015 |
311
Income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2015 | 2014 | ||||||
Net income group companies |
(394 | ) | 787 | |||||
Other income / (loss) |
|
(38 |
) |
|
(22 |
) | ||
Net income / (loss) | (432 | ) | 765 |
312 | Financial statements of Aegon N.V. |
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | Note | 2015 | 2014 | |||||||||
Investments | ||||||||||||
Shares in group companies |
|
3 |
|
|
23,992 |
|
|
27,182 |
| |||
Loans to group companies |
|
4 |
|
|
4,529 |
|
|
4,016 |
| |||
Other investments |
|
5 |
|
|
- |
|
|
95 |
| |||
28,521 | 31,293 | |||||||||||
Receivables | 6 | |||||||||||
Receivables from group companies |
|
591 |
|
|
1,171 |
| ||||||
Other receivables |
|
63 |
|
|
93 |
| ||||||
654 | 1,264 | |||||||||||
Other assets | ||||||||||||
Cash and cash equivalents |
|
309 |
|
|
655 |
| ||||||
Other
|
|
7 |
|
|
111 |
|
|
377 |
| |||
420 | 1,032 | |||||||||||
Prepayments and accrued income | ||||||||||||
Accrued interest and rent |
|
20 |
|
|
32 |
| ||||||
Total assets | 29,615 | 33,621 | ||||||||||
Shareholders equity | ||||||||||||
Share capital |
|
8 |
|
|
328 |
|
|
327 |
| |||
Paid-in surplus |
|
9 |
|
|
8,059 |
|
|
8,270 |
| |||
Revaluation account |
|
9 |
|
|
6,551 |
|
|
8,335 |
| |||
Remeasurement of defined benefit plans of group companies |
|
9 |
|
|
(1,532 |
) |
|
(1,611 |
) | |||
Legal reserves foreign currency translation reserve |
|
9 |
|
|
1,264 |
|
|
(114 |
) | |||
Legal reserves in respect of group companies |
|
9 |
|
|
1,048 |
|
|
2,542 |
| |||
Retained earnings, including treasury shares |
|
9 |
|
|
7,154 |
|
|
5,333 |
| |||
Net income / (loss) |
|
9 |
|
|
(432 |
) |
|
765 |
| |||
22,441 | 23,847 | |||||||||||
Other equity instruments |
|
10 |
|
|
3,800 |
|
|
3,827 |
| |||
Total equity | 26,241 | 27,674 | ||||||||||
Subordinated borrowings | 11 | 759 | 747 | |||||||||
Long-term borrowings | 12 | 1,458 | 1,827 | |||||||||
Other liabilities | 13 | |||||||||||
Short term deposits |
|
125 |
|
|
124 |
| ||||||
Loans from group companies |
|
360 |
|
|
496 |
| ||||||
Payables to group companies |
|
337 |
|
|
2,201 |
| ||||||
Deferred tax liability |
|
142 |
|
|
87 |
| ||||||
Other |
|
165 |
|
|
435 |
| ||||||
1,129 | 3,343 | |||||||||||
Accruals and deferred income |
|
29 |
|
|
30 |
| ||||||
Total equity and liabilities | 29,615 | 33,621 |
|
Supplemental Annual Report 2015 |
313
Notes to the financial statements
Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Aegon N.V. (or the Company) and its subsidiaries (Aegon or the Group) have life insurance and pensions operations in over 25 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs over 31,500 people worldwide (2014: over 28,000).
2 Summary of significant accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with accounting principles in the Netherlands as embodied in Part 9 of Book 2 of the Netherlands Civil Code. Based on article 2:362.8 of the Netherlands Civil Code, the valuation principles applied are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), as used for the preparation of the consolidated financial statements of the Group.
With regard to the income statement of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
2.2 Foreign exchange translation
Aegon N.V.s financial statements are prepared in euros, which is also Aegon N.V.s functional currency. The euro is also the currency of the primary economic environment in which Aegon N.V. operates. Each company in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction.
At the balance sheet date, monetary assets, monetary liabilities and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, while assets carried at fair value are translated at the exchange rate when the fair value was determined.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in equity or the income statement, consistently with other gains and losses on these items.
2.3 Offsetting of assets and liabilities
Financial assets and liabilities are offset in the statement of financial position when Aegon N.V. has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterpart.
2.4 Investments
The group companies are stated at their net asset value, determined on the basis of IFRS as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements.
Other investments are financial assets recognized on the trade date when the Group becomes a party to the contractual provisions of the instrument and are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased. They are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in equity.
314 | Notes to the financial statements of Aegon N.V. Note 2 |
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arms length transaction. For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash collateral received, on which interest is accrued.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash (collateral) paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure defaults. When cash collateral is recognized, a liability is recorded for the same amount.
2.5 Derivatives
All derivatives are recognized on the statement of financial position at fair value. All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net foreign investment. Derivatives with positive fair values are reported as other assets and derivatives with negative values are reported as other liabilities.
2.6 Cash and cash equivalents
Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments generally with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
2.7 Other assets and receivables
Other assets include fixed assets, derivatives with positive fair values, other receivables and prepaid expenses. Other receivables are recognized at fair value and are subsequently measured at amortized cost.
2.8 Impairment of assets
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually. For assets denominated in a foreign currency, a decline in the foreign exchange rates is considered an indication of impairment.
2.9 Equity
Financial instruments that are issued by the Company are classified as equity if they represent a residual interest in the assets of the Company after deducting all of its liabilities and the Company has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares and preferred shares, the Company has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
|
Supplemental Annual Report 2015 |
315
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that are directly attributable to the issuing or buying back of the compound instruments are recognized proportionate to the equity component and liability component, net of tax.
Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Revaluation account includes unrealized gains and losses on available-for-sales assets and the positive changes in value that have been recognized in net income/(loss) relating to investments (including real estate) and which do not have a frequent market listing.
Legal reserves in respect of group companies include net increases in net asset value of subsidiaries and associates since their first inclusion, less any amounts that can be distributed without legal restrictions.
Treasury shares are own equity instruments reacquired by the Group. They are deducted from shareholders equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
2.10 Borrowings
A financial instrument issued by the Company is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Company.
Borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the Companys obligation under the contract expires or is discharged or cancelled.
Borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on accounting policy of the non-cumulative subordinated notes refer to note 2.9.
2.11 Contingent assets and liabilities
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote.
316 | Notes to the financial statements of Aegon N.V. Note 3 |
2.12 Events after the balance sheet date
The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date are disclosed, but do not result in an adjustment of the financial statements themselves.
2015 | 2014 | |||||||
At January 1 |
27,182 | 19,237 | ||||||
Capital contributions and acquisitions |
|
394 |
|
|
2,034 |
| ||
Divestments and capital repayments |
|
- |
|
|
(450 |
) | ||
Dividend received |
|
(2,570 |
) |
|
(369 |
) | ||
Net income / (loss) for the financial year |
|
(394 |
) |
|
787 |
| ||
Revaluations |
|
(620 |
) |
|
5,942 |
| ||
At December 31 | 23,992 | 27,182 |
For a list of names and locations of the most important group companies, refer to note 52 Group companies of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the Commercial Register of The Hague.
2015 | 2014 | |||||||
Loans to group companies long-term | ||||||||
At January 1 |
|
3,874 |
|
|
3,815 |
| ||
Additions / (repayments) |
|
(1,155 |
) |
|
(395 |
) | ||
Other changes |
|
418 |
|
|
454 |
| ||
At December 31 | 3,137 | 3,874 | ||||||
Loans to group companies short-term | ||||||||
At January 1 |
|
142 |
|
|
505 |
| ||
Additions / (repayments) |
|
1,268 |
|
|
(372 |
) | ||
Other changes |
|
(18 |
) |
|
9 |
| ||
At December 31 | 1,392 | 142 | ||||||
Total | 4,529 | 4,016 |
The other changes in 2015 in Loans to group companies long-term mainly relate to currency exchange rate fluctuations.
Money market and other short-term investments FVTPL1) |
||||
At January 1, 2015 |
95 | |||
Additions |
|
- |
| |
Disposals |
|
95 |
| |
At December 31, 2015 | - | |||
At January 1, 2014 |
95 | |||
Additions |
|
- |
| |
Disposals |
|
- |
| |
At December 31, 2014 | 95 |
1 | Fair value through profit or loss. |
The money market and other short-term investments fully consisted of investments in money market funds and were disposed of in 2015.
|
Supplemental Annual Report 2015 |
317
Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 63 million (2014: EUR 93 million).
Aegon N.V., together with certain of its subsidiaries, is part of a tax grouping for Dutch corporate income tax purposes. The members of the fiscal entity are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping.
Other assets include derivatives with positive fair values of EUR 106 million (2014: EUR 377 million).
Issued and outstanding capital | 2015 | 2014 | ||||||
Common shares |
258 | 258 | ||||||
Common shares B |
|
71 |
|
|
70 |
| ||
Total share capital | 328 | 327 | ||||||
Authorized capital | 2015 | 2014 | ||||||
Common shares |
720 | 720 | ||||||
Common shares B |
|
360 |
|
|
360 |
| ||
At December 31 | 1,080 | 1,080 | ||||||
Par value in cents per share | 2015 | 2014 | ||||||
Common shares |
12 | 12 | ||||||
Common shares B |
|
12 |
|
|
12 |
|
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to Other information for further information on dividend rights.
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued common shares B.
In 2015, Vereniging Aegon exercised its option rights to purchase in aggregate 3,696,440 common shares B at market value. It did this to prevent dilution caused by Aegons issuance of shares, in connection with the Long Term Incentive Plans for senior management.
In 2014, Vereniging Aegon exercised its option rights to purchase in aggregate 2,320,280 common shares B at market value. It did this to prevent dilution caused by Aegons issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
318 | Notes to the financial statements of Aegon N.V. Note 8 |
The following table shows the movement during the year in the number of common shares:
Number of common shares | 2015 | 2014 | ||||||
At January 1 |
2,145,947,511 | 2,131,458,863 | ||||||
Shares issued |
- | - | ||||||
Stock dividend |
1,089,315 | 14,488,648 | ||||||
At December 31 | 2,147,036,826 | 2,145,947,511 | ||||||
The following table shows the movement during the year in the number of common shares B:
|
||||||||
Number of common shares B | 2015 | 2014 | ||||||
At January 1 |
581,325,720 | 579,005,440 | ||||||
Shares issued |
3,696,440 | 2,320,280 | ||||||
At December 31 | 585,022,160 | 581,325,720 |
The weighted average number of EUR 0.12 common shares for 2015 was 2,102,813,138 (2014: 2,096,043,713).
The weighted average number of EUR 0.12 common shares B for 2015 was 583,607,720 (2014: 580,391,240).
The shares repurchased by Aegon N.V. during the share-buy-back programs to undo the dilution caused by the distribution of dividend in stock, although included in the issued and outstanding number of shares, are excluded from the calculation of the weighted average number of shares.
Long-term incentive plan, share appreciation rights and share options
For detailed information on the Long Term Incentive Plans, share appreciation rights and share options granted to senior executives and other Aegon employees, refer to note 14 Commissions and expenses to the consolidated financial statements of the Group.
Board remuneration
Detailed information on remuneration of active and retired members of the Executive Board including their share and share option rights, remuneration of active and retired members of the Supervisory Board along with information about shares held in Aegon by the members of the Boards is included in note 53 Related party transactions to the consolidated financial statements of the Group.
|
Supplemental Annual Report 2015 |
319
Share capital |
Paid- in surplus |
Revaluation account |
Remeasurement of defined benefit plans of group companies |
Legal reserves FCTR |
Legal reserves group companies |
Retained earnings |
Treasury shares |
Net income/ (loss) |
Total | |||||||||||||||||||||||||||||||
At January 1, 2015 |
327 | 8,270 | 8,335 | (1,611 | ) | (114 | ) | 2,542 | 5,652 | (319 | ) | 765 | 23,847 | |||||||||||||||||||||||||||
Net income 2014 retained |
- | - | - | - | - | - | 765 | - | (765 | ) | - | |||||||||||||||||||||||||||||
Net income 2015 |
- | - | - | - | - | - | - | - | (432 | ) | (432) | |||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | - | 765 | - | (1,197 | ) | (432) | |||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves |
- | - | - | (86 | ) | 1,378 | - | - | - | - | 1,292 | |||||||||||||||||||||||||||||
Changes in revaluation subsidiaries |
- | - | (1,837 | ) | - | - | - | - | - | - | (1,837) | |||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies |
- | - | - | 165 | - | - | - | - | - | 165 | ||||||||||||||||||||||||||||||
Transfer to legal reserve |
- | - | 53 | - | - | (1,494 | ) | 1,433 | - | - | (8) | |||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | 10 | - | - | 10 | ||||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | (1,784 | ) | 79 | 1,378 | (1,494 | ) | 1,443 | - | - | (378) | ||||||||||||||||||||||||||||
Shares issued |
1 | - | - | - | - | - | - | - | - | 1 | ||||||||||||||||||||||||||||||
Dividend common shares |
- | (211 | ) | - | - | - | - | (292 | ) | - | - | (503) | ||||||||||||||||||||||||||||
Dividend withholding tax reduction |
- | - | - | - | - | - | 1 | - | - | 1 | ||||||||||||||||||||||||||||||
Treasury shares |
- | - | - | - | - | - | 1 | 50 | - | 51 | ||||||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax |
- | - | - | - | - | - | (139 | ) | - | - | (139) | |||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | (8 | ) | - | - | (8) | |||||||||||||||||||||||||||||
At December 31, 2015 | 328 | 8,059 | 6,551 | (1,532 | ) | 1,264 | 1,048 | 7,423 | (269 | ) | (432 | ) | 22,441 |
320 | Notes to the financial statements of Aegon N.V. Note 9 |
Share capital |
Paid- in surplus |
Revaluation account |
Remeasurement of defined benefit plans of group companies |
Legal reserves FCTR |
Legal reserves group companies |
Retained earnings |
Treasury shares |
Net income/ (loss) |
Total | |||||||||||||||||||||||||||||||
At January 1, 2014 (as previously stated) | 325 | 8,376 | 3,276 | (706 | ) | (1,806) | 2,345 | 5,188 | (290) | 986 | 17,694 | |||||||||||||||||||||||||||||
Changes in accounting policies relating to Deferred cost of reinsurance |
- | - | - | - | 5 | - | (124 | ) | - | 15 | (104 | ) | ||||||||||||||||||||||||||||
At January 1, 2014 (restated) 1) |
325 | 8,376 | 3,276 | (706) | (1,801) | 2,345 | 5,064 | (290) | 1,001 | 17,590 | ||||||||||||||||||||||||||||||
Net income 2013 retained |
- | - | - | - | - | - | 1,001 | - | (1,001 | ) | - | |||||||||||||||||||||||||||||
Net income 2014 |
- | - | - | - | - | - | - | - | 765 | 765 | ||||||||||||||||||||||||||||||
Total net income / (loss) | 1,001 | (236 | ) | 765 | ||||||||||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves |
- | - | - | (84 | ) | 1,687 | - | - | - | - | 1,603 | |||||||||||||||||||||||||||||
Changes in revaluation subsidiaries |
- | - | 5,286 | - | - | - | - | - | - | 5,286 | ||||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies |
- | - | - | (821 | ) | - | - | - | - | - | (821 | ) | ||||||||||||||||||||||||||||
Transfer to legal reserve |
- | - | (227 | ) | - | - | 197 | 28 | - | - | (2 | ) | ||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | (4 | ) | - | - | (4 | ) | ||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | 5,058 | (905 | ) | 1,687 | 197 | 24 | - | - | 6,062 | |||||||||||||||||||||||||||||
Dividend common shares |
2 | (106 | ) | - | - | - | - | (266 | ) | - | - | (370 | ) | |||||||||||||||||||||||||||
Treasury shares |
- | - | - | - | - | - | (38 | ) | (29 | ) | - | (67 | ) | |||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax |
- | - | - | - | - | - | (152 | ) | - | - | (152 | ) | ||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | 19 | - | - | 19 | ||||||||||||||||||||||||||||||
At December 31, 2014 | 327 | 8,270 | 8,335 | (1,611 | ) | (114 | ) | 2,542 | 5,652 | (319 | ) | 765 | 23,847 |
1 | Refer to note 2.1.2 Voluntary changes in accounting policies of the consolidated financial statements of Aegon N.V. for details about these changes. |
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consisted for EUR 7,613 million (2014: EUR 8,858 million) of items with positive revaluation and for EUR 1,062 million of items with negative revaluation (2014: EUR 523 million negative revaluation).
The revaluation account and legal reserves, foreign currency translation reserve and other, can not be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
Certain of Aegons subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. There can be no assurance that these restrictions will not limit or restrict Aegon in its ability to pay dividends in the future.
|
Supplemental Annual Report 2015 |
321
Optas N.V., an indirect subsidiary of Aegon N.V., held statutory reserves of EUR 1,050 million per December 31, 2014 which were restricted. Aegon announced in April 2014 that it had reached agreement with BPVH a foundation representing Dutch harbor workers and employers on removing restrictions on the capital of the harbors former pension fund Optas pensioenen N.V., thereby ending a long-lasting dispute. After approval by the court, which was granted in January 2015, restrictions were removed three months after the date of the court ruling, when the appeal period expired. As the restrictions were removed, both the statutory reserve of EUR 1,050 million per December 31, 2014 and the amounts included in the legal reserves were transferred to retained earnings. Included in Aegon N.V.s legal reserves was an amount of EUR 510 million per December 31, 2014 related to Optas N.V. which represented the increase in statutory reserves since the acquisition of Optas N.V. by Aegon. The statutory reserves of Optas N.V. were linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
On the balance sheet date, Aegon N.V., and its subsidiaries held 44,531,558 of its own common shares (2014: 51,317,190) with a face value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Movements in the number of repurchased own shares held by Aegon N.V. were as follows:
2015 | 2014 | |||||||||||||||
At January 1 |
|
49,536,806 | 39,836,533 | |||||||||||||
Transactions in 2015: |
|
|||||||||||||||
Sale: 1 transaction, price EUR 7.24 |
|
(7,628,399 | ) | |||||||||||||
Sale: 1 transaction, price EUR 6.62 |
|
(16,279,933 | ) | |||||||||||||
Purchase: transactions, average price EUR 6.63 |
|
16,279,933 | ||||||||||||||
Sale: 1 transaction, price EUR 5.40 |
|
(19,047,358 | ) | |||||||||||||
Purchase: transactions, average price EUR 5.28 |
|
20,136,673 | ||||||||||||||
Transactions in 2014: |
|
|||||||||||||||
Sale: 1 transaction, price EUR 6.33 |
|
(4,788,375 | ) | |||||||||||||
Purchase: transactions, average price EUR 6.43 |
|
14,488,648 | ||||||||||||||
Sale: 1 transaction, price EUR 6.37 |
|
(16,319,939 | ) | |||||||||||||
Purchase: transactions, average price EUR 6.49 |
|
16,319,939 | ||||||||||||||
At December 31 |
|
42,997,722 | 49,536,806 | |||||||||||||
As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are included at their consideration paid or received.
|
| |||||||||||||||
2015 | 2014 | |||||||||||||||
Number of |
Total amounts |
Number of (thousands) |
Total amounts | |||||||||||||
Held by Aegon N.V. |
42,997,722 | 257 | 49,536,806 | 306 | ||||||||||||
Held by subsidiaries |
1,533,836 | 12 | 1,780,384 | 13 | ||||||||||||
Total at December 31 |
44,531,558 | 269 | 51,317,190 | 319 |
The consideration for the related shares is deducted from or added to the retained earnings.
322 | Notes to the financial statements of Aegon N.V. Note 10 |
Junior perpetual capital securities |
Perpetual cumulative subordinated bonds |
Share options and incentive plans |
Non-cumulative subordinated notes |
Total | ||||||||||||||||
At January 1, 2015 |
3,008 | 454 | 94 | 271 | 3,827 | |||||||||||||||
Redemption of junior perpetual capital securities |
- | - | - | - | - | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 26 | - | 26 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (53 | ) | - | (53 | ) | |||||||||||||
At December 31, 2015 |
3,008 | 454 | 68 | 271 | 3,800 | |||||||||||||||
At January 1, 2014 |
4,192 | 454 | 99 | 271 | 5,015 | |||||||||||||||
Redemption of junior perpetual capital securities |
(1,184 | ) | - | - | - | (1,184 | ) | |||||||||||||
Shares granted / Share options cost incurred |
- | - | 29 | - | 29 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (34 | ) | - | (34 | ) | |||||||||||||
At December 31, 2014 |
3,008 | 454 | 94 | 271 | 3,827 |
Junior perpetual capital securities |
Coupon rate | Coupon date, as of | Year of next call | 2015 | 2014 | |||||||||||||||
USD 500 million |
6.50% | Quarterly, December 15 | 2016 | 424 | 424 | |||||||||||||||
USD 250 million |
floating LIBOR rate 1) | Quarterly, December 15 | 2016 | 212 | 212 | |||||||||||||||
USD 500 million |
floating CMS rate 2) | Quarterly, July 15 | 2016 | 402 | 402 | |||||||||||||||
USD 1 billion |
6.375% | Quarterly, June 15 | 2016 | 821 | 821 | |||||||||||||||
EUR 950 million |
floating DSL rate 3) | Quarterly, July 15 | 2016 | 950 | 950 | |||||||||||||||
EUR 200 million |
6.0% | Annually, July 21 | 2016 | 200 | 200 | |||||||||||||||
At December 31 |
3,008 | 3,008 |
1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
2 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
3 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholders equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
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 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 was repaid with accrued interest. The cumulative foreign currency result at redemption was recorded directly in retained earnings.
|
Supplemental Annual Report 2015 |
323
Perpetual cumulative subordinated bonds |
Coupon rate | Coupon date | Year of next call | 2015 | 2014 | |||||||||||||||
EUR 136 million |
5.185% 1), 4) | Annual, October 14 | 2018 | 136 | 136 | |||||||||||||||
EUR 203 million |
4.260% 2), 4) | Annual, March 4 | 2021 | 203 | 203 | |||||||||||||||
EUR 114 million |
1.506% 3), 4) | Annual, June 8 | 2025 | 114 | 114 | |||||||||||||||
At December 31 |
454 | 454 |
1 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018. |
2 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
3 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015 and 1.506% until 2025. |
4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points. |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral.
Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the year of next call.
Non-cumulative subordinated notes | Coupon rate | Coupon date, as of | Year of next call | 2015 | 2014 | |||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 271 | 271 | |||||||||||||||
At December 31 |
271 | 271 |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and fixed floating subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however, Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2015, the equity component amounted to EUR 271 million (2014: EUR 271 million), subordinated borrowings amounted to EUR 65 million (2014: EUR 54 million) and a deferred tax liability amounting to EUR 105 million (2014: EUR 95 million).
Refer to note 11 Subordinated borrowings for details of the component classified as subordinated borrowings.
Coupon rate | Coupon date | Year of next call | 2015 | 2014 | ||||||||||||||||
Fixed floating subordinated notes | ||||||||||||||||||||
EUR 700 million |
4% | Annually, April 25 | 2024 | 694 | 693 | |||||||||||||||
Non-cumulative subordinated notes | ||||||||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 65 | 54 | |||||||||||||||
At December 31 |
759 | 747 |
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.
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds, fixed floating subordinated notes and non-cumulative subordinated notes, and junior to all other liabilities.
324 | Notes to the financial statements of Aegon N.V. Note 12 |
The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
Subordinated borrowings include a liability of EUR 65 million (2014: EUR 54 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 10 Other equity instruments.
2015 | 2014 | |||||||
Remaining terms less than 1 year |
- | 412 | ||||||
Remaining terms 1 - 5 years |
586 | 587 | ||||||
Remaining terms 5 - 10 years |
- | - | ||||||
Remaining terms over 10 years |
872 | 828 | ||||||
At December 31 |
1,458 | 1,827 |
The repayment periods of borrowings vary from within one year up to a maximum of 25 years. The interest rates vary from 3.000% to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 1,821 million (2014: EUR 2,297 million).
Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 149 million (2014: EUR 406 million).
Commitments and contingencies
Aegon N.V. entered into a contingent capital letter for an amount of JPY 7.5 billion (EUR 57 million) to support its joint venture Aegon Sony Life Insurance Company meeting local statutory requirements.
Aegon N.V. has guaranteed and is severally liable for the following:
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, 2015, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 3,750 million (2014: EUR 2,403 million); as of that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements for subsidiaries amounted to EUR 235 million (2014: EUR 114 million); as of that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of Transamerica Corporation at December 31, 2015 amounted to EUR 3,467 (2014: EUR 3,099 million) As of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to EUR 1,448 million (2014: EUR 1,275 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line USD 1.54 billion Variable Funding Surplus Note; |
¿ | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC and Commonwealth General Corporation with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amounted to EUR 615 million (2014: EUR 552 million); and |
¿ | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2015. |
|
Supplemental Annual Report 2015 |
325
Other than Mr. Wynaendts there were no employees employed by Aegon N.V. in 2015 and 2014.
Total remuneration |
Of which PricewaterhouseCoopers |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Audit |
20 | 17 | 8 | 5 | ||||||||||||
Other audit |
2 | 1 | - | - | ||||||||||||
Other services |
- | - | - | - | ||||||||||||
Total |
22 | 18 | 8 | 5 |
16 Events after the balance sheet date
On January 13, 2016, Aegon announced to repurchase EUR 400 million worth of common shares in 2016, of which a first tranche of EUR 200 million will be repurchased before March 31, 2016. These shares will be repurchased to neutralize the dilutive effect of the cancellation of the preferred shares in 2013. It will be proposed to shareholders at their next Annual General Meeting on May 20, 2016, to cancel any repurchased shares under this program. The shares will be repurchased at or below the daily volume-weighted average price.
The Hague, the Netherlands, March 25, 2016
Supervisory Board | Executive Board | |||||||
Robert J. Routs | Alexander R. Wynaendts | |||||||
Irving W. Bailey, II | Darryl D. Button | |||||||
Robert W. Dineen | ||||||||
Shemaya Levy | ||||||||
Ben J. Noteboom | ||||||||
Ben van der Veer | ||||||||
Dirk P.M. Verbeek | ||||||||
Corien M. Wortmann-Kool | ||||||||
Dona D. Young |
326 | Other information Proposal for profit appropriation |
Proposal for profit appropriation
Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V. The relevant provisions read as follows:
1. | The General Meeting of Shareholders will adopt the Annual Accounts; |
2. | If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves. |
3. | The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders. |
The Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders; |
4. | The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B; |
5. | Distributions are made in accordance with the principle set forth in article 4 of the Articles of Association of Aegon N.V. that the financial rights attaching to a common share B are one-fortieth (1/40th) of the financial rights attaching to a common share; |
6. | The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices; and |
7. | The Companys policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and thereafter each amendment of the policy on reserves and dividends shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item. |
At the Annual General Meeting of Shareholders on May 20, 2016, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2015 of EUR 0.13 per common share and EUR 0.00325 per common share B. The final dividend will be paid in cash or stocks at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 23, 2016, for the shares listed on the New York Stock Exchange and on May 24, 2016, for shares listed on Euronext. The record date for the dividend will be May 25, 2016. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 31, 2016 up to and including June 17, 2016. The dividend will be payable as of June 24, 2016.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 (nominal value) will be determined on June 17, 2016 after 5.30 p.m. (CET), based on the average share price on Euronext Amsterdam in the five trading days from June 13, 2016 up to and including June 17, 2016.
2015 | 2014 | |||||||
Final dividend on common shares |
274 | 253 | ||||||
Earnings to be retained |
(706 | ) | 512 | |||||
Net income attributable to equity holders of Aegon N.V. |
(432 | ) | 765 |
|
Supplemental Annual Report 2015 |
327
General
As of December 31, 2015, Aegons total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,147,036,826 common shares and 585,022,160 common shares B issued. Of the issued common shares, 42,997,722 common shares were held by Aegon as treasury shares and 1,533,836 treasury shares were held by its subsidiaries.
All of Aegons common shares and common shares B are fully paid and not subject to calls for additional payments of any kind. All of Aegons common shares are registered shares. Holders of shares of New York registry hold their common shares in the registered form issued by Aegons New York transfer agent on Aegons behalf. Shares of New York registry and shares of Netherlands registry are exchangeable on a one-to-one basis and are entitled to the same rights, except that cash dividends are paid in US dollars on shares of New York registry.
As of December 31, 2015, 249 million common shares were held in the form of New York Registry shares. As of December 31, 2015, there were approximately 18,800 record holders of Aegons New York Registry shares resident in the United States.
Vereniging Aegon
Vereniging Aegon is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983, AGO Holding N.V. and Ennia N.V. merged into Aegon N.V. Vereniging AGO initially received approximately 49% of the common shares (reduced gradually to less than 40%) and all of the preferred shares in Aegon N.V., giving it voting majority in Aegon N.V. At that time, Vereniging AGO changed its name to Vereniging Aegon.
The objective of Vereniging Aegon is the balanced representation of the interests of Aegon N.V. and all of its stakeholders, including shareholders, Aegon Group companies, insured parties, employees and other relations of the companies.
In accordance with the 1983 Amended Merger Agreement, Vereniging Aegon had certain option rights on preferred shares to prevent dilution of voting power as a result of share issuances by Aegon N.V. This enabled Vereniging Aegon to maintain voting control at the General Meeting of Shareholders of Aegon N.V. In September 2002, Aegon N.V. effected a capital restructuring whereby Vereniging Aegon, among others, sold 206,400,000 common shares to Aegon N.V. for the amount of EUR 2,064,000,000; Vereniging Aegon contributed these as additional paid-in capital on the then existing Aegon N.V. preferred shares. As a result of this capital restructuring, Vereniging Aegons beneficial ownership interest in Aegon N.V.s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in Aegon N.V.s voting shares decreased from approximately 52% to approximately 33%.
On May 9, 2003, Aegons shareholders approved certain changes to Aegons corporate governance structure. Preferred shares with a nominal value of EUR 0.12 were converted into 211,680,000 new class A preferred shares with a nominal value of EUR 0.25, and class B preferred shares were created with a nominal value of EUR 0.25 each. No class B preferred shares were issued at that time. The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in May 2003, Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a Special Cause, as defined below.
In May 2003, Aegon N.V. and Vereniging Aegon amended the option arrangements under the 1983 Amended Merger Agreement so that, in the event of an issuance of shares by Aegon N.V., Vereniging Aegon could purchase as many class B preferred shares as would enable Vereniging Aegon to prevent or correct dilution to below its actual percentage of voting shares, to a maximum of 33%.
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013.
The simplified capital structure entailed, but was not limited to, the amendment of the Articles of Association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,695 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
328 | Other information Major shareholders |
The simplified capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon, known as the Preferred Shares Voting Agreement before May 2013. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months.
The simplified capital structure also included an amendment to the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
In the years 2003 through 2012, 118,093,000 class B preferred shares were issued under these option rights. In July 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance). It did this to correct dilution caused by Aegons issuance of shares on May 1, 2013 and May 16, 2013 in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend. On May 22, 2014, and with effect of May 21, 2014, Vereniging Aegon exercised its options rights to purchase in aggregate 2,320,280 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management. On January 1, 2015 Vereniging Aegon exercised its options rights to purchase in aggregate 9680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on January 1, 2015, in connection with the Long Term Incentive Plans for senior management. On May 21, 2015 Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,000 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on May 21, 2015, in connection with the Long Term Incentive Plans for senior management. And on November 13, 2015, and with effect of November 13, 2015, Vereniging Aegon exercised its options rights to purchase in aggregate 760 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by a correction to Aegons issuance of shares on May 21, 2015, in connection with the Long Term Incentive Plans for senior management
Development of shareholding in Aegon N.V.
Number of shares | Common | Common B | ||||
At January 1, 2015 |
292,687,444 | 581,325,720 | ||||
Exercise option right common shares B |
- | 3,696,440 | ||||
At December 31, 2015 |
292,687,444 | 585,022,160 |
Accordingly, at December 31, 2015, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.5%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegons voting rights will increase, currently to 32.6%, for up to six months.
At December 31, 2015, the General Meeting of Members of Vereniging Aegon consisted of 18 members. The majority of the voting rights is with the 16 members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The two other members are from the Executive Board of Aegon N.V.
|
Supplemental Annual Report 2015 |
329
Vereniging Aegon has an Executive Committee consisting of eight members, six of whom are not, nor have ever been, related to Aegon, including the Chairman and the Vice-Chairman. The other two members are also members of the Executive Board of Aegon N.V. Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging Aegon, are made with an absolute majority of the votes. When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote. Regarding the amendment of the Articles of Association of Vereniging Aegon, a special procedure requires a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of Aegon N.V. at the Executive Committee. This requirement does not apply in the event of a hostile change of control at the General Meeting of Shareholders of Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V., who are also members of the Executive Committee, have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
Other major shareholders
To Aegons knowledge based on the filings made with the Netherlands Authority for Financial Markets, the AFM, the US based investment management firm Dodge & Cox holds a capital and voting interest in Aegon of 3%.
Based on its last filing with the Dutch Autoriteit Financiële Markten on July 1, 2013 the Dodge & Cox International Stock Fund stated to hold 83,320,454 common shares and voting rights which represents 3.0% of the capital issued as at December 31, 2015. On February 12, 2016, Dodge & Coxs filing with the United States Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 252,801,195 common shares, representing 9.3% of the issued capital, and has voting rights for 246,721,656 shares, representing 9.0% of the votes as at December 31,2015.
The SEC filing also shows that of this number of shares Dodge & Cox International Stock Fund holds 130,337,763 common shares, which represents 4.8% of the issued capital as at December 31, 2015. The remainder of the common shares registered in name of Dodge & Cox with the SEC are held by Dodge & Cox on behalf of its other clients, including investment companies registered under the Investment Company Act of 1940 and other managed accounts.
The filing of Franklin Resources, Inc. (FRI), a US-based investment management firm, with the SEC on February 3, 2016, shows that FRI holds 135,002,163 common shares, representing 4.9% of the issued capital as at December 31, 2015. The SEC filing also shows that the commons shares are held by various entities to whom they provide asset management services. Each of these entities hold less than 3% of the issued capital as at December 31, 2015.
330 | Other financial information Schedule I |
Schedules to the financial statements
Summary of investments other than investments in related parties
As at December 31, 2015 |
||||||||||
Amounts in million EUR |
Cost1) | Fair value | Book value | |||||||
Shares: |
||||||||||
Available-for-sale |
617 | 820 | 820 | |||||||
Fair value through profit or loss |
531 | 640 | 640 | |||||||
Bonds: |
||||||||||
Available-for-sale and held-to-maturity: |
||||||||||
US government |
8,351 | 9,077 | 9,077 | |||||||
Dutch government |
4,245 | 5,068 | 5,068 | |||||||
Other government |
14,308 | 16,587 | 16,587 | |||||||
Mortgage backed |
9,991 | 10,265 | 10,265 | |||||||
Asset backed |
8,432 | 8,852 | 8,852 | |||||||
Corporate |
52,585 | 55,302 | 55,302 | |||||||
Money market investments |
7,141 | 7,141 | 7,141 | |||||||
Other |
1,120 | 1,297 | 1,297 | |||||||
Subtotal |
106,173 | 113,589 | 113,589 | |||||||
Bonds: |
||||||||||
Fair value through profit or loss |
2,257 | 2,239 | 2,239 | |||||||
Other investments at fair value through profit or loss |
2,931 | 2,938 | 2,938 | |||||||
Mortgages |
32,899 | 37,648 | 32,899 | |||||||
Private loans |
2,847 | 3,165 | 2,847 | |||||||
Deposits with financial institutions |
106 | 106 | 106 | |||||||
Policy loans |
2,201 | 2,201 | 2,201 | |||||||
Receivables out of share lease agreements |
1 | 1 | 1 | |||||||
Other |
209 | 209 | 209 | |||||||
Subtotal |
38,263 | 43,330 | 38,263 | |||||||
Real estate: |
||||||||||
Investments in real estate |
1,990 | 1,990 | ||||||||
Total |
165,546 | 160,478 |
1 | Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds. |
|
Supplemental Annual Report 2015 |
331
Condensed financial information of registrant
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | Note | 2015 | 2014 | |||||||||
Investments |
||||||||||||
Shares in group companies |
3 | 23,992 | 27,182 | |||||||||
Loans to group companies |
4 | 4,529 | 4,016 | |||||||||
Other investments |
5 | - | 95 | |||||||||
28,521 | 31,293 | |||||||||||
Receivables |
6 | |||||||||||
Receivables from group companies |
591 | 1,171 | ||||||||||
Other receivables |
63 | 93 | ||||||||||
654 | 1,264 | |||||||||||
Other assets |
||||||||||||
Cash and cash equivalents |
309 | 655 | ||||||||||
Other |
7 | 111 | 377 | |||||||||
420 | 1,032 | |||||||||||
Prepayments and accrued income |
||||||||||||
Accrued interest and rent |
20 | 32 | ||||||||||
Total assets |
29,615 | 33,621 | ||||||||||
Shareholders equity |
||||||||||||
Share capital |
8 | 328 | 327 | |||||||||
Paid-in surplus |
9 | 8,059 | 8,270 | |||||||||
Revaluation account |
9 | 6,551 | 8,335 | |||||||||
Remeasurement of defined benefit plan of group companies |
9 | (1,532 | ) | (1,611 | ) | |||||||
Legal reserves foreign currency translation reserve |
9 | 1,264 | (114 | ) | ||||||||
Legal reserves in respect of group companies |
9 | 1,048 | 2,542 | |||||||||
Retained earnings, including treasury shares |
9 | 7,154 | 5,333 | |||||||||
Net income / (loss) |
9 | (432 | ) | 765 | ||||||||
22,441 | 23,847 | |||||||||||
Other equity instruments |
10 | 3,800 | 3,827 | |||||||||
Total equity |
26,241 | 27,674 | ||||||||||
Subordinated borrowings |
11 | 759 | 747 | |||||||||
Long-term borrowings |
12 | 1,458 | 1,827 | |||||||||
Other liabilities |
13 | |||||||||||
Short term deposits |
125 | 124 | ||||||||||
Loans from group companies |
360 | 496 | ||||||||||
Payables to group companies |
337 | 2,201 | ||||||||||
Deferred tax liability |
142 | 87 | ||||||||||
Other |
165 | 435 | ||||||||||
1,129 | 3,343 | |||||||||||
Accruals and deferred income |
29 | 30 | ||||||||||
Total equity and liabilities |
29,615 | 33,621 |
332 | Other financial information Schedule II |
Income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2015 | 2014 | 2013 | |||||||||
Net income / (loss) group companies |
(394 | ) | 787 | 980 | ||||||||
Other income / (loss) |
(38 | ) | (22 | ) | 21 | |||||||
Net income |
(432 | ) | 765 | 1,001 | ||||||||
Condensed cash flow statement of Aegon N.V. |
|
|||||||||||
For the year ended December 31
|
||||||||||||
Amounts in EUR million | 2015 | 2014 | 2013 | |||||||||
Income / (loss) before tax |
(454 | ) | 760 | 1,015 | ||||||||
Adjustments |
1,920 | 671 | (692 | ) | ||||||||
Net cash flows from operating activities |
1,466 | 1,431 | 323 | |||||||||
Net cash flows from investing activities |
(5 | ) | - | - | ||||||||
Issuance and repurchase of share capital |
(213 | ) | (199 | ) | (493 | ) | ||||||
Dividends paid |
(292 | ) | (266 | ) | (323 | ) | ||||||
Issuance, repurchase and coupons of perpetual securities |
(148 | ) | (1,344 | ) | (194 | ) | ||||||
Issuance, repurchase and coupons of non-cumulative subordinated notes |
(38 | ) | (32 | ) | (28 | ) | ||||||
Issuance and repurchase of borrowings |
(1,115 | ) | 438 | (243 | ) | |||||||
Net cash flows from financing activities
|
(1,806 | ) | (1,402 | ) | (1,281 | ) | ||||||
Net increase / (decrease) in cash and cash equivalents |
(346 | ) | 29 | (958 | ) |
Dividends from and capital contributions to business units
Aegon received EUR 1.1 billion of dividends from its business units during 2015, almost all of which from the Americas. Aegon spent EUR 0.3 billion on capital contributions and acquisitions.
Aegon received EUR 1.1 billion of dividends from its business units during 2014, almost all of which from the Americas. Capital contributions of EUR 0.1 billion were paid to Aegons businesses.
Aegon received EUR 1.5 billion of dividends from its business units during 2013, split between EUR 0.9 billion from the Americas, EUR 0.5 billion from the Netherlands and EUR 0.1 billion from Aegon Asset Management and Central & Eastern Europe. Capital contributions of EUR 0.5 billion were paid to Aegons operating units, including EUR 0.4 billion to the United Kingdom.
|
Supplemental Annual Report 2015 |
333
Supplementary insurance information
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Segment Amounts in million EUR |
Deferred policy acquisition costs |
Future policy benefits |
Unearned premiums | Other policy claims and benefits |
Premium revenue | |||||||||||||||
2015 |
||||||||||||||||||||
Americas |
8,330 | 177,742 | 4,977 | 1,991 | 9,195 | |||||||||||||||
The Netherlands |
97 | 59,779 | 108 | 1,316 | 2,947 | |||||||||||||||
United Kingdom |
1,264 | 83,417 | 12 | 5 | 8,512 | |||||||||||||||
Central & Eastern Europe |
84 | 1,890 | 15 | 70 | 642 | |||||||||||||||
Spain & Portugal |
1 | 797 | - | 10 | 133 | |||||||||||||||
Asia |
745 | 4,127 | 88 | 20 | 1,494 | |||||||||||||||
Asset Management |
- | - | - | - | - | |||||||||||||||
Holding and other activities |
9 | 89 | 2 | 1 | 2 | |||||||||||||||
Total |
10,530 | 327,841 | 5,202 | 3,414 | 22,925 | |||||||||||||||
2014 |
||||||||||||||||||||
Americas |
6,465 | 160,231 | 4,365 | 1,649 | 8,222 | |||||||||||||||
The Netherlands |
114 | 61,458 | 117 | 1,275 | 4,716 | |||||||||||||||
United Kingdom |
2,417 | 81,374 | 9 | 4 | 5,113 | |||||||||||||||
Central & Eastern Europe |
113 | 2,084 | 13 | 75 | 678 | |||||||||||||||
Spain & Portugal |
2 | 757 | - | 5 | 144 | |||||||||||||||
Asia |
493 | 2,461 | 67 | 21 | 991 | |||||||||||||||
Asset Management |
- | - | - | - | - | |||||||||||||||
Holding and other activities |
5 | 4 | - | 1 | - | |||||||||||||||
Total |
9,610 | 308,369 | 4,572 | 3,029 | 19,864 | |||||||||||||||
2013 |
||||||||||||||||||||
Americas |
6,380 | 142,382 | 3,704 | 1,318 | 7,826 | |||||||||||||||
The Netherlands |
141 | 52,627 | 121 | 1,247 | 4,245 | |||||||||||||||
United Kingdom |
2,293 | 73,293 | - | - | 6,537 | |||||||||||||||
Central & Eastern Europe |
130 | 1,939 | 11 | 79 | 668 | |||||||||||||||
Spain & Portugal |
2 | 716 | - | 5 | 146 | |||||||||||||||
Asia |
363 | 1,436 | 50 | 20 | 505 | |||||||||||||||
Asset Management |
- | - | - | - | - | |||||||||||||||
Holding and other activities |
3 | 3 | - | 1 | 12 | |||||||||||||||
Total |
9,313 | 272,396 | 3,886 | 2,669 | 19,939 |
The numbers included in Schedule III are based on IFRS and excludes the proportionate share in Aegons joint ventures and Aegons associates.
Deferred policy acquisition costs also include deferred costs of reinsurance.
334 | Other financial information Schedule III |
Column G | Column H | Column I | Column J | Column K | ||||||||||||||||
Amounts in million EUR | Net investment income |
Benefits, claims and losses |
Amortization of |
Other operating expenses |
Premiums written | |||||||||||||||
2015 |
||||||||||||||||||||
Americas |
3,672 | 8,240 | 593 | 3,357 | 6,643 | |||||||||||||||
The Netherlands |
2,274 | 4,641 | 30 | 1,039 | 2,934 | |||||||||||||||
United Kingdom |
2,331 | 11,541 | 319 | 588 | 8,038 | |||||||||||||||
Central & Eastern Europe |
45 | 563 | 80 | 184 | 631 | |||||||||||||||
Spain & Portugal |
34 | 151 | - | 74 | 128 | |||||||||||||||
Asia |
165 | 119 | 30 | 128 | 1,564 | |||||||||||||||
Asset Management |
- | - | - | 117 | - | |||||||||||||||
Holding and other activities |
4 | 2 | 3 | 57 | 7 | |||||||||||||||
Total |
8,525 | 25,259 | 1,055 | 5,543 | 19,946 | |||||||||||||||
2014 |
||||||||||||||||||||
Americas |
3,309 | 5,954 | 448 | 2,790 | 5,614 | |||||||||||||||
The Netherlands |
2,568 | 3,853 | 37 | 956 | 4,699 | |||||||||||||||
United Kingdom |
2,077 | 7,064 | 193 | 628 | 4,686 | |||||||||||||||
Central & Eastern Europe |
54 | 467 | 77 | 180 | 667 | |||||||||||||||
Spain & Portugal |
36 | 161 | - | 65 | 142 | |||||||||||||||
Asia |
101 | 81 | 9 | 100 | 1,044 | |||||||||||||||
Asset Management |
- | - | - | 89 | - | |||||||||||||||
Holding and other activities |
4 | - | 2 | 54 | 2 | |||||||||||||||
Total |
8,148 | 17,579 | 766 | 4,862 | 16,853 | |||||||||||||||
2013 |
||||||||||||||||||||
Americas |
3,365 | 7,777 | 440 | 2,732 | 5,102 | |||||||||||||||
The Netherlands |
2,309 | 3,815 | 46 | 957 | 4,225 | |||||||||||||||
United Kingdom |
2,057 | 7,938 | 210 | 599 | 6,135 | |||||||||||||||
Central & Eastern Europe |
57 | 425 | 79 | 219 | 656 | |||||||||||||||
Spain & Portugal |
37 | 165 | 1 | 52 | 143 | |||||||||||||||
Asia |
80 | 83 | 20 | 114 | 554 | |||||||||||||||
Asset Management |
- | - | - | 82 | - | |||||||||||||||
Holding and other activities |
4 | 1 | - | 57 | 16 | |||||||||||||||
Total |
7,909 | 20,204 | 797 | 4,812 | 16,831 |
|
Supplemental Annual Report 2015 |
335
Reinsurance
Amounts in million EUR | Gross amount | Ceded to other companies |
Assumed from other companies |
Net amount | % of amount assumed to net |
|||||||||||||||
For the year ended December 31, 2015 |
||||||||||||||||||||
Life insurance in force |
1,008,787 | 961,485 | 658,594 | 705,896 | 93% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
17,971 | 2,694 | 1,612 | 16,889 | 10% | |||||||||||||||
Non-life insurance |
3,332 | 286 | 11 | 3,057 | 0% | |||||||||||||||
Total premiums |
21,302 | 2,979 | 1,623 | 19,946 | 8% | |||||||||||||||
For the year ended December 31, 2014 |
||||||||||||||||||||
Life insurance in force |
882,862 | 909,110 | 626,387 | 600,139 | 104% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
15,464 | 2,701 | 1,432 | 14,195 | 10% | |||||||||||||||
Non-life insurance |
2,965 | 310 | 4 | 2,658 | 0% | |||||||||||||||
Total premiums |
18,429 | 3,011 | 1,436 | 16,853 | 9% | |||||||||||||||
For the year ended December 31, 2013 |
||||||||||||||||||||
Life insurance in force |
898,135 | 896,012 | 583,733 | 585,856 | 100% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
15,650 | 2,756 | 1,462 | 14,356 | 10% | |||||||||||||||
Non-life insurance |
2,827 | 352 | - | 2,475 | 0% | |||||||||||||||
Total premiums |
18,477 | 3,108 | 1,462 | 16,831 | 9% |
336 | Other financial information Schedule V |
Valuation and qualifying accounts
Amounts in million EUR | 2015 | 2014 | 2013 | |||||||||
Balance at January 1 |
363 | 352 | 355 | |||||||||
Addition charged to earnings |
30 | 62 | 47 | |||||||||
Amounts written off and other changes |
(152 | ) | (51 | ) | (46 | ) | ||||||
Currency translation |
8 | - | (4 | ) | ||||||||
Balance at December 31 |
249 | 363 | 351 | |||||||||
The provisions can be analyzed as follows: |
||||||||||||
Mortgages |
56 | 169 | 163 | |||||||||
Other loans |
86 | 80 | 77 | |||||||||
Receivables |
107 | 115 | 111 | |||||||||
Total |
249 | 363 | 351 |
|
Supplemental Annual Report 2015 |
337 |
Auditors report on the Supplemental Annual Report
Report of Independent Registered Public Accounting Firm
To: The Annual General Meeting of Shareholders and Supervisory Board of Aegon N.V.
In our opinion, the accompanying consolidated statement of financial position and the related consolidated income statement, statement of comprehensive income, statement of changes in equity and cash flow statement, present fairly, in all material respects, the financial position of Aegon N.V. at December 31, 2015 and the results of its operations and its cash flows for each of the two years in the period then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. In addition, in our opinion, the other financial statement schedules on pages 330 to 336, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal ControlIntegrated Framework of 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Annual Report on Internal Control over Financial Reporting on page 122. Our responsibility is to express opinions on these financial statements and financial statement schedules, and on the Companys internal control over financial reporting based on our integrated audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements and financial statement schedules included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Note 2.1.2 to the consolidated financial statements, the Company changed the manner in which it accounts for certain reinsurance transactions and for its operations in the UK the Company changed its definition of contract modifications and its level at which it performs its liability adequacy test as of January 1, 2016. Also, as discussed in Note 2.4 to the consolidated financial statements, the Company updated its segment reporting.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We also have audited the adjustments to the 2013 financial statements to retrospectively apply the change in accounting as described in Note 2. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2013 financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2013 financial statements taken as a whole.
/s/ PricewaterhouseCoopers Accountants N.V.
Amsterdam, the Netherlands
March 25, 2016
except for the effects of the voluntary accounting policy change and segment reporting change described in Note 2, as to which the date is April 14, 2016
338 | Auditors report on the Supplemental Annual Report |
Auditors report on the Supplemental Annual Report
To: The Supervisory Board, the Executive Board and Shareholders of Aegon N.V.
Report of Independent Registered Public Accounting Firm
We have audited, before the effects of adjustments to retrospectively reflect the change in the composition of reportable segments and accounting policy changes discussed in Note 2 of the consolidated financial statements, the accompanying consolidated income statement and statements of comprehensive income, changes in equity, and cash flow of Aegon N.V. for the period ended December 31, 2013 (the 2013 consolidated income statement and statements of comprehensive income, changes in equity, and cash flows before the effects of the retrospective adjustments described above are not presented herein). Our audit also includes the other financial information included on pages 330 to 336, before the effects of the adjustments described above. These financial statements and schedules are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and schedules based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the Netherlands and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, before the effects of the adjustments described above, present fairly, in all material respects the consolidated results of its operations and its cash flows for the year ended December 31, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standard Board. Also, in our opinion, the related financial statement schedules, before the effects of the adjustments described above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively reflect the change in the composition of reportable segments and accounting policy changes discussed in Note 2 of the consolidated financial statements. Accordingly, we do not express an opinion nor any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those retrospective adjustments were audited by PricewaterhouseCoopers Accountants N.V.
The Company changed its method for consolidation, joint arrangements and employee benefits effective January 1, 2013 and the Company elected to change its method of accounting for the deferral of policy acquisition costs and longevity reserving effective January 1, 2014.
The Hague, the Netherlands, March 19, 2014
except for the changes as mentioned in the last paragraph of this opinion, as to which the date is April 15, 2014
/s/ Ernst & Young Accountants LLP
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340 | Additional information Compliance with regulations |
Iran Threat Reduction and Syria Human Rights Act
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA), which was signed into law on 10 August 2012, added a new subsection (r) to Section 13 of the Securities Exchange Act of 1934, as amended, which requires Aegon to disclose whether Aegon N.V. or any of its affiliates has engaged during the calendar year in certain Iran-related activities, including any transaction or dealing with the Government of Iran that is not conducted pursuant to a specific authorisation of the U.S. government.
The non-U.S. based subsidiaries of Aegon N.V. operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international laws and regulations.
Aegon maintained a limited number of individual personal pensions which were in-force during 2015 where the payer of the pension benefit is a party subject to relevant U.S. sanctions.
In the first matter, Aegon has a UK resident customer for whom one active Individual Personal Pension is held. The customer is a UK-based employee of an Iranian bank which appears on OFACs Specially Designated Nationals and Blocked Persons List with the identifiers of [SDGT], [IRAN], and [IFSR], and the Iranian bank makes contributions to the customers pension. The customer is not a Specially Designated National (SDN) and the Iranian bank does not own, benefit from, or have control over, the pension. All payments from the Iranian bank have been made in UK Pounds from a UK bank account. Her Majestys Treasury (HMT) have confirmed that this business activity falls within an acceptable exemption. Consequently, the pension remains active although the relationship is under close ongoing review. The monthly premium received during 2015 was GBP 727.95. Additional single premiums of GBP 3,310.50 and GBP 3,432.99 were also received during 2015. At February 10, 2016, the account value was GBP 23,203.21. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be GBP 2,320.32.
In the second matter, Aegon has four UK resident customers, each of whom has one active Individual Personal Pension. The customers are UK-based employees of a British registered charity that appears on the SDN List with the identifier [SDGT], and the charity makes contributions to the pensions. The customers are not SDNs and the charity does not own, benefit from, or have control over, the pensions. All payments from the charity have been paid in UK Pounds from a UK bank account. The pensions are managed in line with applicable legislation and regulation in the UK and the charity is not subject to sanctions in the UK or EU. Consequently, the pensions remain active although the relationships are under close ongoing review. Individual Personal Pension #1 has a current value of GBP 5,157.78 as at February 10, 2016, and regular monthly contributions of GBP 69.41 are being received into this policy. Individual Personal Pension #2 has a current value of GBP 2,482.34 as at February 10, 2016, and regular monthly contributions of GBP 18.61 (gross) are being received into this policy. Individual Personal Pension #3 has a current value of GBP 135,876.30 as at February 10, 2016, and regular monthly contributions of GBP 527.91 (gross) are being received into this policy. Individual Personal Pension #4 has a current value of GBP 5,810.54 as at February 10, 2016, and no further contributions are being received into this policy. The related annual net profit arising from these four contracts, which is difficult to calculate with precision, is estimated to be GBP 14,932.69.
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Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems and operational change management. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. Aegon´s most significant risk is to changes in financial markets, particularly related to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the Company´s operations, its earnings, its share price, the value of its investments, or the sale of certain products and services. The next two sections describe risks relating to Aegon´s businesses and risks relating to Aegons common shares.
I - Risks relating to Aegon´s businesses
The following covers the key risk factors that may affect Aegon´s businesses and operations, as well as other risk factors that are particularly relevant to Aegon in the ongoing period of significant economic uncertainty. Additional risks to which Aegon is subject include, but are not limited to, the factors mentioned under Forward-looking statements (page 379 and 380), and the risks of Aegon´s businesses described elsewhere in this Supplemental Annual Report.
Factors additional to those discussed below or elsewhere in this Supplemental Annual Report may also affect Aegon´s businesses and operations adversely. The following risk factors should not be considered a complete list of potential risks that may affect Aegon and its subsidiaries.
Risks related to the global financial markets and general economic conditions
Disruptions in the global financial markets and general economic conditions have affected and continue to affect, and could have a materially adverse effects on Aegon´s businesses, results of operations, cash flows and financial condition.
Aegon´s results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which Aegon operates. Global financial markets have experienced extreme and unprecedented volatility and disruption over the last decade. Bank lending has been recovering over the last couple years.
In addition to the risks described in this section, these conditions may result in reduced demand for Aegon´s products as well as impairments and reductions in the value of the assets in Aegon´s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and unexpected policyholder behavior such as unfavourable changes in lapse rates. Aegon´s policyholders may choose to defer or stop paying insurance premiums, which may impact Aegon´s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict definitively whether or when such actions may occur.
Governmental action in the United States, the Netherlands, the United Kingdom, the European Union and elsewhere to address any of the above may impact Aegons businesses. Aegon cannot predict with certainty the effect that these or other government actions as well as actions by the ECB or the Federal Reserve may have on the financial markets or on Aegon´s businesses, results of operations, cash flows and financial condition.
Credit risk
Defaults in Aegon´s debt securities, private placements and mortgage loan portfolios held in Aegon´s general account, or the failure of certain counterparties, may adversely affect Aegons profitability and shareholders´ equity.
Credit risk is the risk of loss resulting from the default by, or failure to meet contractual obligations of issuers and counterparties. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not fulfil their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default.
Additionally, Aegon is indirectly exposed to credit risk on the investment portfolios underlying separate account liabilities. Changes to credit risk can result in separate account losses, which increase the probability of future loss events. Among others, reduced separate account values would decrease fee income, may increase guarantee related liabilities and may accelerate DPAC amortization.
342 | Additional information Risk factors |
Aegon´s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. Due to the weak economic environment, especially in Europe, Aegon may incur significant investment impairments due to defaults and overall declines in the capital markets. Further excessive defaults or other reductions in the value of these securities and loans may have a materially adverse effect on Aegon´s businesses, results of operations, cash flows and financial condition. The fixed income market conditions experienced through 2015 led to recognized impairment gains on debt securities held in general account of EUR 77 million (2014: EUR 20 million gain, 2013: EUR 71 million loss).
Equity market risk
A decline in equity markets may adversely affect Aegon´s profitability and shareholders´ equity, sales of savings and investment products, and the amount of assets under management.
Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in policyholders accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates. Hedging of exposures may change those effects significantly.
Some of Aegon´s insurance and investment contract businesses have minimum return or accumulation guarantees, which requires Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegon´s reported results under International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board, are also at risk if returns are not sufficient to allow amortization of DPAC, which may impact the reported net income as well as shareholders´ equity. Volatile or poor market conditions may also significantly reduce the demand for some of Aegons savings and investment products, which may lead to lower sales and net income. Deteriorating general economic conditions may again result in significant decreases in the value of Aegon´s equity investments. The equity market conditions experienced through 2015 led to a recognized impairment loss on equity securities held in general account of EUR 4 million (2014: EUR 5 million loss, 2013: EUR 3 million loss).
Interest rate risk
Interest rate volatility or sustained low interest rate levels may adversely affect Aegon´s profitability and shareholders´ equity.
In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are affected adversely by the increase in market interest rates. This may result in realized investment losses. These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income. Hedging against interest rate movements may change these effects significantly.
During periods of sustained low interest rates, as experienced in recent years, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. A prolonged low interest rate environment may also result in a lengthening of maturities of the policyholder liabilities from initial estimates, primarily due to lower policy lapses.
In-force life insurance and annuity policies may be relatively more attractive to consumers due to built-in minimum interest rate guarantees, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in force year-to-year. The majority of assets backing the insurance liabilities are invested in fixed-income securities. Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, if interest rates remain at current levels or decline further, the yield earned upon reinvesting interest payments from current investments, or from their sale or maturation, may decline. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of Aegons products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in Aegons investment portfolio in order to borrow at lower rates. Aegon can lower crediting rates on certain products to offset the decrease in spread. However, its ability to lower these rates may be limited by contractually guaranteed minimum rates or competition.
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In general, if interest rates rise, there will be unrealized losses on assets carried at fair value that will be recorded in other comprehensive income (available-for-sale investments) or as negative income (investments at fair value through profit or loss) under IFRS. This is inconsistent with the IFRS accounting on much of Aegon´s liabilities, where corresponding economic gains from higher interest rates do not affect shareholders equity or income in the shorter term. Over time, the short-term reduction in shareholder equity and income due to rising interest rates would be offset in later years, all else being equal.
Base interest rates set by central banks and government treasuries remain at or near the historically low or even negative levels as a response to the worldwide recession and attempts to stimulate growth. Depending on economic developments going forward, interest rates at the shorter end of the curve may remain at low or even negative levels for a prolonged period. In such an environment, an anchored expectation of low inflation or deflation could also further push down the longer end of the interest rate curve which could have significant implications for Aegons operations and financial results.
The profitability of Aegon´s spread-based businesses depends in large part upon the ability to manage interest rate risk, credit spread risk and other risks inherent in the investment portfolio. Aegon may not be able to successfully manage interest rate risk, credit spread risk and other risks in the investment portfolio or the potential negative impact of those risks. Investment income from general account fixed-income investments for the years 2015, 2014 and 2013 was EUR 6.1 billion, EUR 5.6 billion and EUR 5.6 billion respectively. The value of the related general account fixed-income investment portfolio at the end of the years 2015, 2014 and 2013 was EUR 157 billion, EUR 151 billion and EUR 132 billion, respectively.
The sensitivity of Aegons net income and shareholders equity to a change in interest rates is provided in note 4 Financial risks to the consolidated financial statements, section Interest rate risk.
Currency exchange rate risk
Fluctuations in currency exchange rates may affect Aegon´s reported results of operations.
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegon´s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders´ equity is required to satisfy regulatory and Aegon´s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegon´s consolidated shareholders´ equity as a result of translation of the equity of Aegon´s subsidiaries into euro, Aegon´s reporting currency. Aegon holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of Aegon´s business units. This balancing is intended to mitigate currency translation impacts on equity and leverage ratios. Aegon may also hedge the expected dividends from its principal business units that maintain their equity in currencies other than the euro.
To the extent these expected dividends are not hedged or actual dividends vary from expected, Aegon´s net income and shareholders´ equity may fluctuate. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders´ equity because of these fluctuations.
The exchange rates between Aegon´s primary operating currencies (US dollar, euro and UK pound) continued to fluctuate during 2015. In 2015, the US dollar ranged by 15% against the euro, finishing around 10% up from 2014. The UK pound fluctuated by around 7% against the euro ending the year with a 5% increase from 2014.
For Aegon Americas, which primarily conducts its business in US dollars, total revenues and net loss in 2015 amounted to EUR 14.6 billion and EUR 235 million, respectively. For Aegon UK, which primarily conducts its business in UK pounds, total revenues and net loss in 2015 amounted to EUR 10.7 billion and EUR 935 million, respectively. On a consolidated basis, these revenues represented 74% of the total revenues for the year 2015. The net loss on consolidated basis for Aegon Americas and Aegon UK amounted to EUR 1.171 million. Additionally, Aegon borrows in various currencies to hedge the currency exposure arising from its operations. As of December 31, 2015, Aegon has borrowed or swapped amounts in proportion to the currency mix of capital in units, which was denominated approximately 59% in US dollars, 28% in euro and 13% in UK pounds.
344 | Additional information Risk factors |
Liquidity risk
Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
Liquidity risk is inherent in much of Aegon´s businesses. Each asset purchased and liability sold has unique liquidity characteristics. Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. Aegon continued to maintain its reserves of cash and liquid assets in 2015. In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired, as they have been from time to time in recent years. The requirement to issue securities can be driven by a variety of factors, for instance Aegon may need liquidity for operating expenses, debt servicing and the maintenance of capital levels of insurance subsidiaries. Although Aegon manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended period of time, Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations.
In 2015, approximately 39% of Aegon´s general account investments were not highly liquid.
Aegon makes use of (syndicated) credit facilities to support repayment of amounts outstanding under Aegons commercial paper programs and to serve as additional sources of liquidity. An inability to access these credit facilities, for example due to non-compliance with conditions for borrowing or the default of a facility provider under stressed market circumstances, could have an adverse effect on Aegons ability to meet liquidity needs and to comply with contractual and other requirements.
Many of Aegons derivatives transactions require Aegon to pledge collateral against declines in the fair value of these contracts. Volatile financial markets may significantly increase requirements to pledge collateral and adversely affect our liquidity position. Further, a downgrade of Aegons credit ratings may also result in additional collateral requirements and affect our liquidity, or even enable counterparties to terminate such derivative transactions.
Underwriting risk
Differences between actual claims experience and underwriting and reserve assumptions may require liabilities to be increased.
There is a risk that the pricing of our products is not set right if the assumptions used for pricing do not materialize. Aegon´s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegon´s products and establishing the technical liabilities for expected claims. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon´s income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to increase liabilities for other related products, which may reduce Aegon´s income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs may be accelerated and may require write-offs due to an expectation of unrecoverability. This may have a materially adverse effect on Aegons results of operations and financial condition.
Sources of underwriting risk include the exercise of policyholder options such as lapses, policy claims (such as mortality and morbidity) and expenses. In general, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recover up-front sales expenses despite the presence of commission recoveries or surrender charges and fees. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses), which may result in losses to Aegons businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies, such as annuity products, that are at risk if mortality decreases (longevity risk). For example, certain current annuity products, as well as products sold in previous years, have seen their profitability deteriorate as longevity assumptions have been revised upward. If the trend toward increased longevity persists, Aegon´s annuity products may continue to experience adverse effects due to longer expected benefit payment periods. Aegon is also at risk if expenses are higher than assumed.
The sensitivity of Aegons net income and shareholders equity to changes in various underwriting risks is provided in Note 36 Insurance contracts to the consolidated financial statements.
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Aegon may be unable to manage Aegon´s risks successfully through derivatives.
Aegon is exposed to currency fluctuations, changes in the fair value of Aegon´s investments, the impact of interest rate, equity markets and credit spread changes, and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of interest rate, credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Aegon´s inability to manage risks successfully through derivatives, a counterparty´s failure to honor Aegon´s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon´s businesses, results of operations and financial condition.
Aegon´s ability to manage risks through derivatives may be negatively affected by the Dodd-Frank Act and legislative initiatives of the European Commission (EMIR and MIFIR), which provide for regulation of OTC derivatives markets. These regulations include mandatory trading of certain types of OTC derivative transactions on regulated trading venues and mandatory clearing of certain types of transactions through a central clearing organization. These regulations may limit Aegon´s ability to customize derivative transactions for its needs. As a result, Aegon may experience additional collateral requirements and costs associated with derivative transactions.
Modeling risk
Inaccuracies in econometric, financial or actuarial models, or differing interpretations of underlying methodologies, assumptions and estimates, could have a significant adverse effect on Aegons business, results of operations and financial condition.
Aegon uses econometric, financial and actuarial models to measure and manage multiple types of risk, to price products and to establish and assess key valuations and report financial results. All these functions are critical to Aegons operations. If these models, their underlying methodologies, assumptions and estimates, or their implementation and monitoring prove to be inaccurate, this could have a significant adverse effect on Aegons business, financial condition and results. Moreover, these models rely on assumptions, estimates and projections that are inherently uncertain, and actual experience may deviate significantly from modelled results.
Other risks
Valuation of Aegon´s investments, allowances and impairments is subjective, and discrepant valuations may adversely affect Aegon´s results of operations and financial condition.
The valuation of many of Aegon´s financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations and may result in changes to investment valuations that may have a materially adverse effect on Aegon´s results of operations and financial condition. In addition, the determination of the amount of allowances and impairments taken on certain investments and other assets is subjective and based on assumptions, estimations and judgments that may not reflect or correspond to our actual experience any of which may materially impact Aegon´s results of operations or financial position.
Among other things, changes in assumptions, estimation or judgments or in actual experience may require Aegon to accelerate the amortization of DPAC and value of business acquired, establish a valuation allowance against deferred income tax assets, or to recognize impairment of other assets, any of which may materially adversely affect Aegons results and financial condition.
Certain of our products have guarantees that may adversely affect our results, financial condition or liquidity.
Certain products, particularly our variable annuity products, include guarantees of minimum surrender values or income streams for stated periods or for life, which may be in excess of account values. These guarantees are designed, among other things, to protect policyholders against downturns in equity markets and interest rates. As a result, a drop in equity markets, an increase in equity volatility, or lower interest rates could result in an increase in the valuation of Aegons liabilities associated with these products. An increase in these liabilities may decrease our net income. Aegon uses a variety of hedging and risk management strategies to mitigate these risks. However, these strategies may not be fully effective and hedging instruments may not fully offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Estimates and assumptions Aegon makes in connection with hedging activities may fail to fully reflect or correspond to the actual (longer term) exposure in respect of guarantees. Further, unexpected policyholder behavior may cause our hedging to be less effective. The above factors could have a material adverse effect on our results of operations, financial condition or liquidity.
346 | Additional information Risk factors |
Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegon´s returns on these products unless Aegon increases its prices.
There may be increased regulatory requirements, resulting in more stringent supervision of insurers by regulatory authorities in the jurisdictions in which Aegons subsidiaries are domiciled and operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, may have on its businesses, results of operations, or financial condition. The European Union (which has already adopted Solvency II), the National Association of Insurance Commissioners (NAIC) in the US or US state regulators may adopt revisions to applicable risk based capital formulas, local regulators in other jurisdictions in which Aegons subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegons insurance subsidiaries.
An important example of increased regulatory requirements for insurers originates from the European Commission´s Solvency II Directive, which became effective on January 1, 2016, and which imposes, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegon´s businesses and at the Group level, as well as supervisory and disclosure requirements, and may impact the structure, business strategies, and profitability of Aegon´s insurance subsidiaries and of the Group. Some of Aegon´s competitors, who are headquartered outside the European economic area may not be subject to Solvency II requirements and may thereby be better able to compete against Aegon, particularly in Aegon´s businesses in the United States and Asia. In particular, the manner in which Aegons United States and Asia insurance businesses are taken into account in the Solvency II group solvency calculation, may have a significant impact on the groups capital position. In that context, the opinion published by EIOPA on January 27, 2016 regarding the application of a combination of accounting methods for the group solvency calculation has offered important additional guidance to Aegon that has helped to determine its group solvency position under Solvency II. Although Aegon currently does not have any indications to that effect, it cannot be excluded that, as is generally the case with respect to the interpretation of regulatory requirements, in future this guidance may change, which may have, depending on the nature of the change, a significant effect on the outcome of the group solvency calculation.
Furthermore, the NAIC Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline XXXVIII, commonly known as AG38, intended to clarify the regulation on valuation of life insurance policies, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegon´s newly issued term and universal life insurance products in the United States are now affected by Regulation XXX and AG38, respectively.
In response to the NAIC regulations, Aegon has implemented reinsurance and capital management actions to mitigate their impact. However, for a variety of reasons, Aegon may not be able to implement actions to mitigate the impact of Regulation XXX and AG38 on future sales of term or universal life insurance products, potentially resulting in an adverse impact on these products and Aegon´s market position in the life insurance market. In addition, the NAIC is reviewing internal captive reinsurance, the vehicle used in many capital management actions.
Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies, including universal life with secondary guarantees, level term life insurance and variable annuity policies. Through these structures, Aegon finances certain required regulatory reserves at a lower cost. To the extent that state insurance departments restrict Aegons use of captives and regulatory reserve requirements remain unchanged this could increase costs, limit the ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC continues to consider changes to corporate governance and insurers use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
As a further example, Aegon and the Aegon Group may be impacted by further changes to the capital adequacy requirements it is subject to as a result of the development of the Common Framework for the Supervision of Internationally Active Insurance Groups (ComFrame), which is a set of international regulatory standards focusing on the effective group-wide supervision of internationally active insurance groups, and particular requirements or standards that may be imposed on global systemically important insurers (G-SIIs) in the future. As of November 3, 2015 Aegon is classified as a G-SII. This qualification is reviewed by the Financial Stability Board yearly. If Aegon remains a G-SII, it may be required as per January 2019, to maintain additional capital in the form of Higher Loss Absorbing Capacity (HLA), in addition to a Basic Capital Requirement (BCR), which is currently under development at international level by the International Association of Insurance Supervisors (IAIS). Only after the calibration of the BCR and HLA has been completed, it will be certain whether or not these requirements will result in more binding capital constraints than existing requirements, including Solvency II. In this respect, the development of ComFrame as well as the requirements or standards applicable to G-SIIs could lead to
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enhanced capital requirements applicable to internationally active insurance groups and/or G-SIIs that may require us to constrain our ability to pay dividends, repurchase our own shares or engage in other transactions that affect our capital and/or could adversely affect our ability to compete with other insurers that are not subject to those capital requirements. Furthermore, such requirements may constrain Aegons ability to provide guarantees, may increase the cost to Aegon of offering certain products, which could require Aegon to raise prices on those products, reduce the amount of risk Aegon takes on or stop offering certain products. Furthermore, Aegon may consider structural and other business alternatives in light of our G-SII designation, the impact of which on shareholders cannot be predicted.
For some of Aegon´s products, market performance impacts the level of statutory reserves and statutory capital Aegon is required to hold, which may have an adverse effect on returns on capital associated with these products. Capacity for reserve funding available in the marketplace is currently limited as a result of market conditions generally. Aegon´s ability to efficiently manage capital and economic reserve levels may be impacted, thereby affecting profitability and return on capital.
Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies, holding companies, groups of insurance companies and/or other financial undertakings and/or financial conglomerates. Failure to comply with or to obtain appropriate exemptions under any applicable laws may result in restrictions on Aegon´s ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegon´s businesses, financial position or results of operations.
Some countries impose restrictions on particular underwriting criteria, such as gender, or use of genetic test results, for determination of premiums and benefits of insurance products. To date, Aegon has not observed negative financial or business impact due to these restrictions. However, future restrictions could adversely impact Aegons operations or financial results. Further developments in underwriting, such as automation and use of additional data, may also be affected by future regulatory developments regarding privacy and use of personal data.
A downgrade in Aegon´s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors, and negatively affect Aegon´s results.
Claims-paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies. These withdrawals may require the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. These cash payments to policyholders would result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also cause Aegon to accelerate amortization of deferred policy acquisition costs (DPAC), reducing net income.
Aegon has experienced downgrades and negative changes to its outlook in the past, and may experience downgrades and negative changes in the future. For example, during 2012, Fitch put a negative outlook on its long-term issuer default rating for Aegon N.V. and its insurer financial strength ratings for Aegon USA. Since 2015, Standard and Poor´s put a negative outlook on its insurer financial strength rating for Scottish Equitable (Aegon UK). A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon´s products and services, which may negatively impact new sales and adversely affect Aegon´s ability to compete. A downgrade of Aegons credit ratings may also further affect our liquidity position through increased collateral requirements for our hedging and derivative transactions, and may affect our ability to obtain reinsurance contracts at reasonable prices or at all. This would have a materially adverse effect on Aegon´s businesses, results of operations and financial condition.
Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies. As with other companies in the financial services industry, Aegon´s ratings may be downgraded at any time and without notice by any rating agency.
Changes in government regulations in the countries in which Aegon operates may affect profitability.
Aegons regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision. The primary purpose of such regulation is to protect clients (i.e. policyholders), not holders of Aegon securities. Changes in existing laws and regulations may affect the way in which Aegon conducts its businesses, profitability of its businesses and the
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products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than currently the case, such as with regard to the calculation of capital needs, treatment of own funds, rules or guidance with respect to the modelling of insurance, investment and other risks. The financial crisis of 2008 has resulted in, and may continue to result in further changes to existing laws, regulations and regulatory frameworks applicable to Aegons businesses in the countries in which it operates.
For example, in July 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing and newly-created government agencies and bodies (for example the Federal Reserve Board, Commodity Futures Trading Commission, Securities and Exchange Commission and the newly-created Financial Stability Oversight Council) authority to promulgate new financial regulations applicable to bank and non-bank financial institutions. The regulatory changes include or may include capital standards and prudential standards for non-bank companies deemed to be systemically important financial institutions (SIFIs) that are more stringent than the standards applicable to non-SIFIs. Aegon has not been designated a SIFI in the United States. In addition, US State financial services regulators may develop capital, accounting and solvency regulatory standards for internationally active insurance groups (IAIGs).
In November 2010, the G20 endorsed a policy framework to address the systemic and moral hazard risks associated with SIFIs, and initially in particular global SIFIs (G-SIFIs). On July 18, 2013, the International Association of Insurance Supervisors (IAIS) published a methodology for identifying global systemically important insurers (G-SIIs), and a set of policy measures that will apply to them. The Financial Stability Board (FSB) has endorsed the methodology and these policy measures. The policy measures include recovery and resolution planning requirements, liquidity and systemic risk management planning and enhanced group-wide supervision, including direct powers over holding companies and higher loss absorbency requirements (HLA). The HLA builds on the IAIS Basic Capital Requirements (BCR) and addresses additional capital requirements for G-SIIs reflecting their systemic importance in the international financial system. Additionally, certain aspects of the HLA relate to requirements applicable to other regulated financial sectors for which capital rules already exist. HLA requirements will need to be met by the highest quality capital. In November 2013, the FSB has identified an initial list of 9 G-SIIs to which the policy measures above should apply. The group of G-SIIs is updated annually and published by the FSB each November based on new data, most recently on November 3, 2015. At that time Aegon was added to this list and as a consequence will also become subject to the policy measures described above. The HLA requirements will apply to Aegon, assuming it will continue to be a G-SII when HLA requirements enter into force as per January 2019. The development of the BCR is the first step and the development of the HLA is the second step in the IAIS project to develop group-wide global capital standards. The third step is the development of a risk based group-wide global Insurance Capital Standard (ICS), due to be completed by the end of 2016 and to be applied to IAIGs, including G-SIIs from 2019 after refinement and final calibration in 2017 and 2018. The development of the ICS will be informed by the work on the BCR. When finalized, the ICS will replace the BCR as foundation of the HLA. The IAIS indicates that, because of the interlinkage between the BCR and HLA, the calibration may be modified depending on the HLA requirements. The IAIS currently expects that the HLA will initially be based on the BCR, but will be later based on the ICS. The exact timing of the transition from BCR to ICS will depend on the adoption of the ICS by the IAIS (currently scheduled October 2018) and time needed to develop and implement the framework in the relevant jurisdictions. The internationally developed BCR and HLA currently are calculated using different (criteria and) methodologies than EU Solvency II capital requirements. Only after the calibration of the BCR and HLA has been completed will Aegon be able to determine whether or not these requirements will result in more binding capital constraints than existing requirements, including Solvency II.
An important effect of the Dodd-Frank Act on Aegon USA will be the derivatives reform aspect of the Dodd-Frank Act, which aims to increase transparency of derivatives use and reduce systemic risk. Aegon USA entities are considered to fall into Category 2 under the regulations and are therefore required to clear derivative transactions in accordance with the phase-in regulations. In addition, Aegon USA has new reporting, initial margin and variation margin obligations under the Dodd-Frank Act and its regulations. However, Aegon cannot predict how the regulations will affect the financial markets generally or how the regulations will affect Aegons business, financial condition or results of operations.
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld, with the exception of the Medicaid expansion mandate, by the US Supreme Court in 2012. PPACA significantly changes the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USAs supplemental health insurance products business. Given ongoing litigation in the United States with regards to PPACA, the impact to Aegon remains uncertain.
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Solvency II has become effective in EU member states as per January 1, 2016. Due to the fact that the Solvency II framework is new, the interpretation of various elements of the Solvency II framework is not yet fully clear or may change as a result of the way insurers as well as supervisory authorities interpret the new rules. This may also affect the way Aegon implements the Solvency II framework, including Aegons financial position under Solvency II. Pursuant to Solvency II, Aegon is required to calculate a solvency ratio (own funds divided by the required solvency, the latter referred to as the Group SCR), for the Aegon Group at the level of Aegon which should be at least equal to 100%. Under Solvency I, EU supervisors usually required insurance and reinsurance undertakings to maintain a substantial percentage of own funds above the statutory minimum requirements. Under Solvency II, Aegon expects that DNB will leave the decision as to whether to hold a buffer of own funds in excess of the Group SCR or the SCR as the case may be to the Aegon Group, and to the insurance and reinsurance undertakings in the Aegon Group. As the prudential supervisor, DNB will nonetheless monitor Aegons capital management policies. Aegon applies its own capital management policies that determine the Companys risk tolerances on the basis of self-imposed criteria. These policies may result in Aegon, at its own election, but supervised by DNB, maintaining a buffer of own funds in addition to those required in according to Solvency II requirements. Pursuant to these self-imposed criteria, Aegon currently aims to hold a buffer in excess of the 100% minimum Group Solvency Ratio of 40 to 70%, in accordance with Aegons Group Capital Management Policy. The calculation of the Group Solvency Ratio in accordance with Solvency II is further described in the section Regulation and Supervision.
The United States Department of Labor (DOL) has issued a Conflict of Interest or Fiduciary proposal that substantially broadens the definition of fiduciary with respect to retirement benefit programs. The proposed rule would, with limited exemptions and carve-outs, subject agents and brokers to a best interest/fiduciary standard.
If implemented without significant changes, the proposed rule could have a material adverse impact from a prospective sales perspective both as to Aegon Americas retirement plan and annuity businesses, and could create other challenges to the operating model of these businesses. A final DOL rule is expected early 2016, although delayed effective or applicability dates will, and any legal challenges may, further delay final implementation. Until a final rule is issued, it is not possible to quantify the impact of the proposal on Aegon Americas business or the challenges that it may present.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegons ability to sell new policies or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidated its mandatory pension business. Similarly, in December 2013, the Polish parliament approved legislation to overhaul the existing state pension system, which was a reason for Aegon to write down its intangible assets.
Other initiatives, such as by the International Association of Insurance Supervisors, may create regulations that would increase capital needs and other requirements that would not be applicable to all carriers and create an uneven competitive playing field.
In general, changes in laws and regulations may materially increase Aegons direct and indirect compliance costs and other ongoing business expenses and have a materially adverse effect on Aegons businesses, results of operations or financial condition.
The possible abandonment of the euro currency by one or more members of the European Monetary Union may affect Aegon´s results of operations in the future.
It is possible that the euro may be abandoned as a currency in the future by countries that have already adopted its use. This may lead to the re-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European Monetary Union. It is not possible to predict with certainty the effect on the European and global economies of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the European Monetary Union. Any such event may have a materially adverse effect on Aegons future financial condition and results of operations.
The United Kingdom (UK) leaving the European Union (Brexit) may affect Aegons results and financial condition.
It is possible that the planned UK referendum (to be held on June 23, 2016) results in the UK exiting the European Union. The implications of such a Brexit are uncertain, with respect to the European integration process, the relationship between the UK and the European Union, and the impact on economies and businesses. Aegon could be adversely impacted by related market developments such as increased exchange rate movements of the GBP versus the Euro and higher financial market volatility in general due to increased uncertainty any of which could reduce the value or results of Aegons operations in the United Kingdom. Aegon could also be adversely impacted should a Brexit result in the UK moving away from agreed and implemented EU legislation like, but not limited to, Solvency II regulations.
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Risks related to the Dutch Intervention Act
In June 2012, the Dutch Intervention Act (Wet bijzondere maatregelen financiële ondernemingen) came into force in the Netherlands, with retroactive effect from 20 January 2012. The Dutch Intervention Act grants far-reaching new powers to the Dutch Central Bank (De Nederlandsche Bank N.V., DNB) and the Dutch Minister of Finance to intervene in situations where an institution, including a financial group such as Aegon, faces financial difficulties or where there is a serious and immediate risk to the stability of the Dutch financial system caused by an institution in difficulty. The Dutch Intervention Act has been amended in respect of, inter alia, banks as a result of the entry into force of the EU Directive on the recovery and resolution of credit institutions and investments firms, which was approved by the European Parliament on 15 April 2014 and of which the final text was published in the Official Journal of the European Union on 12 June 2014 (the Bank Recovery and Resolution Directive). The Bank Recovery and Resolution Directive also contains provisions that apply to mixed financial holding companies such as Aegon N.V., including the right of bail-in of creditors. Under the Dutch Intervention Act, substantial powers have been granted to DNB and the Dutch Minister of Finance enabling them to deal with ailing Dutch insurance companies as well as holding companies of insurance companies and financial conglomerates prior to insolvency. The measures allow them to commence proceedings which may lead to (a) the transfer of all or part of the business of an ailing insurance company to a private sector purchaser, (b) the transfer of all or part of the business of an ailing insurance company to a bridge entity, (c) the transfer of the shares in an ailing insurance company to a private sector purchaser or a bridge entity, (d) immediate interventions by the Dutch Minister of Finance concerning an ailing insurance company, and (e) public ownership (nationalisation) of (i) all or part of the business of an ailing insurance company or (ii) all or part of the shares or other securities issued by an ailing insurance company or its holding company. The Dutch Intervention Act also contains measures that limit the ability of counterparties to invoke contractual rights (such as contractual rights to terminate or to invoke a right of set-off or to require security to be posted) if the right to exercise such rights is triggered by intervention of DNB or the Dutch Minister of Finance based on the Dutch Intervention Act or by a circumstance which is the consequence of such intervention. There is a risk that the exercise of powers by DNB or the Dutch Minister of Finance under the Dutch Intervention Act could have a material adverse effect on the performance by the failing institution, including Aegon, of its obligations (of payment or otherwise) under contracts of any form, including the expropriation, write-off, write-down or conversion of securities such as shares and debt obligations issued by the failing institution. Furthermore, the terms of contracts, including debt obligations may be varied (e.g. the variation of maturity of a debt instrument). The Dutch Intervention Act and the Bank Recovery and Resolution Directive aim to ensure that financial public support will only be used as a last resort after having assessed and exploited, to the maximum extent practicable, the resolution tools, including the bail-in tool.
Legal and arbitration proceedings and regulatory investigations and actions may adversely affect Aegon´s business, results of operations and financial position.
Aegon faces significant risks of litigation and regulatory investigations and actions in connection with Aegons activities as an insurer, securities issuer, employer, investment adviser, investor and taxpayer, among others.
Insurance companies are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving wide-ranging subjects such as transparency of disclosure - issues and the charges included in products, employment or third party relationships, adequacy of internal operational controls and processes, environmental matters, anti-competition, privacy, information security and intellectual property infringement. For example, unclaimed property administrators and state insurance regulators performed examinations of the life insurance industry in the United States, including certain of Aegons subsidiaries. This included multi-state examinations. Additionally, some states conducted separate examinations or instituted separate enforcement actions under their unclaimed property laws and related claims practices. As other insurers in the United States have done, Aegon Americas initially established reserves to this matter in 2011, which have been partially released on a quarterly basis as policy level reconciliation efforts are completed, with a reserve of approximately EUR 16 million remaining at year end 2015. Like various other major insurers in the United States, Aegon subsidiaries in the United States entered into resolutions with insurance regulators regarding claims settlement practices. While Aegon believes the reserves it has established for these unclaimed property matters are adequate to cover expected obligations, there can be no assurances that actual exposures will not exceed reserve amounts or that additional sources of liability related to these examinations or other unclaimed property-related matters will not arise in the future. For more than a decade there has been an increase in litigation across the industry, together with new legislation, regulations, and regulatory initiatives, all aimed at curbing alleged improper annuity sales to seniors. As many of the estimated 78 million baby boomers in the United States are reaching the age of 60, the industry will likely see an increase in senior issues presented in various legal arenas.
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In addition, insurance companies are generally the subject of litigation, inquiries, investigations and regulatory activity concerning common industry practices such as the disclosure of costs, both costs incurred upon inception of the policy as well as over the duration thereof, commissions, premiums and other issues relating to the transparency of disclosure concerning certain products and services including the risks thereof, in particular when costs and charges apply for or take effect over a longer duration, as is the case for many of Aegon´s products. The costs assessed to a particular product class may be changed over time within specified limits, and these changes may lead to policy owner or regulatory review. Some inquiries lead to investigations, which remain open, or could result in fines, corrective actions or restitution. In certain instances, Aegon subsidiaries modified business practices in response to those inquiries, investigations or findings. For example, in 2014 the UK Financial Conduct Authority fined Aegon GBP 8.3 million for past sales practices related to accident insurance products sold by an affinity marketing unit that was active in several European countries and as to which Aegon elected to cease writing new business. In addition, many of Aegon´s products offer returns that are determined or that are affected by, among other things, fluctuations in equity markets as well as interest rate movements. These returns may prove to be volatile and occasionally disappointing. Disputes may also arise about the adequacy of internal controls, the level of appropriateness, disclosure, use and operation of modelling (quantitative or otherwise), investment allocations or other product features. From time to time this results in complaints to Aegon or to regulatory bodies, in regulatory inquiries and investigations as well as in disputes that lead to litigation. Inquiries and investigations, regardless of their merit, may result in orders and settlements involving monetary payments and changes to the way Aegon does business.
Legal proceedings may take years to conclude. Parties are generally allowed to institute appeal from a decision in first instance. A decision on appeal may qualify for appeal to a supreme court. Also, Dutch law, for example, at present does not provide for a statutory basis for a plaintiff to claim damages on behalf of a class. Only once a plaintiff, in its capacity as member of a class, has obtained a ruling on the merits of a case, it can claim damages on an individual basis. Alternatively, negotiations between the defendant and customer interest groups may lead to a form of collective monetary settlement. This settlement can then be declared binding by the court and applied to the entire class. However, the Dutch Minister of Justice issued a draft legislative proposal in 2014 to provide for a statutory basis for plaintiffs to claim damages on behalf of a class, which proposal is currently being considered by the various interested parties.
Aegon cannot predict at this time the effect that litigation, investigations, and actions will have on the insurance industry or Aegons business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, and may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any. Besides potential monetary obligations, private litigation, regulatory action, legislative changes and developments in public opinion may require Aegon to alter the way it does business, which would have a material adverse effect on Aegons results of operations and prospects.
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In the Netherlands, certain current and former customers, and groups representing customers have initiated litigation, and certain groups are encouraging others to bring lawsuits against Aegon and other insurers regarding the appropriateness of premiums and policy costs, in respect of certain products including securities leasing products and unit-linked products (so called beleggingsverzekeringen, including the KoersPlan product). Since 2005, unit-linked products in particular started to become the subject of public debate. Allegations started to emerge that products and services hadnt been transparent, were too costly or delivered a result different from what was agreed to. Customer interest groups were formed specifically in this context. Also, regulators as well as the Dutch Parliament have paid attention to this matter since, principally aimed at achieving an equitable resolution for customers.
Aegon has defended and Aegon intends to continue defending itself vigorously when Aegon believes claims are without merit. Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in The Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the best of class principles identified by the Dutch Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply these principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition, Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. At the time of that acceleration, that decision was expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in
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aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening (the Netherlands financial services industry ombudsman) supported the arrangements reached with customer interest groups, the public debate over the adequacy generally of these and other arrangements, as well as discussions in the Dutch Parliament, continue and may lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of these matters, including what actions, if any, Aegon may take in response thereto, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegon´s business, results of operations and financial position. For example, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten or AFM) issued a request to the insurance industry to contact certain customers to determine whether unit-linked products sold in the past, actually perform as originally contemplated. Aegon has actively responded to that request by contacting customers to assess the performance of these products in the context of the then current objectives of that customer and to solicit an informed decision by those customers whether or not to continue with, make changes to or terminate these products (activeren van klanten). This process is actively monitored by the AFM, including the percentage of customers contacted. Sanctions may be imposed if the AFM determines that an insurer did not conduct this process adequately as well as timely. The Dutch Parliament introduced specific legislation in this respect and closely monitors the process. Any changes in legislation, regulatory requirements or perceptions of commercial necessity may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
In general, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the level of fees and other charges included in products sold by the insurance industry (including Aegon), as well as the transparency of disclosure regarding such fees and charges and other product features and risks. In 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. Between 1989 and 1998, Aegon has issued, sold or advised on approximately 600,000 KoersPlan policies. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in those products. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to KoersPlan customers. As a result of the Dutch Supreme Courts denial of appeal, Aegon compensated the approximately 35,000 holders of KoersPlan products who were plaintiffs in the litigation and took a charge of EUR 25 million in 2013 in connection therewith. In 2014, Aegon announced that it would voluntarily compensate holders of KoersPlan products that were not plaintiffs in the litigation. The compensation amounts to the difference, if any, between the amount of premium charged by Aegon for a comparable risk in stand-alone death benefit coverage over the same period, and the premium (if higher) actually charged by Aegon in connection with the KoersPlan product. This voluntary product improvement was supported by the consumer interest group that initiated the court action over the KoersPlan product, Stichting Koersplandewegkwijt. This improvement was extended to all tontine saving plan products (Spaarkassen). However, another interest group, Stichting Woekerpolisproces, announced in 2014 that it expected in future to file a claim in court against Aegon, alleging that the compensation is too low and should be paid not only to all KoersPlan policyholders, but also to all holders of other products sold by Aegon with a death benefit (and corresponding premium payment obligation). It is not yet possible to determine what actions, if any, Aegon may take in connection with any such expectations, or demands or claims, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegon´s business, results of operations and financial position.
Aegon expects this to remain an industry issue for the foreseeable future. In 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in The Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID filed by customers over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decisions would not have a material adverse effect on Aegons results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
In March 2014, consumer interest group Vereniging Woekerpolis.nl filed a claim against Aegon in court. The claim related to a range of unit-linked products that Aegon sold in the past, including products over which Aegon was involved in litigation in the past, like the KoersPlan product. While the number of products to which the claim may relate was reduced by the court in its interlocutory ruling of October 28, 2015, it still concerns the majority of Aegons unit-linked portfolio. The claim challenges a variety of elements of these products, on multiple legal grounds, including allegations made in earlier court cases. There can be no assurance that the claim from Vereniging Woekerpolis.nl may not ultimately have a material adverse effect on Aegon´s results of operations or financial position.
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In April 2015, the European Court of Justice ruled on preliminary questions raised in a court case pending before the District Court in Rotterdam against another insurance company in The Netherlands. The main preliminary question considered by the European Court of Justice was whether European law permits the application of information requirements based on general principles of Dutch law that potentially extend beyond information requirements as explicitly prescribed by local laws and regulations in force at the time the policy was written. The European Court ruled that member states may impose on insurers obligations of transparency of disclosure in addition to those existing under European law, provided that those additional obligations are sufficiently clear and concrete as well as known to an insurer in advance. The European Court has left it to the national court to decide in specific cases whether the obligations under Dutch law meet those principles. It is possible that a judgment, although it would address a question of legal principle only and would be rendered in a case against another insurer, may ultimately be used by plaintiffs against Aegon or to support potential claims against Aegon. Future claims based on emerging legal theories could have a material adverse effect on Aegons businesses, results of operations and financial condition.
Holders of unit-linked policies filed claims in civil court against Aegon in Poland over the fees payable by a customer at the time of the initial purchase for certain products or retrospectively due on surrender for other products. While fees were explicitly disclosed to policyholders in policy documentation at the time of investment, the plaintiffs allege they are too high or that there is no contractual basis to charge fees altogether. In October 2014, the Polish Office of Competition and Consumer Protection fined Aegon for an amount of EUR 5.6 million in relation to its communication around early surrender fees. While this fine was not directly related to the civil claims, for reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the early surrender fee structure. Aegon recorded a charge of EUR 23 million in the fourth quarter of 2014 in connection therewith. In December 2015, Aegon reached a settlement with the Polish Office of Competition and Consumer Protection on reducing the fees payable by a customer at the time of the initial purchase, and took a related charge of EUR 10.5 million. There can be no assurances that ultimately the exposure to Aegon in connection with allegations such as those underlying the claims in Poland, would not have a material adverse effect on Aegons results of operations or financial position.
Certain of the products Aegon sells are complex and involve significant investment risks that may be assumed by Aegons customers. Aegon receives, from time to time, claims from certain current and former customers, and groups representing customers, in respect of certain products. Certain claims remain under review and may lead to disputes in the future. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if Aegon believed it was appropriate to do so. While Aegon intends to defend itself vigorously against any claims that Aegon does not believe have merit, there can be no assurance that any claims brought against Aegon by its customers will not have a materially adverse effect on Aegons businesses, results of operations and financial position.
Aegons risk management policies and processes may leave the company exposed to unidentified or unanticipated risk events, adversely affecting our businesses, results and financial condition.
Aegon has devoted significant resources to the implementation and maintenance of a comprehensive enterprise risk management framework in all aspects of the business. Notwithstanding, our risk measurements do make use of historic and public data that may be inaccurate or may not predict future exposures. Further, operational and legal risks involve high volumes of transactions and are affected by frequent changes in our businesses and their environments, and the risk management framework may not evolve at the same pace. As a result, there is a chance that risks present in our business strategies and initiatives may not be fully identified, monitored and managed.
State statutes and regulators may limit the aggregate amount of dividends payable by Aegon´s subsidiaries and Aegon N.V., thereby limiting Aegon´s ability to make payments on debt obligations.
Aegon´s ability to make payments on debt obligations and pay some operating expenses is dependent upon the receipt of dividends from subsidiaries. Some of these subsidiaries have regulatory restrictions that can limit the payment of dividends. In addition, local regulators, acting to represent the interests of local policyholders, are taking an increasingly restrictive stance with respect to permitting dividend payments, which may affect Aegon´s ability to satisfy its debt obligations or pay its operating expenses.
Changes in accounting standards may affect Aegon´s reported results, shareholders´ equity and dividend.
Since 2005, Aegon´s financial statements have been prepared and presented in accordance with IFRS. Any future changes in these accounting standards may have a significant impact on Aegon´s reported results, financial condition and shareholders´ equity. This includes the level and volatility of reported results and shareholders´ equity. New accounting standards that are likely to have a
354 | Additional information Risk factors |
significant impact on Aegons reported results, financial condition and shareholders equity include but are not limited to IFRS 9 - Financial Instruments and IFRS 4 - Insurance contracts. On July 24, 2014, the IASB issued the fourth and final version of its new standard on financial instruments accounting - IFRS 9 Financial Instruments. The new IFRS 9 standard has a mandatory effective date of January 1, 2018 but subsequent discussions at the IASB have resulted in a possible temporary deferral for insurers. On December 9, 2015, the IASB published an Exposure Draft: Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. It provides an overview of the main proposals that have been published for public comment by the IASB of which the main objective is to address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard. Implementation of IFRS 9 may have a significant impact on Aegons reported results, financial condition and shareholders equity. Further details on IFRS 9 are provided in note 2.1.2 Future adoption of new IFRS accounting standards of the consolidated financial statements.
During 2015, the IASB continued deliberations on its Exposure Draft Insurance Contracts that was published by the IASB in June 2013. The IASBs project to replace IFRS 4 Insurance Contracts is at an advanced stage and a final standard may be published by the IASB before the end of 2016 or beginning of 2017. However, the mandatory date will not become effective before 2021. The proposed changes in the accounting for insurance contracts will have a significant impact on Aegon.
Tax law changes may adversely affect Aegon´s profitability, as well as the sale and ownership of Aegon´s products.
Aegon is subject to the substance and interpretation of tax laws in all countries in which Aegon operates or invests. Tax risk is the risk associated with changes in tax laws, or the interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws. This tax risk also includes the risk of changes in tax rates and the risk of consequences arising from failure to comply with procedures required by tax authorities. Failure to manage tax risks may lead to increased tax charges, including financial or operating penalties. This tax risk may have a direct materially adverse effect on Aegon´s profits and financial condition.
Further, most insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits. Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
The US Congress has, from time to time, considered possible legislation that may make Aegon´s products less attractive to consumers, including legislation that would reduce or eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This may have an impact on insurance products and sales in the United States.
The US Government, as well as state and local governments, also considers from time to time tax law changes that may increase the amount of taxes that Aegon pays. For example, the Obama Administration has proposed in its annual budget for each of the past five years to change the methodology to determine the dividends received deduction (DRD) related to variable life insurance and variable annuity contracts. Congress has not, however acted on these proposals. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between Aegon´s effective tax rate and the federal statutory tax rate of 35%. A change in the DRD, including the possible elimination of this deduction, may reduce Aegon´s consolidated net income.
Any changes in tax laws, interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws in all countries in which Aegon operates or invests, which affects Aegon´s products, may have a materially adverse effect on Aegon´s businesses, results of operations and financial condition.
Competitive factors may adversely affect Aegon´s market share.
Competition in Aegon´s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well as non-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegon´s competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales-based commissions in some countries. These competitive pressures may result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegon´s ability to maintain or increase profitability.
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The adverse market and economic conditions that began in the second half of 2007 and significantly worsened in 2008 and into 2009, with recovery beginning in late 2009 and in 2010, followed in 2011-2015 by further periods of volatility and weakness, particularly in the eurozone, can be expected to result in changes in the competitive landscape. While many markets have started to recover, interest rates remain at or near all time lows, and have even gone negative in some countries. The financial distress experienced by some financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon´s ability or that of Aegon´s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon´s competitors in product offerings and product pricing that may affect Aegon and Aegon´s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be further affected by government-sponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the European sovereign debt crisis.
Aegon may experience difficulties in distributing and marketing products through our current and future distribution channels.
Although Aegon distributes its products through a wide variety of distribution channels, Aegons ability to market its products could be affected if key relationships would be interrupted. Distributors may elect to reduce or terminate their distribution relationship with Aegon due to adverse developments in our business. Further, key distribution partners may also merge, change their business models in ways that affect how our products are sold, or new distribution channels could emerge and adversely impact the effectiveness of our current distribution efforts.
When Aegons products are distributed through unaffiliated firms, Aegon may not always be able to monitor or control the manner of their distribution despite our significant training and compliance programs. If our products would be distributed by such firms in an inappropriate manner, or to customers for whom they are unsuitable, Aegon may suffer reputational and other harm to our business.
The default of a major market participant may disrupt the markets and may affect our business, financial condition, liquidity, operations and prospects.
The failure of a sufficiently large and influential financial institution, or other market participant including a sovereign issuer, may disrupt securities markets or clearance and settlement systems in Aegon´s markets. This may cause market declines or volatility. Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon´s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry. The default of on or more large international financial institutions, which may result in disruption or termination of their cash, custodial or and administrative services, may also have a material adverse impact on Aegons ability to run effective treasury and asset management operations.
Even the perceived lack of creditworthiness of a sovereign or financial institution (or a default by any such entity) may lead to market-wide liquidity problems and losses or defaults by Aegon or by other institutions. This risk is sometimes referred to as systemic risk and may adversely affect financial intermediaries, such as clearing members or futures commissions merchants, clearing houses, banks, securities firms and exchanges with whom Aegon interacts on a daily basis and financial instruments of sovereigns in which Aegon invests. Systemic risk could have a material adverse effect on our ability to raise new funding and on our business, financial condition, results of operations, liquidity and/or prospects. In addition, such distress or failure could impact future product sales as a potential result of reduced confidence in the financial services industry.
Aegon may be unable to retain personnel who are key to the business.
As a global financial services enterprise with a decentralized management structure, Aegon relies, to a considerable extent, on the quality of local management in the various countries in which Aegon operates. The success of Aegon´s operations is dependent, among other things, on Aegons ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which Aegon operates is intense. Aegon´s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance-related remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegon´s ability to compete for qualified employees, as well as Aegons ability to exchange employees between regions.
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Reinsurers to whom Aegon has ceded risk may fail to meet their obligations.
Aegon´s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon´s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of any of Aegon´s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon´s financial position and results of operations. Refer to Schedule IV of this Supplemental Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2012, 2013 and 2014.
In accordance with industry practices, Aegon reinsures a portion of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. In 2015, approximately 58% of Aegons total direct and assumed (for which Aegon acts as a reinsurer for others) life insurance in force was ceded to other insurers. The major reinsurance counterparties for Aegon USA are affiliates of SCOR SE (SCOR), Munich Re, RGA and Swiss Re. The major reinsurers of Aegon UK are Swiss Re, Munich Re, Pacific Re and XL Re. The non-life reinsurance for Aegon the Netherlands is diversified across several providers including Lloyds market syndicates. The major reinsurers of Aegon Hungary for non-life are Swiss Re, Munich Re and Hannover Re and for life insurance Munich Re and RGA. Aegon Spain´s major reinsurers are General Re, RGA, National Re and SCOR. Aegon China´s major reinsurers are Hannover Re, Munich Re and China Re, and Aegon Indias major reinsurer is RGA.
Reinsurance may not be available, affordable or adequate to protect Aegon against losses.
As part of Aegon´s overall risk and capacity management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegon´s various business segments. Market conditions beyond Aegon´s control determine the availability and cost of the reinsurance protection Aegon purchases. Accordingly, Aegon may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which may adversely affect Aegon´s ability to write future business.
Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations.
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegon´s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation, and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Aegon´s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management´s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect Aegon´s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
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Catastrophic events, which are unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegon´s business activities.
Aegon´s operating results and financial position may be adversely affected by volatile natural and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, pandemic disease and other catastrophes. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, Aegon seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation, and purchasing reinsurance. However, such events may lead to considerable financial losses to Aegon´s businesses. Furthermore, natural disasters, terrorism and fires may disrupt Aegon´s operations and result in significant loss of property, key personnel and information about Aegon and its clients. If its business continuity plans have not included effective contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
Aegon regularly develops new financial products to remain competitive in its markets and to meet the expectations of its clients. If clients do not achieve expected returns on those products, Aegon may be confronted with legal claims, advocate groups and negative publicity.
Aegon may face claims from customers, both individual claimants as well as policyholder advocate groups, and negative publicity if Aegon´s products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegon´s products. New products that are less well understood and that have less of a historical performance track record may be more likely to be the subject of such claims. Any such claims may have a materially adverse effect on Aegon´s results of operations, corporate reputation and financial condition.
Aegon may not be able to protect its intellectual property and may be subject to infringement claims.
Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegon´s intellectual property. Third parties may infringe on or misappropriate Aegon´s intellectual property, and it is possible that third parties may claim that Aegon has infringed on or misappropriated their intellectual property rights. Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property, or defend itself against a claim of infringement of a third-party´s intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegon´s businesses, results of operation, financial condition and Aegon´s ability to compete. As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third-party´s intellectual property, Aegon may be required to pay damages and provide injunctive relief, which may have a materially adverse effect on Aegon´s businesses, results of operations and financial condition.
Inadequate or failed processes or systems, human factors or external events may adversely affect Aegon´s profitability, reputation or operational effectiveness.
Operational risk is inherent in Aegon´s businesses and may manifest itself in many ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modelling errors, and/or internal and external fraud. These events may result in financial loss, harm Aegon´s reputation, or hinder Aegon´s operational effectiveness. Further, employee error and misconduct may be difficult to prevent under all circumstances and may result in significant losses.
Aegons management maintains a well-controlled environment and sound policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, operational risk is part of the business environment in which Aegon operates, and is inherent in Aegon´s size and complexity, as well as Aegon´s geographic diversity, and the scope of the businesses Aegon operates. Aegon´s risk management activities cannot anticipate every circumstance, and economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third-party service providers are terminated, including contractual arrangements with providers of information technology, administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur significant losses due to these types of risks.
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Aegon´s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of Aegon´s information technology or communications systems may result in a material adverse effect on Aegon´s results of operations and corporate reputation.
While systems and processes are designed to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure may lead to a materially adverse effect on Aegon´s results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though back-up and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events may have a materially adverse effect on Aegon´s businesses, results of operations and financial condition.
A computer system failure or security breach may disrupt Aegon´s business, damage Aegon´s reputation and adversely affect Aegon´s results of operations, financial condition and cash flows.
Changes towards more sophisticated internet technologies, the introduction of new products and services, changing customer needs and evolving applicable standards increase the dependency on internet, secure systems and related technology. Introducing new technologies, computer system failures, cyber-crime attacks or security breaches may disrupt Aegons business, damage Aegons reputation and adversely affect Aegons results of operations, financial condition and cash flows.
Aegon retains confidential information on its computer systems, including customer information and proprietary business information. Any compromise to the security of Aegon´s computer systems that results in the disclosure of personally identifiable customer information may damage Aegons reputation, expose Aegon to litigation, increase regulatory scrutiny, and require Aegon to incur significant technical, legal and other expenses.
Judgments of US courts are not enforceable against Aegon in Dutch courts.
There is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts. Therefore, Aegon´s investors that obtain a judgment against Aegon in the United States may not be able to require Aegon to pay the amount of the judgment unless a competent court in the Netherlands gives binding effect to the judgment. It may, however, be possible for a US investor to bring an original action in a Dutch court to enforce liabilities against Aegon, Aegon´s affiliates, directors, officers or any expert named therein who resides outside the United States, based upon the US federal securities laws.
II - Risks relating to Aegon´s common shares
Aegon´s share price could be volatile and could drop unexpectedly, and investors may not be able to resell Aegon´s common shares at or above the price paid.
The price at which Aegon´s common shares trade is influenced by many factors, some of which are specific to Aegon and Aegon´s operations, and some of which are related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of Aegon´s common shares:
¿ | Investor perception of Aegon as a company; |
¿ | Actual or anticipated fluctuations in Aegon´s revenues or operating results; |
¿ | Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; |
¿ | Changes in Aegon´s dividend policy, which may result from changes in Aegon´s cash flow and capital position; |
¿ | Sales of blocks of Aegon´s shares by significant shareholders, including Vereniging Aegon; |
¿ | A downgrade or rumored downgrade of Aegon´s credit or financial strength ratings, including placement on credit watch; |
¿ | Potential litigation involving Aegon or the insurance industry in general; |
¿ | Changes in financial estimates and recommendations by securities research analysts; |
¿ | Fluctuations in capital markets, including foreign exchange rates, interest rates and equity markets; |
¿ | The performance of other companies in the insurance sector; |
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¿ | Regulatory developments in the United States, the Netherlands, the United Kingdom, and other countries in which Aegon operates; |
¿ | International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; |
¿ | News or analyst reports related to markets or industries in which Aegon operates; and |
¿ | General insurance market conditions. |
The high and low prices of Aegon´s common shares on Euronext Amsterdam were EUR 7.70 and EUR 4.87 respectively in 2015, and EUR 6.96 and EUR 5.75 respectively in 2014. The high and low sales prices of Aegons common shares on NYSE New York were USD 8.35 and USD 5.41 respectively in 2015, and USD 9.46 and USD 7.27 respectively in 2014. All share prices are closing prices.
Aegon and its significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares.
Aegon may decide to offer additional common shares in the future, for example, to strengthen Aegon´s capital position in response to regulatory changes or to support an acquisition.
In connection with its refinancing in September 2002, Vereniging Aegon entered into an equity repurchase facility and a back-up credit facility. On February 9, 2010, both facilities were replaced by a three year term and revolving facilities agreement with a consortium of banks. In 2013, Vereniging Aegon entered into a new three year term and revolving facilities agreement with the same consortium of banks, replacing the three year term and revolving facilities agreement entered into in 2010. Under this agreement, Aegons common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegons common shares held by them as collateral in order to satisfy amounts outstanding.
An additional offering of common shares by Aegon, the restructuring of Aegon´s share capital, the sales of common shares by significant shareholders or by lenders to Vereniging Aegon, or the public perception that an offering or such sales may occur, may have an adverse effect on the market price of Aegons common shares.
As of December 31, 2015, there were 2,147,036,826 common shares and 585,022,160 common shares B issued. Of these, Vereniging Aegon held 292,687,444 common shares and all issued common shares B. All of Aegons outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
Vereniging Aegon, Aegon´s major shareholder, holds a large percentage of the voting shares and therefore has significant influence over Aegon´s corporate actions.
Prior to September 2002, Vereniging Aegon beneficially owned approximately 52% of the voting shares and thus held voting control over Aegon. In September 2002, Vereniging Aegon reduced its beneficial ownership to approximately 33% of the voting shares (excluding issued common shares held in treasury by Aegon). In 2003, Aegon and Vereniging Aegon amended the 1983 Merger Agreement, resulting in a right for Vereniging Aegon, upon issuance of shares by Aegon, to purchase as many class B preferred shares existing at that time as would enable it to prevent or offset a dilution to below its actual voting power percentage of 33%. In 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was approved by the General Meeting of Shareholders of Aegon N.V. on May 15, 2013. For details on the simplification of the corporate structure, please see the section Major shareholders at pages 327 - 329.
The simplified capital structure included an amendment to the 1983 Amended Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
The simplification of the capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The financial rights attached to a common share B is 1/40th of the financial rights attached to a common share. The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause,
360 | Additional information Property, plant and equipment |
Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. Accordingly, at December 31, 2015, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.5%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegons voting rights will increase to 32.6% for up to six months.
Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including:
¿ | Adopting amendments to the Articles of Association; |
¿ | Adopting the Annual Accounts; |
¿ | Approving a consolidation or liquidation; |
¿ | Approving a tender offer, merger, sale of all or substantially all of the assets, or other business combination; and |
¿ | In particular, during the periods when Vereniging Aegon is entitled to exercise its increased voting rights, it will generally have sufficient voting power to veto certain decisions presented to the General Meeting of Shareholders, including any proposal relating to the following matters: |
¿ | Rejecting binding Supervisory Board nominations for membership to the Supervisory Board and Executive Board; |
¿ | Appointing an Executive Board or Supervisory Board member other than pursuant to Supervisory Board nomination; and |
¿ | Suspending or removing an Executive Board or Supervisory Board member other than pursuant to a Supervisory Board proposal. |
Currency fluctuations may adversely affect the trading prices of Aegon´s common shares and the value of any cash distributions made.
Since Aegon´s common shares listed on Euronext Amsterdam are quoted in euros and Aegon´s common shares listed on NYSE New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of Aegon´s common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegons shares of New York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend. As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid.
Convertible securities (or other securities that permit or require Aegon to satisfy its obligations by issuing common shares) that Aegon may issue could influence the market price for Aegon´s common shares.
In the future, Aegon may issue convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares. Those securities would likely influence, and be influenced by, the market for Aegon´s common shares.
For example, the price of Aegon´s common shares may become more volatile and may be depressed by investors´ anticipation of the potential resale in the market of substantial amounts of Aegon´s common shares received at maturity. Aegon´s common shares may also be depressed by the acceleration of any convertible securities (or other such securities) that Aegon has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in Aegon´s equity. Negative results may also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities (or other such securities) and Aegon´s common shares. Any such developments may negatively affect the value of Aegon´s common shares.
In the United States, Aegon owns many of the buildings that the Company uses in the normal course of its business, primarily as offices. Aegon owns 16 offices located throughout the United States with a total square footage of 2 million. Aegon also leases space for various offices located throughout the United States under long-term leases with a total square footage of 1 million. Aegons principal offices are located in Little Rock, AR; Los Angeles, CA; Denver, CO; Cedar Rapids, IA; St. Petersburg, FL; Atlanta, GA; Louisville, KY; Baltimore, MD; Harrison, NY; Exton, PA; and Plano, TX.
Other principal offices owned by Aegon are located in The Hague, the Netherlands; Budapest, Hungary; and Madrid, Spain. Aegon owns its headquarters and leases other offices in the Netherlands (Leeuwarden) and the United Kingdom under long-term leases. Aegon believes that its properties are adequate to meet its current needs.
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At the end of 2015, Aegon had 31,530 employees and 8,433 agents. Approximately 40% are employed in the Americas, 33% in Europe, 23% in Asia and 4% in Asset Management. Note that employees of the Holding are included in Europe.
All of Aegons employees in the Netherlands, other than senior management, are covered by the collective labor agreement of Aegon NL. Aegon, the unions and the Dutch Central Works Council are working closely together in the co-creation steering group to come to new agreements. The current collective agreement has a duration of three years. Aegon has experienced no significant strike, work stoppage or labor dispute in recent years.
Under Dutch law, members of the Central Works Council responsible for Aegon in the Netherlands are elected by Aegon the Netherlands employees. The Central Works Council has certain defined powers at the level of the Dutch subsidiary company Aegon Nederland N.V., including the right to make non-binding recommendations for appointments to its Supervisory Board and the right to enter objections against proposals for appointments to that Supervisory Board.
A break-down of the number of employees is provided below:
2015 | 2014 | 2013 | ||||||||||
Americas |
12,701 | 12,865 | 12,256 | |||||||||
The Netherlands |
4,802 | 4,700 | 4,584 | |||||||||
United Kingdom |
2,478 | 2,644 | 2,612 | |||||||||
Central & Eastern Europe |
2,470 | 2,495 | 2,470 | |||||||||
Spain & Portugal |
534 | 433 | 375 | |||||||||
Asia |
7,163 | 4,189 | 3,305 | |||||||||
Asset Management |
1,382 | 1,276 | 1,289 | |||||||||
31,530 | 28,602 | 26,891 | ||||||||||
Of which agent |
8,433 | 5,713 | 4,753 | |||||||||
Of which Aegons share of employees in joint ventures and associates |
1,983 | 1,614 | 1,462 |
See note 14 Commissions and expenses of the Notes to the consolidated financial statements of this Supplemental Annual Report for a description of share-based payments to employees.
Under Dutch law and Aegons Articles of Association, holders of Aegons common shares are entitled to dividends paid out of the profits remaining, if any, after the creation of a reserve account. Aegons Executive Board may determine the dividend payment date and the dividend record date for the common shares, which may vary for the various kinds of registered shares. Aegons Executive Board, with the approval of Aegons Supervisory Board, may also determine the currency or currencies in which the dividends will be paid. Aegon may make one or more interim distributions to the holders of common shares.
Aegon aims to pay out a sustainable dividend to allow equity investors to share in Aegons performance, which can grow over time if Aegons performance so allows. After investment in new business to generate organic growth, capital generation in Aegons operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegons capital management and liquidity risk policies.
Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegons strategy and to fund dividends on its shares, subject to maintaining holding company targeted capital. Depending on circumstances, future prospects and other considerations, Aegons Executive Board may elect to deviate from this target. Aegons Executive Board will also take capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on common shares.
Under normal circumstances, Aegon would expect to declare an interim dividend when announcing Aegons second quarter results and to propose a final dividend at the Annual General Meeting of Shareholders for approval. Dividends would normally be paid in cash or stock at the election of the shareholder. The relative value of cash and stock dividends may vary. Stock dividends paid may, subject to capital management and other considerations, be repurchased in order to limit dilution.
362 | Additional information The offer and listing |
When determining whether to declare or propose a dividend, Aegons Executive Board has to balance prudence versus offering an attractive return to shareholders, for example in adverse economic and/or financial market conditions. Also, Aegons operating subsidiaries are subject to local insurance regulations which could restrict dividends to be paid to the Company. There is no requirement or assurance that Aegon will declare and pay any dividends.
Holders of common shares historically have been permitted to elect to receive dividends, if any, in cash or in common shares. For dividends, which holders may elect to receive in either cash or common shares, the value of the stock alternative may differ slightly from the value of the cash option. Aegon pays cash dividends on shares of New York registry in US dollars through Citibank, N.A., Aegons NYSE paying agent, based on the foreign exchange reference rate (as published each working day at 2.15 p.m. (CET) by the European Central Bank) on the business day following the announcement of the interim dividend or on the second business day following the shareholder meeting approving the relevant final dividend.
The principal market for Aegons common shares is Euronext Amsterdam. Aegons common shares are also listed on NYSE New York.
The table below sets forth, for the calendar periods indicated, the high and low sales prices of Aegons common shares on Euronext Amsterdam and NYSE New York as reported by Bloomberg and is based on closing prices.
Euronext Amsterdam (EUR) |
NYSE New York (USD) |
|||||||||||||||
High | Low | High | Low | |||||||||||||
2011 |
5.68 | 2.68 | 7.92 | 3.62 | ||||||||||||
2012 |
4.89 | 4.07 | 6.47 | 5.22 | ||||||||||||
2013 |
6.86 | 4.23 | 9.48 | 5.76 | ||||||||||||
2014 |
6.96 | 5.75 | 9.46 | 7.27 | ||||||||||||
2015 |
7.70 | 4.87 | 8.35 | 5.41 | ||||||||||||
2013 |
||||||||||||||||
First quarter |
5.17 | 4.46 | 6.85 | 5.81 | ||||||||||||
Second quarter |
5.38 | 4.23 | 7.08 | 5.76 | ||||||||||||
Third quarter |
6.00 | 5.31 | 7.96 | 6.90 | ||||||||||||
Fourth quarter |
6.86 | 5.57 | 9.48 | 7.53 | ||||||||||||
2014 |
||||||||||||||||
First quarter |
6.96 | 6.23 | 9.46 | 8.39 | ||||||||||||
Second quarter |
6.77 | 6.13 | 9.32 | 8.44 | ||||||||||||
Third quarter |
6.64 | 5.75 | 9.02 | 7.68 | ||||||||||||
Fourth quarter |
6.61 | 5.83 | 8.27 | 7.27 | ||||||||||||
2015 |
||||||||||||||||
First quarter |
7.70 | 5.87 | 8.35 | 6.97 | ||||||||||||
Second quarter |
7.64 | 6.37 | 8.22 | 7.24 | ||||||||||||
Third quarter |
7.22 | 4.87 | 7.93 | 5.51 | ||||||||||||
Fourth quarter |
5.93 | 4.92 | 6.38 | 5.41 | ||||||||||||
September 2015 |
5.66 | 4.87 | 6.32 | 5.51 | ||||||||||||
October 2015 |
5.62 | 4.97 | 6.32 | 5.61 | ||||||||||||
November 2015 |
5.93 | 4.99 | 6.38 | 5.41 | ||||||||||||
December 2015 |
5.85 | 4.92 | 6.18 | 5.41 | ||||||||||||
2016 |
||||||||||||||||
January 2016 |
5.65 | 4.74 | 6.00 | 5.15 | ||||||||||||
February 2016 |
5.24 | 4.04 | 5.66 | 4.59 | ||||||||||||
March 2016 (through March 9, 2016) | 4.97 | 4.59 | 5.47 | 5.11 |
On Euronext Amsterdam only Euronext registered shares may be traded, and on NYSE New York only New York Registry Shares may be traded.
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Additional company information
Memorandum and Articles of Association
Aegon is registered under number 27076669 in the Commercial Register of the Chamber of Commerce and Industries for Haaglanden, The Hague, the Netherlands.
Certain provisions of Aegons current Articles of Association are discussed below.
Objects and purposes
¿ | The objects of Aegon are to incorporate, acquire and alienate shares and interests in, to finance and grant security for commitments of, to enter into general business relationships with, and to manage and grant services to legal entities and other entities, in particular those involved in the insurance business, and to do all that is connected therewith or which may be conducive thereto, all to be interpreted in the broadest sense; and |
¿ | In achieving the aforesaid objects due regard shall be taken, within the scope of sound business operations, to provide fair safeguards for the interests of all the parties directly or indirectly involved in Aegon. |
Provisions related to directors
For information with respect to provisions in the Articles of Association relating to members of the Supervisory Board and Executive Board, refer to the Governance section (see pages 98-119).
Description of Aegons capital stock
Aegon has two types of shares: common shares (par value EUR 0.12) and common shares B (par value EUR 0.12).
Common characteristics of the common shares and common shares B
¿ | All shares are in registered form; |
¿ | All shares have dividend rights except for those shares (if any) held by Aegon as treasury stock. Dividends which have not been claimed within five years lapse to Aegon; |
¿ | Each currently outstanding share is entitled to one vote except for shares held by Aegon as treasury stock. There are no upward restrictions; |
¿ | However, under normal circumstances, i.e. except in the event of a Special Cause, based on the Voting Rights Agreement1, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months; |
¿ | All shares have the right to participate in Aegons net profits. Net profits is the amount of profits after contributions, if any, to a reserve account; |
¿ | In the event of liquidation, all shares have the right to participate in any remaining balance after settlement of all debts; |
¿ | The General Meeting of Shareholders may, at the proposal of the Executive Board, as approved by the Supervisory Board, resolve to reduce the outstanding capital either by (i) repurchasing shares and subsequently canceling them, or (ii) by reducing their nominal share value; |
¿ | There are no sinking fund provisions; |
¿ | All issued shares are fully paid-up; so there is no liability for further capital calls; and |
¿ | There are no provisions discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares. |
1 | The Voting Rights Agreement is published on Aegons corporate website. |
364 | Additional information Material contracts |
Differences between common shares and common shares B
¿ | The common shares are listed; the common shares B are not listed; |
¿ | The financial rights attaching to a common share B are one-fortieth (1/40th) of the financial rights attaching to a common share; and |
¿ | A repayment on common shares B needs approval of the holders of common shares B. |
Actions necessary to change the rights of shareholders
A change to the rights of shareholders would require an amendment to the Articles of Association. The General Meeting of Shareholders (Annual General Meeting or extraordinary General Meeting) may only pass a resolution to amend the Articles of Association pursuant to a proposal of the Executive Board with the approval of the Supervisory Board. The resolution requires a majority of the votes cast at the meeting in order to pass. The actual changes to the text of the Articles of Association will be executed by a civil law notary.
Furthermore, a resolution of the General Meeting of Shareholders to amend the Articles of Association which has the effect of reducing the rights attributable to holders of a specific class shall be subject to the approval of the meeting of holders of such class.
Conditions under which meetings are held
Annual General Meetings and extraordinary General Meetings of Shareholders shall be convened by public notice. Notice must be given no later than 42 days prior to the date of the meeting. The notice must contain a summary agenda and indicate the place where the complete agenda together with the documents pertaining to the agenda may be obtained. The agenda is also sent to shareholders registered with the Company Register. New York Registry shareholders or their brokers receive a proxy solicitation notice.
For admittance to and voting at the meeting, shareholders must produce evidence of their shareholding as of the record date. The Dutch law determines that the record date is 28 days prior to the General Meeting of Shareholders. Shareholders must notify Aegon of their intention to attend the meeting.
Limitation on the right to own securities
There are no limitations, either under the laws of the Netherlands or in Aegons Articles of Association, on the rights of non-residents of the Netherlands to hold or vote Aegon common shares or common shares B.
Provisions that would have the effect of delaying a change of control
A resolution of the General Meeting of Shareholders to suspend or dismiss a member of the Executive Board or a member of the Supervisory Board, other than pursuant to a proposal by the Supervisory Board, shall require at least two-thirds of the votes cast representing more than one-half of the issued capital.
In the event a Special Cause occurs (such as the acquisition of 15% of Aegons voting shares, a tender offer for Aegons shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board), Vereniging Aegon will be entitled to exercise its full voting rights of one vote per each common share B for up to six months per Special Cause, thus increasing its current voting rights to 32.64%.
Threshold above which shareholder ownership must be disclosed
There are no such provisions in the Articles of Association. Dutch law requires public disclosure to an Authority for Financial Markets with respect to the ownership of listed shares when the following thresholds are met: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.
Material differences between Dutch law and US law with respect to the items above
Reference is made to the paragraph Differences in company law practices for domestic companies included in the Corporate Governance section of this Supplemental Annual Report (see page 120).
Special conditions governing changes in the capital
There are no conditions more stringent than what is required by law.
There are no material contracts.
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There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegons Articles of Association restricting remittances to holders of Aegons securities that are not resident in the Netherlands. Cash dividends payable in euros on Aegons common shares may be officially transferred from the Netherlands and converted into any other convertible currency.
i Certain Netherlands tax consequences for holders of shares
The following section outlines certain material Netherlands tax consequences of the acquisition, holding, redemption and disposal of Aegon common shares, but does not purport to be a comprehensive description of all Netherlands tax considerations that may be relevant. This section is intended as general information only and each prospective investor should consult a professional tax adviser with respect to the tax consequences of an investment in Aegon common shares.
This section is based on tax legislation, published case law, treaties, regulations and published policy, in each case as in force as of the date hereof, and it does not take into account any developments or amendments thereof after that date whether or not such developments or amendments have retroactive effect.
This section does not address the Netherlands tax consequences for:
i. | Investment institutions (fiscale beleggingsinstellingen); |
ii. | Pension funds, exempt investment institutions (vrijgestelde beleggingsinstellingen) or other entities that are exempt from Netherlands corporate income tax; |
iii. | Corporate holders of Aegon common shares, the shareholding of which qualifies for the participation exemption (deelnemingsvrijstelling) of the Netherlands corporate income tax act 1969 (Wet op de vennootschapsbelasting 1969). Generally speaking, a shareholding is considered to qualify as a participation for the participation exemption if it represents an interest of 5% or more of the nominal paid-up share capital; Holders of Aegon common shares holding a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or of 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit sharing rights in Aegon; |
iv. | Persons to whom the beneficial interest in Aegon common shares is attributed based on the separated private assets (afgezonderd particulier vermogen) provisions of the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001); |
v. | Entities which are a resident of Aruba, Curacao or Sint Maarten that have an enterprise which is carried on through a permanent establishment or a permanent representative on Bonaire, Sint Eustatius or Saba, to which permanent establishment or permanent representative the Aegon common shares are attributable; |
vi. | Holders of Aegon common shares which are not considered the beneficial owner (uiteindelijk gerechtigde) of these shares or of the benefits derived from or realised in respect of the Aegon common shares; and |
vii. | Individuals to whom Aegon common shares or the income therefrom are attributable to employment activities which are taxed as employment income in the Netherlands. |
Where this section refers to the Netherlands, such reference is restricted to the part of the Kingdom of the Netherlands that is situated in Europe and the legislation applicable in that part of the Kingdom.
Dividend tax
Withholding requirement
Aegon is required to withhold 15% Netherlands dividend tax in respect of dividends paid on its common shares. In the Netherlands Dividend Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include:
i. | Proceeds in cash or in kind including direct or indirect distributions of profit; |
ii. | Liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the average paid-in capital recognised for Netherlands dividend tax purposes, unless a particular statutory exemption applies; |
iii. | The par value of new common shares issued to a holder of Aegon common shares or an increase of the par value of Aegon common shares, except when the (increase in the) par value of Aegon common shares is funded out of its paid-in capital as recognized for Netherlands dividend tax purposes; and |
iv. | Partial repayments of paid-in capital recognised for Netherlands dividend tax purposes, if and to the extent there are qualifying profits (zuivere winst), unless Aegons General Meeting of Shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association. |
366 | Additional information Taxation |
Residents of the Netherlands
If a holder of Aegon common shares is a resident of the Netherlands, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, dividend tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands income tax purposes.
Non-residents of the Netherlands
If a holder of Aegon common shares is a resident of a country other than the Netherlands and if a treaty for the avoidance of double taxation with respect to taxes on income is in effect between the Netherlands and that country, and such holder is a resident for the purposes of such treaty, such holder may, depending on the terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the Netherlands dividend tax. A refund of the Netherlands dividend tax is available to entities resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) these entities are not subject to corporate income tax there and (ii) these entities would not be subject to Netherlands corporate income tax, if these entities would be tax resident in the Netherlands for corporate income tax purposes and (iii) these entities are not comparable to investment institutions (fiscale beleggingsinstellingen) or exempt investment institutions (vrijgestelde beleggingsinstellingen). Furthermore, a similar refund of Netherlands dividend tax may be available to entities resident in other countries, under the additional condition that (i) the Aegon common shares are considered portfolio investments and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
US-residents
Residents of the United States that qualify for, and comply with the procedures for claiming benefits under, the Convention between the Kingdom of the Netherlands and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 1992 (the US/NL Income Tax Treaty) may, under various specified conditions, be eligible for a reduction of Netherlands dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which holds directly at least 10% voting power in Aegon. The US/NL Income Tax Treaty provides, subject to certain conditions, for a complete exemption from, or refund of, Netherlands dividend withholding tax for dividends received by exempt pension trusts and exempt organizations, as defined therein.
Beneficial owner
A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely:
¿ | That the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would:as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend tax; orin comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend tax; and |
¿ | That such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profit- sharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated. |
Netherlands withholding tax upon redistribution of foreign dividends
Aegon must transfer to the Dutch tax authorities all Netherlands dividend withholding tax it withholds on dividends it distributed with respect to the Aegon common shares. Provided certain conditions are met, Aegon may apply a reduction with respect to the withholding tax that it has to pay over to the Dutch tax authorities. This reduction can be applied if Aegon distributes dividends that stem from dividends Aegon itself has received from certain qualifying non-Netherlands subsidiaries, provided these dividends received by Aegon are exempt from Dutch corporate income tax and were subject to withholding tax of at least 5% upon distribution to Aegon. The reduction is applied to the Netherlands dividend tax that Aegon must pay to the Netherlands tax authorities and not to the amount of the Netherlands dividend tax that Aegon must withhold. The reduction is equal to the lesser of:
i. | 3% of the amount of the dividends distributed by Aegon that are subject to withholding tax; and |
ii. | 3% of the gross amount of the dividends received during a certain period from the qualifying non-Netherlands subsidiaries. |
The amount of the above mentioned reduction of the withholding tax will be reduced on a pro rata basis to the extent that Aegon distributes dividends to entities that are entitled to a refund of the Netherlands dividend tax. This reduction does not apply in respect of dividends paid to entities that own less than 5% of the nominal paid-up capital of Aegon.
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Corporate and individual income tax
Residents of the Netherlands
If a holder of Aegon common shares is a resident or deemed to be a resident of the Netherlands for Netherlands corporate income tax purposes and is fully subject to Netherlands corporate income tax or is only subject to Netherlands corporate income tax in respect of an enterprise to which Aegon common shares are attributable, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are generally taxable in the Netherlands (at up to a maximum rate of 25%) under the Netherlands corporate income tax act 1969 (Wet op de vennootschapsbelasting 1969).
If an individual is a resident or deemed to be a resident of the Netherlands for Netherlands individual income tax purposes, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are taxable at the progressive rates (at up to a maximum rate of 52%) under the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001) if:
i. | The individual is an entreprenEUR (ondernemer) and has an enterprise to which Aegon common shares are attributable or the individual has, other than as a shareholder, a co-entitlement to the net worth of an enterprise (medegerechtigde), to which enterprise Aegon common shares are attributable; or |
ii. | Such income or gains qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden), which include but are not limited to the performance of activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer). |
If neither condition (i) nor condition (ii) above applies to an individual that holds Aegon common shares, such individual must determine taxable income with regard to Aegon common shares on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realized. This deemed return on income from savings and investments has been fixed at a rate of 4% of the individuals yield basis (rendementsgrondslag) at the beginning of the calendar year, insofar as the individuals yield basis exceeds a certain threshold. The individuals yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on January 1. The fair market value of Aegon common shares will be included as an asset in the individuals yield basis. The 4% deemed return on income from savings and investments is taxed at a rate of 30%.
Non-residents of the Netherlands
If a person is neither a resident nor is deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, such person is not subject to Netherlands income tax in respect of income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares, except if:
i. | The person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is (other than by way of securities) entitled to a share in the profits of an enterprise or a co- entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25%; |
ii. | The person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which includes activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is (other than by way of securities) entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 52%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under Residents of the Netherlands). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individuals Netherlands yield basis. |
368 | Additional information Taxation |
Gift and inheritance tax
Residents of the Netherlands
Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of Netherlands Gift and Inheritance Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be a resident of the Netherlands at that time.
A holder of Netherlands nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and dies or makes a gift within ten years after leaving the Netherlands. A holder of any other nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and makes a gift within a twelve months period after leaving the Netherlands. The same twelve-month rule may apply to entities that have transferred their seat of residence out of the Netherlands.
Non-residents of the Netherlands
No gift or inheritance tax will arise in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or as a result of, the death of, a holder that is neither a resident nor deemed to be a resident of the Netherlands for the purposes of Netherlands Gift and Inheritance Tax Act 1956, However, inheritance tax will be due in the case of a gift of Aegon common shares by, or on behalf of, a holder who at the date of the gift was neither a resident nor deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956, but such holder dies within 180 days after the date of the gift, and at the time of his or her death is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956. A gift made under a condition precedent is deemed to be made at the time the condition precedent is fulfilled.
The proposed financial transactions tax
The European Commission has published a proposal for a Directive for a common financial transactions tax (FTT) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States). However, Estonia has stated that it will not participate.
The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in Aegon common shares (including secondary market transactions) in certain circumstances.
Under the current proposals, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Aegon common shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, established in a participating Member State in a broad range of circumstances, including (1) by transacting with a person established in a participating Member State or (2) where the financial instrument which is subject to the dealings is issued in a participating Member State.
However, the FTT proposal remains subject to negotiation between participating Member States and is subject to legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Aegon common shares are advised to seek their own professional advice in relation to the FTT.
Value added tax
In general, no value added tax will arise in respect of payments in consideration for the issue of Aegon common shares or in respect of a cash payment made under Aegon common shares, or in respect of a transfer of Aegon common shares.
Other taxes and duties
No registration tax, customs duty, transfer tax, stamp duty, capital tax or any other similar documentary tax or duty will be payable in the Netherlands by a holder of Aegon common shares in respect of or in connection with the subscription, issue, placement, allotment, delivery or transfer of the Aegon common shares.
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ii Taxation in the United States
This section describes certain US Federal income tax consequences to beneficial holders of common shares that are held as capital assets. This section does not address all US Federal income tax matters that may be relevant to a particular holder. Each investor should consult their tax advisor with respect to the tax consequences of an investment in the common shares. This section does not address tax considerations for holders of common shares subject to special tax rules including, without limitation, the following:
¿ | Financial institutions; |
¿ | Insurance companies; |
¿ | Dealers or traders in securities or currencies; |
¿ | Tax-exempt entities; and |
¿ | Regulated investment companies; |
¿ | Persons that will hold the common shares as part of a hedging or conversion transaction or as a position in a straddle or as part of a synthetic security or other integrated transaction for US Federal income tax purposes; |
¿ | Holders that own (or are deemed to own for US Federal income tax purposes) 10% or more of the voting shares of Aegon; |
¿ | Partnerships or pass-through entities or persons who hold common shares through partnerships or other pass-through entities; and |
¿ | Holders that have a functional currency other than the US dollar. |
Further, this section does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a holder of common shares. This section also does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the Federal income tax laws of the US Federal government.
This section is based on the US Internal Revenue Code of 1986, as amended, US Treasury regulations and judicial and administrative interpretations, in each case as in effect and available on the date of this Supplemental Annual Report. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.
For the purposes of this section, a US holder is a beneficial owner of common shares that is, for US Federal income tax purposes:
¿ | A citizen or individual resident of the United States; |
¿ | A corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia); |
¿ | An estate, the income of which is subject to US Federal income taxation regardless of its source; or |
¿ | A trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust. |
A non-US holder is a beneficial owner of common shares that is not a US holder.
Tax consequences to US holders
Distributions
The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegons current and accumulated earnings and profits as determined under US Federal income tax principles. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holders adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US Federal income tax principles. Therefore, US holders of Aegon shares will generally be taxed on all distributions as dividends, even if some portion of the distributions might otherwise be treated as a non-taxable return of capital or as capital gain if the amount of US earnings and profits was known. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution.
Certain qualified dividend income received by individual US holders is taxed at a maximum income tax rate of 20% under current law. Only dividends received from US corporations or from a qualified foreign corporation and on shares held by an individual US holder for a minimum holding period (generally, 61 days during the 121-day period beginning 60 days before the ex-dividend date) can qualify for this reduced rate. Aegon is eligible for benefits under the comprehensive income tax treaty between the Netherlands and the US; therefore, Aegon should be considered a qualified foreign corporation for this purpose. Accordingly, dividends paid by Aegon to individual US holders on shares held for the minimum holding period may qualify for a reduced income tax rate. Each US holder should consult their tax advisor regarding the applicable tax rate.
370 | Additional information Taxation |
In addition, US holders receiving dividends may be subject to a net investment income tax (NIIT). The NIIT is a 3.8% tax on the lesser of net investment income or the amount of modified adjusted gross income (MAGI) that is over a threshold amount based on filing status (USD 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
Distributions paid in currency other than US dollars (a foreign currency), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into US dollars. If the foreign currency is converted into US dollars on the date of receipt, a US holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as ordinary income or loss.
Dividends received by a US holder with respect to common shares will be treated as foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Dutch income tax withheld on dividends may be deducted from taxable income or credited against a US holders Federal income tax liability. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to passive category income and general category income. Dividends distributed by Aegon generally will constitute passive category income, or, in the case of certain US holders, financial services income, which is treated as general category income. Each US holder should consult their tax advisor regarding the availability of the foreign tax credit under their particular circumstances.
The amount of the qualified dividend income paid by Aegon to a US holder that is subject to the reduced dividend income tax rate and that is taken into account for purposes of calculating the US holders US foreign tax credit limitation must be reduced by the rate differential portion of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require a reduction of the dividend amount by approximately 49.49% under current law). Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
In general, upon making a distribution to shareholders, Aegon is required to remit all Dutch dividend withholding taxes to the Dutch tax authorities. The full amount of the taxes so withheld should (subject to certain limitations and conditions) be eligible for the US holders foreign tax deduction or credit as described above. Investors are urged to consult their tax advisors regarding the general creditability or deductibility of Dutch withholding taxes.
Aegon generally affords shareholders an option to receive dividend distributions in cash or in stock. A distribution of additional common shares to US holders with respect to their common shares that is made pursuant to such an election will generally be taxable in the same manner as a cash dividend under the rules described above.
Sale or other disposition of shares
Upon the sale or exchange of common shares, a US holder will generally recognize gain or loss for US Federal income tax purposes on the difference between the US dollar value of the amount realized from such sale or exchange and the tax basis in those common shares. This gain or loss will be a capital gain or loss and will generally be treated as from sources within the United States. Investors should consult their tax advisors with respect to the treatment of capital gains (which may be taxed at lower rates than ordinary income for taxpayers who are individuals, trusts or estates that have held the common shares for more than one year) and capital losses (the deductibility of which is subject to limitations).
In addition, US holders with capital gains may be subject to a NIIT. The NIIT is a 3.8% tax on the lesser of net investment income or the amount of modified adjusted gross income (MAGI) that is over a threshold amount based on filing status (USD 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
If a US holder receives foreign currency upon a sale or exchange of common shares, gain or loss, if any, recognized on the subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. However, if such foreign currency is converted into US dollars on the date received by the US holder, the US holder generally should not be required to recognize any gain or loss on such conversion.
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Passive foreign investment company considerations
Based on the nature of Aegons gross income, the average value of Aegons gross assets, and the active conduct of Aegons insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Company (PFIC). If Aegon were treated as a PFIC in any year during which a US holder owns common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations.
Tax consequences to non-US holders
A non-US holder generally will not be subject to US Federal income tax on dividends received on common shares or on any gain realized on the sale or exchange of common shares unless the gain is connected with a trade or business that the non-US holder conducts in the United States or unless the non-US holder is an individual, such holder was present in the United States for at least 183 days during the year in which such holder disposes of the common shares, and certain other conditions are satisfied. Non-US holders should consult their tax advisors with respect to the US Federal income tax consequences of dividends received on, and any gain realized from the sale or exchange of, the common shares.
Backup withholding and information reporting
Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holders taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or fails to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders are not subject to the backup withholding and information reporting requirements.
Non-US holders that provide the required tax certifications of exempt or foreign status will generally be exempt from US information reporting requirements and backup withholding. However, sales proceeds a non-US holder receives on a sale of common shares through a broker may be subject to information reporting and backup withholding if the non-US holder is not eligible for an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holders US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service (IRS). Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.
Individual US holders may be required to report to the IRS certain information with respect to their beneficial ownership of certain foreign financial assets, such as the common shares, if the aggregate value of such assets exceeds USD 50,000 and the assets are not held through a US financial institution. US holders who fail to report required information could be subject to substantial penalties. Prospective investors should consult their own tax advisors concerning the application of the information reporting rules to their particular circumstances.
Principal accountant fees and services
PricewaterhouseCoopers Accountants N.V. (PwC) has served as Aegons independent public accountant for the year ended December 31, 2015 and 2014. For 2013, for which audited financial statements appear in this Supplemental Annual Report, Ernst & Young Accountants (EY) has served as Aegons independent public accountant.
The following table presents the aggregate fees for services rendered by PwC in 2015, 2014 and EY in 2013.
Fees independent public accountant
In million EUR | 2015 | 2014 | 2013 | |||||||||
Audit fees |
20 | 17 | 19 | |||||||||
Audit-related fees |
2 | 1 | 2 | |||||||||
All other fees |
- | - | 1 | |||||||||
22 | 18 | 22 |
372 | Additional information Principal accountant fees and services |
Audit fees consist of fees billed for the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on Aegons consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include statutory audits or financial audits for subsidiaries or affiliates of the Company and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees consist of fees billed for audit-related services including assurance and related services that are reasonably related to the performance of the audit or review of Aegons financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, assurance services to report on internal controls for third parties, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as Audit services; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
All other fees include fees billed for permissible non-audit services that Aegon believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SECs rules on auditor independence.
Audit Committee pre-approval policies and procedures
Aegons Audit Committee is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Aegons independent auditors (the Pre-approval Policy).
Under the Pre-approval Policy, proposed services either:
¿ | May be pre-approved by the Audit Committee without consideration of specific case-by-case services (general pre-approval); or |
¿ | Require the specific pre-approval of the Audit Committee (specific pre-approval). Appendices to the Pre-approval Policy (that are adopted each year) set out the audit, audit-related, tax and other services that have received general pre-approval of the Audit Committee. All other audit, audit-related, tax and other services must receive specific pre-approval from the Audit Committee. |
For the period 2013 to 2015, all services provided to Aegon by its independent public accountant were pre-approved by the Audit Committee in accordance with the Pre-approval Policy.
Changes in registrants certifying accountants
As announced at the annual General Meeting of Shareholders in 2012, the audit of Aegons accounts from 2014 was put to tender in 2012. In February 2013, after a thorough process the Audit Committee and the Supervisory Board decided to propose to shareholders to appoint PwC as the Company´s independent auditor for the annual accounts of 2014 through 2016. These proposals were approved at the Annual General Meeting of Shareholders on May 15, 2013.
The reports of EY on the Companys financial statements for 2013, for which audited financial information appear in this Supplemental Annual Report, did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Companys financial statements for 2013, there were no disagreements with EY on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of EY, would have caused EY to make reference to the matter in their report.
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Purchases of equity securities by the issuer and affiliated purchasers
Period | Total number of shares purchased1) |
Average price paid per share in EUR |
Total number of shares purchased as part of publicly announced plans or programs2) |
Maximum number of shares that may yet be purchased under the plans or programs at end of month2) |
||||||||||||
January 1 - 31, 2015 |
4,777 | - | - | - | ||||||||||||
February 1 - 28, 2015 |
7,179 | - | - | - | ||||||||||||
March 1 - 31, 2015 |
4,239 | - | - | - | ||||||||||||
April 1 - 30, 2015 |
4,537 | - | - | - | ||||||||||||
May 1 - 31, 2015 |
6,780 | - | - | - | ||||||||||||
June 1 - 30, 2015 |
8,067,934 | 6.64 | 8,062,402 | 8,062,402 | ||||||||||||
July 1 - 31, 2015 |
8,221,919 | 6.63 | 8,062,402 | - | ||||||||||||
August 1 - 31, 2015 |
5,827 | - | - | - | ||||||||||||
September 1 - 30, 2015 |
11,584,630 | 5.19 | 11,578,544 | 8,558,129 | ||||||||||||
October 1 - 31, 2015 |
8,562,716 | 5.41 | 8,558,129 | - | ||||||||||||
November 1 - 30, 2015 |
5,640 | - | - | - | ||||||||||||
December 1 - 31, 2015 |
4,285 | - | - | - | ||||||||||||
Total |
36,480,463 | 36,261,477 | 16,620,531 |
1 | The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and agent-related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index. |
2 | On June 17, 2015, a repurchase program to neutralize the dilutive effect of the 2014 final dividend paid in shares was announced. As a consequence approximately 16.3 million shares have been repurchased between June 17 and July 14, 2015. Subsequently, on September 15, 2015, a repurchase program to neutralize the dilutive effect of the 2015 interim dividend paid in shares was announced. As a consequence approximately 20.1 million shares have been repurchased between September 16 and October 13, 2015. |
374 | Additional information Glossary |
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376 | Additional information Glossary |
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378 | Additional information Glossary |
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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 Aegons joint ventures and associated companies. The reconciliation of these measures to the most comparable IFRS measure is provided in note 5 Segment information of this report. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegons business including insight into the financial measures that senior management uses in managing the business.
Based on the amended strategic plans as announced on January 13, 2016, Aegon has reconsidered its segment reporting. Previously, Aegon had the following reportable segments: Americas, The Netherlands, United Kingdom, New Markets and Holdings and other activities. New Markets was established to aggregate Aegons emerging businesses and global / European initiatives which was a combination of the following operating segments: Central & Eastern Europe, Asia, Spain & Portugal, Asset Management and VA Europe. Under IFRS 8 these operating segments were aggregated as one reportable segment due to their respective size.
Given that Aegon has changed its managerial view to geographical areas and underlying businesses have developed since 2010, internal management reports has changed as of 2016 accordingly. Alignment of segment reporting with those changes and developments are in place as of 2016 reflecting Aegons announcements related to its strategic plan. This means that the operating segments are presented on this basis and introduces separate presentation of the asset management business. The following will be reported from 2016 onwards:
¿ | Americas: one operating segment which covers business units in the United States, Brazil and Mexico, including any of the units activities located outside these countries; |
¿ | Europe: which covers the following operating segments: The Netherlands, United Kingdom (including VA Europe), Central & Eastern Europe, Spain & Portugal; |
¿ | Asia: one operating segment which covers businesses operating in Hong Kong, Singapore, China, Japan, India and Indonesia including any of the units activities located outside these countries; |
¿ | Asset Management: one operating segment which covers business activities from Aegon Asset Management; |
¿ | Holding and other activities: one operating segment which includes financing, reinsurance activities, employee and other administrative expenses of holding companies. |
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. For Europe, the underlying businesses (the Netherlands, United Kingdom including VA Europe, Central & Eastern Europe and Spain & Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in the segment note. The change in segment reporting does not have an impact on the financial position, results of operations or cash flows of Aegon.
Currency exchange rates
This document contains certain information about Aegons results, financial condition and revenue generating investments presented in USD for the Americas and Asia, and in GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegons 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:
380 | Additional information Disclaimer |
¿ | Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom; |
¿ | Changes in the performance of financial markets, including emerging markets, such as with regard to: |
¿ | The frequency and severity of defaults by issuers in Aegons 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; |
¿ | Changes in the performance of Aegons investment portfolio and decline in ratings of Aegons counterparties; |
¿ | Consequences of a potential (partial) break-up of the euro or the potential exit of the United Kingdom from the European Union; |
¿ | The frequency and severity of insured loss events; |
¿ | Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegons insurance products; |
¿ | Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations; |
¿ | Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels; |
¿ | Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates; |
¿ | Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness; |
¿ | Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets; |
¿ | Changes in laws and regulations, particularly those affecting Aegons operations ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers; |
¿ | Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which Aegon operates; |
¿ | Standard setting initiatives of supranational standard setting bodies such as the Financial Stability Board and the International Association of Insurance Supervisors or changes to such standards that may have an impact on regional (such as EU), national or US federal or state level financial regulation or the application thereof to Aegon, including the designation of Aegon by the Financial Stability Board as a Global Systemically Important Insurer (G-SII); |
¿ | 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; |
¿ | Acts of God, acts of terrorism, acts of war and pandemics; |
¿ | Changes in the policies of central banks and/or governments; |
¿ | Lowering of one or more of Aegons debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegons ability to raise capital and on its liquidity and financial condition; |
¿ | Lowering of one or more of insurer financial strength ratings of Aegons insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries; |
¿ | The effect of the European Unions Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain; |
¿ | Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business; |
¿ | As Aegons operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegons business, damage its reputation and adversely affect its results of operations, financial condition and cash flows; |
¿ | Customer responsiveness to both new products and distribution channels;Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegons products; |
¿ | Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntarily or otherwise, which may affect Aegons reported results and shareholders equity; |
¿ | The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegons ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; |
¿ | Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegons business; and |
¿ | Aegons 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 Supplemental 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 Aegons expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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Supplemental Annual Report 2015 |
381
Headquarters
Aegon N.V.
Aegonplein 50
2591 TV The Hague
The Netherlands
Telephone: +31 (0) 70 344 32 10
aegon.com
Investor Relations
Telephone: +31 (0) 70 344 83 05
or toll free (US only): 877-548 96 68
E-mail: ir@aegon.com
Media Relations
Telephone: +31 (0) 70 344 89 56
E-mail: gcc@aegon.com
Agent for service in the United States of America
Name: Jay Orlandi
Telephone: +1 443 475 3836
E-mail: jay.orlandi@transamerica.com
382 | Additional information Documents on display |
Aegon files annual reports with and furnishes other information to the Securities and Exchange Commission. You may read and copy any document filed with or furnished to the SEC by Aegon at the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Aegons SEC filings are also available to the public through the SECs web site at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room in Washington D.C. and in other locations.
The SEC allows Aegon to incorporate by reference information into this Supplemental Annual Report, which means that:
¿ | Incorporated documents are considered part of this Supplemental Annual Report; and |
¿ | Aegon can disclose important information to you by referring you to those documents. |
Those documents contain important information about Aegon and its financial condition. You may obtain copies of those documents in the manner described above. You may also request a copy of those documents (excluding exhibits) at no cost by contacting us (refer to page 381).
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Supplemental Annual Report 2015 |
383
Exhibits
7 | Ratio of earnings to fixed charges. | |
15.2 | Consent of Predecessor Auditors. |
The company agrees to furnish to the Securities and Exchange Commission upon request copies of instruments with respect to long-term debt of the company and its consolidated subsidiaries.