Company Quick10K Filing
Quick10K
Aegon
20-F 2018-12-31 Annual: 2018-12-31
20-F 2017-12-31 Annual: 2017-12-31
20-F 2016-12-31 Annual: 2016-12-31
20-F 2015-12-31 Annual: 2015-12-31
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AEG 2018-12-31
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Aegon Earnings 2018-12-31

AEG 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 d622239d20f.htm FORM 20-F Form 20-F
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-

FORM 20-F

-

(Mark One)

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OF THE

SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10882

-

Aegon N.V.

(Exact name of Registrant as specified in its charter)

-

Not Applicable

(Translation of Registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

Aegonplein 50, PO Box 85, 2501 CB The Hague, The Netherlands

(Address of principal executive offices)

J.H.P.M. van Rossum

Executive Vice President and Head of Corporate Financial Center

Aegon N.V.

Aegonplein 50, 2501 CB The Hague, The Netherlands

+31-70-3445458

Jurgen.vanRossum@aegon.com

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class   Name of each exchange on which registered
Common shares, par value EUR 0.12 per share   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Not applicable

(Title of Class)

Not applicable

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,095,648,244 common shares and 585,022,160 common shares B

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities

Exchange Act of 1934. Yes No

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act

Large accelerated filer Accelerated filer Non-accelerated filer Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.                    

†The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards

Board to its Accounting Standards Codification after April 5, 2012.

Indicate by checkmark which basis of accounting the registrant has used to prepare the financial statements included in this filing

U.S. GAAP International Financial Reporting Standards as issued by the International Accounting Standards Board Other

If “other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No


Table of Contents

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Table of Contents
           
      
      

 

Cross reference table Form 20-F

 

1   Identity of Directors, Senior Management and Advisers   n/a  
2   Offer Statistics and Expected Timetable   n/a  
3   Key Information    
3A   Selected financial data   101-102  
3B   Capitalization and indebtedness   n/a  
3C   Reasons for the offer and use of proceeds   n/a  
3D   Risk factors   66-69; 90-96; 175-205;   369-389  
4   Information on the Company    
4A   History and development of the Company   8-39; 295-297; 436  
4B   Business overview   336-368  
4C   Organizational structure   10-12  
4D   Property, plants and equipment   391  
4A   Unresolved Staff Comments   n/a  
5   Operating and Financial Review and Prospects    
5A   Operating results   103-139  
5B   Liquidity and capital resources   76-85; 226-228; 260-261; 272-276  
5C   Research and development, patent and licenses etc.   n/a  
5D   Trend information   21-39; 103-139  
5E   Off-balance sheet arrangements   288-292  
5F   Tabular disclosure of contractual obligations   204-205; 288-292; 328  
5G   Safe harbor   n/a  
6   Directors, Senior Management and Employees    
6A   Directors and senior management   47-50  
6B   Compensation   59-65; 219-221; 300-306  
6C   Board practices   42-46  
6D   Employees   32-33; 212; 391  
6E   Share ownership   42-45; 323-325  
7   Major Shareholders and Related Party Transactions    
7A   Major shareholders   44; 323-325  
7B   Related party transactions   300-306  
7C   Interest of experts and counsel   n/a  
8   Financial Information    
8A   Consolidated Statements and Other Financial Information   141-147; 236-332  
8B   Significant Changes   n/a  
9   The Offer and Listing    
9A   Offer and listing details   392  
9B   Plan of distribution   n/a  
9C   Markets   392  
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   393-394  
10C   Material contracts   395  
10D   Exchange controls   396  
10E   Taxation   397-404  
10F   Dividends and paying agents   n/a  
10G   Statement by experts   n/a  
10H   Documents on display   437  
10I   Subsidiary Information   n/a  
11   Quantitative and Qualitative Disclosures About Market Risk   90-96; 175-205  
12   Description of Securities Other than Equity Securities   n/a  
 

 

       LOGO      Annual Report on Form 20-F 2018   LOGO


Table of Contents
           
      
      

 

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   97  
16A   Audit committee financial expert   54-55  
16B   Code of Ethics   69  
16C   Principal Accountant Fees and Services   405  
16D   Exemptions from the Listing Standards for Audit Committees   n/a  
16E   Purchases of Equity Securities by the Issuer and Affiliated Purchasers   406  
16F   Change in Registrant’s Certifying Accountant   n/a  
16G   Corporate Governance   42-45  
16H   Mine Safety Disclosure   n/a  
17   Financial Statements   n/a  
18   Financial Statements   141-321  
19   Exhibits   438  
 

 

       LOGO      Annual Report on Form 20-F 2018   LOGO


Table of Contents
1  
      
      

 

Welcome to Aegon’s 2018 Annual Report on Form 20-F

 

To prosper, we believe companies must create long-term value for the societies in which they operate. Aegon creates value in several ways: as a provider of financial services, as well as a responsible employer and business partner. We also make significant social and economic contributions through returns to shareholders, tax and support for local communities, as well as through investments both for our own account and on behalf of our customers. Our aim is to be a responsible corporate citizen, fully aware of the impact we have on our stakeholders and on society as a whole.

This is Aegon’s Annual Report on Form 20-F for the year ending December 31, 2018. It is the Company’s first fully integrated report. Aegon’s aim in producing this report is to provide a clear, balanced overview of the Company’s operations, strategy and performance. In this report, we look at the trends and challenges our business is facing, at our strategy, at how we create and share value – and at how we safeguard this value through a responsible approach to business. This report also contains the 2018 consolidated financial statements and Company financial statements for Aegon N.V. from page 98.

This document contains Aegon’s Annual Report as filed on Form 20-F (also referred to in this document as ‘Annual Report’) with the United States Securities and Exchange Commission (SEC).

We have prepared this report in accordance with the International Financial Reporting Standards, as issued by the IASB, as well as the International Integrated Reporting Council (IIRC) framework and reporting standards issued by the Global Reporting Initiative (GRI). This report also conforms to relevant reporting requirements under the Dutch Corporate Governance Code and Dutch Civil Code (Part 9, Book 2).

Aegon prepares its consolidated financial statements in accordance with IFRS and with Part 9 of Book 2 of the Netherlands Civil Code for purposes of reporting with the U.S. SEC, including financial information contained in this

 

Annual Report on Form 20-F. Aegon’s accounting policies and its use of various options under IFRS are described in note 2 to the consolidated financial statements.

Other than for SEC reporting, Aegon prepared its Annual Accounts under International Financial Reporting Standards as adopted by the European Union, including the decisions Aegon made with regard to the options available under International Financial Reporting Standards as adopted by the EU (IFRS-EU). IFRS-EU 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.

This information is prepared by revising the hedge accounting impacts that are applied under the EU ‘carve out’ version of IAS 39. Financial information under IFRS accordingly does not take account of the possibility that had Aegon applied IFRS as its primary accounting framework it might have applied alternative hedge strategies where those alternative hedge strategies could have qualified for IFRS compliant hedge accounting. These decisions could have resulted in different shareholders’ equity and net income amounts compared to those indicated in this Annual Report on Form 20-F.

A reconciliation between IFRS-EU and IFRS is included in note 2.1 to the consolidated financial statements.

If you have comments or suggestions about this report, please contact our offices in The Hague. Contact details may be found on page 436.

 

 

 

References

 

Throughout this document, Aegon N.V. is referred to as either ‘Aegon’ or ‘the Company’. Along with its member companies, Aegon N.V. may be referred to as ‘Aegon Group’ or ‘the Group’. For the purposes of this report, ‘member companies’ shall mean, with respect to Aegon N.V., those companies consolidated in accordance with Dutch legislation relating to consolidated accounts.

 

References to ‘NYSE’ and ‘SEC’ relate to the New York Stock Exchange and the US Securities and Exchange Commission respectively. Aegon uses ‘EUR’ and ‘euro’ when referring to the lawful currency of European Monetary Union member states; ‘USD’ and ‘US dollar’ when referring to the lawful currency of the United States and ‘GBP’, ‘UK pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom.

 

 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
2  
      
      

 

Table of contents

 

2018 at a glance           Who we are and what we do
 

4   

  Letter from our CEO       

8   

   Aegon today

6   

  Main events of 2018       

10   

   Our businesses

7   

  Performance highlights 2018       

13   

   Value creation
        

16   

   Stakeholder engagement
        

17   

   Our operating environment
        

21   

   Our strategy

 

 

LOGO

                    

 

    The value we created for our stakeholders
 
   

28   

  Results, performance and targets
   

30   

  Value created and shared with our
stakeholders
   

30   

   Customers
   

32   

   Employees
   

34   

   Business partners
   

35   

   Investors
   

36   

   Wider community
 
    How we safeguard long-term value creation
 
   

40

  Letter from our Supervisory
Board Chairman
   

42

 

Corporate governance

   

46

  Differences between Dutch and
US company laws
   

47

 

Composition of our Boards

   

51

 

Report of the Supervisory Board

   

59

 

Remuneration report

   

66

  Non-financial policies, procedures
and outcomes
   

69

 

Code of conduct

   

70

 

Regulation and supervision

   

76

 

Capital and liquidity management

   

86

 

Asset liability management

   

88

 

Reinsurance ceded

   

90

 

Risk management

   

97

 

Controls and procedures

 

 

 

 

 

 

LOGO

 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


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3  
      
      

 

Financial information          Financial statements of
Aegon N.V.

101

   Selected financial data           

103

   Results of operations         309    Income statement of Aegon N.V.

104

   Results of operations         310    Statement of financial position of Aegon N.V.

104

  

  Worldwide

       

112

  

  Americas

        311    Notes to the financial statements

120

  

  Europe

          

130

  

  Asia

          

136

  

  Aegon Asset Management

        Other information
 
           322   

Profit appropriation

Consolidated financial statements of Aegon N.V.         323    Major shareholders
          

140

  

Exchange rates

        Other financial information

141

   Consolidated income statement of Aegon N.V.           
        326   

Schedule I

142

   Consolidated statement of comprehensive income of Aegon N.V.         327   

Schedule II

        329   

Schedule III

        331   

Schedule IV

143

   Consolidated statement of financial position of Aegon N.V.         332   

Schedule V

144

   Consolidated statement of changes in equity of Aegon N.V.         333    Auditor’s report on the Annual Report on Form 20-F

147

   Consolidated cash flow statement of Aegon N.V.        

148

   Notes to the consolidated financial statements        

 

 

LOGO

   

Additional information

 

    336    Overview
    336   

  Americas

    345   

  The Netherlands

    353   

  United Kingdom

    357   

  Central & Eastern Europe

    360   

  Spain & Portugal

    363   

  Asia

    366   

  Aegon Asset Management

    369    Risk factors Aegon N.V.
    390    Compliance with regulations
    391    Property, plant and equipment
    391    Employees and labor relations
    391    Dividend policy
    392    The offer and listing
    393    Memorandum and Articles of Association
    395    Material contracts
    396    Exchange controls
    397    Taxation
    405    Principal accountant fees and services
    406    Purchases of equity securities by the issuer and affiliated purchasers
 
   

Other non-financial information

 
    408    Other non-financial data
    411    Basis of preparation
    415    Reference tables
    415   

  Global Reporting Initiative (GRI) standards

    423   

  International Integrated Reporting Council (IIRC) framework

    424   

  EU directive on Non-Financial Information

    424   

  UN Principles for Sustainable Insurance (PSI)

    425   

  UN Sustainable Development Goals (SDG)

    427    Glossary
    433    Abbreviations
    434    Disclaimer
    436    Contact
    437    Documents on display
    438    Index to Exhibits
 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
4   2018 at a glance Letter from our CEO
      
      

 

LOGO

2018 was another year of positive change at Aegon. We have continued to improve our service to millions of customers, continued to simplify and modernize our organization and capitalized on new growth opportunities.

 

These initiatives stem from a clear purpose and culture – fundamentals which define why we exist and will continue to exist, and grow, long into the future. Our purpose is clear, to help people achieve a lifetime of financial security. That requires smart planning, promoting healthy lifestyles and offering the right solutions at every stage of our customers’ lives. We are clear in the responsibility we have for our customers. We have put forward a robust approach to securing the financial security of our customers’ retirement and promoting healthy aging in our society.

Serving customers

Our services have never been more necessary than it is today. According to the World Health Organization, over 2 billion people will be over 60 years of age by 2050 – almost a quarter of the world’s population. This demographic change poses far-reaching challenges for society, governments, business and Aegon. One of the key shifts will be who provides that financial security during retirement. The responsibility is shifting fast from governments and employers to individuals. Though many people are neither equipped with the knowledge nor the resources to protect their financial futures. It is our responsibility to help customers make the right choices.

But it does not end there. There is a clear relationship between well-being and the environment we live in. Toward the end

 

of 2018, Aegon was entrusted to manage and administer more than EUR 800 billion of investments on behalf of our customers. We are doing so, fully integrating environmental, social and governance factors into our investment analysis. Further to that, we are actively engaging with companies in our investment portfolio to improve their sustainability performance.

Our annual retirement research shows that there is a clear connection between wealth and health. We have therefore taken our commitment one step further, supporting people to achieve prosperity and health through all stages of their lives. We are a vocal participant in debates about the retirement challenge and share our knowledge and expertise with the governments and international organizations we work with. Meeting the dynamic needs of our customers and society, responding to new competition, technological and regulatory change, shapes our DNA. We strive to be future fit: by acting as one in an agile manner, being accountable, and above all, being customer centric. This has led to considerable strategic, operational and financial changes across our company, enabling us to enhance our products and services to meet the evolving needs of our almost 29 million customers worldwide.

There is more work to be done. Our Net Promoter Score (NPS), a measure that captures all aspects of our relationship with our customers, showed a decrease in 2018 compared with

 
 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
5   2018 at a glance Letter from our CEO
      
      

 

a strong increase the year before. The result only strengthens our commitment to continue to enrich the quality, solutions and support we provide to customers.

Financial results and new medium-term targets

Financially, 2018 was challenging. Markets significantly declined toward the end of the year and this directly influenced the value of our customers’ investments, which impacted results of our own administration and services businesses. Even so, we further strengthened our capital position. We raised our full year dividend per share based on our strong capital position and the confidence that we can continue the sustainable growth of capital generation. We have achieved two out of three financial targets for the period 2016-2018: realizing cost savings of EUR 355 million and returning EUR 2.1 billion of capital to shareholders. We made significant progress on our third target, a return on equity of 10%. We have focused on increasing capital generation across our units, providing sustainable and diversified remittances to the Group. This gives us the capacity to invest a significant portion back into existing businesses and to drive future growth. In addition, steps to significantly reduce our leverage ratio in recent years have lowered funding expenses and increased our financial flexibility.

We have announced new financial targets for the period 2019-2021. Building on the successes of the previous three-year period, our focus remains on strong capital generation and providing shareholders with attractive returns. Our targets are underpinned by an active portfolio management of our various businesses, which can be grouped into three distinct strategic categories. These strategic categories are differentiated from each other based on the maturity of our businesses. This will allow us to unlock the full potential of our large customer base and market positions while leveraging our capabilities and propositions where they are most beneficial. The first category ‘Manage for Value’ includes mature, at-scale businesses, which are important sources of capital and earnings for many years to come. We carefully manage their financial and operational risks to ensure that the important cash flows we generate from these businesses are optimized. In the ‘Drive for growth’ category, we have grouped businesses which are at scale and have strong market positions with attractive, profitable long-term growth potential. This is where the vast majority of our investments will be directed. Propositions in this category are mostly digital or platform-based, with an emphasis on fee income and protection coverage, while focusing on broader and longer relationships with our customers and advisors. Finally, we distinguish our ‘Scale-up for the future’ businesses with meaningful market opportunity, which help drive innovation. These businesses bring new platforms, new technology and new business models, which can be leveraged across the company.

Simplification and growth

We continue to simplify our portfolio of businesses and lay the foundations for sustained growth in the years ahead.

Specific steps in 2018 included rationalizing our geographical footprint, entering partnership agreements, upgrading our technology and the consolidation of our administration systems. Actions like these have allowed us to remove expenses from our operations, while at the same time freeing up resources to focus on further improving customer experience and reduce time-to-market. We finalized the sale of the Irish operation and divested our businesses in the Czech Republic and Slovakia. Rationalization helps to create the space to focus on higher-growth markets and business lines. In July, for instance, we expanded our successful partnership with Banco Santander in Spain. The new agreement gives Aegon access to an additional potential client base of four million customers. In September, Aegon the Netherlands acquired Robidus, consistent with our strategic objective to expand our position in income protection and grow our fee-based businesses.

In the US, Transamerica entered into an agreement with Tata Consultancy Services to administer the company’s US insurance and annuity business lines. Involving over 10 million policies, this transaction offers those customers a unique and enhanced digital platform. Transamerica will see a significant reduction in expenses, and an acceleration in growth through faster product development and state-of-the-art technology. The growth opportunities in the US are in three core areas: integrated solutions to customers in the workplace market, new innovative and fairly priced products for individuals and the level of advice and guidance we offer to our customers. Offering a full suite of products gives us a distinctive competitive advantage. Supporting future growth through modernization and the emphasis on serving the customer has also been a feature of changes elsewhere. In the UK, we strengthened our existing partnership with Atos by signing a 15-year contract to service and administer existing business. This will further improve customer service for around 1.4 million people. In the Netherlands, we are consolidating the administration of pension products into the systems of our subsidiary TKP.

On behalf of Aegon’s Management Board, I would like to express my sincere thanks to everyone who has contributed to our success as a company over the last 12 months. In particular, I want to acknowledge and say thank you to our customers, for the trust they continue to place in us; our shareholders, for their support and confidence; and finally, our team of over 26,000 colleagues whose dedication to serving our customers is second to none.

 

 

LOGO

Alex Wynaendts

Chief Executive Officer and Chairman of the Executive Board of Aegon N.V.

 
 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
6   2018 at a glance Main events of 2018
      
      

 

Main events of 2018

2018 was an important year for Aegon. We expanded distribution, strengthened our capital position and signed new service partnerships on policy administration in the US and UK.

 

LOGO

 

  

First quarter

  Transamerica transfers the administration of its insurance and annuity businesses to Tata Consultancy Services (TCS).

  Transamerica launches a new USD 100 million US affordable housing fund. The fund is the first of its kind and will finance home loans across 13 states.

  Aegon introduces its new ‘Goed met Geld’ – or ‘Mastering Money’ – financial awareness program in the Netherlands.

 

Second quarter

  Aegon Asset Management sets up a new EUR 120 million innovation fund in the Netherlands. The fund will invest in around 85 small and medium-sized Dutch companies.

  Aegon completes the sale of Aegon Ireland for EUR 195 million to Athora Holding.

LOGO   

  William Connelly becomes Chairman of Aegon’s Supervisory Board. He takes over from Rob Routs, who announced his retirement as Chairman in 2017.

  Shareholders approve the reappointment of Supervisory Board members Corien Wortmann and Robert Dineen for another four years. Both joined the Board in 2014.

  Aegon decides to exclude investments in tobacco. The Company will sell or run off approximately EUR 500 million in current tobacco investments.

  Aegon’s Center for Longevity and Retirement releases its latest report, calling for a new social contract for pensions and retirement.

  Aegon is among investors pledging USD 350 million to support the Dementia Discovery Fund, dedicated to finding new treatments for the disease.

LOGO   

Third quarter

  Aegon announces plans to expand its partnership with Spain’s Banco Santander. The plans give Aegon access to another four million potential customers in Spain.

  Aegon buys Robidus, a leading income protection services provider. The acquisition will strengthen Aegon’s existing income protection services for Dutch employers.

  Aegon agrees to divest the last of its US life reinsurance business to SCOR Global Life.

  Aegon agrees to sell its businesses in the Czech Republic and Slovakia to NN Group. The sale closed in January 2019.

  Aegon US subsidiaries reach a settlement with the SEC over concerns relating to certain investment models.

LOGO   

Fourth quarter

  Transamerica announces it has settled a US class action suit challenging rate adjustments on universal life insurance policies.

  Aegon UK signs a new 15-year contract with Atos. The digital services provider will take over the administration of policies belonging to around 1.4 million customers.

  CEO Alex Wynaendts tells a conference in Munich that the Netherlands ‘waited too long’ before bringing in an individualized pension system.

  Aegon decides to exclude investments in oil sands because of concerns over environmental damage. The decision was announced publicly in February 2019.

  Aegon generates an additional USD 1 billion in capital following the merger of its Arizona-based variable annuities captive with Transamerica Life Insurance Co.

 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
7   2018 at a glance Performance highlights 2018
      
      

 

Performance highlights 2018

 

 

LOGO

For full definitions of non-financial data used in these charts, see page 412.

 

1 

Figures are based on a new definition of adjusted shareholders’ equity based on IFRS as adopted by the EU, which will no longer be adjusted for defined benefit pension plans. This new definition was introduced in the second half of 2018 and brings Aegon more in line with peers and rating agencies. Prior figures have been recalculated according to the new definition (refer to page 107 for details).

2 

Normalized capital generation after Holding expenses, excluding market impacts and one-off items.

 

 

       LOGO      Annual Report on Form 20F 2018   LOGO

 


Table of Contents
8   Who we are and what we do Aegon today
      
      

 

Aegon today

Global presence

 

LOGO

 

      

 

Main brands

Aegon

Australia, China, Hong Kong, Hungary, Indonesia, Japan, Netherlands, Poland, Romania, Spain, Thailand, Turkey, UK

Transamerica

Bermuda, Hong Kong, Singapore, US

Aegon Asset Management

Germany, Hong Kong, Hungary, Japan, Netherlands, Spain, UK, US

         

 

Joint ventures and associates

Brazil, China, France, Hong Kong, India, Indonesia, Japan, Malaysia, Mexico, Netherlands, Philippines, Portugal, Singapore, Spain, Thailand, Vietnam

  
    

 

 

  The Aegon brand operates as Aegon Insights in Australia, China, Indonesia, Japan, Thailand and Hong Kong.

  The Transamerica brand operates as Transamerica Life Bermuda in Hong Kong, Singapore and Bermuda.

  Aegon Asset Management operates under the Aegon brand in the US, the Netherlands, Hungary, Spain, Germany, Hong Kong and Japan, under the Kames Capital brand in the UK and under TKP Investments in the Netherlands.

  We also operate under several other brands, including: Knab, TKP, Robidus and Nedasco (Netherlands); World Financial Group (US, Canada); Origen Financial Services (UK); Futuready (Indonesia); Transamerica Ventures and Blue Square Re (global).

 

 

 

       LOGO      Annual Report on Form 20F 2018   LOGO


Table of Contents
9   Who we are and what we do Aegon today
      
      

 

Aegon can trace its roots back to the first half of the 19th century. Nearly 175 years later, we have businesses in more than 20 countries, serving 28.5 million customers worldwide, and with EUR 316 billion in assets under management.

 

Where our customers are

(total number of customers by location, in millions, end-2018)

  

Where our employees work

(by reporting segment, end-2018)

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Where our earnings come from

(underlying earnings before tax, in EUR million)

  

How we invest

(assets under management by asset class2, end-2018)

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1  

Total number includes Holding and others (not shown in chart).

2  

Figures relate to Aegon Asset Management only.

 

 

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Table of Contents
10   Who we are and what we do Our businesses
      
      

 

Our businesses

Aegon is an international financial services group. We provide life insurance, pensions and asset management. Our main operations are in the US, the Netherlands and the UK. We also have significant businesses in Southern and Eastern Europe, Asia and Latin America.

 

Our purpose

As a company, our purpose is to help people achieve a lifetime of financial security. This purpose is particularly relevant in today’s world as people live longer, healthier lives, new technologies are transforming the way we work, and it is clear that, in many countries, state and company pensions are no longer enough to maintain living standards.

Our products and services

Aegon’s businesses offer a range of financial products and services to help customers throughout their working lives and into retirement. These include life insurance, accident & health cover, pensions and retirement plans, annuities, savings products and investments. In some countries, we also offer mortgages, home and car insurance. We insure customers’ lives, protect their families and help them save for education and retirement. We help them buy new homes, and manage their long-term investments. When they retire, we provide a stable income. We also help our customers meet care costs – a growing concern in many parts of the world – and ensure, that when they are gone, their families’ future is secure. In retirement particularly, we see a connection between health and long-term financial security.

Our markets

We have four main reporting segments: Americas, Europe1, Asia and Asset Management. Of these, the Americas is by far the largest, accounting for nearly 60% of our annual earnings. Our holding company, Aegon N.V., is headquartered in The Hague, the Netherlands. Aegon Asset Management manages assets on behalf of third parties and Aegon’s own businesses, covering all major asset classes, including fixed income, equity and real estate. We also have Transamerica Ventures – our corporate venture capital firm, which invests in innovative, new technology companies. Our businesses operate locally through two main brands: Aegon (mainly in Europe and Asia) and Transamerica (mainly in the US).

In many countries, we have joint ventures; these give us access to local markets and expertise. In Spain and Portugal, for example, we offer products through Banco Santander’s more than 3,000 bank branches. We also have significant joint ventures in China, India, Japan, France, the Netherlands, Brazil and Mexico.

For further details on our businesses, see our Business Overview on pages 336-368.

With businesses across the Americas, Europe and Asia, we have the advantages of a global group. We can share talent, knowledge, processes and technologies. We are also more efficient with our capital: alone, our businesses would not be able to diversify risk, and as a result would need to hold significantly more capital. Size can also be important in the investment industry – our global presence is the basis for our growing asset management business.

Distribution

In many markets, to distribute our products, we work with intermediaries. These include brokers, agents, banks, employee benefit consultants and independent financial advisors. This multi-channel approach allows us to reach more customers. Increasingly, our products and services are sold direct to customers and companies, including via online platforms. We now have nearly 7.7 million ‘digitally connected’ customers. Aegon also owns distribution businesses; these include Origen Financial Services in the UK and World Financial Group, which operates in the US and Canada.

Regulation

We operate in a highly regulated industry. Over the past decade, regulation has become increasingly complex. Much of this new regulation was influenced by the 2008-2009 financial crisis. Since the crisis, regulators have emphasized the need for more effective consumer protection. As a result, we have seen tighter controls on product design, distribution and reporting. The biggest change was the introduction of new capital rules in 2016 under Solvency II; an insurer’s Solvency II ratio has now become an important measure of its financial strength.

At the same time, we have seen new rules on data privacy – both in Europe with the EU’s General Data Protection Regulation (GDPR) and with new cyber security legislation in New York and California. Meanwhile, PSD2 (the new EU Payment Services Directive) will bring in more open banking, allowing consumers to share their personal financial data electronically. We are also seeing further efforts to open up Europe’s financial services market, via MiFID II, as well as changes in financial reporting rules with IFRS 17 on accounting for insurance contracts (due for

 

 

 

1 

Europe includes Aegon’s operations in the Netherlands, UK, Central and Eastern Europe, Spain and Portugal.

 

 

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11   Who we are and what we do Our businesses
      
      

 

   Americas    Europe    Asia    Asset Management
Locations    US, Canada, Brazil, Mexico    Netherlands, UK, Hungary, Poland, Turkey, Romania, Spain, Portugal    Singapore, Hong Kong, Japan, China, India, Indonesia, Malaysia, Thailand, Vietnam, Philippines, Australia and Bermuda1,2.    US, UK, Netherlands, Hungary, Spain, Germany, France, China, Hong Kong, Japan
Products and services   

  Life insurance

  Accident & health insurance

  Individual investment accounts

  Annuities

  Retirement plan services

  Stable value solutions

  Retail and institutional investment management solutions

  

  Life insurance

  Accident & health insurance

  Savings

  Individual investment accounts

  Annuities

  Retirement plan services

  Group pensions

  Property & casualty insurance

  Mortgage loans

  Retail and institutional investment management solutions

  Bank accounts

  

  Life insurance

  Accident & health insurance

  Annuities

  Marketing and distribution services

  

  Retail and institutional investment management solutions

Distribution   

  Brokers (e.g. independent financial advisors, broker-dealers, bank arm)

  Independent agents (including owned or closely affiliated)

  Employee benefit consultants

  Bancassurance

  Self service/online, call/advice centers

  

  Brokers (e.g. independent financial advisors)

  Agents

  Employee benefit consultants

  Bancassurance

  Self service/online, call/ advice centers

  

  Brokers (e.g. independent financial advisors, bank arm)

  (Independent) agents

  Bancassurance

  Self service/online, call/advice centers

  

  Aegon affiliated companies

  Direct B2B (non-affiliated)

  Banks, other financial institutions and (their) investment platforms (non-affiliated)

Joint ventures and associates   

  Aegon Mongeral, Brazil (50%)

  Akaan Aegon, Mexico (50%)3

  

  Santander, Spain & Portugal (51%)

  Liberbank, Spain (50%)

  Amvest, the Netherlands (50%)

  

  Aegon Sony Life, Japan (50%)

  Aegon THTF, China (50%)

  Aegon Life, India (49%)

  GoBear, various locations (50%)

  

  La Banque Postale Asset Management, France (25%)

  Aegon Industrial Fund Management Company, China (49%)

 

1 

Bermuda relates to Transamerica Life Bermuda.

2 

Asia includes locations of our joint venture GoBear. Financial results of GoBear are reported under Holding and other activities.

3 

Akaan Aegon operates under the brand name Akaan Transamerica.

 

introduction in 2022). Changes in regulation can have a profound effect not only on the way we manage our business, but also on our profitability and the products and services we offer.

Sources of revenues and earnings

Most of our revenues come from three sources: premiums from customers, investment income, and fees and commissions. Our earnings come from fees, spreads, and technical profits.

  Earnings from spreads come from the difference between investment income earned and interest credited to customers.
  Technical earnings derive mainly from the difference between risk premiums received from, and claims paid to, customers.
  Earnings from fees come from charges to customers relating to deposits and assets under management, or from services provided by Aegon (net of fees paid by the Company to third-party asset managers or service providers).

In recent years, we have concentrated more on fee-based business, and less on spread-based business. This is mainly in response to low interest rates and increased capital requirements. This shift makes the source of our earnings more balanced and diverse, and makes our capital base more predictable and less at risk from fluctuations in world financial markets. There is no material seasonality to our sales or income,

though we usually experience an increase in mortality claims in the first quarter (which is winter in our main markets).

Revenues 2018

(in EUR million)

 

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12   Who we are and what we do Our businesses
      
      

 

Our business model

Aegon’s basic business model has four steps: product development and pricing, distribution, investments and payment of claims and benefits. This model drives value creation for our customers, employees, business partners and investors, as well as for the wider community.

 

LOGO

 

LOGO   Product development and pricing
 

We begin with customers. We assess their needs, and develop products and services that meet those needs. Next we estimate and price the risk involved for us as a financial services provider.

 

LOGO   Distribution
 

Our products and services are then branded, marketed and sold. We offer products and services via intermediaries, like brokers, banks or financial advisors. We also sell directly to our customers.

 

LOGO   Investments
 

In exchange for products and services, customers pay fees or premiums. On certain pension products, savings and investments, customers make deposits. By investing this money, we make returns for our customers.

 

LOGO   Claims and benefits
 

From premiums, deposits and investment returns, we pay customer claims and benefits, cover our expenses, and make profits for our shareholders.

Customers also make regular withdrawals from pensions and savings products.

Ownership

Aegon N.V. shares are listed in both Amsterdam (Euronext) and New York (NYSE). More than three-quarters of our shareholders are located in our three main markets: the US, the Netherlands and UK. Shareholders meet at least once a year at our offices in The Hague. Aegon’s largest shareholder is Vereniging Aegon, an association whose purpose is to protect the long-term interests of both Aegon and its stakeholders. Vereniging Aegon currently holds 32.64% of voting rights in the Company. However, in the absence of a Special Cause, Vereniging Aegon may only cast one vote for every 40 common shares B it holds. For more details, see page 43.

 
 

 

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13   Who we are and what we do Value creation
      
      

 

Value creation

 

Long-term value creation

Our business creates value for our stakeholders and society. Because of the nature of this business, value created is often financial, but it may also be social, economic or environmental:

 

  Through our products and services, we offer customers protection. We pay claims and benefits, provide returns on savings and investments, and help build long-term financial security.

 

  For our employees, we offer training in new skills and opportunities for career development. We pay salaries and other social benefits, and provide a safe, fulfilling environment in which to work.

 

  For our business partners, we pay fees to brokers, financial advisors and other intermediaries1. We also invest in our joint ventures and partnerships. We pay reinsurers and suppliers for their goods and services.

 

  Our investors receive returns on their investments through regular dividends, share buy-backs and interest payments; they may also gain financially if our share price increases.

 

  For the wider community, we pay fair taxes and provide employment. We also support local communities through donations and volunteering. We take a responsible approach to investments, and contribute to society’s current debate on retirement, pensions and healthy aging.

Social and economic role of financial services

Our businesses make a significant social and economic contribution. Insurance, in particular, strengthens social stability by protecting people, property and assets. Financial companies are also significant long-term investors in the economy, funding public and private sectors, creating new jobs and driving business growth. More broadly, financial services allow individuals and businesses to take risks, as well as plan and invest for the future.

Our value creation model

To operate our businesses, we need resources. We need customers; we need investments; we need a workforce and business partners. These resources may be ‘financial’, ‘human’ or ‘intellectual’. The chart on page 14 shows our value chain: how our business uses these resources (or ‘capitals’) to create long-term value for our stakeholders and the wider community.

 

 

 

 

1 

In markets where we no longer pay commissions because of local regulations, we ‘enable’ customer payments for financial advice to brokers and other intermediaries through the sale of our products and services.

 

 

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14   Who we are and what we do Value creation

 

Our value chain

 

 

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1 

This figure relates to financial capital, but has been used as a proxy for social capital (creating a healthier environment).

 

 

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15   Who we are and what we do Value creation
      
      

 

Explanatory note:

This chart is based on the International Integrated Reporting Council’s IR framework. Each capital represents a store of value, which companies use and transform through their business activities. In this process, value may be created or depleted. For the purposes of this value chain, we have chosen the capitals most relevant to our business (financial, human and intellectual, and social and relationship). In the chart, the process is shown from the perspective of Aegon’s business. Both natural and manufactured capital are also part of the IR framework.

Neither, however, is directly relevant to Aegon’s core businesses (as a services company, we do not use natural or manufactured products in our business, though of course we may affect the value of both through our investments). For more information on the IR framework, see www.integratedreporting.org.

Definitions:

Financial capital represents the funds to which Aegon has access. This includes debt and equity finance. Human and intellectual capital refers to individual knowledge, skills and capacities in Aegon’s workforce, as well as the company’s institutional knowledge, processes and expertise. Social and relationship capital covers relationships both within and outside the company. These include relationships with customers, employees, suppliers and other business partners.

See page 422 for details of Aegon’s calculation for direct and indirect economic value generated, as well as economic value retained.

 

 

 

 

 

 

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16   Who we are and what we do Stakeholder engagement
      
      

 

Stakeholder engagement

 

Our stakeholders

As an international business, we have many stakeholders. Their relationship with Aegon depends not only on the nature of each stakeholder’s organization and activities, but also the value created by that relationship (both for the stakeholder and for Aegon). Aegon defines its stakeholders as ‘any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which the Company operates’.

Aegon recognizes five main stakeholder groups:

  Customers (individual customers, group and corporate clients)
  Employees (full-time and part-time employees, tied agents, trade unions and other employee representative groups)

 

  Business partners (distributors, joint venture partners, reinsurers and suppliers of goods and services)
  Investors (shareholders and bondholders)
  Wider community (governments, regulators, charities, tax authorities, community groups and other non-governmental organizations, academic and public institutions).

Aegon’s relationships with its stakeholders are based on mutual benefit. Through these relationships, we earn our ‘social license to operate’ – implicit consent from employees, stakeholders and the general public to continue our business1.

 

  Stakeholder group

  

Stakeholders provide Aegon with:

  

Aegon provides stakeholders with:

  Customers    Fees, premiums and deposits   

Protection and long-term financial security

 

  Employees    Time, resources, skills and knowledge   

Salaries and benefits, training, career development, safe and productive working environment

 

  Business partners    Distribution, reinsurance, goods and services   

Financial support, payment of fees, expertise and a reliable, professional relationship

 

  Investors    Cash through investment in bonds and shares   

Attractive long-term returns for their investments

 

  Wider community    Public services, infrastructure, access to labor and markets, regulatory framework   

Payment of taxes, community investment, expertise on aging and retirement, responsible approach to investments

 

 

Dilemmas

We recognize that, in creating value for one stakeholder group, we may deplete value for another. In recent years, for example, we have seen significant investments in new technologies in the financial services industry. This investment has improved efficiency, reducing costs for financial companies and strengthening customer service. However, it has also led to job losses, particularly in areas of the industry with clearly-defined processes that can be easily automated. Recent research from PwC estimated just over 30% of insurance jobs, for example, will disappear by the 2030s because of automation2. Our asset management business faces similar dilemmas: Aegon’s recent decision no longer to invest in tobacco, for example, may reduce investment opportunities, but may also bring wider health and social benefits.

Engagement

Aegon engages with stakeholders to understand these dilemmas. Engagement allows us to take different stakeholder views into account when making our decisions. We engage with stakeholders regularly through polls and surveys, conferences, perception studies, workshops and face-to-face meetings.

 

We also organize panels with our customers and employees. We use their feedback to improve our products and services, to make sure we are aware of risks and opportunities for our business and can continue to deliver long-term value. Engagement takes place at both local and Group level.

Where appropriate, we also embed this process in our policies and procedures. Our Pricing & Product Development Policy, for example, includes the principle of reasonable distribution of value; this ensures fair returns from our products to customers, intermediaries and shareholders.

We also engage regularly with the companies we invest in. These engagements focus on environmental, social and governance issues. In recent years, we have been particularly active, in this area, on climate change (see page 20). To support this approach, we are signatories to a number of international agreements, including the Global Coalition on Aging and the UN Principles for both Sustainable Insurance and Responsible Investment. For more information, see our Responsible Investment Report, available online.

 

 

 

1 

Companies may lose this ‘license’ if they do not create sufficient value for the societies in which they operate (or destroy value through, for example, damage to the natural environment or financial wrongdoing)

2 

Source: ‘Will robots really steal our jobs?’ – PwC, February 2018

 

 

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17   Who we are and what we do Our operating environment
      
      

 

Our operating environment

 

We operate in a complex environment. We are affected by a host of social and economic factors – from financial market performance and new regulation through to changing demographics and the increasing use of digital technology in our homes and offices.

At the same time, customers are demanding more from financial services. Aging means people are spending longer in retirement; older populations also bring more health issues. People need financial products that will not only help them save, but also manage their savings in retirement and ensure they can meet healthcare costs. Currently, only around 25% of people believe they are saving enough for retirement1.

With products like life insurance and pensions, trust is important. People need to know that, when the time comes, their insurer or pensions provider will pay out their claims and benefits. Trust in financial companies has improved in recent years, but it is still lower than trust in, for example, healthcare providers or technology companies. Even so, people are more likely to trust their friends or peers than companies or institutions. The fact is, profits or a recognizable brand name are no longer enough. To win trust, businesses must act responsibly, build relationships through regular contact with customers, and play their part in tackling social issues like climate change, poverty or health and well-being.

Our business is also changing. We used to be essentially a manufacturer of financial products. Now, we are a provider of financial services. More of our business is fee-based. We are less reliant on income from financial market spreads. In some cases, our businesses also offer products from other providers. Thanks to technology, we know far more about our customers; with access to data, we are putting more emphasis on prevention. If we can use technology to help our customers lead healthier lives, this benefits them and may reduce claims and costs for us as their insurer.

Business and economic conditions

In the past two years, market conditions have generally been favorable, though there are now significant tensions in the global economy. We have seen economic growth in both the US and the Netherlands, as well as in emerging markets like China and India. The Dutch housing market has been booming. In the US, economic growth has been boosted by tax cuts. In the last quarter of 2018 however, stock markets saw substantial declines. Low interest rates continue to act as a drag on earnings and revenue. And growth in the UK has slowed, in part because of concerns over the country’s planned withdrawal from the EU2.

 

 

1 

Source: Aegon Retirement Readiness Survey 2018.

2 

See page 75 for more details on our preparations for the UK’s withdrawal from the European Union.

Aegon also faces difficult market conditions in Turkey: political uncertainty, higher inflation and a substantial drop in the value of the Turkish lira. Growth could be slowed by disputes over trade. Meanwhile, a strong US dollar may weaken growth in emerging markets, as could worsening credit risk in China.

Our material topics

We conduct a regular assessment of our operating environment. This assessment allows us to identify our most material topics – those most likely to affect Aegon (its operations, profits or reputation) or its stakeholders (their financial or personal well-being, their businesses, employment etc.). Results from this assessment are incorporated directly into Aegon’s annual strategy, business planning and reporting processes; they help identify emerging risks and opportunities, ensuring that we are able, where necessary, to adjust our strategy or risk management approach to take account of economic, social and environmental developments (for more details, see page 93). Our latest assessment covered 16 different social, financial, environmental, technological and regulatory topics. Of these topics, we identified five as most material (topics which were rated by both management and external stakeholders as having most impact on the Company’s ability to create value over the short, medium and long term): reputation & trust, cyber & information security, new technologies & digital transformation, low interest rates and changing consumer behavior.

 

 

Blockchain and the ‘protection gap’

 

Blockchain has the potential to revolutionize the financial services industry; we are part of a reinsurance initiative looking at blockchain, known as B3i.

 

If successful, this initiative will make processing reinsurance transactions much quicker – and much more efficient. It should also increase trust. With blockchain, once data is verified and stored, it cannot be changed. B3i began initial testing in October 2017. Alongside Aegon, other leading insurers are also involved, including Allianz, Swiss Re, Zurich Financial, SCOR and Munich Re. Blockchain could have far-reaching benefits – arguably, its main benefit is in bringing down the cost of insurance. Reducing that cost would benefit insurers, but it should also make insurance more affordable and help close the current ‘protection gap’ – widest in developing countries, where many people cannot afford private insurance and governments lack the resources to offer state cover.

 

 

 
 

 

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18   Who we are and what we do Our operating environment
      
      

 

Materiality matrix

 

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Note on methodology:

To conduct our materiality exercise, we first identified the main economic, social, environmental and governance topics affecting Aegon’s operating environment, based on internal discussions and a thorough media review. We then surveyed both senior management and a cross-section of stakeholders1 to determine which of these topics were most material for the Company. Results were fed into Aegon’s annual strategy cycle, beginning in January 2018. This exercise is a central part of Aegon’s approach to stakeholder engagement (see pages 93 and 411 for further

information on our materiality exercise). For the December 2017 assessment, we introduced a number of new topics to reflect changes in our operating environment; these new topics included: reputation & trust, cyber security & information security, big data & analytics, attracting and retaining talented employees, changing consumer behavior, partnerships, non-traditional competitors and de-globalization. For results of our December 2016 assessment, see our 2017 Annual Review, available online. In the chart above, arrows indicate movement in topics from the previous assessment; no arrows are included for new topics.

 

 

1 

Stakeholders responding to the survey included: customers, employees and regulators in our three main markets (US, Netherlands and UK), representatives of Aegon’s European Works Council, financial advisors /brokers, bancassurance and joint venture partners, reinsurers, suppliers, financial analysts, institutional investors, peers, rating agencies, NGOs, and academics. Members of Aegon’s Management and Supervisory Boards also took part in the survey.

 

 

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19   Who we are and what we do Our operating environment
      
      

 

For each material topic, we have mapped out below the main risks and opportunities (for both Aegon and its stakeholders)1:

 

    Topic: Reputation and trust

Customers want to be with companies they know and trust. For companies, that means providing reliable products and services – but it also means acting as a responsible corporate citizen.

 

Degree of influence or control: We can build trust through our business practices, culture and values. But we are also affected by levels of public trust in the wider financial sector.

    Risks and opportunities

  

Short-term

  

Long-term

For our business: trust in our brand helps us attract new customers and retain existing ones. It also helps bring in new talent, and opens up business opportunities. In short, without trust, we cannot grow our business. Losing this trust would severely weaken our financial performance and undermine long-term growth of our business.    Short-term loss of trust would affect sales, reputation and profitability.   

Longer-term loss of trust in brand leads to impaired business and financial performance.

Increased trust opens up new market opportunities, with higher sales and customer retention.

For our stakeholders: trust secures our ‘license to operate’ – to provide financial security for our customers, employment, and returns for investors. Correspondingly, any significant loss of trust would directly affect our stakeholders – through lower returns for investors, for example, or fewer opportunities for our business partners.

 

    Topic: Cyber and information security

         

With more transactions online, data protection is becoming increasingly important. Regulators are also tightening up data privacy requirements.

Degree of influence or control: Like other companies, we have a direct and immediate responsibility to protect customer data, and ensure our systems are safe and secure at all times.

    Risks and opportunities

  

Short-term

  

Long-term

For our business: we are spending more on data security. We realize that any breach would mean a loss of trust and potentially a loss of business. Data breaches may also open us up to possible fines from regulators, particularly with the introduction in May 2018 of the EU’s General Data Protection Regulation (GDPR). They may also compromise our ability to sell direct to customers, or pay out claims.    Potential loss of business following breach or fines from regulators.    Loss of business and revenues over time; lower profits; opportunity to build greater trust by demonstrating effective data security.
For our stakeholders: for customers, breaches in security may cause personal loss (both financial and emotional). There may also be consequences for relations with suppliers and intermediaries. For investors, any loss of business or reputation could result in lower returns. PSD2 will increase consumers’ control over financial data, but also their responsibility for this data.

    Topic: New technologies and digital transformation

         

The financial sector has adopted new digital technologies in everything from customer service to risk and claims management.

 

Degree of influence or control: We have direct control over the technology we use and invest in, but we also need to respond to changes in customer behavior as a result of an increased use of technology, particularly in areas like healthcare, travel and financial services.

    Risks and opportunities

  

Short-term

  

Long-term

For our business: with technology, we can be more efficient, speed up internal processes and save costs. Digital technologies also allow us to get closer to our customers. We have more access to data, which means we understand our customers’ needs better (see below). We are also investing in automation to improve customer service and protect our customers’ data. Introducing technology, however, requires investment, both in systems and in new skills. Technology also lowers barriers to competition, particularly from providers currently outside the financial sector.    More access to data on performance and customer preferences; increased efficiency and cost savings.   

Increased investment in systems and new skills within workforce; need to retrain employees for new roles as a result of automation; improved and faster

customer service, which could lead to increased retention.

 

For our stakeholders: there are clear benefits for our stakeholders – quicker, more reliable service for both customers and intermediaries. Reducing costs could also mean better returns for our investors. However, increased use of technology has already brought significant job losses, particularly in areas like administration and claims management.

 

 

 

1 

For more information on our approach to risk management, see page 90.

 

 

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    Topic: Low interest rates

In Europe, interest rates remain at historical lows, though in the US rates have been increasing since late 2016.

 

  

Degree of influence or control: We have no direct control over interest rates. Benchmark rates are the responsibility of central banks and governments. Longer-term rates, meanwhile, are determined by financial markets (though we do have control over the guarantees we provide to our customers).

    Risks and opportunities

  

Short-term

  

Long-term

For our business: low interest rates mean lower returns on our investments. That has a negative effect on both earnings and revenues, though this may be offset by higher equity markets. In some cases, returns may not be enough for us to meet guarantees we have on long-term products or to price these products attractively. With low interest rates, however, we have an opportunity to refinance our corporate debt at a lower rate. Over time, low interest rates make it less profitable to offer certain products – like annuities, which rely heavily on income from interest rate spreads.    Negative effect on earnings and revenues, lower returns on investments; opportunity to refinance corporate debt at a lower rate.    Over time, spread business likely to become less attractive.
For our stakeholders: low interest rates also mean lower returns for our customers, especially those with savings products. Some will switch to products less reliant on interest rate returns. Reduced earnings may also mean lower returns for our shareholders.

    Topic: Changing consumer behavior

Customers are increasingly digital. They want quick, reliable service, more frequent interaction and simple, easy-to-understand products and services.

 

Degree of influence or control: We cannot influence customer behavior directly. Our responsibility is to respond to changes in customer needs, in terms of products, distribution and levels of customer service.

    Risks and opportunities

  

Short-term

  

Long-term

For our business: changes in customer behavior are opening up new markets for us. These markets will provide future growth for our business. At the same time, we need to adapt quickly – and change our own culture and way of working, which brings risks: if we do not adapt quickly enough, we will lose business to competitors.    Opens up new markets and forms of distribution and partnership, as well as new products and services.    Need for additional investment in new technologies and new skills.

For our stakeholders: in any organization, culture change is not easy. It makes new demands of employees and management. But change also brings opportunities for development. Adapting successfully should benefit customers (through better products and services). It will also benefit investors through improved earnings and higher returns.

 

 

Climate change

Climate does not rank highly in our materiality assessment1. However, we carry out a regular review of climate risk. This is partly in response to stakeholder expectations – partly because we recognize the potential impact of climate change on both our business and on the communities in which we operate.

Our review showed only minor direct risks to Aegon’s businesses; our principal risk is reputational. The assessment covers several areas: these include regulatory, strategic, underwriting and investment risk. All risks are assessed for both impact and likelihood. There are nine risks in all. Most were rated either ‘unlikely’ or ‘extremely unlikely’, including those with the highest

 

potential impact on our business. One risk was categorized as ‘likely’ – negative media coverage of our investments (this, according to our assessment, would have a moderate impact on our business).

We have measures in place to counter climate risk. These include monitoring of new regulations, business continuity plans and regular analysis of investments.

Our review is overseen by our Climate Working Group (CWG); the CWG’s work is based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD), published in 2017.

 

 

 

 

1 

‘Social and environmental impacts of business activities and investments’ is also included in Aegon’s materiality assessment. In the latest assessment, this topic ranked relatively low in importance both to management and our stakeholders. For more information about investment risk related to climate, see the Aegon Responsible Investment Report, available online. For details of our materiality assessment, see page 18.

 

 

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21   Who we are and what we do Our strategy
      
      

 

Our strategy

Driven by our purpose, we believe everybody deserves a secure future. Our strategy is about building life-time relationships with customers, to create financial security and well-being throughout their lives. Our strategy helps us address material topics important to our customers, employees, investors and other stakeholders.

 

Our vision

For us, creating this secure future means smarter, long-term financial planning. It means the right financial products and services at every stage of life. It also means healthier lifestyles, redefining what we want from retirement, and it means building a cleaner, healthier environment. In each of these areas, we believe Aegon has a positive contribution to make: in helping people achieve financial security; in speaking out on retirement and healthy aging; in using our influence as an investor on environmental issues, and in supporting the UN’s sustainable development agenda. To implement this responsible business strategy, we are also changing the way we do business. Over recent years, we have built a strong foundation – restructuring our businesses, and investing more in new technologies and growth markets. As a result, we are more efficient – and more focused on sustainable growth and the value we can create over the long term, for both our customers and the wider community. To support the implementation of our strategy, we have set ourselves financial targets for the period 2019-2021 and have selected six non-financial indicators; these will be used to assess progress against specific aspects of our strategy.

For individuals: financial security and well-being

This goes to our purpose as a company. In many countries, we know people can no longer rely on state or company pensions and benefits. They need to take more personal responsibility for their finances. To help them, we are investing in new digital technologies. For our customers, this means instant access to their finances, so they can track their savings and investments. And we are putting more into financial education; to take personal responsibility, people need information and knowledge. In the Netherlands, for example, we have the ‘Goed met Geld’ – or ‘Mastering Money’ – program. By the end of 2018, more than 100,000 people had completed the program’s basic financial awareness test.

At the same time, we are investing in new business models – models, which make use of these new technologies. In the UK, for example, we have created Aegon Retirement Choices (ARC). With ARC, customers and their financial advisors can manage individual pensions, assets and savings through a single, easy-

to-access platform. We are simplifying our products, expanding distribution and stepping up workplace marketing – offering pensions and other products through employers. Aegon now has 11 million workplace customers in our three main markets: the US, UK and the Netherlands. We want to serve customers throughout their working lives and into retirement. We realize that customers need us most at crucial points in their lives: when they buy a home, have children, or prepare for retirement, for example. We also want to increase interaction with customers – we are in an industry where, traditionally, there is very little direct contact. More frequent interaction helps us improve customer service. We believe it will also strengthen trust in our brand, and flow through eventually into higher sales.

 

LOGO

See page 39 for more information on how our approach to financial security and well-being contributes to these UN Sustainable Development Goals.

For society: secure retirement and healthy aging

We know the world is getting older. People are spending much longer in retirement. In 1950, you might expect to have lived another 13 years after retirement. Now, that figure is more than 20 years1. For many people in the US, Europe and Asia, ‘outliving your savings’ has become a real possibility. At the same time, the cost of long-term care is rising. Aging is driving real change in our business – it is putting pressure on state and company pensions; in response, it is clear people will need to take more personal responsibility for saving for their retirement.

 

 

 

1 

Source: UN World Population Prospects, 2017 (life expectancy at age 65 was estimated at 13.47 years in 1950-1955 and at 20.91 years in 2020-2025).

 

 

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LOGO

 

For decades, retirement systems in many countries relied on an implicit social contract between government, employers and individuals. Recently, this social contract has started to fall apart.

 

In 2018, the Aegon Center for Longevity and Retirement called for a new deal - one that would give people the resources they need to save and invest for retirement, but also ensure the more vulnerable in society are not left behind. The Center’s recommendations included sustainable social security benefits to provide a financial safety net for pensioners, automatic pension plans that make it easier to save, and affordable healthcare to promote healthy aging. The proposals would also mean a step-up in financial education to make sure people have the right knowledge to make investment decisions – and an important role for companies in offering their employees proper workplace savings plans, skills training and healthcare. The Center’s recommendations were published in May 2018. Since then, they have formed the basis of Aegon’s position on pension reform and retirement.

 

Our aim is to become a thought leader on retirement and healthy aging. We invest in research through the Aegon Center for Longevity and Retirement (ACLR), and its sister organizations in the US and Brazil. We have also built a network of partnerships to push for change and reform in the way we manage retirement, healthcare and aging. As part of this network, we work with the Global Coalition on Aging, the American Association of Retired Persons (AARP), the VU University Alzheimer Centre and the MIT AgeLab.

We also have supplemental health and long-term care businesses in the US. In the UK and the Netherlands, we invest in care homes for the elderly. In 2018, we supported a new Dementia Discovery Fund and stopped investments in tobacco; smoking is a leading cause of many of the chronic illnesses pushing up healthcare costs.

 

Today, we are more likely to see retirement as a new, potentially exciting phase of our lives. However, we are still not saving enough for our pensions – our own research shows that nearly half of people believe that, because of the economic and social consequences of aging, future generations will be worse off than their own. With this work, we want to change attitudes to retirement, health and aging – and encourage more people to save and invest for the long term.

 

 

LOGO

See page 39 for more information on how our approach to secure retirement and healthy aging contributes to these UN Sustainable Development Goals.

For the environment: clean energy and sustainable real estate

As an investor, we have an important role to play – in supporting new low-carbon technologies, and improving the carbon footprint of our real estate investments, so we contribute to a cleaner, healthier environment.

Climate change has been a focus of our investment strategy since 2014. We have built consideration for climate change into our daily investment decisions. We have stopped investing in many coal-mining companies. In February 2019, we also stopped investment in companies involved in oil sands1; prior to the decision, we had approximately EUR 500 million in these investments. Aegon has also signed up to the Dutch national climate agreement, which looks to reduce the Netherlands’ overall carbon emissions. Where possible, we use our influence as an investor to persuade companies to reduce their impact on the environment. We engage with them on issues like scenario planning, disclosure and water management to increase our understanding of climate-related risk.

At the same time, we are investing in clean energy. At the end of 2018, our investments in this area were worth more than EUR 570 million, mainly in wind power and solar energy tax credits. Alongside renewables, we also invest in green bonds, smart energy storage and smart grids. We encourage greater energy efficiency through our real estate investments – for example, we are renovating properties in our Amvest fund in the Netherlands. We want to achieve an average B label for energy efficiency; currently, more than half of these properties are rated E or F (A is the highest). To Dutch customers,

 

 

 

1 

Aegon excludes investment in:

  -

companies deriving 30% or more of their total production from oil sands.

  -

pipeline companies involved in the transportation of oil sands.

 

 

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we offer green mortgages. We have also built consideration for climate into our Responsible Investment and Sustainable Procurement policies.

 

 

LOGO

See page 39 for more information on how our approach to clean energy and sustainable real estate contributes to these UN Sustainable Development Goals.

Building a strong foundation for our business (2016-2018)

To pursue our strategy, we need to have a business that is fit for purpose. Over the past several years, we have been through significant restructuring and simplification. We have sold businesses, and invested more in areas we believe will bring us growth. We have also reduced costs, redesigned products, tightened internal controls and strengthened our capital position. We have had to adapt our products to new circumstances – volatile stock markets and low interest rates, particularly in Europe. Most of this restructuring is now behind us; we are already seeing the results in lower costs and better returns for our shareholders.

Optimizing our portfolio of businesses

Since 2016, we have sold several businesses. These businesses included our US BOLI-COLI1 and life reinsurance operations, as well as UMG, our distribution company in the Netherlands. We have also sold annuities books in both the US and UK – and have exited Ireland, the Czech Republic and Slovakia2.

These divestments have allowed us to invest elsewhere – in businesses we believe will bring future growth. Generally, these businesses are digital or platform-based; they use less capital, provide earnings from fees, have shorter pay-back periods and offer us an opportunity to sell more products and services to existing customers. In the UK, for example, we now have the country’s leading investment platform, with GBP 120 billion in assets under administration. In the Netherlands, we have been expanding our banking services, including Knab, our online bank. We have also invested in distribution – for example, we have expanded our partnership with Banco Santander in Spain and Portugal.

As a result of these changes, approximately two-thirds of our earnings now come from newer, growth businesses. We expect this to increase in the coming years. The rest comes from other

businesses, like our Dutch life insurance operations, which tend to be lower growth, but which still generate cash and earnings for the Group.

Increasing efficiency

We have also worked hard to improve our efficiency. This increases profitability, and helps us deliver quicker, more reliable customer service. We have cut back costs and put in place extensive hedging programs to reduce risk. In the US and the Netherlands, we have been simplifying our back-office systems, introducing new, more efficient IT platforms. We estimate that automating internal processes will bring significant savings. Using artificial intelligence also helps reduce fraud. At the same time, we have been investing in digitalization – encouraging more customer self-service and adding mobile apps. In both the US and UK, we have transferred policy administration, improving customer service and speeding up product development. With more services transferred to external providers, we have strengthened our global procurement department; this will help bring down costs and ensure effective controls over these services.

Improving product pricing and control environment

We have controls embedded in our processes and systems; this is to ensure we have strong and adequate risk and management control – important if we are to retain trust, particularly among customers and investors. In 2018, we settled two cases in the US; one linked to concerns over investment models, the other to rate adjustments on life insurance policies.

To ensure we have effective controls, we have a Control Excellence program. As part of this program, we have recently strengthened IT controls and checks on fraud. We have also tightened controls on financial reporting and revalidated many of our actuarial models. Our goal is to have management controls across the Group that are both predictable and consistently applied.

In some areas, we have also reviewed product pricing and design. We increased rates in our long-term care and universal life businesses, for example – and repriced variable annuities in the US and Japan. We have also introduced a stricter approach to pricing; this includes targets for returns and pay-back requirements. Our approach should mean better margins and avoid unprofitable sales, which weighed on our performance in the past.

Maintaining a strong capital position

A strong capital position is an important part of Aegon’s strategy. It protects our business against fluctuations in world financial markets – and ensures that, in turn, the Company continues to pay customers claims and benefits as expected. As a Group, we have a strong capital position. At the end of 2018, our Solvency II ratio – a measure of our capital strength – stood at 211%3, above our 150%-200% target range.

 

 

 

1 

Business and Company-Owned Life Insurance.

2 

Sale of Aegon’s businesses in the Czech Republic and Slovakia closed in January 2019.

3 

Estimate only. Solvency II ratios are subject to review by regulators.

 

 

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24   Who we are and what we do Our strategy
      
      

 

Our main businesses are all well within, or above, their own target ranges. Aegon’s stronger capital position is the result of both improved capital generation from our businesses and continued investment in less capital-intensive products and businesses. Meeting our capital targets also increases flexibility to return capital to our investors.

Over the past three years, to support our strategy, we have made significant changes at our businesses:

Americas

In the US, we introduced a five-point plan: to sell off non-core businesses, overhaul our products and distribution, save on expenses, reduce our geographical footprint and improve management of existing policies. As part of this plan, we transferred some of our policy administration to Tata Consultancy Services (TCS). In time, this is expected to save us USD 100 million a year. With this partnership, 2,000 employees moved to TCS. We also sold our pay-out annuities and BOLI-COLI businesses, as well as the last of our US life reinsurance activities. We simplified our organization in the US, closing offices in three main locations: Los Angeles (CA), Folsom (CA) and West Chester (OH) – and exited distribution channels like direct TV and direct mail that were no longer core. We simplified our product portfolio by eliminating 20 products. This will allow us to devote more resources to customer service.

Europe

In the Netherlands, Aegon is concentrating on pensions, income protection and mortgages. In recent years, we have seen a sharp decline in premium income from defined benefits pensions and individual life insurance. In difficult financial conditions, there is also increased pressure on capital. In response, Aegon has taken steps to reduce risk, and sold UMG, its distribution business in the Netherlands. We also injected more capital into our Dutch operations – and, since the end of 2015, have cut costs by EUR 79 million. At the same time, we have invested more in fee-based products and products that require less capital. We have also been expanding our banking business. Aegon Bank already has over 600,000 customers. Knab, our online bank, has branched out from simple current accounts; it now offers a range of financial products, including mortgages, savings, insurance, business accounts and investments. Overall, banking now makes up around 20% of our underlying earnings from the Netherlands.

In the UK, we have repositioned our business. In 2016, we sold our annuities book, and made two important acquisitions: Cofunds and BlackRock’s UK workplace pension business. Over the past year, we have been busy switching assets from these acquisitions onto our UK investment platform. Most of these migrations are now complete, though we expect a final tranche in early 2019 with the inclusion of business from UK building

 

society Nationwide. We also announced the transfer of some policy administration. Atos will take over administration of policies belonging to around 1.4 million UK customers not currently on our investment platform. Over time, the new contract will save us GBP 30 million a year, and bring down our costs per policy by around 40%. We expect partnership to be effective as of mid-2019. In making these changes, Aegon in the UK has moved from providing insurance to pensions and long-term savings. And, in doing so, we have digitized our business, focused on key products for our customers, and sharply reduced our credit and longevity risk. Currently, Aegon has more than 20% of the UK’s retail-advised platform market1.

In Southern and Eastern Europe, we sold our businesses in the Czech Republic and Slovakia. We also withdrew from the mortgage and home savings markets in Hungary. At the same time, we expanded our distribution agreement with Banco Santander. With this expansion, we will have access to 14 million customers across Spain and Portugal.

Asia

We regard Asia as a long-term growth market. There, we have been concentrating on high-net-worth customers through Transamerica Life Bermuda. We are also putting more emphasis on digital, and have taken steps to reduce costs and improve capital management. In India, Aegon Life is now direct only. In China, 95% of our policies are issued digitally. Our joint venture GoBear has 15 million users across Asia for its comparison website. In Japan, we have been less successful. We recently repriced our products. We are currently reviewing our business there with our joint venture partner Sony Life.

Asset Management

Over the past several years, Aegon’s asset management operations have been growing steadily. Since 2010, our earnings from asset management have more than trebled2. We have used our traditional strength in fixed income to expand. We have seen positive net inflows from third-party clients in each of the past seven years; that has more than offset outflows from Aegon businesses (as units have shifted to more fee business, they have brought down risk, changed mandates and reduced their reliance on investment returns). Aegon Asset Management’s recent growth is built partly on our partnerships – in France, with La Banque Postale Asset Management (LBPAM) and in China with Industrial Fund Management Company (IFMC). These partnerships give us access to strong distribution. LBPAM has access to the French Post Office’s more than 17,000 branches across France. Internally, we have restructured Aegon Asset Management. We have created a single organizational structure, and combined our European sales teams to improve efficiency and decision-making.

 

 

 

1 

Source: Fundscape.

2 

Underlying earnings before tax (2010: EUR 46 million; 2018: EUR 151 million).

 

 

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25   Who we are and what we do Our strategy
      
      

 

Sustainable growth (beyond 2018)

 

Having built a solid foundation for our business, our focus now is on sustainable growth in all senses of the word. Almost half the capital we currently generate goes back into our business. In the next few years, we will:

  Expand our customer base; this will be done through new products and services, new forms of distribution or new business models. We also would like our customers to buy more products so, as they progress through their careers, they move from a workplace pension, for example, to insurance, protection and investment products. Our aim is to build lasting, life-long relationships with our customers.
  Increase efficiency; we will do this by simplifying our processes and corporate structures1, transferring administration and investing in new digital technologies. We expect this will help us expand our customer base, and ensure customers we already have stay with us for longer. Investing in automation, meanwhile, will speed up customer service and further help us protect our customers’ data.
  Capitalize on the advantages of being a global group; this means: we are able to diversify risk – and sources of income; we can also attract and retain talent, share innovations and technology and build a strong, global asset management business.
  Invest more in growth businesses; we have grouped our businesses into three categories: ‘Manage for Value’ – these are businesses that are already at scale – ‘Drive for Growth’, where we have leading market positions, and ‘Scale-up for the Future’, where we believe there are significant opportunities (see charts below). Our ‘Scale-up for the Future’ businesses include, for example, mutual funds in US, our joint ventures in Asia, and our growing banking and services business in the Netherlands.

Across our main businesses, we have strategies to put this approach into practice:

Americas

In the US, we will modernize our processes and systems. Our partnership with TCS means we can concentrate on faster product development, improving customer service and expanding our use of technology. We will build a single platform for workplace sales, covering pension administration, life and health, and managed financial advice. We already have six million workplace customers in the US at more than 40,000 companies. Digital technology and our mobile-first approach will help us get closer to customers and drive sales of additional products. We are the only US provider with a top-ten position in workplace-sold pension administration, voluntary employee benefits and long-term care2. We are focusing on ‘wealth and health’ – a particularly important issue in the US. Americans spend over USD 10,000 a year on healthcare, more than double the OECD average3.

 

 

 

1 

To simplify our corporate structure, we will merge two of our US life insurance companies (Transamerica Advisors Life Insurance Co. and Transamerica Life Insurance Co.). At the same time, in the Netherlands, we will merge TKP Investments with Aegon Asset Management.

2 

Source: Plansponsor and LIMRA, full year 2016. Note: rankings refer to workplace market only.

3 

Sources: Organization for Economic Cooperation and Development (OECD): Spending on health – latest trends (June 2018).

 

 

Capital allocated by strategic category

(IFRS, 2018, in %)

 

LOGO

 

  

 

Normalized capital generation

(cumulative over three years, in EUR billion)

 

LOGO

 

 

 

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Europe

In the Netherlands, we will focus on ‘income and living’. We want to consolidate our leading position in pensions, and move more workplace customers into individual pensions and investments. We also want to grow our mortgage and income protection services. In banking, we will continue to look for growth, particularly through Knab, our online-only bank, and by selling more investments through independent financial advisors. We will also aim for profitable growth in our property & casualty and accident & health activities – and shift more to fee businesses. At the same time, our aim is to scale up distribution – in part by working through external partners. We will also look to play an active role in the consolidation of the Dutch insurance market.

In the UK, we will tap into the growing investment platform market. We expect this market to expand by approximately 17% each year through to at least 20221. With much of our administration now handled outside the Company, our goal is to attract new customers, and use our scale to bring down costs. We will also look to sell more protection products, and investments alongside platform administration services.

In the rest of Europe, we will bring our businesses closer together. By sharing knowledge and expertise, we can reduce costs and improve customer service. In Hungary, we will look to protect our market position by investing more in IT. In Poland, we will focus on pensions – our insurance business has been shrinking. In Turkey, we are looking for growth despite difficult market conditions. In Spain and Portugal, we will pursue growth, particularly through our partnership with Banco Santander.

Asia

In Asia, we want to continue our recent growth. Over the next several years, we will focus on three important markets: China, India and Indonesia. Key to our strategy is reaching beyond high-net-worth customers, and to increase sales to the region’s burgeoning middle classes.

Asset Management

In asset management, we will look to build on recent progress. We want to grow our third-party business, particularly through fixed income and alternative investments (like mortgages and real estate equity). We will also deepen our partnerships in France and China, extend our responsible investment approach and refocus our sales in Europe and Asia.

Allocation of resources

Our priority is organic growth – in other words, growing existing businesses from our own resources. Any acquisitions are likely to be bolt-on – to add scale to our current businesses or give us access to new customers. We have much less capital committed to run-off businesses than previously; this also frees resources for investment elsewhere and reduces the ‘drag’ effect on our return on equity. We plan to increase returns to investors. Aegon has increased dividends for shareholders in each of the past seven years. Meanwhile, through retained earnings, we expect to reduce our gross financial leverage ratio to the lower end of our current 26%-30% target range. In 2018, we redeemed more than EUR 1 billion in debt and capital instruments; at the same time, we issued EUR 643 million in new debt at a lower rate. This results in lower debt service charges as well as increased financial flexibility for the Group as a whole.

 

 

 

1 

Source: Fundscape, five-year platform projections, January 2017. NMG Advisers, Platforum. Total assets under administration in the UK are expected to exceed GBP 1 trillion by 2022.

 

 

Total revenue-generating investments

(in EUR billion)

LOGO

  

 

Expected growth in UK investment platform market

2008 – 2021 (AuA in GBP billions)

LOGO

 

Source: see footnote 1 on this page

AuA: Assets under Administration

 

 

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Culture and values

 

To implement our strategy successfully, we need the right corporate culture. We want to build a flexible organization – one that has the customer at the center of its decision-making.

 

In 2016, Aegon introduced Future Fit. This program sets out four themes. For each theme, we have defined specific behaviors:

 

 

    Theme

  

Acting as one

  

Customer centricity

  

Agility

  

Accountability

    Behaviors    

  

   Building on each other’s skills and knowledge

   Realizing we are stronger together

   No more working in silos

   Collaborating across boundaries and businesses

  

   Putting the customer at the heart of Company decision-making

   Strong focus on people and outcomes

   Combining digital with the human touch

  

   Accepting the idea of constant change

   Willing to learn, experiment and, on occasions, fail

   Seeking feedback from others

  

   Owning both the problem and the solution

   Valuing new initiatives

   Recognizing and rewarding success

   Being honest about mistakes

 

By adopting these behaviors, our aim is to create a company that is fit for the future – one that meets customers’ expectations, is right for our digitally-connected, data-driven world, and can adapt quickly to changing market conditions; this is important if we are to compete with smaller companies that face less regulation and are able to deliver services more quickly. Future Fit behaviors have been incorporated into performance appraisals, training and remuneration. They also form part of Aegon’s leadership development programs. In the Netherlands, Future Fit has been written into our collective labor agreement with trade unions.

Implementation of Future Fit is the responsibility of local businesses. We monitor performance through regular employee surveys. Our latest survey, carried out in November 2018, showed slightly lower scores for Acting as one (74% compared with 75% the year before), Agility (62% compared with 64%) and Customer centricity (72% compared with 74%). Accountability, however, rose to 70%, up from 68%.

As a next step, we will be including Future Fit behaviors in our recruitment. This is important: first, to ensure we recruit the right people for our business and strategy; second, to build a culture focused on long-term value creation.

Future Fit complements our core values. These values form part of Aegon’s Code of Conduct, which applies to all employees worldwide. They are also built into our approach to recruitment and performance appraisal. We require our employees to behave in a way that is consistent with the highest ethical standards to ensure we remain a trusted partner for our customers. Aegon’s Code of Conduct sets out rules and guidelines in different areas, including legal and regulatory compliance, insider dealing, discrimination in the workplace, money laundering, corruption and bribery, protection of personal data and fair treatment of customers and other stakeholders. In addition, Aegon has a 24-hour Global Ethics Line; this allows employees and other stakeholders to report suspected violations of the Code in confidence.

For more information on Aegon’s Code of Conduct, see page 69.

 
 

 

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Results, performance and targets

In 2018, we faced difficult market conditions; share prices declined sharply toward the end of the year. This affected the value of customer investments, and reduced income from our administration and services businesses. Our earnings were also affected by a series of one-off charges.

 

During the year, we paid more to investors – combined, our dividends and interest payments increased by over 19%. Our employee engagement score – at 65 – was unchanged from

 

the previous year. In relation to customers, our Net Promoter Score (NPS) overall showed a decrease; Aegon businesses ranking in the top half of their markets was down at 41%.

 

Financial results

 

    In EUR million

 

2018    

 

2017    

 

% change

 

Performance

Underlying earnings
before tax

  2,074   2,140   (3%)  

During the year, we had expense savings across our businesses – and higher earnings from Spain & Portugal, the Netherlands and UK. This was offset, however, by the effect of the sale of UMG, our Dutch distribution business, as well as worse-than-expected claims experience and lower earnings from retirement plans in the US.

 

Net income

  711   2,469   (71%)  

 

Net income decreased mainly as a result of one-off charges; these related to four items:

• Settlement of a class action lawsuit with US universal life policyholders

• Changes to our mortality and lapse assumptions in the Netherlands

• Book losses from the sale of Aegon Ireland and our US life reinsurance business

• By comparison, our 2017 net income was boosted by a one-off tax credit.

 

Fair value items also showed losses in 2018 – the result mainly of lower stock markets and underperformance in our alternative investments. For further details on 2018 results, refer to Results 2018 worldwide starting from page 106.

 

Gross deposits

  121,700   125,776   (3%)  

 

Gross deposits were affected by decreases in our UK platform and asset management businesses. During the year, these more than offset strong inflows into our Dutch mortgage funds.

 

New life sales

  820   896   (9%)  

 

In the US, we had lower sales of term and indexed universal life insurance; sales

       

to high-net-worth customers in Asia were also down.

 

Return on equity 1

  10.2%   9.3%   +0.9 pp  

 

Return on equity (RoE) improved, thanks in part to the effect of recent US tax reforms – but fell short of our 2018 target. We also changed our definition of shareholders’ equity – which affected calculation of our RoE (see page 107 for details). Based on the previous calculation, RoE for 2018 would have been 9.3% (compared with 8.4% in 2017).

 

Solvency II

  211%   201%   +10 pp  

 

Aegon’s capital position remained strong – well above our Solvency II target range of 150%-200%; our Solvency II ratio increased during the year, despite unfavorable market conditions; this was due mainly to further capital generation during the year and management action to increase capital efficiency. Solvency ratios in our three main units – the US, Netherlands and UK – all remained within or above their target zones.

 

1 This is calculated using shareholder’s equity based on IFRS as adopted by the EU.

pp – percentage points

 

 

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Non-financial performance

Aegon has six global non-financial indicators; these indicators are tied directly to specific aspects of our strategy; they

   also help us address material topics and measure progress toward our objectives as both an employer and a provider of financial services.

 

    Metric

  

2018

  

2017

  

% change

   Aspect of strategy
supported by indicator

Benchmarked Net Promoter Score (% of Aegon businesses ranked in top half against peers)1

   41%    45%    (4 pp)    Customer centricity

Number of customers

   28.5 million    28.1 million    1.3%    Growth/customer centricity

Number of new customers

   3.8 million    NM    NA    Growth/customer centricity

Number of customers with two or more products (% of total number of customers)

   5.2 million (18%)    NM    NA    Lifecyle approach

Number of digitally connected customers (% of total number of customers)

   7.7 million (27%)    7.0 million
(25%)
   9.9%    Digitization/customer centricity

Employee engagement score

   65    65    Unchanged   

Customer centricity (‘winning outside starts inside’)

 

 

1 

NPS figures cover Aegon businesses in the US, the Netherlands and UK. Results are weighted by number of customers. See also note to chart on page 30.

NA

– not available

NM

– not measured

pp

– percentage points

For

more information on these indicators, please refer to pages 30 (Customers) and 32 (Employees).

 

Financial targets and performance

2016-2018

To support our strategy, we had a series of financial targets for 2016-2018 (see table below). These targets addressed return

on equity, expense savings and returns to shareholders. For both expenses and returns to shareholders, we met our targets; for return on equity, we saw an improvement over the three-year period, but failed to meet our 2018 target.

 

 

    Metric

  

Target

  

Performance

  

Realized

Return on equity 2

   10%    9.3%1    LOGO

Expense savings (run rate, annualized)

   EUR 350 million    EUR 355 million    LOGO

Capital returns to shareholders (cumulative, 2016-2018)

   EUR 2.1 billion   

EUR 2.1 billion

 

   LOGO

 

1 

Using the changed definition, return on equity for 2018 is 10.2%. See page 28 for details.

 

2 

This is calculated using shareholder’s equity based on IFRS as adopted by the EU.

Please note that we decided to discontinue our annual sales growth target before the end of the target period. This was because we felt the metric did not properly reflect Aegon’s underlying strategy.

 

2019-2021

Aegon has now introduced new three-year financial targets, covering the period 2019-2021. These targets focus on sustainable growth, capital generation and ensuring attractive returns for the Company’s shareholders.

 

    Metric

  

Target

Normalized capital generation after holding expenses (cumulative, 2019-2021)

   EUR 4.1 billion

Dividend pay-out ratio (% of normalized capital generation)

   45%-55%

Return on equity (annual target)

   >10%

 

The current capital framework and related Group target range remain unchanged for the years 2019-2021.

 

    Metric

 

Target

   Current performance
(end 2018)

Solvency II ratio

  150-200%    211%

Holding excess cash

  EUR 1.0 billion
– EUR 1.5 billion
   EUR 1.3 billion

Gross financial leverage ratio

  26%-30%    29.2%

Over the period, our aim is to maintain a capitalization required for a minimum AA- financial strength rating (for our current ratings, see page 80).

 
 

 

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30   The value we created for our stakeholders Customers
      
      

 

Value created and shared with our stakeholders

In the following pages, we detail the value created in 2018 by Aegon and shared with its main stakeholder groups: customers, employees, business partners, investors and the wider community. Given the nature of our business, much of this value is financial, but we also create social, economic and environmental benefits.

 

Customers

Claims and benefits

To our customers, we provide significant financial benefits. These include pensions, payment of insurance claims and returns on their savings and investments. For our customers, this money may represent a source of income, or provide resources needed to meet healthcare costs or repair a damaged home. In 2018, total claims, benefits and plan withdrawals increased to EUR 53.6 billion, up from just over EUR 48 billion the year before1. Alongside these financial benefits, we also manage investments for our customers. At the end of 2018, we were managing and administering more than EUR 800 billion on behalf of Aegon customers.

Customer loyalty

Our goal is to create a positive customer experience; this means high-quality financial products and excellent customer service. We measure our performance in this area through the Net Promoter Score (NPS). In our measurement, we include only individual customers. NPS assesses customer loyalty rather than satisfaction – in other words, the likelihood that customers will recommend Aegon to their friends, colleagues and family2. NPS is embedded in our sales and marketing processes; we also use the measure to help determine executive pay.

Where possible, we benchmark NPS scores against peers. In our main markets, our ambition is to be the most recommended financial services provider. Our businesses saw a significant increase in NPS in 2017 – the result primarily of efforts to speed up our processes and improve customer service,

as well as our strong brand in the US. In 2018, however, our NPS scores decreased. According to our latest surveys, 41% of our businesses in the US, the Netherlands and UK rank in the top half of their respective markets, down from 45% in 2017. Businesses ranking in the bottom quartile increased sharply to 54% (see all NPS results by quartile on page 408). Scores for our US retirement business were lower – this more than offset a higher ranking for our Dutch mortgages business. In several markets, our NPS scores improved, but we failed to match improvements by competitors. In response to these results, we will look to increase contact with customers, establish a more emotional connection and provide an effective, personalized customer service.

In addition to NPS, we use a number of other measurements to assess value created for customers and progress with our strategy. These include our total number of customers and new customers – as well as the percentage of customers who are ‘digitally connected’ and those with two or more Aegon products.

  By the end of 2018, we had 28.5 million3 customers, an increase of 1.3% from the previous year. During the year, we added just under 3.8 million new customers. Customers with two or more Aegon products totaled 5.2 million, approximately 18% of our customer base.
  Some 7.7 million of our customers were digitally connected – just over 27% of our customer base. These customers have online access to accounts, products and services. For customers, the benefit is generally convenience and ease of use; we can also provide tailored information directly to connected customers.

 

 

 

 

1 

Please note that customer claims, benefits and plan withdrawals is separate from ‘policyholder claims and benefits’ (included in our income statement). For more information, see pages 171 (Note 2.29 to the financial statements) and 219 (Note 12).

2 

For definition of NPS, see page 413.

3 

Our 2017 figure for total customers has been restated. For more details, please see page 408.

 

 

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31   The value we created for our stakeholders Customers
      
      

 

We also measure customer complaints. In 2018, complaints increased by almost 20%. Complaints were lower in both the US and the Netherlands, but this was offset by increases in the UK and in Hungary; the increase in the UK was due mainly to the inclusion for the first time of complaints from Cofunds. Complaints relating to digital privacy also rose significantly, following the introduction of the EU’s General Data Protection Regulation (GDPR); these complaints, however, accounted for less than 0.8% of total customer complaints.

Responsible products and investments

Among our products and services, we offer specific financial products for vulnerable groups and socially-responsible investment funds (SRI). In several countries, we sell products for customers on low incomes – for example: our ‘My Family’ micro-insurance product in Brazil and low-cost life insurance in Romania. We also provide support to those facing chronic

illness. In China, our critical illness coverage offers protection against both diabetes and cancer; we also have products that help customers suffering from cervical and breast cancer. In addition to our products, we also support a number of financial education programs – in many countries, people are taking more personal responsibility for their finances. In the Netherlands, for example, we pay for budget coaches to help customers in financial difficulty. In the US, we work closely with the National Foundation for Credit Counseling. We also offer lessons, online seminars and clinics for members of the public.

For our customers in the UK, the Netherlands and Hungary, we have SRI funds. At the end of 2018, these funds had EUR 3.4 billion under management, almost 80% more than they had five years before – thanks primarily to growing demand among retail investors for a more ethical approach to investment.

 

 

 

 

Benchmarked NPS performance vs. peers1

(% of Aegon businesses in top half vs. peers)

 

LOGO

  

Increase in SRI funds under management2

(2013-2018, in EUR billion)

 

LOGO

1 

Chart shows NPS performance benchmarked against peers for all Aegon businesses in the Netherlands and UK, plus our retirement, life insurance and mutual funds businesses in the US. Results from Knab, our online bank in the Netherlands, have also been incorporated. Figures show percentage of businesses in top two quartiles, weighted by customer numbers. Figures for 2017 and 2016 have been restated; this is to reflect changes in weighting and to exclude results from Hungary (which had been included in previous years).

2 

In addition to our funds in the UK, Netherlands and Hungary, we also have separate sustainability funds in China. At the end of 2018, these funds had another EUR 0.7 billion under management.

 

 

 

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32   The value we created for our stakeholders Employees
      
      

 

Employees

 

Salaries and benefits

In our approach to salaries and benefits, we strike a balance. It is important that we control expenses. At the same time, we need to pay fair, competitive salaries if we are to attract and retain talented staff. Aegon’s approach in this area is set out in our Global Remuneration Framework. This contains several important principles, including ‘pay for performance’. Pay is tied directly to regular performance appraisals. To assess performance, we use both financial and non-financial metrics (the precise combination depends on an individual’s position and seniority). We have provisions ensuring that incentives and variable pay do not compromise integrity (in the case, for example, of internal audit employees) and do not encourage excessive risk-taking. In 2018, we paid out EUR 2.1 billion in salaries and benefits for our employees. Of this total, salaries accounted for almost 60%. The remainder comprises mainly benefits and other personnel costs.

Employee engagement

To implement our strategy effectively, we need a committed and engaged workforce. We measure employee engagement annually. Our latest survey was carried out in November 2018. It showed an overall engagement score of 65, unchanged from the previous year. 89% of Aegon employees completed the survey. We benchmark our score against both the finance and professional services sectors; this benchmark compares scores for individual questions, however; there is no benchmark for our overall engagement score.

As well as engagement, our survey also helps us monitor progress in more specific areas; these include work-life balance, opportunities for career development, management performance, workplace diversity, pay, training and development. In 2018, we saw improvements in ‘constructive feedback’, ‘learning from mistakes’ and ‘work-life balance’; these were offset, however, by a lower score in ‘vision communications’; ‘recommending Aegon as a financial services provider’ also scored lower in the survey. As part of our response to these results, we are putting a specific focus on leadership and development.

We also use the survey to track progress with our Future Fit program (for details, see page 27). Survey results are communicated to all levels of the business, and broken down by unit and individual team, so that effective action plans can be put in place to address areas of weakness. In addition to our employee survey, we also measure turnover. Our goal is to keep turnover to a sustainable level. In 2018, turnover increased to 33%, up from 25% the previous year; this was due mainly to an increase in involuntary departures following recent reorganizations.

Employee engagement scores

(2016 - 2018)

 

LOGO

Employee welfare and development

Our aim is to create a safe and inclusive working environment. We offer benefits, including flexible working, regular health checks, parental leave and company retirement plans. We also provide paid time-off for employees who wish to volunteer on local community projects. We work to keep absenteeism to a minimum. Most of our businesses have health programs; these include fitness programs and screening for serious illnesses like cancer and heart disease, as well as programs to reduce workplace stress. In 2018, our absentee rate was unchanged at 2.4%. The number of work-related accidents and illnesses fell slightly – to 163, down from 167 in 2017.

We also offer extensive training and career development. Our programs include online courses, seminars and lectures. We provide specialist training in areas including products and sales, new regulations, risk management and cyber security. We also offer leadership training and awareness programs in diversity and health and safety. All employees have access to our global Learning Catalog. We also have a Digital Academy, which offers a three-year course to data and business analysts across the Company. In 2018, we spent a total of EUR 12.5 million on training and development (equivalent to nearly EUR 470 for each employee).

Diversity and inclusion

We believe diversity leads to better decision-making; it also brings us closer to the communities we serve. Diversity and non-discrimination are built into our Code of Conduct. In the Netherlands, our latest collective labor agreement stipulates equal pay for men and women performing the same functions. In 2018, we conducted a study into equal pay; this found, in general, no difference in pay between men and women doing the same work1. In the UK, we also report our gender pay gap each year. Like other financial companies, we have fewer women in leadership positions; this results in a significant gender pay gap. In 2017, this gap stood at just over 27% – compared with a sector average of 30%2.

 

 

 

1 

Study carried out by Dutch data company AnalitiQs. The study took into account employees’ age, work experience, length of service and background.

2 

Median for the UK financial and insurance sector (source: UK Parliament, The Gender Pay Gap, November 2018). Aegon’s report into its UK gender pay gap is available online at aegon.co.uk. The current report covers the year to April 5th, 2018. Figures for the year to April 2019 will be included in the next report.

 

 

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33   The value we created for our stakeholders Employees
      
      

 

We have initiatives to support gender diversity. In the Netherlands, for example, we are signatories to the Talent to the Top program, which works to increase the number of women in senior management. In the US, we have a dedicated diversity team. At the end of 2018, women made up 33% of Aegon’s senior management, an improvement of 5 percentage points from 28% in 2017. In addition, two of our seven Supervisory Board members are women, as are three of our ten Management Board members. We want to increase the proportion of women on both Boards, over time, to at least 30% – in line with Dutch government objectives1.

 

Diversity, of course, goes beyond gender. Our aim is to create a productive and open working environment, in which all employees are valued for their contribution and able to realize their full potential. We have mentoring programs; we support Company-wide groups like Aegon Proud and Young Aegon. We are also members of outside organizations, like Women in Financial Services and Workplace Pride. In the latest US Corporate Equality Index, we were ranked as one of the best places to work for LGBT employees.

 

 

 

 

 

1 

For further information, see page 57 (Report of the Supervisory Board – Diversity) and the diversity section of our Corporate Governance Statement, available online.

 

 

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34   The value we created for our stakeholders Business partners
      
      

 

Business partners

Our partners

We work with a number of different business partners. These partners help us develop, market and distribute our products and services. In many countries, we operate through joint ventures, particularly where this gives us immediate access to a large customer base. To distribute our products and services, we work through brokers and other financial intermediaries (including banks, agents, independent financial advisors etc.). In the US and UK, we have also signed partnerships to transfer much of our policy administration.

When working with outside providers, our goal is to create long-term relations that benefit Aegon and allow our partners to develop and grow their businesses. We regularly assess the companies we work with against minimum social and environmental standards. These standards are set out in our Sustainable Procurement and Outsourcing Risk policies.

Payments to business partners

Distribution

We pay commissions to brokers and other financial intermediaries in return for selling Aegon products and services. In 2018, these commissions totaled EUR 2.4 billion. Over the past five years, commissions have declined by almost 26%. This is partly a result of lower sales, but also the introduction of new, digital technologies (which have made it easier to sell directly to customers) and recent regulations in the Netherlands and the UK (which restrict payment of commissions to intermediaries1). Though the nature of our relationship has changed, intermediaries remain a valuable sales channel. We provide training to our distributors, so they understand our policies and are able to provide the right advice to our customers.

Payments to business partners

(2016-2018, in EUR billion)

Suppliers

As a financial services company, we buy goods and services – including IT support, office equipment and management consultancy. We also buy utilities (electricity, water etc.). That said, we do not have a particularly complex supply chain – we do not need to source raw materials or deliver physical goods to customers. In 2018, we spent EUR 1.5 billion on our suppliers, up from EUR 1.4 billion in 2017. We have a Sustainable Procurement Policy, which sets out environmental, social and governance standards for our suppliers. As part of our approach, we require some of our suppliers to sign a Supplier Sustainability Declaration; at the end of 2018, these declarations covered 25% of our total procurement spend. In 2018, we also signed partnerships in both the US and UK to transfer a large part of our policy administration to outside providers (see pages 6 and 24). In both cases, we will pay regular fees for this service; we expect these contracts, over time, to deliver more than EUR 120 million a year in cost savings.

Reinsurance

We work with a number of reinsurers; they help us offset risk and ensure we are able to meet our financial commitments, even in extreme scenarios. In 2018, we paid EUR 2.7 billion in premiums to our reinsurers, and received EUR 3.7 billion in claims (this compares with EUR 3.4 billion and EUR 4.3 billion in 2017, respectively).

 

LOGO

 

 

1 

Instead of commissions, brokers and intermediaries now generally receive fees, paid by customers.

 

 

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35   The value we created for our stakeholders Investors
      
      

 

Investors

Payments to investors

Shareholders receive regular dividends. An interim dividend is paid following half-year results. Final dividends must then be approved by Aegon’s General Meeting of Shareholders in May before payment. Shareholders can opt for payment in cash or stock. Just under half our shareholders are based in the US, another 20% in the Netherlands and 10% in the UK. In 2018, we paid a total of EUR 861 million to Aegon investors. Of this, EUR 570 million was in dividends to shareholders; the remaining EUR 291 million was paid to Aegon bondholders. Unlike shareholders, bondholders receive regular coupons – or interest payments – on their investments. These payments are determined at the moment the bond is issued.

Dividend policy

Payment of dividends depends ultimately on the Company’s capital position and cash flow. Before deciding on dividends, management will also assess future prospects for financial performance. Our goal, over time, is to deliver sustainable dividend growth for our shareholders. In recent years, we have been able to do this thanks to an improvement in our earnings and a stronger capital position. Since 2012, we have increased dividends every year by either one or two cents – equivalent to a 38% increase over six years. Currently, our dividend yield – an important indicator for insurance stocks – is around 6%, slightly above the European sector average.

 

Stock performance

Shareholders may also derive (or lose) value from the performance of our shares. In 2018, Aegon’s stock price fell by 23.3%, which we believe was largely a reflection of wider concerns over economic growth, trade tensions and the effect of persistently low interest rates, as well as concerns about Aegon’s US long-term care portfolio. Most of the losses were concentrated in the last two months of the year. Other European insurance sector stocks also lost ground during 2018, though not as much as Aegon. The Stoxx Europe 600 Insurance index ended the year down 10%. Our total shareholder return for the year came to -19% (this measure takes into account payment of dividends as well as share price performance).

Regular communications

We keep financial markets fully informed of our strategy and performance. We have a dedicated Investor Relations team. In 2018, we organized 642 face-to-face meetings with investors in the Americas, Europe and Asia. We hold a regular Analyst and Investor Conference; the most recent was held in New York in December 2018. Our executives also speak regularly at insurance industry events. In 2018, we started publishing our financial results every six months, rather than quarterly. This was to encourage investors to take a longer-term perspective on our financial performance.

 

 

 

Dividends to Aegon shareholders

(2012-2018, in EUR per share)

 

LOGO

 

Aegon stock price performance

(Jan-Dec 2018) Aegon stock price vs. Stoxx Europe 600 Insurance

 

LOGO

 

 

 

1   Note that the final dividend for 2018 is subject to approval by Aegon’s General Meeting of Shareholders, scheduled for May 17, 2019.

       
 

 

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36   The value we created for our stakeholders Wider community
      
      

 

Wider community

Job creation

In 2018, Aegon reduced its total workforce by a net 1,775 employees. A total of 5,666 employees left the Company – most in the US, Netherlands and the UK; 3,891 joined Aegon during the year. Departures were mainly the result of business restructuring. Around 2,000 employees were also transferred to Tata Consultancy Services as part of our recent contract in the US. Where possible, we limit compulsory redundancies. In Europe and Asia, we work closely with trade unions and other employee representative groups. We provide training, advice and support to those leaving the Company.

Responsible investment

We take a responsible approach to investments. As part of this approach, we integrate ESG (environmental, social and governance) factors into our daily investment decisions. We do this for our own investments; we also advise customers to take a similar approach, though in most cases the final decision as to how and where to invest remains with our clients. Integrating ESG helps minimize investment risk both for Aegon and its customers. Our ESG investment standards are based, for the most part, on international agreements (these include the UN Declaration of Human Rights, the core standards of the International Labor Organization, and the UN Arms Trade Treaty).

To oversee our approach, we have a Responsible Investment Strategy Committee. We also have a formal Responsible Investment Policy; we provide mandatory ESG training for portfolio managers, and have built responsible investment into both our risk management framework and into our investment mandates.

 

We engage with the companies we invest in when they fall short of our ESG standards or show poor overall ESG performance. In 2018, we engaged with 360 companies. We have been especially active on climate change in support of our corporate strategy. Over the past year, we engaged on a number of issues, including climate risk and reporting, and corporate governance. When engaging, our aim is to improve companies’ business practice, and reduce investment risk for ourselves and our customers.

We prefer to engage, though we do exclude some investments, where there are international agreements in place, or a clear social or environmental case to do so. Currently, we exclude a total of 136 companies – involved in tobacco, coal mining, oil and tar sands, or controversial weapons, such as cluster bombs and anti-personnel mines1. In the Netherlands, we exclude investments in palm oil. We also refuse to invest in countries that are subject to sanctions, or where there is evidence of systematic human rights abuses. We publish a full list of exclusions on our website. For more details on our approach, see our Responsible Investment Report, also available online.

Impact investment

Alongside ESG integration, we also make ‘impact investments’; these are investments that deliver both a minimum financial return and a specific social or environmental benefit. Examples include affordable housing, care homes, and renewable energy. We also invest in green bonds and in international development banks that work to reduce poverty in developing countries. At the end of 2018, our impact investments totaled EUR 8.4 billion. Nearly 60% of this amount is invested in affordable housing in the US. Impact investments are an important part of our strategy – particularly in supporting the switch to cleaner, low-carbon technologies and promoting health and well-being.

 

 

 

1 

Our exclusion list was last updated in October 2018. The list comprises 14 companies involved in controversial weapons, 48 in thermal coal mining, 11 in oil sands and a further 63 in tobacco. We also exclude investment in 15 countries.

 

 

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37   The value we created for our stakeholders Wider community
      
      

 

    Primarily social impact

  

Amount invested

  

Impact

Affordable housing

   EUR 4.9 billion    Financing for affordable housing for families on low incomes in the US1, UK and the Netherlands

Care homes for the elderly

   EUR 324 million    Financing for care homes and assisted living facilities for the elderly in the Netherlands and UK

International development banks

   EUR 1.8 billion    Investments in multi-lateral development banks, working to reduce poverty and create jobs in emerging economies

Student loans and sports facilities

   EUR 208 million    Support for the US Federal Family Education Loan Program; this program helps children from low and middle-income families into university

Micro-finance

   EUR 74 million    Provides loans and savings accounts for more than three million people without access to traditional financial services

    Primarily environmental impact

  

Amount invested

  

Impact

Renewable energy

   EUR 573 million    Investment in clean energy in the US, UK and the Netherlands (including solar energy tax credits and wind power), reducing impact of energy use on the environment

Green bonds

   EUR 253 million    Investment in green bonds; proceeds are invested in climate- related projects, encouraging sustainable energy use

Green residential mortgage-backed securities (RMBS)

   EUR 152 million    Investment in mortgages to finance more energy-efficient homes
1 

In the US, these investments are made through the government’s Low-Income Housing Tax Credit program, which encourages private sector investment in affordable housing for low-income families.

In addition to the above, Aegon has also investments in sustainable timber. At the end of 2018, these totaled EUR 7.9 million. These investments are currently in run-off.

Please note that amounts above include some investments made on behalf of Aegon clients and other third parties.

 

Retirement research and expertise

We provide extensive research into aging and retirement. Most of this is done through our Aegon Center for Longevity and Retirement (ACLR) and its partners: the Transamerica Institute in the US and the Instituto de Longevidade Mongeral Aegon in Brazil. The ACLR publishes an annual Retirement Readiness Survey, covering 15 countries around the world. The ACLR’s 2018 report called for a new social contract on pensions and retirement (see page 22). Through our research, we want to raise awareness of aging issues among both public and policymakers. We also use our research to drive improvements in customer service and product development.

In addition to our own centers, we work closely with other partners. These include the Stanford Center on Longevity, the American Association of Retired Persons (AARP), the Leyden Academy for Vitality and Aging, and the Global Coalition on Aging – an alliance of businesses working on aging and retirement. We are also working on health issues – these are, of course, closely related to aging. We have our own Transamerica Center for Health Studies. In the US, through our business activities, we emphasize the importance of ‘wealth and health’. In 2018, we organized our global Hackathon focusing on the connection between financial security and well-being – with events in Mumbai, Budapest and Dallas. We also support research into chronic illnesses like cancer, heart disease and Alzheimer’s.

Responsible tax

We are firmly committed to making a valuable economic and social contribution to the communities in which we operate, both through our own tax payments and through collection and

payments of third party taxes. We seek to pay ‘fair taxes’, which for us means paying the right amount of tax in the right places.

It is our policy to allocate profits where value is created through our commercial business activities. For us, tax follows business, which means that our decisions are taken for business reasons and not for tax advantages. We will not, for example, set up artificial tax structures or base business in countries simply to reduce the amount of tax we pay.

Following discussion with stakeholders, we published our Global Tax Policy online. This Policy outlines Aegon’s approach to responsible tax, which seeks to align the long-term interests of all our stakeholders, including customers, employees, business partners, investors, and wider society. We also hold regular meetings with NGOs to discuss Aegon’s tax strategy and policy.

In our relationship with tax authorities we strive to work together in a constructive and transparent manner. Our Horizontal Monitoring agreement with the Dutch tax authorities shows our commitment to this principle. This includes public discussion and disclosure of policies and principles, as well as the overall governance and oversight of our tax position.

Disclosures are provided in our financial statements and cover tax payments in our main markets. We provide country-by-country tax reporting in a transparent and accurate manner to the tax authorities. We are currently assessing the value that public disclosure of this information might have for our business and our stakeholders.

 
 

 

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38   The value we created for our stakeholders Wider community
      
      

 

We also provide details of our total tax contribution company-wide and by region in the charts below. Taxes borne are a cost of business and affect our financial results. Taxes collected are not a direct cost of business but are collected on behalf of government from others. The reported numbers are on cash payment or accrual basis.

Aegon’s tax function maintains an adequate staff of qualified and trained tax professionals to provide timely and high-quality tax support to our commercial decision-makers. In this regard, proper governance and procedures are in place to ensure that:

1.

the tax team understands and is engaged in the tax effects of day-to-day business operations and involved in all significant business developments, investments and transactions.

2.

the tax consequences are considered as part of every major business decision.

3.

Aegon’s tax control framework is constantly evolving to a higher maturity level.

Aegon’s tax function reports regularly to the Executive and Management Boards on day-to-day operations and the status and effectiveness of the function. At least once a year, the tax function reports to the Supervisory Board’s Audit Committee.

Community investment

We support local communities through donations and volunteer work. This brings us closer to our customers and gives our employees an opportunity to share their knowledge and expertise. In 2018, we donated a total of EUR 9.3 million. Most went to our three focus areas: health, welfare and literacy. Where possible, we align our community investment with our purpose as a company. In the Netherlands, we’re part of a ‘From Debt to Opportunity’ project; this project is working with 7,000 in-debt families across the country.

Through our businesses, we support more than 500 local charities and good causes. Among the largest recipients in 2018 were United Way and Habitat for Humanity in the US, the VUMC Alzheimer Center in the Netherlands, and Sick Kids Friends Foundation and the Teenage Cancer Trust in the UK. We have a Charitable Donations Policy, setting out our approach to community investment. In the US, our donations are channeled through the Transamerica Foundation. This Foundation donates at least 5% of its assets each year. In the UK, donation decisions are taken by our employee Charity Committee. We also encourage our employees to volunteer; 97% of our staff worldwide can now claim paid time-off to work on local community projects. Volunteering is built into our Charitable Donations Policy. In 2018, Aegon employees volunteered just over 14,000 hours – equivalent of EUR 0.7 million, based on average salaries.

 

 

 

Taxes borne by Aegon, 2018

(in EUR million)

 

LOGO

 

1 Includes state and withholding tax

2 Related to company’s own personnel (including social security tax)

  

Taxes collected on behalf of others, 2018

(in EUR million)

 

LOGO

 

3 Includes dividends, interest, royalties and others

4 Policyholders (including social security tax)

 

For a breakdown of corporate income tax by country/region please see page 410. Some numbers may not add due to rounding.

 

 

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39   The value we created for our stakeholders Wider community
      
      

 

Aegon’s contribution to UN Sustainable Development Goals (SDGs)

We have a responsibility to support the UN SDGs where we can, both as an investor and a provider of financial services. We recognize that sustainable development is in the long-term interests of business and the global economy, and that genuine

sustainable development will not be possible without cooperation between private and public sectors. We focus on SDGs most relevant to our business. Within these SDGs, we have selected specific goals and targets1 linked to our strategy. This is where we believe we can make a significant contribution to the international development agenda.

 
  Strategic
  pillar

 

   Relevant
SDG
   Relevant SDG targets    Aegon’s contribution to the relevant target

For individuals: financial security and well-being.

 

   LOGO    1.2: By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions, according to national definitions.   

• Products for low-income customers, including micro-insurance in Brazil

• Investments in international development banks that work for poverty reduction and job creation in developing countries

• Investment in micro-finance institutions to provide loans and savings to people without access to traditional financial services

• Working with customers in financial difficulty – budget coaches in the Netherlands /cooperation with National Foundation for Credit Counseling in the US

• Strengthening financial literacy through local initiatives and programs

 

 

For society: secure retirement and healthy aging.

   LOGO   

 

3.4: By 2030, reduce by one third premature mortality from non-communicable diseases through prevention and treatment, and promote mental health and well-being.

  

 

• Supplemental health insurance for customers on low incomes

• Cover for customers facing chronic illnesses, including diabetes and cancer

• Investment in care homes for the elderly in UK and Netherlands

• Support for research into chronic illnesses, including cancer, heart disease and Alzheimer’s

• Investment in Dementia Discovery Fund, dedicated to finding treatments for the condition

• Exclusion of tobacco from investment to help address health concerns over smoking

 

   LOGO   

 

8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.

  

 

• Support for economic growth and job creation through our businesses and investments

• Providing a long-term source of employment for communities in which we operate

• Inclusion of minimum labor standards in Aegon responsible investment and procurement policies

 

For the environment: clean energy and sustainable real estate.

   LOGO   

 

7.2: By 2030, increase substantially the share of renewable energy in the global energy mix.

7.3: By 2030, double the global rate of improvement in energy efficiency.

7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil fuel technology, and promote investment in energy infrastructure and clean energy technology.

  

 

• Significant investments in renewable energy – primarily wind and solar power

• Investments in green bonds and green residential mortgage-backed securities

• Working for greater energy efficiency in Amvest’s real estate fund in the Netherlands

• Launch of new mortgage feature in the Netherlands, allowing customers to finance energy efficiency improvements to their homes

 

     LOGO   

 

13.2: Integrate climate change measures into national policies, strategies and planning.

  

 

•   Support for Dutch national climate agreement, working to reduce carbon emissions

•   Exclusion of oil sands extraction and transportation from investment

•   Exclusion of thermal coal production from investment

 

 

In addition to the goals and targets above, we also work directly with other organizations to support the SDGs. As well as the UN Principles for both Sustainable Insurance and Responsible Investment (UNPSI, UNPRI), we are members of the CDP (formerly the Carbon Disclosure Project) and the Extractives Industry Transparency Initiative (EITI), which works for greater transparency in reporting financial flows

within the global energy and minerals sector. Aegon also signed the Paris Pledge for Action, launched at the Paris climate change conference in 2015.

Further details of our support for the UN SDGs may be found on page 425.

 

 

 

 

1 

The UN Sustainable Development Goals were formally adopted in September 2015. There are 17 SDGs in total, covering hunger, poverty, health, the environment, housing etc. For each SDG, there is a series of specific goals, targets and indicators. For more information, see https://www.un.org/sustainabledevelopment/ sustainable-development-goals/

 

 

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LOGO

During 2018, Aegon’s Supervisory Board focused on how senior management continued to execute its strategy and transform the company. Aegon is now well positioned for growth from a capital, control, management, people and technology perspective. This gives us confidence for the future.

 

I was honored to be appointed Chair of Aegon’s Supervisory Board in May 2018. Our Board consists of people from a diverse range of backgrounds, nationalities and specialisms, with an equally diverse range of perspectives. What we share, is a common desire to support management in meeting its objectives.

A key objective has been the significant transformation Aegon has undergone in recent years, both in terms of what it does and where it does it. In particular, we are impressed by Aegon’s embrace of new digital technology, and its new capital allocation model. Now that Aegon’s transformation is largely complete, the Supervisory Board looks forward to shifting its focus to supporting the company’s growth agenda.

Beyond the horizon

From regulatory requirements to customer demands, the financial services landscape has never changed so fast and

as fundamentally as over the last decade. This process of change is only likely to accelerate in the years to come. For this reason, when it comes to strategy, our role as a Supervisory Board is to look beyond ‘the here and now’ and to focus on what lies beyond the horizon. What will, for instance, the industry look like a decade from now? What are the opportunities and risks? Above all, how can Aegon ensure that it first and foremost continues to grow as a responsible business dedicated to its purpose of helping people achieve a lifetime of financial security? By posing these questions we are able to assess how future-focused and prepared the company is, which in turn supports long-term thinking and long-term value creation, as set out in this report.

How we engage with Aegon’s long-term strategy is crucial to this task. Indeed, while regular meetings with senior management are critical to what we do, Supervisory Board visits to Aegon’s various

 
 

 

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business units can prove every bit as illuminating, offering a ‘shop floor’ rather than purely a ‘board room’ perspective. For instance, such visits are an opportunity to witness how Aegon is embracing the latest digital technologies and data analytics, as well as talking to the people leading these initiatives from the ground up.

Public trust

No business operates in a vacuum and the Supervisory Board is both very aware of and attuned to discussions and debates regarding the role of financial services in society. The relationship between financial institutions and the public should, of course, be a positive one. Yet while the industry plays an important and laudable role providing people with financial security and helping businesses and economies to grow, it has yet to fully regain trust following the financial crisis, nor redress the apathy many still feel towards it.

The Supervisory Board is working with the Management Board to examine how Aegon can be part of the solution. Moreover, it is impressed with how Aegon’s purpose continues to not only provide the basis for putting customers first in all that it does, but also the inspiration to raise awareness about financial matters – such as the need to start saving early, and the consequences of moving away from traditional pension systems. Simple changes that can have hugely positive effects on millions of people’s lives.

Aegon also takes its responsibility to assist policy makers to deliver the right legislation that keeps pace with changes in society and continues to meet customers’ needs. The company can only do so because of the dedication and expertise of its people. I would, therefore, like to say a big thank you to Aegon staff across all businesses and regions.

I would like also to express my gratitude to my Supervisory Board colleagues for their contribution and support in 2018. I invite you all to look at the Report of the Supervisory Board, starting from page 51, for a comprehensive overview of our activities during 2018. We look forward to working with the Management Board in the year ahead to help them meet their targets and achieve Aegon’s purpose.

 

LOGO

William Connelly

Supervisory Board Chairman

 
 

 

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Corporate governance

Aegon is incorporated and based in the Netherlands. As a company established and listed in the Netherlands, Aegon must comply with Dutch law and is subject to the Dutch Corporate Governance Code.

 

Aegon is governed by three corporate bodies:

  General Meeting of Shareholders
  Supervisory Board
  Executive Board

Aegon also has a Management Board. This works in unison with the Executive Board, and helps to oversee operational issues and the implementation of Aegon’s strategy. Aegon’s corporate governance structure is the responsibility of both the Supervisory Board and the Executive Board. Any substantive change to this structure is submitted to the General Meeting of Shareholders for discussion.

The shareholders

Listing and shareholder base

Aegon’s common shares are listed on Euronext Amsterdam and the New York Stock Exchange. Aegon has institutional and retail shareholders around the world. More than three-quarters of shareholders are located in Aegon’s three main markets, the Netherlands, United States and the United Kingdom. Aegon’s largest shareholder is Vereniging Aegon, a Dutch association with a special purpose to protect the broader interests of the Company and its stakeholders.

General Meeting of Shareholders

A General Meeting of Shareholders is held at least once a year and, if deemed necessary, the Supervisory or Executive Board of the Company is able to convene an Extraordinary General Meeting of Shareholders. The main function of the General Meeting of Shareholders is to decide on matters such as the adoption of annual accounts, the approval of dividend payments and (re)appointments to the Supervisory Board and Executive Board of Aegon.

Convocation

General Meetings of Shareholders are convened by public notice at least 42 days before the meeting. The convocation states the time and location of the meeting, the record date, the agenda items, and the procedures for admittance to the meeting and representation at the meeting by means of a written proxy. Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or a block of shares worth at least EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders. In accordance with Aegon’s Articles of Association, such a request will be granted if it is received in writing at least 60 days before the meeting, and if there are no important interests of the Company that dictate otherwise.

Record date

The record date is used to determine shareholders’ entitlements with regard to their participation and voting rights. In accordance with Dutch law, the record date is 28 days before the day of the General Meeting of Shareholders.

Attendance

Every shareholder is entitled to attend the General Meeting to speak and vote, either in person or by proxy granted in writing. This includes proxies submitted electronically. All shareholders wishing to take part must provide proof of their identity and shareholding, and must notify the Company ahead of time of their intention to attend the meeting. Aegon also solicits proxies from New York registry shareholders in line with common practice in the United States.

Voting at the General Meeting

At the General Meeting, each common share carries one vote. In the absence of a Special Cause, Vereniging Aegon casts one vote for every 40 common shares B it holds.

Supervisory Board

Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability.

Composition of the Supervisory Board

Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board members are appointed for a four-year term, and may then be reappointed for another four-year period. Subsequently, the Supervisory Board member can be reappointed again for a period of two years, and then extended by two years at the most. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined

 
 

 

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by the General Meeting of Shareholders. In 2018, no transactions were concluded between the Company and any of the Supervisory Board members. Furthermore, the Company did not provide loans or issue guarantees to any members of the Supervisory Board. At present, Aegon’s Supervisory Board consists of seven members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code.

Committees

The Supervisory Board also oversees the activities of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments. These committees are the:

  Audit Committee;
  Risk Committee;
  Remuneration Committee; and
  Nomination and Governance Committee.

Executive Board

Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile, in addition to overseeing any relevant sustainability issues and the development of the Company’s earnings. Each member has duties related to his or her specific area of expertise.

Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval.

Composition of the Executive Board

Aegon’s Executive Board consists of Alexander R. Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, who is Chief Financial Officer (CFO), and member of the Executive Board.

The number of Executive Board members and their terms of employment are determined by the Company’s Supervisory Board. Executive Board members are appointed by the General Meeting of Shareholders for a four-year term, following nomination by the Supervisory Board.

The members of the Executive Board have an engagement agreement with the Company rather than an employment contract. The Company’s Remuneration Policy for the Executive Board limits exit arrangements to a maximum of one year of the fixed component of the salary.

In 2018, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board.

Management Board

Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which has ten members, including the members of the Executive Board. Aegon’s Management Board is composed of Alex Wynaendts, Matthew J. Rider, Mark Bloom, Adrian Grace, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Sarah Russell.

Aegon’s Management Board works in unison with the Executive Board, and helps oversee operational issues and the implementation of Aegon’s strategy. Members are drawn from Aegon’s business units and from Aegon’s global functions. The members have both regional and global responsibilities. This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company’s strategic objectives.

In the relation between the Management Board and the Supervisory Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. In addition thereto, and in connection with how the contacts between the Supervisory Board and the Management Board committee have been given shape, the members of the Management Board will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter and the Supervisory Board Charter.

Capital, significant shareholders and exercise of control

As a publicly-listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it.

The capital of the Company

Aegon has an authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a nominal value of EUR 0.12. As of December, 31 2018, a total of 2,095,648,244 common shares and 585,022,160 common shares B had been issued.

Depository receipts for Aegon shares are not issued with the Company’s cooperation.

Each common share carries one vote. There are no restrictions on the exercise of voting rights by holders of common shares.

All common shares B are held by Vereniging Aegon, the Company’s largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B are subject to restrictions as laid down in the Voting Rights Agreement, under which Vereniging Aegon may cast

 
 

 

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one vote for every 40 common shares B it holds in the absence of a Special Cause.

The financial rights attached to a common share B are one-fortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital, the sale and transfer of common shares B or otherwise, the value or the price of a common share B is determined as one-fortieth (1/40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights.

Significant shareholdings

On December 31, 2018, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 571,165,680 common shares B.

Under the terms of the 1983 Merger Agreement as amended in May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%.

During 2018, one transaction was concluded between Aegon N.V. and Vereniging Aegon under or in connection with the 1983 Merger Agreement. All requirements determined by Best Practice 2.7.5 of the Dutch Corporate Governance Code were complied with in the execution of these transactions.

On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value (1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on May 18, 2018 in connection with the Long Term Incentive Plans for senior management.

To Aegon’s knowledge based on the filings made with the Dutch Autoriteit Financiële Markten, Dodge & Cox International Stock Fund, BlackRock, Inc. and Franklin Resources, Inc. hold a capital or voting interest in Aegon of 3% or more.

Based on its last filing with the Dutch Autoriteit Financiële Markten as at June 20, 2018, Dodge & Cox International Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital and votes as at December 31, 2018. On February 14, 2019, Dodge & Cox’s filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 237,992,105 common shares, representing 8.9% of the issued and outstanding capital as at December 31, 2018, and has voting rights for 232,925,689 shares, representing 8.7% of the votes as at December 31, 2018.

Based on its filing with the Dutch Autoriteit Financiële Markten as at March 27, 2018, BlackRock, Inc. stated to hold 112,661,670 shares, representing 4.2% of the issued capital as at December 31, 2018 and 131,979,873 voting rights, representing 4.9% of the votes as at December 31, 2018. On February 4, 2019, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that BlackRock holds 122,040,092 common shares, representing 4.6% of the issued capital as at December 31, 2018, and has voting rights for 106,522,921 shares, representing 4.0% of the votes as at December 31, 2018.

Based on its filing with the Dutch Autoriteit Financiële Markten as at June 10, 2015, Franklin Resources, Inc. (FRI) stated to hold 81,510,408 shares, representing 3.0% of the issued capital and of the votes as of December 31, 2018. On January 25, 2019, the filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC shows that FRI holds 61,141,668 common shares and voting rights, representing 2.3% of the issued and outstanding capital, as at December 31, 2018.

Special control rights

As a matter of Dutch corporate law, the common shares and the common shares B offer equal full voting rights, as they have equal nominal value (EUR 0.12). The Voting Rights Agreement entered into between Vereniging Aegon and Aegon provides that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon is not allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause, Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. In the event of a Special Cause, Vereniging Aegon may cast one vote for every common share and one vote for every common share B.

A Special Cause may include:

  The acquisition by a third party of an interest in Aegon N.V. amounting to 15% or more;
  A tender offer for Aegon N.V. shares; or
  A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and Supervisory Boards.

If Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months. Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders.

Issue and repurchase of shares

New shares may be issued up to the maximum of the Company’s authorized capital, following a resolution adopted by the General Meeting of Shareholders. Shares may

 
 

 

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also be issued following a resolution of the Executive Board, subject to approval by the Supervisory Board, providing, and to the extent that, the Board has been authorized to do so by the General Meeting of Shareholders. A resolution authorizing the Executive Board to issue new shares is usually presented at Aegon’s Annual General Meeting of Shareholders.

Aegon is entitled to acquire its own fully paid-up shares, providing it acts within existing statutory restrictions. Shareholders usually authorize the Executive Board to purchase the Company’s shares under terms and conditions determined by the General Meeting.

Transfer of shares

There are no restrictions on the transfer of common shares. Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board.

Aegon has no knowledge of any agreement between shareholders that might restrict the transfer of shares or the voting rights pertaining to them.

Significant agreements and potential change of control

Aegon is not party to any significant agreements that would take effect, alter or terminate as a result of a change of control following a public offer for the outstanding shares of the Company, other than those customary in financial markets (for example, financial arrangements, loans and joint venture agreements).

Share plan

Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the remuneration report on page 59 and note 53 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company’s Annual Report at the Annual General Meetings of Shareholders in the year of vesting of these shares.

Appointing, suspending or dismissing Board members

The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. These nominations are binding providing at least two candidates are nominated. The General Meeting of Shareholders may cancel the binding nature of these nominations with a majority of two-thirds of votes cast, representing at least one half of Aegon’s issued capital. The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the Supervisory Board. Such a resolution also requires a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital.

Members of Aegon’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company’s Supervisory Board. A member of the Executive Board may also be suspended by the Supervisory Board, although the General Meeting of Shareholders has the power to annul this suspension.

Amending the Articles of Association

The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board.

Dutch Corporate Governance Code

As a company based in the Netherlands, Aegon adheres to the Dutch Corporate Governance Code. The version of the code applicable to the financial year 2018 is the version that came into force on January 1, 2017. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance and long-term value creation. Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. It is the responsibility of both the Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure.

In general, Aegon applies the best practice provisions set out in the Code. There is one best practice provision with which Aegon does not fully apply. In this case, Aegon adheres, as much as is possible, to the spirit of the Code.

Best Practice 4.3.3

The Dutch Corporate Governance Code recommends that the General Meeting of Shareholders may cancel the binding nature of nominations for appointments of members of the Executive Board and Supervisory Board with an absolute majority of votes and a limited quorum.

Aegon’s position on Best Practice 4.3.3

Aegon’s Articles of Association provide for a larger majority and a higher quorum than those advocated by the Code. Given that the Company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983 Merger Agreement under which Aegon was formed. However, to mitigate any possible negative effects stemming from this, the Supervisory Board has decided that, in the absence of any hostile action, it will only make nominations for the appointment of members to the Executive and Supervisory Boards that are non-binding in nature.

Corporate Governance Statement

For an extensive review of Aegon’s compliance with the Dutch Corporate Governance Code, please refer to the Corporate Governance Statement on Aegon’s corporate website.

 
 

 

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Differences between Dutch and US company laws

 

Dutch company law is different from US law in the following respects: Aegon, like most large Dutch public companies, has a two-tier governance system comprising an Executive Board and a Supervisory Board. The Executive Board is the executive body. Its members are not Aegon employees and have an engagement agreement with the Company. Members of the Executive Board are appointed and dismissed by the General Meeting of Shareholders, as inside directors are in the United States. The Remuneration Policy as regards the members of the Executive Board is adopted by the General Meeting of Shareholders. The number of the Executive Board members and the terms of their engagement are determined by the Supervisory Board within the scope of the adopted Remuneration Policy.

The Supervisory Board performs supervisory and advisory functions only, and its members are outsiders that are not employed by the Company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the Company’s general course of affairs and the business connected with it. The Supervisory Board also assists the Executive Board by giving advice. Other powers of the Supervisory Board include the prior approval of certain important resolutions of the Executive Board. Members of the Supervisory Board are appointed for a four-year term and may be dismissed by the General Meeting of Shareholders. The remuneration of Supervisory Board members is fixed by the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or character of the Company or its business require the approval of the General Meeting of Shareholders.

 
 

 

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Composition of our Boards

 

Members of the

Executive Board

Alexander R. Wynaendts (1960, Dutch)

CEO and Chairman of the Executive and Management Boards of Aegon N.V.

Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development.

He was appointed as a member of Aegon’s Executive Board in 2003, overseeing the Company’s international growth strategy. In April 2007, Mr. Wynaendts was named Aegon’s Chief Operating Officer. A year later, he became CEO and Chairman of Aegon’s Executive Board and Management Board. His current term of office ends in 2019.

Mr. Wynaendts has been an Independent Director of the Board of Air France-KLM S.A. since May 2016 and the Chairman of the Supervisory Board of Puissance B.V. (not listed) since May 2017.

 

 

 

 

Matthew J. Rider (1963, American)

CFO and member of the Executive and Management Boards of Aegon N.V.

Matt Rider began his career at Banner Life Insurance Company and held various management positions at Transamerica, Merrill Lynch Insurance Group and ING before joining Aegon. From 2010 to 2013, he was Chief Administration Officer and a member of the Management Board at ING Insurance,

 

based in the Netherlands. In this role he was responsible for all of ING’s insurance and asset management operations, and specifically for Finance and Risk Management. Mr. Rider joined Aegon on January 1, 2017 and was appointed as CFO and member of the Executive Board of Aegon at the Annual General Meeting of Shareholders of Aegon N.V. of May 19, 2017.

 

 

Members of the Management Board

Alexander R. Wynaendts: see above

Matthew J. Rider: see above

 

 

 

Mark Bloom (1964, American)

Global Chief Technology Officer and member of the Management Board of Aegon N.V.

Mark Bloom has over 30 years’ experience in information technology. He joined Aegon from Citi in February 2016, where he served as Global Head of Consumer Digital and Operations Technology, responsible for digital, data and operations technology solutions and innovations. Prior

 

to that, he held a number of technology leadership positions in financial services and the aerospace industry. As Global Chief Technology Officer at Aegon, Mr. Bloom is responsible for leading the Company’s technology and innovation activities, including leveraging technology to drive efficiency and enhancing the customer experience. Mr. Bloom was appointed as a member of Aegon’s Management Board in August 2016.

 

 

 

Adrian Grace (1963, British)

CEO of Aegon UK and member of the Management Board of Aegon N.V.

Adrian Grace held various roles at GE capital, Sage Group Inc., before joining Barclays Bank as Chief Executive of the Insurance Business in 2004, and HBOS as Managing Director of Commercial Businesses in 2007. He joined Aegon

UK in 2009, and was appointed CEO of Aegon UK in 2011 and as a member of the Management Board of Aegon in 2012. Mr. Grace is a non-executive Director at Clydesdale Bank and a member of the Financial Conduct Authority practitioners’ panel. He was member of the Board of Scottish Financial Enterprise until June 2013.

 

 

 

 

 

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Allegra van Hövell-Patrizi (1974, Italian and Belgian)

Chief Risk Officer of Aegon N.V. and member of the Management Board of Aegon N.V.

Allegra van Hövell-Patrizi began her career in 1996 at McKinsey & Company, specializing in financial institutions. After several years as a partner there, she joined F&C Asset Management in 2007 as a member of the Management Committee. In 2009, she joined Prudential plc where she was part of the CEO Office

 

and then later became Group Risk Director, and a member of the Group Executive Risk Committee, as well as the PUSL Board (within the Prudential plc Group). Ms. van Hövell-Patrizi joined Aegon at the end of 2015. She was appointed Chief Risk Officer of Aegon N.V. and a member of Aegon’s Management Board in January 2016. Ms. van Hövell-Patrizi is a member of the Supervisory Board of LeasePlan (not listed) since 2018.

 

 

 

Marco Keim (1962, Dutch)

Head of Aegon Continental Europe and member of the Management Board of Aegon N.V.

Marco Keim began his career with accountancy firm Coopers & Lybrand/Van Dien, before moving to the aircraft manufacturer Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life

 

in the Netherlands as a Member of the Board, and was appointed CEO three years later. Mr. Keim was appointed CEO of Aegon the Netherlands and member of Aegon’s Management Board in June 2008, and Head of Aegon Continental Europe in January 2017. Mr. Keim is a member of the Supervisory Board of Eneco Holding N.V..

 

 

 

Onno van Klinken (1969, Dutch)

General Counsel and member of the Management Board of Aegon N.V.

Onno van Klinken has over 25 years’ experience providing legal advice to a range of companies and leading Executive Board offices. Mr. Van Klinken started his career at Allen & Overy, and previously worked for Aegon between 2002 and 2006. He then served as Corporate Secretary for Royal Numico, before it was acquired by Groupe Danone. His next position was as General Counsel for the Dutch global mail and express

 

group TNT, where he served from 2008 until the legal demerger of the group in 2011. This was followed by General Counsel positions at D.E. Master Blenders 1753 and Corio N.V.. Mr. Van Klinken rejoined Aegon in 2014 as General Counsel responsible for Group Legal, Regulatory Compliance, the Executive Board Office, and Government and Policy Affairs. Mr. Van Klinken has been a member of Aegon’s Management Board since August 2016. Mr. Van Klinken was appointed member of the Board of Stichting Continuïteit SBM Offshore in December 2016.

 

 

 

Carla Mahieu (1959, Dutch)

Global Head Human Resources and member of the Management Board of Aegon N.V.

Carla Mahieu started her career in 1984 at Royal Dutch Shell, where she held various management positions within Human Resources, Communications and Corporate Strategy. Following several years as a consultant – during which time she worked for Spencer Stuart, among other companies – Ms. Mahieu was

 

appointed Senior Vice President Corporate Human Resource Management at Royal Philips Electronics in 2003. Ms. Mahieu joined Aegon in 2010 as Global Head Human Resources, and has been a member of Aegon’s Management Board since August 2016. Ms. Mahieu has been a member of the Supervisory Board of the Royal BAM Group since 2011, and the Supervisory Board of VodafoneZiggo Group B.V. since 2017.

 

 

 

Mark Mullin (1963, American)

CEO of Aegon Americas and member of the Management Board of Aegon N.V.

Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe. Mr. Mullin served as President and CEO of one of Aegon’s US subsidiaries, Diversified Investment Advisors, and as head of the Company’s US annuity and mutual fund businesses.

He was named President of Aegon Americas in 2009, and became President and CEO of Aegon Americas and a member of Aegon’s Management Board in 2010. Mr. Mullin was appointed Chairman of the Board of Directors of the American Council of Life Insurers for the period October 2017-October 2018 and remains a member of the Board of Directors and Executive Committee through October 2019.

 

 

 

 

 

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Sarah Russell (1962, Australian)

CEO of Aegon Asset Management and member of the Management Board of Aegon N.V.

Sarah Russell has over 25 years’ experience in international finance and asset management.Ms. Russell began her career at Toronto Dominion in Melbourne before joining ABN AMRO in 1994. She moved to the Netherlands in 2000, where she held a number of various roles, leading to her appointment as CEO of ABN AMRO’s asset management operations. Ms. Russell joined Aegon Asset Management as CEO in 2010, and has been

 

a member of Aegon’s Management Board since August 2016. Ms. Russell has been a non-executive director of Nordea Bank Abp and its predecessors since 2010, holds a Supervisory Board member position at the Nederlandse Investeringsinstelling, and is Vice Chairman of the Supervisory Board of La Banque Postale Asset Management. Ms. Russell is also a Board member of the American Chamber of Commerce, the Netherlands since May 2017.

 

 

Members of the Supervisory Board

 

Robert J. Routs (1946, Dutch)

Chairman of the Supervisory Board until May 18, 2018

Chairman of the Nomination and Governance Committee until May 18, 2018

Member of the Remuneration Committee until May 18, 2018

Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to Aegon’s Supervisory Board in April 2008 and became Chairman in April 2010. Mr. Routs was re-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders. Following a ten year tenure, Mr. Routs retired as per May 18, 2018.

William L. Connelly (1958, French)

Chairman of the Supervisory Board

Chairman of the Nomination and Governance Committee

Member of the Remuneration Committee

William L. Connelly is a former member of the Management Board of ING Bank, where he was responsible for ING’s corporate, financial institutions and financial markets activities. He started his career at Chase Manhattan Bank, fulfilling senior roles in commercial and investment banking in France, the Netherlands, Spain, the United Kingdom and the United States. He was appointed to Aegon’s Supervisory Board in 2017 and became Chairman in May 2018 and his current term ends in 2021. He is also chairman of the Supervisory Board Nomination and Governance Committee and member of the Supervisory Board Remuneration Committee. Mr. Connelly is also an independent director at the Board of Directors of Société Générale.

Robert W. Dineen (1949, American)

Member of the Remuneration Committee

Member of the Risk Committee

Robert W. Dineen was Vice Chairman of Lincoln Financial Network (LFN) and a member of the Senior Management Committee of Lincoln Financial Group (LFG), before retiring in 2013. Before joining Lincoln Financial Group, Mr. Dineen was Senior Vice President and head of Merrill Lynch’s Managed Asset Group. He was appointed to Aegon’s Supervisory Board in May 2014, and

 

his current term ends in 2022. He is a member of the Supervisory Board Remuneration Committee and the Supervisory Board Risk Committee.

Mr. Dineen was the non-executive Chairman of the Board of Aretec Inc (not listed, US-based) and was a member of Lincoln New York Life Company Board.

Mark A. Ellman (1957, American)

Member of the Audit Committee

Member of the Risk Committee

Mark A. Ellman is a former Vice Chairman Global Origination of Bank of America/Merrill Lynch. Before joining Bank of Amercia/ Merrill Lynch, he held various roles in the US insurance industry. These mostly entailed working in corporate finance at large US financial institutions, where he was engaged in M&A advice and transactions, together with equity and debt raisings for insurance companies. He was a founding partner of Barrett Ellman Stoddard Capital Partners. Mr. Ellman was appointed to Aegon’s Supervisory Board in 2017, and his current term ends in 2021. He is a member of the Supervisory Board Audit Committee and the Supervisory Board Risk Committee.

Mr. Ellman was a non-executive director of Aegon USA from 2012 to 2017.

Ben J. Noteboom (1958, Dutch)

Chairman of the Remuneration Committee

Member of the Risk Committee

Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2014, where he was appointed member of the Executive Committee in 2001 and became CEO in 2003. Before joining Randstad, Mr. Noteboom worked for Dow Chemical in several international management functions between 1984 and 1993. He started his career in 1982 at Zurel as management assistant. He was appointed to Aegon’s Supervisory Board in May 2015, and his current term ends in 2019. He is Chairman of the Supervisory Board Remuneration Committee and a member of the Supervisory Board Risk Committee.

 
 

 

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Mr. Noteboom is also a member of the Supervisory Board of Royal Ahold Delhaize N.V., Wolters Kluwer N.V. and Chairman of the Supervisory Board of Royal Vopak N.V. In addition, Mr. Noteboom is a member of the Board of Directors of VUmc Cancer Center Amsterdam and the Chairman of Stichting Prioriteit Ordina Groep.

Ben van der Veer (1951, Dutch)

Chairman of the Audit Committee

Member of the Nomination and Governance Committee

Ben van der Veer is former Chairman of the Board of Management of KPMG N.V. Mr. Van der Veer retired from KPMG on September 30, 2008, and was appointed to Aegon’s Supervisory Board in October 2008. Mr. Van der Veer was re-appointed as a member of the Supervisory Board during the 2016 Annual General Meeting of Shareholders, and his third and final term ends in 2020. He is Chairman of the Supervisory Board Audit Committee and a member of the Supervisory Board Nomination and Governance Committee.

Mr. Van der Veer is a non-executive member of the Board of Directors of RELX PLC. He is also a member of the Supervisory Board of Royal FrieslandCampina N.V. (not listed), and member of the Supervisory Board of Royal Vopak N.V. since April 2018. Mr Van der Veer was a former member of the Supervisory Board of Royal Imtech N.V., TomTom N.V., and Siemens Nederland N.V. (not listed).

Dirk P.M. Verbeek (1950, Dutch)

Member of the Risk Committee until May 18, 2018

Member of the Nomination and Governance Committee until May 18, 2018

Dirk P.M. Verbeek is a former Executive Board member and former vice president Emeritus of Aon Group. Mr Verbeek is a member of the Advisory Council of OVG Real Estate (not listed). Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008. He was a member of the Supervisory Board Risk Committee and the Supervisory Board Nomination and Governance Committee. Mr. Verbeek retired from the Supervisory Board as per May 18, 2018.

Corien M. Wortmann-Kool (1959, Dutch)

Vice Chairman of the Supervisory Board

Member of the Audit Committee

Member of the Nomination and Governance Committee

Corien M. Wortmann-Kool is Chairman of the Board of Stichting Pensioenfonds ABP, the Dutch public sector collective pension fund. Ms. Wortmann-Kool is a former Member of the European Parliament and Vice President on Financial, Economic and Environmental affairs for the EPP Group (European People’s Party). She was appointed to Aegon’s Supervisory Board in May 2014, and her current term ends in 2022. She is Vice Chairman of the Supervisory Board, and a member of the Supervisory Board Audit Committee and the Supervisory Board Nomination and Governance Committee.

Ms. Wortmann-Kool is also a member of the Supervisory Board of Het Kadaster (not listed), member of the Advisory Council of the Centraal Bureau voor de Statistiek, Chairman of the Board of Trustees of Save the Children Netherlands and member of De Autoriteit Financiële Markten Capital Markets Advisory Committee. She was a member of the Supervisory Board of Mercedes-Benz Netherlands (not listed) until 2014, vice president of the European People’s Party until March 2018 and member of the Advisory Council of the Centraal Bureau voor de Statistiek until June 2018.

Dona D. Young (1954, American)

Member of the Audit Committee

Chairman of the Risk Committee

Member of the Nomination and Governance Committee

Dona D. Young is an executive/board consultant and retired Chairman, President and Chief Executive Officer of The Phoenix Companies, which was an insurance and asset management company at the time of her tenure. She was appointed to Aegon’s Supervisory Board in 2013, and her current term will end in 2021.

She is Chairman of the Supervisory Board Risk Committee, member of the Supervisory Board Audit Committee and member of the Supervisory Board Nomination and Governance Committee.

Ms. Young is member and Lead Director of the Board of Directors of Foot Locker, Inc. Furthermore, Ms. Young is Chair of the Audit Committee of the Board of Trustees of Save the Children US (not listed), and member of the Board of Save the Children International and Save the Children Association.

 
 

 

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Report of the Supervisory Board

The Supervisory Board is entrusted with supervising and advising the Executive Board on management of the Company, and overseeing Aegon’s strategy and the general course of its businesses.

 

Oversight and advice

The Supervisory Board is a separate independent corporate body, consisting of seven members on December 31, 2018. The Supervisory Board is charged with the supervision of the Executive Board, of the general course of affairs and strategy of the Company, and of its businesses. In performing their duties, members of the Supervisory Board are guided by the interests of Aegon and the Company’s stakeholders.

The duties of the Supervisory Board with regard to the activities of members of the Executive Board are published in the Supervisory Board Charter, which is published on Aegon’s corporate website, aegon.com. The Supervisory Board makes recommendations to the General Meeting of Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive Board and the Supervisory Board.

In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the Remuneration Policy adopted at the Company’s General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory Board, which is advised by its Remuneration Committee. This includes the responsibility for designing, approving and maintaining the Aegon Group Global Remuneration Framework, including the remuneration policies for the Executive Board and Heads of Group Control functions.

Corporate governance

Details of Aegon’s corporate governance structure and a summary of how the Company complies with the Dutch Corporate Governance Code can be found on pages 42-46 of this Annual Report and in the Corporate Governance Statement published on aegon.com.

Composition of the Supervisory Board and Executive Board

Supervisory Board

The composition of the Board is discussed regularly in Board meetings and in particular by the Nomination and Governance Committee. An overview of the composition of the Supervisory Board in 2018 can be found on pages 49-50. All members of the Supervisory Board are considered independent under the terms of best practice provisions 2.1.7, 2.1.8 and 2.1.9 of the Dutch Corporate Governance Code.

There were a number of changes to the Supervisory Board in 2018. Following a ten-year term, Rob Routs stepped down as Chairman and member of the Board at the Annual General Meeting of Shareholders on May 18, 2018. In addition, Dirk Verbeek stepped down after 10 years’ service at the Annual General Meeting of Shareholders on May 18, 2018. The Board benefitted from Mr. Routs’ and Mr. Verbeek’s knowledge and contributions. The Supervisory Board elected William Connelly as its new Chairman following the Annual General Meeting of May 18, 2018.

On May 18, 2018, shareholders approved the reappointment of Corien Wortmann-Kool and Robert Dineen for an additional four-year term. The Supervisory Board is in the process of selecting new candidates for appointment, and will propose any such candidate(s) in due course for approval to the Company’s shareholders.

In compliance with the Dutch Corporate Governance Code, members of the Supervisory Board are appointed by shareholders for a term of four years. The option exists to reappoint members for one additional four-year term. A Supervisory Board member can then subsequently be reappointed again for a period of two years, which reappointment may be extended by at most two years. For a reappointment after an eight-year period, reasons will be provided in the report of the Supervisory Board. The retirement schedule and other information about members of the Supervisory Board are available on aegon.com.

Executive Board

The Executive Board consists of Alexander R. Wynaendts, Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matthew J. Rider, Chief Financial Officer (CFO).

Members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for additional four-year terms. The appointment schedule and other information about members of the Executive Board are available on aegon.com.

Board meetings

Attendance

In 2018, the Supervisory Board had seven regular (face-to-face) meetings: four related to the quarterly results; one to the annual report; and two to strategy (including the budget and Medium Term Plan). Supervisory Board Committee meetings were usually held the day before the meetings of the full Supervisory Board. All regular board meetings were attended by all Board

 
 

 

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members. All committee meetings were attended by all committee members. An overview of Supervisory Board members’ attendance by meeting is provided in the table below.

 

 

Name    Regular SB meeting        Audit Committee        Risk Committee     

    Remuneration

Committee

       Nomination &
Governance
Committee
     Combined
  Audit & Risk
Committee
 
Rob Routs 1      3/3        -        -        3/3        3/3        -  
Bill Connelly 1      7/7        4/4        -        6/6        5/5        -  
Bob Dineen 1      7/7        4/4        4/4        3/3        -        1/1  
Mark Ellman      7/7        6/6        4/4        -        -        1/1  
Ben Noteboom      7/7        -        4/4        6/6        -        1/1  
Ben van der Veer      7/7        6/6        -        -        8/8        1/1  
Dirk Verbeek 1      3/3        -        2/2        -        3/3        -  
Corien Wortmann      7/7        6/6        -        -        8/8        1/1  
Dona Young 1      7/7        6/6        4/4        -        5/5        1/1  

 

1

Where a Supervisory Board member retired from the SB, stepped down from a Committee or was appointed throughout the year, only meetings during his/her tenure are taken into account.

 

Members of the Executive Board and Management Board attended the Supervisory Board meetings held in 2018 when relevant with regard to the meeting agenda. At the request of the Supervisory Board, other Company executives also attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor PwC attended the March 2018 Supervisory Board meeting on Aegon’s 2017 Annual Report. PwC also attended all 2018 Audit Committee meetings except for the October deep dive meeting in Edinburgh, the UK, focused on Aegon UK and the combined Supervisory Board Audit and Risk Committee in December. Regular Board meetings were preceded or followed by meetings attended only by the members of the Supervisory Board and the CEO. Furthermore, the Supervisory Board held meetings without the presence of Executive Board or Management Board members.

Highlights and activities

Key topics discussed during the 2018 Supervisory Board meetings were Aegon’s quarterly results and semi-annual and annual reporting, Aegon’s strategy, the main business risks, IT, regulatory developments, acquisitions and divestments and human resources items.

Quarterly results were discussed on the basis of feedback from the Audit Committee. The full-year results reported in this Annual Report were discussed in the March 2019 meeting in the presence of the external auditor PwC. At the Supervisory Board meeting in December 2018, the budget for 2019 was approved and the Medium Term Plan was discussed.

The Supervisory Board regularly discussed the long-term value creation strategy with the Executive Board and the Management

Board, and closely monitored its execution, the risks involved in its execution, and any opportunities to further enhance the strategy where necessary. Every year during the Supervisory Board strategy meeting, the strategy is discussed as part of the annual strategy process. Plans and projects were discussed during executive sessions and in regular meetings, together with the strategic focus for all operating segments. Furthermore, digitization and the cultural transformation of the business were additional important strategic priorities that were discussed during the Supervisory Board meetings.

Acquisitions and divestments were regularly discussed in the context of the execution of the strategy. The Supervisory Board supports the active management of the business portfolio with add-on acquisitions, the sale of underperforming businesses and the disposals of entities no longer consistent with Aegon’s strategy. During the year, the Board discussed various M&A transactions, including but not limited to the acquisition of Robidus in the Netherlands, the divestment of the businesses in Czech Republic, Slovakia and Ireland and the divestment of the last block of US life reinsurance business to SCOR

Global Life.

In recognition of the importance of succession planning and talent management, the Board received updates from Aegon’s Global Head Human Resources on progress made towards achieving the objectives of Aegon’s talent agenda: continuing to attract new staff with a wide range of different skills and experience; identifying sufficiently qualified succession candidates; and strengthening the talent pipeline for future succession. The Board also received and discussed the results of the annual global employee survey.

 
 

 

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In 2018, Supervisory Board discussions included the following topics:

  Strategy, including Aegon’s long-term value creation, its responsible business strategy and business reviews;
  Acquisitions, divestments and the strategic direction of Aegon’s businesses, including the organizational transformation throughout the business, such as the strategic partnership to outsource administration of the majority of Transamerica’s insurance and annuity business, and the decision made by Aegon UK to extend the partnership with Atos for administration services.
  Executive Board and senior management succession planning;
  Executive remuneration, including the risks of the remuneration framework;
  Corporate Governance;
  Composition of the Supervisory Board, including the Board’s effectiveness;
  Human resources, including talent development, results of the global employee survey, cultural change and the risks of cultural behavior within the Company;
  Annual and quarterly results, dividends and the Company’s Medium Term Plan, including the 2019 budget, capital and funding plan;
  Capital generation and Solvency II capital position, including regulatory capital reports and actions following the changes in the US Capital Framework for Variable Annuities resulting in the merger of two US legal entities;
  Enterprise risk management, cybersecurity and information security risks, and the risks related to the execution of the strategy within the Company;
  Investor relations, including shareholder listing, market analysis and roadshow feedback;
  Legal, regulatory and compliance issues, including Aegon’s engagement with regulators, and the settlement with the SEC and the settlement in relation to the universal life litigation in the US;
  Highlighted topics by Supervisory Board Committees;
  Regulatory changes at both a regional and global level;
  Tax policy and tax developments; and
  Technology, including the technology strategy, technological developments and innovations, and how they can be used to enhance customer centricity.

Results and budget

In February 2018, the Supervisory Board convened to discuss the fourth quarter 2017 results. In March 2018, the Supervisory Board reviewed and adopted Aegon’s 2017 Annual Report, the Consolidated Financial Statements of Aegon N.V., the Financial Statements of Aegon N.V., and the Annual Review of 2017. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2018 results respectively.

In December 2018, the Supervisory Board and Management Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2019. The Boards took note

of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: increased regulatory requirements, low interest rates, market volatility, digital developments, and the changing distribution landscape. The Board discussed Aegon’s free cash flow and capital projections, together with the continued focus on cost efficiency. The Plan provides for a continuation of investments in digital capabilities to increase customer connectivity. The Supervisory Board supported the Plan and approved the budget for 2019. The Board also approved the 2019 funding plan and authorized the Executive Board to execute on the funding plan in 2019.

Legal, compliance and regulatory affairs

In 2018, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to the Americas, Europe, Asia, and Asset Management with management, the Global Head of Group Legal & Regulatory Compliance and the Global Head of Operational and Conduct Risk Management. In particular, the Board discussed the consequences and actions resulting from being designated as a Global Systematically Important Insurer (G-SII) and the settlement with the US Securities and Exchange Commission (SEC) with regards to the operation and implementation of asset management quantitative models by Aegon’s US asset management operations, and related disclosures. The Board furthermore discussed the settlement that resolved litigation challenging certain monthly deduction rate adjustments on universal life insurance policies in the United States. An overview of the topics discussed in the field of Risk Management can be found in the Audit Committee and Risk Committee sections below.

The Chairs of the Supervisory Board, Audit Committee and Risk Committee visited the group supervisor (Dutch Central Bank, DNB) in the first half of 2018 for their annual meeting.

Educational sessions

The Board and its Committees received updates and presentations on topics including developments in acquisitions and divestments, corporate governance and regulatory compliance, roles and responsibilities of the Board and the management and remuneration regulations for the insurance sector, responsible business and information technology. In addition to these updates and presentations from the Company, the members of the Supervisory Board gathered general information on industry developments by participating in networks, reading independent reports and sharing knowledge with other Board members within and outside Aegon. The Board visited local offices and employees in Asia, the UK and the US and was furthermore in particular informed on the strategic direction of Aegon’s activities in Europe, Asia and Asset Management and on the transformation processes within the Company. In addition, the Board was updated on the developments around the General Data Protection Regulation and on the Asset and Liability Management within the Company. The Audit Committee furthermore held a meeting dedicated to Aegon UK developments.

 
 

 

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Board review

The Supervisory Board undertakes a Board review on an annual basis, and an external assessment takes place at least once every three years. At the end of 2017, a self-assessment was undertaken by the Board and the results of this self-assessment were discussed at the beginning of 2018. Over 2018, an external assessment of the Supervisory Board will be conducted. The results of this assessment and the priorities and follow-up will be discussed in the beginning of 2019. In the assessment each member of the Board will be interviewed on the basis of a completed questionnaire. The Board review assesses the collective performance and effectiveness of the Board and its Committees, and the performance of the Chairman and the individual members of the Board. In doing so, it addresses the composition, competencies, expertise and profile of the Board, the meeting processes and procedures, the mutual interaction, dynamics and communication in the Board, and the Board’s key areas of supervision. The questionnaire further addresses events from which lessons can be learned, and reviews the mutual interaction between the Supervisory Board and the Executive Board and Management Board. With regard to this mutual interaction, the 2018 Supervisory Board review also includes input from the Management Board. In 2018, the Supervisory Board acted on the priorities and follow-ups that were listed following the self-assessment over 2017.

The performance of the members of the Executive and Management Board was discussed regularly during 2018. The Supervisory Board reviewed the performance of individual members of the Executive and Management Board over the preceding calendar year in February 2018. In addition, the Supervisory Board discussed the cooperation and communication between the Supervisory Board and Management Board in 2018.

Supervisory Board Committees

The Supervisory Board has four Committees that discuss specific issues in depth and prepare items about which the full Board makes decisions. The Committees report verbally about their discussions, and they are discussed in full at Supervisory Board meetings. Supervisory Board members receive all minutes of the Committee meetings. These meetings are open to all members of the Board, regardless of membership of the Committees. All Committee reports were prepared by the respective Committees and approved by the Supervisory Board. These reports provide an overview of the responsibilities and activities of the Committees.

The four Committees are the:

  Audit Committee;
  Risk Committee;
  Nomination and Governance Committee; and
  Remuneration Committee.

The Risk Committee is responsible for supervising the activities of, and advising the Supervisory Board’s Audit Committee with respect to, the Company’s enterprise risk management framework and internal control systems. The Audit Committee primarily relies on the Risk Committee for these topics, as stated in the Dutch Corporate Governance Code.

The Audit Committee

Composition

On December 31, 2018, the composition of the Audit Committee was as follows:

  Ben van der Veer (chair);
  Mark A. Ellman;
  Corien M. Wortmann-Kool; and
  Dona D. Young.

The members of the Audit Committee meet all relevant independence and experience requirements of financial administration and accounting for listed companies.

The Committee confirmed that all of its members qualified as independent according to Rule 10A-3 of the SEC, and it also confirmed that the Chairman of the Audit Committee, Ben van der Veer, qualified as a financial expert according to the Sarbanes Oxley Act in the United States and his competence in accounting and auditing according to the Audit Committee Decree 2016 (‘Besluit instelling auditcommissie’), section 2(3).

Role and responsibilities

As Aegon has both an Audit Committee and a Risk Committee, the risk management responsibilities stated in the Dutch Corporate Governance Code are assigned to the Risk Committee. With regard to the oversight of the operation of the risk management framework and risk control systems, including supervising the enforcement of relevant legislation and regulations, the Audit Committee operates in close coordination with the Risk Committee as established by the Board. Certain Board members participate in both committees and a combined meeting of the Audit and Risk Committees is scheduled on an annual basis.

The main role and responsibilities of the Audit Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding:

  The integrity of the consolidated interim and full-year financial statements and financial reporting processes;
  Internal control systems and the effectiveness of the internal audit process; and
  The performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of PwC.
 
 

 

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The Audit Committee reports to the Supervisory Board on its activities, identifying any matters about which it considers action or improvements are needed, and making recommendations as to the steps to be taken. For more information about the functioning of the Audit Committee, please see the Audit Committee Charter on aegon.com.

Committee meetings

In 2018, the Audit Committee held seven meetings, one of which was a combined meeting with the Risk Committee of the Supervisory Board in December 2018. As part of regular deep-dive sessions, a separate meeting took place in October in the UK dedicated to Aegon’s business in the UK. Topics for discussion included the developments within Aegon UK in general, the capital generation, operational management including outsourcing and the digital solutions and integration initiatives within Aegon UK. Audit Committee meetings were attended by the members of the Audit Committee, Aegon’s Chief Financial Officer, the Head of Corporate Financial Center, the Chief Risk Officer, the Chief Internal Auditor, and partners of PwC, Aegon’s external auditor.

Members of Aegon’s Group Risk, Group Legal & Regulatory Compliance, Investor Relations, Tax, Actuarial and Business departments regularly attended Audit Committee meetings. Aside from the Audit Committee meetings, additional sessions were held with internal and external auditors without members of the Executive Board or senior management present.

Financial Reporting

In discharging their responsibilities with regards to the 2018 interim and full year financial statements, the Audit Committee:

  Reviewed and discussed the management letter and follow up actions with PwC, Internal Audit, the Executive and the Management Board;
  Discussed PwC’s quarterly reports leading to a review opinion on the interim financial statements;
  Received presentations on various topics by local business unit managers and chief financial officers; and
  Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, economic and actuarial assumption setting, and model validations.

The Audit Committee was satisfied with the explanations provided by PwC, Internal Audit and Executive and Management Board, and conclusions reached. Recurring items on the Audit Committee agenda in 2018 were Solvency II developments, controls, capital and liquidity, legal and compliance updates, and preparations for IFRS 9 and IFRS 17. Other items included the capital and funding plans and the performance review of the internal audit function.

Risk management and internal controls

With respect to their oversight of internal controls (provided they did not pertain to the work and responsibilities of the Risk Committee) the Audit Committee:

  Reviewed and approved the internal and external audit plans for 2018 and monitored execution, including progress in respect of recommendations made;
  Discussed quarterly updates on the activities of the internal audit function, together with details of progress on internal audits with the internal auditor. Areas of focus in 2018 included the Internal Audit strategy, audit planning process, Internal Audit charter, quality assurance reviews, issue tracking and resolution, control environment, Information Security, Solvency II, third party management and outsourcing, performance management and integrity;
  Contributed to the appointment process of the new Global Head of Internal Audit;
  Reviewed the internal control framework, among others with respect to the Sarbanes Oxley Act; and
  Discussed the internal control statement with the Executive Board.

In addition, the Committee reviewed quarterly legal and compliance updates.

External audit effectiveness

The Audit Committee discussed and approved the external auditor’s engagement letter for 2018 and contributed to the appointment process of the new lead partner(s). Aegon has well-established policies on audit effectiveness and independence of auditors that set out, among other things:

  The review and evaluation of the external auditor and the lead partner of the external audit team on at least an annual basis;
  Non-audit services performed by the external auditor;
  Rotations of the external auditor and lead partner; and
  Discussions about planning and staffing of the external audit activities.

For more information about the policies relating to the effectiveness and independence of the external auditor, please see Annex A, B and C of the Audit Committee Charter on aegon.com.

The Risk Committee

Composition

On December 31, 2018, the composition of the Risk Committee was as follows:

  Dona D. Young (chair);
  Robert W. Dineen;
  Mark A. Ellman; and
  Ben J. Noteboom.
 
 

 

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Role and responsibilities

The main role and responsibilities of the Risk Committee are to assist and advise the Supervisory Board in fulfilling its oversight responsibilities regarding the effectiveness of the design, operation and appropriateness of both the Enterprise Risk Management (ERM) framework and the internal control systems of the Company and the subsidiaries and affiliates that comprise the Aegon Group. This includes:

  Risk strategy, risk tolerance and risk governance;
  Product development and pricing;
  Risk assessment;
  Risk responses and internal control effectiveness;
  Risk monitoring; and
  Risk reporting.

Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board.

For more information about the functioning of the Risk

Committee, please see the Risk Committee Charter on aegon.com.

Committee meetings

The Risk Committee works closely together with the Audit Committee and has an annual combined meeting, which in 2018 was held in December. This combined meeting focused on the Group integrated risk reporting, the preparations for IFRS 9 and IFRS 17, the evaluation of internal controls, cyber security and information security.

The Risk Committee convened five times in 2018, including the combined meeting with the Audit Committee. The Company’s Chief Executive Officer and Chief Risk Officer attend all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings, and also attended one of the meetings in 2018. Other Management Board members and senior managers attended the meetings when relevant for the discussion.

Risk management and Internal controls

Recurring items on the Risk Committee agenda in 2018 were risk exposure information, risk policy compliance monitoring, and risks associated with large modernization and change programs in the company. The Risk Committee assessed the effectiveness of the design and operation of the ERM framework and internal control systems in 2018 by:

  Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board members and relevant senior managers. The material group level risks consisted of financial, actuarial and operational risks, including cybersecurity and information security risks and controls;
  Assessing a quarterly modernization dashboard that outlined risks with regards to the execution of the strategic change programs in each region, and how those risks were monitored and mitigated;
  Discussing in-depth regional programs, referred to as ‘Control Excellence’, focused on internal controls and operational risk management with the relevant CROs;
  Reviewing the Group Risk appetite, which consists of the risk strategy and risk limits and tolerances; and
  Reviewing the risk governance structure and risk competencies, including the skills necessary for the risk function.

The Risk Committee also discussed several regulatory topics on a regular basis, including the DNB Focus report and the consequences and actions following the designation of Aegon as a G-SII in November 2015. The Risk Committee furthermore spent time on the Group ORSA report, the strategic human resources program Future Fit and on risks and approaches in dealing with third party relations of the Company. In addition, the Risk Committee dedicated time to wider developments in the geopolitical environment, including risks associated with Brexit and financial markets in 2018, and to an educational session on Asset and Liability Management within the Company.

The Nomination and Governance Committee

Composition

On December 31, 2018, the composition of the Nomination and Governance Committee was as follows:

  William L. Connelly (chair);
  Ben van der Veer;
  Corien M. Wortmann-Kool; and
  Dona D. Young.

Role and responsibilities

The main role and responsibilities of the Nomination and Governance Committee are to assist and advise the Supervisory Board in fulfilling its responsibilities in the areas of Human Resources Management and Corporate Governance. This includes:

  Board member and senior management succession planning;
  Drawing up selection criteria and procedures for Board members, together with supervising the selection criteria and procedures for senior management;
  Advising on and proposing nominations, appointments and reappointments;
  Reviewing and updating the Supervisory Board profile and charters for the Supervisory Board and its committees;
  Periodically assessing the functioning of individual members of the Supervisory Board and the Executive Board;
  Overseeing the corporate governance structure of the Company, compliance with the Dutch Corporate Governance Code and any other applicable corporate governance legislation and regulations; and
  Assessing and advising on the responsible business strategy as part of the corporate strategy, and overseeing the execution of the responsible business strategy.
 
 

 

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Committee meetings

Aegon’s Nomination and Governance Committee held eight meetings in 2018. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head Human Resources and the General Counsel.

Further to the activities mentioned below, the Nomination and Governance Committee discussed the Company’s responsible business strategy. The Nomination and Governance Committee also reviewed the important outside board positions of the members of the Management and Supervisory Board, and discussed specific appointments to important outside board positions where applicable.

Supervisory Board related activities

The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees and governance topics. The profile of Supervisory Board members, as well as their capabilities in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. Furthermore, the existing and impending vacancies in the Supervisory Board were discussed and a search process for fulfilling those vacancies was ongoing. A Supervisory Board competency overview is published on aegon.com.

Executive Board related activities

During 2018, the Nomination and Governance Committee reviewed the composition of the Executive Board. Considering the appointment schedule of the Executive Board, the Nomination and Governance Committee evaluated Mr. Wynaendts’ career at Aegon and his functioning as CEO of the Company, and advised the Supervisory Board to nominate Mr. Wynaendts for reappointment to the shareholder. The Nomination and Governance Committee furthermore reviewed the composition of the Management Board, together with the functioning and effectiveness of the Board members, both individually and as a team. Acknowledging the importance of good succession planning, the Committee discussed with the CEO and Aegon’s Global Head Human Resources the extent to which sufficient internal candidates are available to fill positions at Executive Board, Management Board and senior management level both in the event of emergency and when positions open up in the future. The CEO also discussed changes in the global senior management team with the Nomination and Governance Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. As in previous years, the Supervisory Board noted that Aegon continued to make progress in order to ensure proper succession planning is in place. The Supervisory Board was also informed about the annual Global Employee Survey, which was conducted at the end of 2018. The Supervisory Board discussed the outcome of this survey in detail in the first quarter of 2019.

Diversity

Enhancing diversity in the Executive, Management and Supervisory Board is an important issue for Aegon. Selection and appointment is based on expertise, skills and relevant experience, and the Supervisory Board takes diversity into account with a view to achieving its aim of having a balanced Supervisory, Executive and Management Board composition. In 2017, the Supervisory Board adopted a diversity policy for the Executive, Management and Supervisory Board.

The Supervisory Board is aware that the current composition of the Executive and Supervisory Board does not meet the ‘balanced composition’ requirement under Dutch law with regard to gender diversity (at least 30% of the positions should be filled by women and at least 30% by men). Following the appointment of Corien Wortmann-Kool to the Supervisory Board in 2014, the gap in terms of the ‘balanced composition’ was reduced, and the Supervisory Board currently has two female Board members. When identifying candidates for open positions in the Executive, Management and Supervisory Board, the Board actively searches for female candidates. It also instructs external search firms to present female candidates. While this has had a positive effect, the requirement has not yet been fully met. More information on diversity within the Board is available in the Supervisory Board Composition and Competency Overview as published on aegon.com.

The Remuneration Committee

Composition

On December 31, 2018, the composition of the Remuneration Committee was as follows:

  Ben J. Noteboom (chair);
  William L. Connelly; and
  Robert W. Dineen.

Role and responsibilities

The main role and responsibilities of the Remuneration Committee are to advise the Supervisory Board and prepare decisions to be taken by the Board. The Committee is designated to safeguard sound remuneration policies and practices within the Company by overseeing the development and execution of these policies and practices. In order to ensure that the remuneration policies and practices take all types of risks properly into account, in addition to liquidity and capital levels, the Remuneration Committee assesses in particular the remuneration governance processes, procedures and methodologies adopted. Furthermore, the Committee ensures that the overall remuneration policy is consistent with the longer-term strategy of the Company and the longer-term interest of its shareholders, investors and other stakeholders. This includes:

  Reviewing the Aegon Group Global Remuneration Framework and making recommendations on the remuneration policies;
  Preparing recommendations regarding variable compensation both at the beginning and at the end of the performance year;
 
 

 

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  Overseeing the remuneration of the Executive Board and Heads of Group Control functions; and
  Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report.

Committee meetings

The Remuneration Committee had six meetings in 2018. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head Human Resources and the General Counsel.

In 2018, the Remuneration Committee oversaw the further application, implementation and approval of Aegon’s Group Global Remuneration Framework and the various policies and procedures related to it, including the Remuneration Policy for Identified Staff. This included:

  Setting the 2018 performance indicators and targets for remuneration purposes;
  Preparing the 2019 performance indicators for remuneration purposes;
  Allocating variable compensation related to 2017;
  Overseeing the scenario analysis of payout levels under the Executive Board Remuneration Policy; and
  Reviewing and/or approving the ex-ante assessments and ex-post assessments, any exemption requests under the remuneration policies, and changes to the list of Identified Staff.

In addition, the Remuneration Committee discussed possible developments with regards to regulations pertaining to remuneration.

Annual Accounts

This Annual Report includes the Annual Accounts for 2018, which were prepared by the Executive Board and discussed by both the Audit Committee and the Supervisory Board. The Annual Accounts are signed by the members of the Executive Board and the Supervisory Board, and will be placed on the agenda of the 2019 Annual General Meeting of Shareholders for adoption. The Supervisory Board recommends that shareholders adopt the annual accounts.

Acknowledgement

The members of the Supervisory Board are very grateful for the work undertaken by Executive and Management Boards in pursuit of Aegon’s purpose of helping people achieve a lifetime of financial security.

We would like to thank Aegon’s employees for all they do to serve Aegon’s millions of customers, and furthermore we would like to express our thanks to Aegon’s business partners and loyal customers for their continued confidence in the Company.

Finally, the Board wishes to thank all those who invest in Aegon for their continued trust and confidence.

The Hague, the Netherlands, March 21, 2019.

 

William L. Connelly

Chairman of the Supervisory Board of Aegon N.V.

 
 

 

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Remuneration report

The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout Aegon. They are applied regionally and/or locally.

 

Global Remuneration Principles

The key pillars of the Aegon Group Global Remuneration Principles are as follows:

  Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff;
  Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with Aegon’s long-term interests; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; and avoiding any pay for non-performance;
  Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are well-balanced across the different echelons within Aegon and its business units; avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs; creating global alignment in the total compensation of all Identified Staff; and aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at a regional unit, country and/or functional level;
  Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; and protecting the risk alignment effects embedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.

These key pillars are set out in the Aegon Group Global Remuneration Framework (GRF). The GRF applies to all Aegon employees. It contains the guiding principles for remuneration and therefore supports the consistent setting of sound and effective remuneration policies throughout the Company. The GRF has been designed in accordance with relevant rules, guidelines and interpretations, for instance the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid (Rbb) Wft 2014) from the DNB, and the 2015 Act on the Remuneration

Policy of Financial Undertakings (Wet beloningsbeleid financiële ondernemingen, Wbfo 2015 stb 2015, 45).

Aegon’s remuneration policies are derived from the GRF, among which is the Executive Board Remuneration Policy. These policies define specific terms and conditions for the employment of various employee groups. All steps in the remuneration process are governed by the GRF and its underlying policies. Staff from Human Resources, Risk Management, Compliance and Audit are involved in all steps of the process.

In 2018, there was one remuneration regulation change that affected Aegon. As per December 8, 2017, the Rbb has been withdrawn for insurers. However, as this announcement was made shortly before the start of the performance year, Aegon decided not change any of its remuneration policies or processes related to this performance year and continued to apply Rbb on a voluntary basis in 2018. For this reason, Aegon’s 2018 remuneration practices and processes did not change materially compared to 2017.

The Wbfo 2015 has a provision that makes it possible to offer employees up to a maximum variable compensation opportunity that is equal to the European CRD IV compensation ratio (i.e. 100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employed at least 75% of their employees abroad. In 2018, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum.

In line with another Wbfo 2015 provision, Aegon has obtained shareholder approval at the Annual General Meeting of Shareholders of May 20, 2016 to offer a maximum variable compensation opportunity up to 200% of fixed compensation to selected senior employees outside Europe in positions that, based on local market practice, could receive variable compensation that exceeds 100% of fixed compensation. Within this mandate, Aegon offered selected senior employees outside Europe such an opportunity in 2018. The Company’s capital was not adversely impacted by the maximum variable compensation that could be paid out.

In 2018 Aegon paid out EUR 207 million in variable compensation and 21 employees received EUR 1 million or more in total annual compensation (i.e. the sum of fixed and variable compensation paid/vested in 2018). These employees worked for

 

 

 

 

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Aegon’s Corporate Center, Aegon Americas, Aegon UK and Aegon Asset Management.

Role of Risk Management and Compliance

Variable compensation may have an impact on risk-taking behaviors and, as such, may undermine effective risk management. The opportunity to receive high variable compensation can lead to excessive risk taking, which can have a material impact on the company’s financial soundness. To avoid such undesired effects, both the Risk Management and Compliance functions are involved in the design and execution of remuneration policies and practices.

The GRF includes separate remuneration policies for three specific groups of employees. This is in recognition of the fact that these employees’ roles and responsibilities require specific risk mitigating measures and governance processes. These remuneration policies are for: (i) the Executive Board; (ii) material risk takers (Identified Staff); and (iii) Control Staff. Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed ‘Identified Staff’. Furthermore, where exceptions to the policies are requested to reflect local practices or regulations, Risk Management and Compliance are involved in order to ensure such exceptions do not undermine effective risk management and that sufficient mitigating measures are undertaken.

In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions, are responsible for the execution of the various measures that ensure the GRF and associated practices are aligned with the defined risk tolerances and behaviors. The risk mitigating measures are aimed at various moments in the variable compensation process: when the targets are set, before a variable compensation award is allocated, before deferred parts of the award are paid and after pay-out of the award (when relevant).

Aegon endeavors to seek an appropriate balance of ex-ante and ex-post assessments to ensure effectiveness in both the short- and long-term risk taking behavior of employees.

General compensation practices

Aegon has a pay philosophy based on total compensation. This means that the aim is for total remuneration for experienced and competent employees to be consistent with those in the markets in which Aegon operates and competes for employees. Total compensation typically consists of fixed compensation and – where in line with local market practices – variable compensation. Market survey information from reputable sources is used to provide information on competitive compensation levels and practices.

Variable compensation, if any, is capped at an appropriate level as a percentage of fixed compensation. Variable compensation for senior management is usually paid out in cash and shares over multiple years, and is subject to further conditions being fulfilled. Additional holding periods may apply to shares after they have vested, restricting their sale for a further one to three years. Variable compensation already paid out may also be retrieved under certain circumstances (‘Claw-back’).

In the following sections more detailed information is provided on the compensation practice for the Supervisory Board and the Executive Board.

Supervisory Board Remuneration Policy 2018

Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation, and protecting the independence of the Board’s members. Terms and conditions for members of the Supervisory Board are part of Aegon’s broader Remuneration Policy, and are the responsibility of the Supervisory Board.

Members of the Supervisory Board are entitled to the following:

  A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings;
  An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference;
  A committee fee for members on each of the Supervisory Board’s Committees;
  An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and
  An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member’s home location and the meeting location.

Each of these fees is a fixed amount. Members of Aegon’s Supervisory Board do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance.

Under the current policy, as approved by shareholders at the Annual General Meeting on May 15, 2013, members of the Supervisory Board are entitled to the following payments:

 
 

 

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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  

 

Information on members of the Supervisory Board and the composition of Aegon’s four committees – Audit, Nomination and Governance, Remuneration and Risk – can be found on pages 54-58.

Details on the remuneration of the Supervisory Board over the course of 2018 can be found in the Supervisory Board Remuneration Report 2018 on page 306.

Future changes

Absent unforeseen circumstances, the General Meeting will be asked to approve an amendment to Remuneration Policy for members of Supervisory Board in May 2019. This amendment contains a proposal to change some of the fees to which the members can be entitled.

Executive Board Remuneration Policy 2018

The following section describes how the Company applies the principles of good governance relating to the remuneration of its Directors. It was prepared by the Remuneration Committee of Aegon N.V. in accordance with the Dutch Corporate Governance Code, and was approved by Aegon N.V.‘s Supervisory Board.

The Executive Board Remuneration Policy that has been applied in 2018 was adopted at the General Meeting of Shareholders on May 12, 2011. This policy has been subject to annual reviews by the Supervisory Board.

Annual Remuneration Policy review

The Supervisory Board has the overall responsibility for the company’s Remuneration Policies, including the Executive Board Remuneration Policy. The Supervisory Board established the Remuneration Committee from among its members. This committee has to ensure that the remuneration policies are consistent with the longer-term strategy of the company and the longer-term interest of its shareholders, investors and other stakeholders, as well as the public at large. For this purpose,

the Remuneration Committee reviews the Executive Board Remuneration Policy each year and may recommend policy changes to the Supervisory Board. When these recommendations are supported by the Supervisory Board, the policy changes are proposed to the General Meeting of Shareholders for adoption.

Future changes

Compensation for individuals in the financial sector, in particular for those who could materially influence the risk profile of the organization such as the Executive Board members, continue to be a focus of political and regulatory attention. Aegon will ensure compliance if and when new remuneration regulations come into force.

Aegon took note of the implementation of the Shareholder Rights Directive in the Netherlands per 2019. This will likely require Aegon to amend the current Executive Board Remuneration Policy in the near future.

Total compensation

Total compensation for Executive Board members is defined in the Executive Board Remuneration Policy as a combination of fixed compensation, variable compensation, pension and other benefits.

In line with this policy, the Supervisory Board has determined a maximum total compensation level for each Executive Board member, reflecting the specific roles, responsibilities, qualifications, experience and expertise of the individual. In addition to that, the Remuneration Committee conducts regular scenario analyses to determine the long-term effect of the level and structure of compensation granted to each Executive Board member and reports their findings to the Supervisory Board.

Each year, the Remuneration Committee reviews these total compensation levels of the Executive Board members

 
 

 

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to ensure they remain competitive and provide proper and risk-based incentives.

In order for the Remuneration Committee to assess the competitiveness, they gather benchmark data on compensation levels at comparable companies, in accordance with the applicable rules and regulations. These comparable companies form a peer group and have been selected by the following criteria:

  Industry (preferably life insurance);
  Size (companies with similar number of employees, assets, revenue and market capitalization);
  Geographic scope (preferably the majority of revenues generated outside of the country of origin); and
  Location (companies based in Europe).

Based on these criteria the current peer group consists of the following 14 companies: Allianz, Aviva, Axa, CNP Assurances, Generali, Legal & General, Mapfre, Münchener Rückversicherung, NN Group, Old Mutual, Prudential plc., Standard Life, Swiss Re and Zurich Financial Services.

In addition, a reference group is used in order to monitor alignment with the general industry in the Netherlands. This is comprised of the 12 leading companies listed on Euronext Amsterdam, excluding financial services providers.

The Remuneration Committee and the Supervisory Board regularly review the composition of the two groups in order to ensure that they continue to provide a reliable and suitable basis for comparison. The last change to these two groups as a result of this review was in 2015.

Based on the results of the annual competitiveness review and discussions with the Executive Board members regarding their remuneration level and structure, the Remuneration Committee may recommend changes to the compensation levels of the Executive Board members. These recommendations are subsequently discussed by the Supervisory Board, which can approve, revise or reject them.

The Supervisory Board, based on the Remuneration Committee review, discussed and approved the 2018 total compensation for the Executive Board.

Fixed compensation

The fixed compensation for the Executive Board members is paid in monthly installments.

Variable compensation

Aegon believes that variable compensation strengthens the commitment of Executive Board members to the Company’s objectives, business strategy, risk tolerance and long-term performance. The variable compensation award

is based on annual performance against a number of individual and Group performance indicators

  These performance indicators are a mix of financial and non-financial indicators with a one-year performance horizon.
  The result of an individual performance indicator must exceed a predefined threshold level, before this indicator contributes to the overall performance result. When an indicator result is below this threshold, the contribution of this indicator to the overall performance result is zero (i.e. a circuit breaker).
  In case the performance of an indicator exceeds the target, the contribution of this indicators is capped once it reaches a predefined maximum level. This means that strongly exceeding performance on one specific indicator can only contribute up to a certain level to the overall performance result (i.e. a contribution cap).
  These indicators are regularly evaluated by experts in the company’s Finance, Risk Management, Business Control, Audit, Human Resources and Compliance departments to ensure alignment with the company’s objectives, business strategy, risk tolerance and long-term performance remains strong.

At the start of the performance year, the Remuneration Committee drafts a recommendation on which performance indicators apply to each Executive Board member, as well as what the threshold, target and maximum levels are per indicator. This recommendation is subsequently reviewed by the Company’s Risk Management team (i.e. the ex-ante risk assessment) before it is send to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation, taking the results of the risk assessment into account.

Once the Supervisory Board has approved the performance indicators for each Executive Board member, the Executive Board members are granted their conditional variable compensation award for that performance year. This conditional award is equal to their at target variable compensation level, which consists of 50% cash and 50% Aegon shares.

After the completion of the performance year, the Remuneration Committee prepares a recommendation for the allocation of a variable compensation award to each Executive Board member. This recommendation is based on the results on each of the applicable performance indicators, related threshold, target and maximum levels and another ex-ante risk assessment by the Company’s Risk Management team. This risk assessment looks into whether there are reasons for a downward adjustment of the intended variable compensation award. For this purpose, quantitative and qualitative measures at group, regional unit and individual level are taken into account, such as:

  Breaches of laws and regulations;
  Breaches of internal risk policies (including compliance);
  Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and
  Reputation damage due to risk events.
 
 

 

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Based on this risk-assessment, the Remuneration Committee can include a proposal to adjust an intended variable compensation in their recommendation. This adjustment can only be downwards. The Remuneration Committee sends its recommendation and the ex-ante risk assessment to the Supervisory Board, which – based on its informed judgement – can approve, revise or reject the recommendation. This Supervisory Board decision includes validating that, when taken together, the results of the performance indicators represent a fair reflection of the overall performance of the Executive Board member over the performance year.

In line with the applicable rules and regulations, the allocated variable compensation award is split into equal parts of cash and Aegon shares, of which 40% is paid out (or vests) in the year following the performance year, and 60% is deferred to later years. This deferred portion remains conditional until it vests.

The deferred parts vest in equal tranches over a three-year period. After an ex-post risk assessment, which may lower the vesting parts, these individual parts are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums

and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares).

The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 in variable compensation that is allocated following the performance year, 400 is paid out/vested in the year following that performance year (N in the following table). This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200/Aegon share price at grant = number of allocated shares). The remaining 600 is deferred and vests according to a pre-defined schedule.

For the calculation of the conditionally granted and allocated shares, the company applies the share price at grant. This grant price is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15.

Information on the expenses recognized for variable compensation and the status of awards are provided in note 53 of this report.

 

LOGO

 

Ex-post risk assessment

After the completion of the performance year, the Remuneration Committee also prepares a recommendation on whether there are reasons for a downward adjustment of deferred variable compensation, before it is paid or vests. This recommendation is based on the ex-post risk assessment by the Company’s Risk Management team, which takes into account significant and exceptional circumstances which were not (sufficiently) reflected in the initial performance assessment and/or the ex-ante risk assessment related the deferred variable compensation award in scope.

Implementation of this authority is on the basis of criteria such as:

  The outcome of a re-assessment of the performance against the original financial performance indicators;
  A significant downturn in the Company’s financial performance;
  Evidence of misbehavior or serious error by the participant;
  A significant failure in risk management; and
  Significant changes in the Company’s economic or regulatory capital base.

The Remuneration Committee sends its recommendation and the ex-post risk assessment to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation. When this recommendation includes

 
 

 

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a proposal to adjust unvested deferred variable compensation, this adjustment can only be downwards.

Claw-back provision

Aegon’s Supervisory Board is obliged to claim back variable compensation that has already been paid out or vested where required based on the regulations that apply from time to time, if variable compensation is based on incorrect data (including non-achievement of performance indicators in hindsight), or in the event of material financial restatements or individual gross misconduct.

Pension arrangements

The Executive Board members are offered pension arrangements and retirement benefits. These benefits are in line with the Executive Board Remuneration Policy. Details on the pension contributions to the Executive Board over the course of 2018 can be found in note 53 on page 305.

The arrangements with Mr. Wynaendts include retirement provisions that allow benefits to be taken at the end of the term. These retirement arrangements stem from pre Executive Board membership. The arrangement with Mr. Rider is similar to the arrangements for other staff in the Netherlands and consists of a so-called career average defined benefits plan up to EUR 105,075 (2018 threshold) base salary and a defined contribution plan for the amount above EUR 105,075. Details are not disclosed due to the individual nature of such arrangement.

Other benefits

Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group.

Aegon does not grant Executive Board members personal loans, guarantees or other such arrangements, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the Company’s Supervisory Board.

Terms of Engagement Agreement

Members of the Executive Board are appointed for four years, and may then be re-appointed for successive mandates also for a period of four years.

Both Executive Board members have an Engagement Agreement with Aegon N.V., rather than an employment contract.

Members of the Executive Board may terminate their engagement agreement with a notice period of three months. The Company may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement of Mr. Wynaendts, and by giving three months’ notice if it wishes to terminate the agreement of Mr. Rider.

The arrangements with the current Executive Board members contain provisions for severance payments in the event that their agreement is terminated as a result of a merger or takeover. These arrangements do not exceed one year’s fixed remuneration. The Supervisory Board has taken appropriate steps to ensure the arrangements of Executive Board members are in line with the Executive Board Remuneration Policy.

Executive Board Remuneration Report 2018

At the end of December 2018, Aegon’s Executive Board had two members:

  Alexander R. Wynaendts, Chief Executive Officer and Chairman of the Executive Board. Mr. Wynaendts was appointed as a member of the Executive Board in 2003 for four years. He was re-appointed in 2007, 2011 and most recently in 2015. In 2019 the General Meeting of Shareholders will be asked to re-appoint Mr. Wynaendts for four years.
  Matthew J. Rider, Chief Financial Officer and member of the Executive Board, was appointed as a member of the Executive Board for four years at the Annual General Meeting of Shareholders on May 19, 2017. Mr. Rider’s current term ends at the General Meeting of Shareholders 2021.

Fixed compensation

Mr. Wynaendts’ fixed compensation increased with 2% in 2018 to EUR 1,294,867. The annual fixed compensation of Mr. Rider increased with 2% to EUR 918,000.

Conditional variable compensation 2018

In 2018, Mr. Wynaendts and Mr. Rider both had an (at target) conditional variable compensation level of 80% of their annual fixed compensation, which was split into equal parts of cash and shares. However, their actual variable compensation award depended on their results on the performance indicators and related target levels, which had been approved by the Supervisory Board at the start of 2018. As a result they would receive:

  50% of their annual fixed compensation if the results of the performance indicators reached the threshold level. This would result in the allocation of EUR 323,717 and 59,892 shares for Mr. Wynaendts and EUR 229,500 and 42,460 shares for Mr. Rider;
  80% of their annual fixed compensation if the results of the performance indicator met their target levels. This would result in the allocation of EUR 517,947 and 95,827 shares for Mr. Wynaendts and EUR 367,200 and 67,937 shares for Mr. Rider;
  Up to 100% of their annual fixed compensation if the results of the performance indicators exceeded their target levels. This would result in an allocation up to EUR 647,434 and 119,784 shares for Mr. Wynaendts and up to EUR 459,000 and 84,921 shares for Mr. Rider;
  If at an aggregated level the threshold target was not reached, no variable compensation related to 2018 would be made available.
 
 

 

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In 2018, the actual variable compensation awards of Mr. Wynaendts and Mr. Rider were based on the 2018 performance of the following individual and Group performance indicators:

 

 

Objectives    Performance indicator   Maximum % of variable compensation            
           Mr. Wynaendts   Mr. Rider                    
Group financial IFRS based    Group underlying earnings after tax and return on equity   15.0%   15.0%
Group financial risk adjusted based    Group market consistent value of new business, normalized capital generation and pre-tax return on economic required capital   17.5%   17.5%
Group non financial business indicators    Group new business strain, customer engagement, employee engagement, control environment and digitally connected customers   32.5%   32.5%
Personal objectives    Individual basket of strategic and personal objectives related to Aegon’s strategy   35.0%   35.0%

 

Provisional allocation variable compensation 2018

Subject to the adoption of the annual accounts at the General Meeting of Shareholders on May 17, 2019, the variable compensation award for Executive Board members will be allocated in cash and shares, based on results of the performance indicators listed above.

The results of the financial and non-financial Group performance indicators led to a performance score of 54.8% (out of a maximum of 65%) for Mr. Wynaendts and 54.8% (out of 65%) for Mr. Rider. The results of their individual (strategic) performance indicators was 27.3% (out of 35%) and 28.0% (out of 35%) for Mr. Wynaendts and Mr. Rider respectively.

As a result, Mr. Wynaendts has been awarded EUR 1,062,438 in conditional variable compensation for the 2018 performance year and Mr. Rider EUR 759,645.

Of this award 20% will be paid in upfront cash and 20% in upfront shares. For Mr. Wynaendts this will be EUR 212,490 in cash and 39,314 shares, where for Mr. Rider this will be EUR 151,931 in cash and 28,110 shares.

The remaining 60% of the 2018 variable compensation will be deferred, vesting in equal tranches over a three-year period. Each of these tranches will be split equally in cash and shares (for Mr. Wynaendts EUR 318,729 and 58,968 shares in total, and for Mr. Rider EUR 227,892 and 42,162 shares in total).

Once the upfront and deferred shares have vested, they will remain subject to a three-year retention period.

Impact of ex-ante and ex-post assessment on attribution of variable compensation

In line with the Aegon Group Global Remuneration Framework, it was agreed to adjust Mr Wynaendts’ 2014 variable compensation award downwards by 3,388 shares and EUR 22,832 to reflect the outcome of a regulatory matter relating to the company. No other circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2018 (the so called ‘ex-post assessment’) or to lower the payout of the upfront payment of the 2017 performance year variable compensation that vests in 2018 (the so called ‘ex-ante assessment’).

Pay ratio

The Remuneration Committee has considered the ratio of the average employee pay expense (excluding CEO expense) versus the expense of the CEO pay elements based on costs recognized under IFRS. For 2018 this ratio was 42.2 (2017: 41.7; 2016: 41.9). The Remuneration Committee took note that certain factors may have influenced this ratio, such as the significant difference in the geographical footprint of the Company’s employee population, and the way the Company was affected by restructuring and other organizational changes in 2018 (e.g. major acquisitions or divestments).

 
 

 

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Non-financial policies, procedures and outcomes

 

As a company, Aegon is committed to doing business responsibly. We have internal policies, procedures and frameworks setting out how decisions should be made in areas such as procurement, investment, tax, product development, remuneration and information security. We also have a Code of Conduct, which applies to all Aegon employees worldwide; this Code of Conduct contains basic principles governing our workplace, social responsibility and business conduct. The aim of these policies and procedures is to protect stakeholders by ensuring we are aware in our decision-making of all relevant financial and non-

 

financial factors. We monitor implementation and take remedial action where necessary to ensure full compliance. We have a dedicated Non-Financial Risk Committee, meeting monthly. The Committee’s members are drawn from Aegon’s Legal, Compliance and Risk departments, among others.

The table below shows how various ESG risks are incorporated into Aegon’s decision-making processes, as well as the measurement of outcomes, policies and metrics:

 

  Area

 

Policy or guideline

  Indicators (used to monitor
compliance and/or outcomes)
 

Performance 2018

  Business

  conduct and

  ethics

 

Code of Conduct

  Applies to all employees worldwide

  Covers topics such as data protection, environmental responsibility, human rights and money laundering

  Also contains provisions for reporting suspected illegal and unethical behavior

  Training on the Code is obligatory for all employees

 

  Total number of incidents of fraud involving employees, intermediaries and third parties

 

  Incidents of possible fraud involving employees, intermediaries and third parties rose sharply to 3,652 in 2018; this was due mainly to a sharp increase in attempted identity theft in the US; in response, we have organized extensive training and deployed new fraud detection software; as a result, very few attempts at fraud have been successful.

  In addition to the Code of Conduct, Aegon has separate global policies addressing prevention of financial crime (fraud, money laundering, economic sanctions, bribery and corruption). Aegon also has a Global Ethics Line, allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence.  

  Significant fines1 to address cases of mis-selling

 

  Significant fines amounted to EUR 84.8 million; most of this amount was related to our settlement with the SEC over the use of investment models in the US; during the year, there were two other significant fines, both in the US – a civil penalty relating to market conduct and a fine connected with the sale of an out-of-state hospital indemnity product.

       

  Percentage of employees completing training on Code of Conduct.

  Completion of internal risk assessment (SIRA, or Systematic Integrity Risk Assessment), and action items to address any gaps in performance.

  Policy attestation for bribery and corruption risk (Conflict of Interest and Gift & Entertainment policies).

 

  97% of employees completed mandatory Code of Conduct training (down from 99% the previous year).

  Group action items identified under SIRA in 2017 were completed in 2018.

  88% compliance with Aegon bribery and corruption policies; this figure reflects business units’ compliance with specific requirements within our Conflict of Interest and Gift & Entertainment policies; where there is not full compliance, this does not indicate a breach of the policy, but areas where units have requested time to further strengthen internal governance.

  Community

  investment

 

Policy for Charitable Donations

  Covers Aegon’s objectives with regard to community investment, including priority areas, selection criteria, governance and approval

  Also details Aegon’s contribution to humanitarian aid

 

  Total donations to charities and other good causes

  Donations as % of net income

  Value of employee volunteering hours granted

 

  In 2018, we donated a total of EUR 10.1 million, up from EUR 8.9 million the previous year. Cash donations rose to EUR 9.3 million; value of volunteering was lower, however, at EUR 0.7 million. Community investment represented 1.4% of net income, up from 0.4% in 2017; the increase was due mainly to the substantial decline in net income in 2018.

  Data protection  

Global Information Security Policy

  Sets out Company’s approach to cyber threats and data protection

  Applies to all Aegon businesses

 

  Percentage compliance with terms of Aegon’s Global Information Security Policy

 

  80% compliance with Company’s Global Information Security Policy (up from 73% the previous year); most examples of non-compliance were not significant and took place in smaller operating units.

 

  Supported by mandatory training in data and cyber security

 

  Total customer complaints related to data privacy breaches

 

  Customer complaints relating to data privacy totaled 636 (up from 198); this increase is the result of heightened awareness of privacy rights following the introduction of the EU’s General Data Privacy Regulation (GDPR)

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  Area

 

Policy or guideline

  Indicators (used to monitor
compliance and/or outcomes)
 

Performance 2018

Diversity and inclusion

 

Statement on Diversity and Non-Discrimination

  Applies to all Aegon businesses worldwide

  Diversity also included in the Code of Conduct

  Diversity targets in place for Aegon’s Supervisory, Executive and Management Boards

 

  Total number of women in workforce

  Percentage of women in senior management and at Supervisory, Executive or Management Board level

 

  In 2018, women made up 49% of Aegon’s workforce; women, meanwhile, accounted for 33% of the Company’s senior management, up from 28%. For details of our Supervisory, Executive and Management Board members, see pages 47-50.

 

Environment

 

Environmental Policy

  Emphasizes importance of minimizing damage to the environment through the Company’s use of energy and other resources2

  Commits Aegon, where possible, to using renewable or sustainable sources of energy

 

  Total CO2 emissions from business operations

 

  Gross CO2 emissions totaled 56,458 metric tons, down 5.1% compared with 2017. The decrease was due to lower energy consumption. Per employee, however, emissions were 15% higher at 3.1 metric tons because of a reduction during the year in Aegon’s workforce.

   

  Business travel by air, consumption of gas and electricity

 

  Business travel amounted to 92 million km (up 14.1%).

  Electricity consumption was 7.5% lower at 79.7 GWH; gas consumption, however, rose 16.3% to 2.1 million m3.

       

  Consumption of renewable energy (as % of overall energy use)

 

  Use of renewable energy decreased to 24% (down from 26%).

Human rights

 

Human Rights Policy

  Based on the UN Declaration of Human Rights, core standards of the International Labor Organization and the principles of the UN Global Compact

  Commits Aegon to upholding international human rights standards at all businesses where the Company has sufficient management control and, where possible, to ensure partners live up to the same standards

  Consideration for human rights is built into Aegon’s Sustainable Procurement and Responsible Investment policies. Other policies cover aspects of human rights; these include the Company’s Conflict of Interest, employee screening, anti-money laundering, anti-fraud and Gift & Entertainment policies. Aegon UK also issues a modern slavery statement (in line with the UK government’s 2015 Modern Slavery Act).

  Results of Aegon’s global human rights risk assessment (this assessment is conducted internally, based on external sources3; Aegon’s countries of operation are assessed for civil and political rights, corruption, human development, health coverage, business environment, illicit economy, gender equality, working conditions, Rule of Law and internet inclusion.   Our 2018 assessment identified four ‘Aegon’ countries where the operating environment presents a meaningful human rights risk: China, Indonesia, India and Turkey. These risks relate essentially to local political factors. In the US, the Netherlands and UK, Aegon faces little or no significant human rights risk. In Southern and Eastern Europe, the environment is potentially more difficult, particularly with regard to corruption. In the Americas, risk is concentrated in Brazil and Mexico; again, this relates mainly to corruption. For those countries with highest risk, Aegon has recommended preventative or remedial measures for local management4. These focus on issues where there is greatest risk and where Aegon has most influence (corruption, corporate governance, discrimination in the workplace, working conditions, freedom of association and collective bargaining). The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low.

Investment

 

Responsible Investment Policy

  Covers all major asset classes

  Sets out minimum social and environmental standards for Aegon’s investments

 

 

  Total investments delivering social and environmental benefits (impact investments)

 

  Our impact investments totaled EUR 8.4 billion; most of this was invested in affordable housing, renewable energy, and international development banks.

  Under the policy, Aegon also excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s  

  Number and type of companies excluded from investment

 

  Aegon excludes 136 companies from investment; these exclusions relate primarily to controversial weapons, coal, oil and tar sands and tobacco.

   

approach in this area is overseen by a Responsible Investment Strategy Committee, supported by a technical committee, which manages all operational aspects. Aegon also has an extensive program of shareholder engagement, focused on ESG issues.

 

 

  Number of companies engaged as part of Aegon’s approach to responsible investment

 

  In 2018, we engaged with 360 companies as part of our responsible investment approach; these engagements covered a range of environmental, social and governance issues.

Occupational health and safety

 

Global Health & Safety Statement

  Commits Aegon to upholding high health and safety standards in its offices

 

  Number of work-related injuries and illnesses

 

  Our number of work-related injuries and illnesses totaled 163, down from 167 the previous year.

   

  Aim is to limit work-related injuries and illnesses (including stress) to an absolute minimum

 

 

  Absentee rate

 

  Our absentee rate was unchanged at 2.4%.

Procurement

 

Sustainable Procurement Policy

  Sets out business conduct, social and environmental standards for suppliers of goods and other services

 

Aegon assesses suppliers against these standards, and requires leading suppliers to sign a Supplier Sustainability Declaration.

 

  Percentage spend on goods and services covered by a Supplier Sustainability Declaration.

 

  In 2018, 25% of our spend on goods and services was covered by a Supplier Sustainability Declaration.

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  Area

 

Policy or guideline

  Indicators (used to monitor
compliance and/or outcomes)
 

Performance 2018

Product development

 

Pricing and Product Development Policy

  Sets out market conduct principles, aimed at ensuring fair treatment of customers and reasonable distribution of returns between customers, intermediaries and shareholders

 

  Percentage compliance with terms of Pricing and Product Development Policy

 

  90% compliance with requirements of Pricing & Product Development Policy (down from 95% the previous year), due to increased policy granularity

Remuneration

 

Global Remuneration Framework

  Details Company’s approach to pay, based on principle of ‘pay for performance’

  Variable pay for Aegon executives and other senior management is based on both financial and non-financial performance metrics (including employee engagement and customer loyalty scores)

 

  Percentage of compliance with requirements of the Global Remuneration Framework

 

  92% compliance with requirements of the Global Remuneration Framework

Tax

 

Global Tax Policy

  Based on principles of ‘fair taxes’ and ‘tax follows business’ (tax is paid at the right amount in the right places, and that decisions are taken for business reasons, not for potential tax advantages).

 

  Total taxes borne by Aegon (US, Netherlands, UK, Asia and Others)

  Taxes collected on behalf of others

 

  EUR 620 million paid by Aegon in tax (up from EUR 444 million in 2017); another EUR 2.16 billion in taxes collected on behalf of others, down from EUR 2.22 billion (decrease was due to lower wage and insurance premium taxes).

 

1 

Includes any fines in excess of EUR 100,000.

2 

Aegon no longer collects data on water consumption. As an office-based company, our water use is not material.

3

Aegon’s assessment is derived essentially from the UN Declaration of Human Rights. The assessment uses external data from (among others) Freedom House, Transparency International, UN Development Program and World Health Organization.

4

These measures include effective access to Aegon’s Global Ethics Line, raising employees’ awareness of human rights risk, ensuring basic healthcare and financial services for employees, suggesting alternative employee representation where there is no independent trade union, ensuring neutrality at times of regime change and enforcing a zero tolerance approach to corruption and discrimination in the workplace.

 

 

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69   How we safeguard long-term value creation Code of conduct
      
      

 

Code of Conduct

 

Aegon’s Code of Conduct embodies the company’s values and helps ensure that all employees act ethically and responsibly.

It prescribes a mandatory set of conditions for how Aegon employees should conduct business, comply with all applicable laws and regulations, and exercise sound judgment in reaching ethical business decisions in the long-term interests of our stakeholders.

Aegon’s Code of Conduct applies to all directors, officers (regardless of the contractual basis of their employment) and employees of all Aegon companies around the world, including associate companies, joint ventures and other co-operative ventures.

Every Aegon employee has to certify that they have read and understood the Code of Conduct, and agree to abide by it. Employees are also required to follow a mandatory e-learning to help embed the principles of the Code in the way they work.

Reporting misconduct

Employees are often the first people to witness any wrongdoing within the company. It is important that such incidents are quickly identified and resolved to prevent or reduce any adverse

effects, such as financial loss and reputational harm. Aegon is committed to create and maintain an open and supportive culture in which employees feel safe to raise concerns or report suspected or actual violations. Employees are encouraged to use the available reporting channels to report concerns of poor practice, inappropriate, unethical or illegal behaviour.

It is also possible for employees to report violations outside the normal reporting channels if they wish to remain anonymous, or to elevate the matter to higher levels within the organization. Aegon has contracted an independent third party to provide an anonymous and confidential method to report potential misconduct. Reports can be submitted online or via toll-free telephone lines in all of the countries in which Aegon conducts business (24 hours a day, seven days a week). All reports are investigated and results are reported to the Audit Committee of the Supervisory Board. As part of an open and supportive culture Aegon will protect employees against any form of retaliation who, in good faith and with due care, report concerns of poor practice, inappropriate, unethical or illegal behaviour. Employees who believe they have experienced retaliation are encouraged to immediately bring the issue to the attention of the Group Compliance Officer.

 
 

 

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Regulation and supervision

 

Individual regulated Aegon companies are each subject to prudential supervision in their respective home countries. (Re)insurance companies and Aegon Bank, as well as a number of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Group are subject to prudential requirements on a (sub)-consolidated basis, including capital and reporting requirements. Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements. Eligible capital to cover solvency requirements includes shareholders’ equity, perpetual capital securities, and dated subordinated debt.

Solvency II

Introduction

The Solvency II framework imposes prudential requirements at group level as well as on the individual EU insurance and reinsurance companies in the Aegon Group. Insurance supervision is exercised by local supervisors on the individual insurance and reinsurance companies in the Aegon Group, and by the group supervisor at group level. The Dutch Central Bank (DNB) is Aegon’s Solvency II group supervisor. Solvency II, which came into effect in EU member states on January 1, 2016, introduced economic, risk-based capital requirements for insurance and reinsurance companies in all EU member states, as well as for groups with insurance and/or reinsurance activities in the EU. The Solvency II approach to prudential supervision can be described as a ’total balance sheet-approach,’ and takes material risks to which insurance companies are exposed into account in addition to the correlation between these risks.

The Solvency II framework is structured along three pillars. Pillar 1 comprises quantitative requirements (including technical provisions, valuation of assets and liabilities, solvency requirements and own fund requirements). Pillar 2 requirements include governance and risk management requirements, and requirements for effective supervision (the supervisory review process). Pillar 3 consists of disclosure and supervisory reporting requirements. These three pillars should not only be considered in isolation, but also in terms of how they interact with one another. More complex risks, for instance, require a stronger risk management and governance structure, and a more complex governance structure could lead to higher capital requirements.

In addition to these requirements, which apply to individual EU insurers and reinsurers, the Solvency II framework is complemented by requirements that apply at group level (group supervision). This means that a number of requirements from the Solvency II framework that apply to the individual EU insurance and reinsurance undertakings apply, with necessary

modifications, at group level. The core focus of EU insurance supervision is, however, on the supervision of individual EU insurance and reinsurance undertakings.

Pillar 1

Solvency II requires EU insurance and reinsurance companies to determine technical provisions at a value that corresponds with the present exit value of their insurance and reinsurance obligations towards policyholders and other beneficiaries of insurance and reinsurance contracts. The calculation of the technical provisions should be based on market consistent information to the extent to which that information is available. The value of the technical provisions is equal to the sum of a best estimate and a risk margin. The discount rate at which technical provisions are calculated is an important element in order to determine the technical provisions. This and other parameters to determine the technical provisions may have an important effect on the amount and volatility of the own funds that insurance and reinsurance undertakings are required to maintain. The Solvency II framework contains several measures (in particular the volatility adjustment and matching adjustment) that should reduce volatility of the technical provisions and own funds, in particular for insurance and reinsurance products with long-term guarantees.

Insurers and reinsurers are required to hold eligible own funds in addition to the assets held to cover the technical provisions in order to ensure that they are able to meet their obligations over the next 12 months with a probability of at least 99.5% (insurance or reinsurance company’s balance sheet ability to withstand a 1-in-200-year event). The buffer that insurance and reinsurance companies are required to hold is the Solvency Capital Requirement (SCR). Insurance and reinsurance companies are allowed to: (a) use a standard formula to calculate their SCR (the rules for which are set out in detail in the Solvency II rules and guidelines); (b) use an internal model (for which the approval of the supervisory authorities is required); or (c) use a partial internal model (PIM) (which is a combination of the standard formula and an internal model, and requires approval of the supervisory authorities). An internal model is developed by the insurance or reinsurance company in question, and should better reflect the actual risk profile of the insurance or reinsurance company than the standard formula. Aegon (as a group) uses a PIM.

In addition to the SCR, insurance and reinsurance companies should also calculate a Minimum Capital Requirement (MCR). This represents a lower level of financial security than the SCR, below which the level of eligible own funds held by the insurance or reinsurance company is not allowed to drop. An irreparable breach of the MCR would lead to the withdrawal of an insurance or reinsurance company’s license.

 
 

 

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Insurance and reinsurance companies are required to hold eligible own funds against the SCR and MCR. Own funds capital is divided into three tiers in accordance with the quality of the own funds. The lower tiers of own funds (tiers 2 and 3) represent a limited part of the eligible own funds, as excess lower tier capital is disregarded for purposes of calculating SCR. Furthermore, the SCR may consist of limited amounts of off-balance sheet own funds (‘ancillary own funds’ such as letters of credits or guarantees). The MCR must be covered entirely by on-balance sheet items (‘basic own funds’).

Pillar 2

Under Pillar 2, insurance and reinsurance companies are required to set up and maintain an adequate and effective system of governance, which includes an appropriate internal organization (such as policies and procedures), a risk governance system and an effective assessment of the risk and solvency position of the Company (including a prospective assessment of risks), through the Own Risk and Solvency Assessment (ORSA) process. In general, Solvency II requires insurance and reinsurance companies to maintain an effective system of governance that is proportionate to the nature, scale and complexity of the insurance or reinsurance company. A number of risks that insurance or reinsurance companies face can only be addressed through proper governance structures, rather than quantitative requirements. Management of the insurance or reinsurance company is ultimately responsible for the maintenance of an effective governance system.

Insurance and reinsurance companies are required to have an adequate and transparent organizational structure, with a clear allocation and appropriate segregation of responsibilities. The system of governance should be subject to regular internal review. Solvency II requires insurance and reinsurance companies to have written policies in a number of areas (such as risk management, internal control, internal audit and outsourcing (where appropriate)). A number of key functions are required to be part of the system of governance (compliance, risk management, the actuarial function and internal audit). The persons responsible for these functions are required to be fit and proper.

The Pillar 2 requirements include specific requirements relating to the risk management system. This should cover at least the following areas: underwriting and reserving, asset-liability matching, investments (in particular derivatives and similar commitments), liquidity and concentration risk management, operational risk management, reinsurance and other risk mitigating techniques. Risk management relating to Solvency II is discussed in further detail in the section Risk management on page 90. As part of the risk management system, insurance and reinsurance undertakings are required to undertake an ORSA, which includes the overall solvency needs of the undertaking, taking into account the risk profile, risk tolerance limits and business strategy, the ongoing compliance with Solvency II capital requirements and rules regarding technical provisions, and the

extent to which the risk profile of the undertaking deviates from the assumptions underlying the calculation of the SCR. Solvency II Pillar 2 requirements also include detailed requirements with respect to outsourcing, including intra group outsourcing.

The Supervisory Review Process (SRP), which is part of Pillar 2, allows supervisory authorities to supervise the ongoing compliance of insurance and reinsurance undertakings with Solvency II requirements. Possible enforcement measures include: the imposition of capital add-ons (for instance in the event that the risk profile of the undertaking deviates from the SCR calculation or if there are weaknesses in the system of governance); the requirement to submit and execute a recovery plan (in the event of a (potential) breach of the SCR or a short-term financing plan (in the event of a (threatening) breach of the MCR); and ultimately, the revocation of an insurance or reinsurance license (a measure that relates to EU-licensed insurance or reinsurance undertakings, and not to the Group as a whole, which does not have a license).

Pillar 3

Solvency II has introduced new and more detailed reporting and disclosure requirements than formerly prescribed under the Solvency I framework. These requirements include non-public supervisory reporting on a regular (usually tri-annual) basis through regular supervisory reports (RSR), complemented by detailed quantitative reporting templates (QRTs) reported on a quarterly basis, which contain detailed financial data. In addition, it is a requirement to publish a Solvency and Financial Condition Report (SFCR) on an annual basis.

Group supervision

Solvency II not only imposes regulatory requirements on individual EU insurance and reinsurance undertakings; many of the requirements that apply to the individual insurance and reinsurance undertakings apply, with the necessary modifications, at group level. These requirements include group solvency requirements, group reporting and disclosure requirements, and requirements regarding the system of governance, risk management and internal control framework at group level. The group requirements do not include an MCR. Solvency II does however require groups to maintain eligible own funds, at least equal to a floor, as further defined in the Solvency II rules (the absolute floor of the group solvency), which can be considered to be an MCR at group level. Although entities that are not subject to solo supervision under Solvency II (such as entities in other financial sectors, non-financial entities, and regulated and non-regulated entities in third countries) are not directly subject to Solvency II requirements, these entities may be affected indirectly by the Solvency II group requirements. Entities in other financial sectors are, in most cases, taken into account in the group solvency calculation, applying the capital requirements of that specific financial sector (such as Basel III requirements for banks and certain investment firms) and using the Deduction and Aggregation method for inclusion of these

 
 

 

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entities in the group calculation (as opposed to the Accounting Consolidation method, which is the default method under Solvency II).

However, subject to certain conditions, entities in other financial sectors may be included in accordance with the accounting consolidation method. In particular, this may be the case when the group supervisor is satisfied as to the level of integrated management and internal control regarding these entities. Furthermore, the DNB may require groups to deduct any participation from the own funds eligible for the Group Solvency ratio. As required by the DNB, Aegon deducts its participation in Aegon Bank N.V. from Aegon’s group solvency. However, Aegon Bank N.V. is subject to Basel III requirements (as implemented in Europe in the EU Capital Requirements Directive (CRD IV) and EU Capital Requirements Regulation (CRR) on a solo-basis and on consolidated basis, whereby consolidation takes place at the level of Aegon Bank N.V.. The prudential requirements (including CRD IV and CRR) are described in more detail on page 73.

As referred to in the ‘Capital and liquidity management’ section, Aegon uses a combination of the two aggregation methods defined within the Solvency II framework to calculate the Group Solvency ratio, the Accounting Consolidation method and the Deduction and Aggregation method. Aegon applies the Accounting Consolidation method as the default method.

However, for insurance entities domiciled outside the EEA for which provisional or full equivalence applies, such as the United States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to translate these into the Group Solvency position. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local U.S. Risk-Based Capital (RBC) requirements. Until June 30, 2017, Aegon used 250% of the local Company Action Level (CAL) RBC as the SCR equivalent. Aegon received approval from the DNB to apply a revised methodology, as of July 1, 2017, that includes lowering the conversion factor from 250% to 150% RBC, and reducing the contribution to own funds by 100% of the local Company Action Level RBC requirement to reflect transferability restrictions. This methodology is subject to annual review, and the change enhances comparability with European peers. The RBC and CAL, as well as the allocation of restricted Tier 1 and Tier 2 capital instruments between the accounting consolidation and deduction and aggregation part of the Group are described in more detail in the ‘Capital and Liquidity’ section of this Annual Report.

Solvency II group supervision is exercised by a combination of the supervisory authorities of the local insurance and reinsurance entities and the group supervisor. An important role in the cooperation between the supervisory authorities in the context of group supervision is played by the college of supervisors, in which the local and group supervisors are represented. This college is chaired by the group supervisor.

Recent developments Solvency II

On November 9, 2018, the European Commission published a proposal for public consultation for the amendment of the Solvency II Delegated Regulation. This draft proposal is the preliminary result of the 2018 review of the Solvency II Framework. The consultation period ended on December 7, 2018. On March 8, 2019, the European Commission adopted the formal text for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework. The amendments are expected to enter into force after the scrutiny period of three months, that is available to the European Parliament and the European Council has ended, and the amendments have been approved accordingly by the European Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments.

The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of Dutch mortgages under the standard formula. The changes included in the proposal may impact the Solvency II Standard Formula calculations. Furthermore, amongst others, the proposal contains amendments related to tiering requirements for subordinated liabilities as part of own funds and LAC DT. Currently it is not yet clear when the amendments will enter into force but Aegon is monitoring the finalization of the legislative process closely. These changes are also expected to impact the Standard Formula scope of the Partial Internal Model.

In addition to the review of the 2018 review of the Solvency II Delegated Regulation, a review of the Solvency II Directive has been foreseen, referred to as the 2020 review. This includes a review, as foreseen in the directive by the end of 2020, on the impact of the so-called “long-term guarantees” package, in particular the functioning and stability of European insurance markets, the extent to which insurance and reinsurance undertakings continue to operate as long-term investors, and the availability and pricing of long-term insurance products. In this context, the European Commission has requested EIOPA to provide by the end of 2019, the European Commission with information on insurance liabilities (including illiquid liabilities), information on asset management of insurers and information on long-term guarantee measures and information on the market valuation of insurance liabilities.

 
 

 

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Furthermore, the context of the Solvency II 2020 review, EIOPA has recently launched a public call for advice on the application of disclosure and reporting requirements under Solvency II.

  In addition, on February 10, 2019, the European Commission has requested EIOPA to provide, in the context of the 2020 review, by June 30, 2020, technical advice in the following areas: long-term guarantees (LTG) measures and measures on equity risk;
  Specific methods, assumptions and standard parameters used when calculating the Solvency Capital Requirement standard formula;
  Rules and supervisory authorities’ practices on the calculation of the Minimum Capital Requirement;
  The supervision of insurance and reinsurance undertakings in a group, and
  Other items related to the supervision of insurance and reinsurance undertakings.

The information provided by EIOPA to the European Commission as described above, is expected to be taken into account in the Solvency II 2020 review. No EC legislative proposals have been published so far in that context.

Furthermore, EIOPA recently (end of 2018) launched consultations on the integration of sustainability risks and factors in Solvency and the Insurance Distribution Directive. At the beginning of 2019 EIOPA has launched for input for a call for evidence by the European Commission to EIOPA on integration of sustainability risks in Solvency II.

In addition, as of January 1, 2019, amendments to the Solvency II framework entered into force, relating to Solvency II standard formula treatment of standardised, transparent and simple (STS) securitisations. Aegon will take these amended provisions into account as of first quarter 2019 (confidential) supervisory reporting and future Solvency II public disclosures.

Financial conglomerate supervision

Since October 2009, Aegon has been subject to supplemental group supervision by the DNB in accordance with the requirements of the EU’s Financial Conglomerate Directive. Supplemental group supervision pursuant to the Financial Conglomerate Directive includes supplementary capital adequacy requirements for financial conglomerates and supplementary supervision on risk concentrations and intra-group transactions in the financial conglomerate. Due to the introduction of the Solvency II group supervisory requirements – which include similar, and to a large extent overlapping, requirements to those covered by Financial Conglomerates Directive – the relevance of supplemental group supervision pursuant to the Financial Conglomerates Directive has become significantly less.

Globally systemically important insurer (G-SII)

On November 3, 2015, Aegon was first designated by the Financial Stability Board (FSB) as a Global Systemically Important Insurer (G-SII), based on an assessment methodology developed by the International Association of Insurance Supervisors (IAIS). The FSB reviews the G-SII designation annually. However, the FSB, in consultation with the IAIS and national authorities, has decided not to publish a new list of G-SIIs for 2017 and for 2018 and that the measures will continue to apply to the G-SIIs that were on the 2016 list. Consequently, Aegon continues to be designated at the time of publication of this annual report. As a result of the G-SII designation, Aegon is subject to an additional layer of direct supervision at group level. Aegon has put a specific G-SII governance structure in place to ensure the G-SII requirements are met. Within 12 months of a G-SII designation, G-SIIs were required to develop a liquidity risk management plan, a systemic risk management plan, and an ex ante recovery plan. In accordance with these requirements, Aegon submitted plans to DNB, and to the G-SII crisis management group (CMG) that was established for Aegon and is updating these plans on an annual basis. The CMG is required to: enter into a cross-border cooperation agreement; develop a resolution plan based on a resolution strategy (within 18 months); and undertake a resolvability assessment (within 24 months).

International Capital Standards and G-SII

In 2013, the IAIS announced its plan to develop a risk-based global insurance capital standard (ICS). This was in response to the request by the Financial Stability Board (FSB) that the IAIS produce a work plan to create a comprehensive group wide supervisory and regulatory framework for Internationally Active Insurance Groups (including G-SIIs) and as such, if and when adopted, might shape or influence the future regulatory framework for insurance groups such as Aegon.

In 2017, for financial year 2016, G-SIIs have calculated and reported a Basic Capital Requirement (BCR) and Higher Loss Absorbing Capacity (HLAC) on a confidential basis pursuant to IAIS guidelines. On November 2, 2017, the IAIS has announced its members have reached an agreement on a unified path to convergence on the development of International Capital Standards (ICS) for Internationally Active Insurance Groups (IAIGs). Aegon will qualify as such. After an extended field testing period of ICS version 1.0, that ended in 2017, the IAIS will proceed with the development of ICS version 2.0 informed by field tests in 2018 and 2019. The implementation of ICS version 2.0 will be conducted in two phases – a five-year monitoring phase, where all IAIGs will submit mandatory reference ICS, followed by an implementation phase where the ICS is envisaged to become a required capital standard. Following the announcement by IAIS members from the United States of development of an aggregation-based group capital calculation, the IAIS has further agreed to collect data during the monitoring period to assess whether the aggregation approach can be considered as outcome-equivalent for implementation of ICS in the US.

 
 

 

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IAIS holistic framework for systemic risk in the insurance sector

Recently, the International Association of Insurance Supervisors (IAIS) has held a public consultation in which it proposes a holistic framework to assess and mitigate systemic risk in the insurance sector The IAIS is of the view that the implementation of the holistic framework should remove the need for an (annual) G-SII identification by the FSB and national authorities. The global monitoring exercise, including data collection, assessment and consideration of any insurer demonstrating a significant level and/or a trend of increasing potential (global) systemic impact from its distress or failure, will continue to be overseen by the IAIS and reported to the FSB.

If and when this framework would be adopted, an enhanced set of policy measures and supervisory powers of intervention would be applied in a proportionate manner to a broader set of insurers by integrating these measures into the holistic framework. According to the IAIS, a final decision on the need for an (annual) G-SII identification should, however, depend on an assessment of the consistent application of the holistic framework by supervisors and the effectiveness of the IAIS global monitoring exercise. In November 2022, based on the initial years of implementation of the holistic framework, it is recommended that the FSB reviews the need to either discontinue or re-establish an annual identification of G-SIIs. According to the IAIS, between 2020, when the holistic framework is implemented, and 2022, when the review takes place, it is recommended to suspend the annual identification of G-SIIs.

EIOPA activities on systemic risk in the insurance sector

During the last few years, EIOPA has published a series of reports on systemic risk in the insurance sector. Thus far, these report have not led to concrete regulatory changes, but might have an impact on the further development of the regulatory framework for insurance companies in Europe, in particular the Solvency II framework and potentially the development of specific regulatory tools, aimed at systemic risk in the insurance sector, as well as EU wide regulatory initiatives respect of recovery and resolution of insurance and reinsurance companies, which is currently still developed at national level by EU member states. International Capital Standards (ICS).

US – EU Covered Agreement

On January 13, 2017, the European Commission and the US Department of the Treasury announced the signing of the US-EU Covered Agreement on insurance and reinsurance measures. The Covered Agreement covers three areas of prudential insurance oversight: reinsurance, group supervision and exchange of information between supervisors. The impact of this agreement (or any changes made to the regulatory frameworks in the US or the EU as a result of this agreement) on Aegon is expected to be limited. Currently, insurance group supervision is only exercised at the level of Aegon N.V.,

pursuant to Solvency II, and the Covered Agreement increases the likelihood that this will continue to be the case. Also the impact of the agreed measures in the other areas covered in the agreement is expected to be limited.

Recovery and resolution

Dutch Act on Recovery & Resolution for Insurers

On January 1 2019, the Dutch Act on Recovery & Resolution for Insurers (R&R Act) came into force in the Netherlands, replacing the previously applicable intervention regime for insurance companies in the Netherlands faced with financial difficulties.

The R&R Act has introduced a revised regulatory framework for recovery and resolution of Dutch insurance and reinsurance companies and provides for a range of measures to be taken by these companies and the Dutch Central Bank ex ante, in order for these insurance and reinsurance companies to be prepared for recovery in circumstances where it no longer meets the required solvency requirements and for orderly resolution, in circumstances where it is failing or is likely to fail.

The R&R Act introduces a requirement for Dutch insurance companies and reinsurance companies, such as the Dutch insurance and reinsurance subsidiaries in the Aegon Group, to draw up and maintain an ex ante recovery plan, that should allow these entities, when faced with financial problems, to take measures to recover their solvency ratio and continue to operate in going concern. In addition, the Dutch Central Bank, in its capacity as national resolution authority in gone concern circumstances (as opposed to its role as supervisory authority in going concern) is required to draw up and maintain a resolution plan, which should provide for the orderly resolution of the Dutch insurance and reinsurance entities in the group, or the group, to avoid unnecessary damage to policyholders and beneficiaries and to provide an alternative to ordinary bankruptcy proceedings.

The R&R Act allows DNB to require a Dutch insurance or reinsurance company or a group in certain circumstances, to remove, ex ante, impediments to effective resolution of a Dutch insurance or reinsurance undertaking, such as the revision of financing arrangements, the reduction of exposures, the transfer of assets, the termination or limitation of business activities, or the prohibition to start certain business activities, change the legal or operational structure of the group, or securing certain critical business lines.

The R&R Act allows DNB to intervene in situations where a Dutch insurer or reinsurer, where it is failing or is likely to fail, as defined in the R&R Act. The powers under the R&R Act may also extend to the level of the Group and to entities, other than in insurance or reinsurance entities in the Netherlands, that are part of the group, such as Aegon N.V.. The powers include the transfer of the undertaking to a third party, the transfer to a bridge institution and the transfer of certain specific assets and/or liabilities. In addition, a bail-in tool

 
 

 

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is introduced, that allows for the write-off or conversion of rights of creditors, including policyholders and beneficiaries, while respecting the principle that they should not be worse off through resolution, including the application of the bail-in tool, than they would in ordinary insolvency proceedings.

Bank Recovery and Resolution Directive

Furthermore, to parts of the Aegon Group, in particular Aegon Bank N.V., the framework of the EU Directive on the recovery and resolution of credit institutions and investments firms (the “Bank Recovery and Resolution Directive”) is applicable. The Bank Recovery and Resolution Directive also contains provisions that, in certain specific circumstances, where both Aegon Bank N.V. and Aegon N.V. fail or are likely to fail, could be applied to mixed financial holding companies such as Aegon N.V., including the right of bail-in of creditors.

Intervention by the Dutch Minister of Finance

Lastly, under Part 6 of the Dutch Financial Supervision Act, the Dutch Minister of Finance may intervene immediately, when the stability of the financial system is threatened by the situation of a financial institution, in which case legal or statutory provisions, applicable to the financial institution, might be surpassed. The intervention measures available to the Minister of Finance, include in particular the right to expropriate assets of the financial institution, as well as securities and/or other financial instruments issued by or with the cooperation of the financial instruments. The exercise of this power may significantly impact the rights of the owners or holders of these assets, securities and/or financial instruments.

 

 

 

 

       
           

IBOR transistion

The future of IBORs (Interbank Offered Rates) such as Euribor, Eonia and LIBOR has been a major topic on the global agenda since the G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of leading interest rate benchmarks in 2013. The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead of non-transactionalvpanel input data. In the EU this is adopted in the new Benchmark Regulations (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU.

 

Aegon recognizes that IBOR transitions potentially have implications for all reporting units, including our insurance, asset management and banking activities. Despite current uncertainties on how the transition from IBORs to alternative benchmarks will be managed, it is widely acknowledged that IBOR benchmarks impact financial products and contracts, including derivatives, corporate bonds, structured debt products, deposits and mortgages and other financial instruments like (re-)insurance, guarantees and funding.

  

Aegon is evaluating the impact of IBOR transitions on the business model and operating model of our reporting units. Furthermore, Aegon is in the process of designing an IBOR transition plan including project solutions and actions, timelines and ownership to ensure timely preparation and implementation.

 

Brexit

The dynamics of Brexit are complex given its multifaceted nature, and its position within the wider geopolitical context. Hence, any description of the current and forward-looking status of Brexit will to a certain extent be outdated as soon as it has been documented. To date the UK Government has not succeeded in passing the negotiated Brexit deal with the European Union through parliament and it is still not clear if a deal will be approved. Aegon is prepared for all scenarios, including a so-called ‘hard Brexit’. In this scenario the UK becomes a third country and leaves the internal market of the EU on March 30, 2019 at 00:00h (CET). The main consequences of a ‘hard Brexit’ have been identified and contingency plans are in place. These plans are updated on a continuous basis. Focus areas for Aegon have been derivatives, data transfer and cross border policies.

 

          
                
 

 

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Capital and liquidity management

 

Guiding principles

The management of capital and liquidity is of vital importance for the Aegon Group, for its customers, investors in Aegon securities and for Aegon’s other stakeholders. In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses, in addition to maintaining adequate liquidity to ensure that the Company is able to meet its obligations.

Aegon follows a number of guiding principles in terms of capital and liquidity management:

  Promoting strong capital adequacy in Aegon’s businesses and operating units;
  Managing and allocating capital efficiently in support of the strategy and in line with its risk tolerance;
  Maintaining an efficient capital structure, with an emphasis on optimizing Aegon’s cost of capital;
  Maintaining adequate liquidity in the operating units and at the holding to ensure that the Company is able to meet its obligations by enforcing stringent liquidity risk policies; and
  Maintaining continued access to international capital markets on competitive terms.

Aegon believes that the combination of these guiding principles strengthen the Company’s ability to withstand adverse market conditions, enhances its financial flexibility, and serves both the short-term and the long-term interests of the Company, its customers and other stakeholders.

The management and monitoring of capital and liquidity is firmly embedded in Aegon’s ERM framework, and is in line with Aegon’s risk tolerance. Aegon’s risk tolerance focuses on capital generation, solvency and liquidity, risk balance and responsible business with effective controls. Its core aim is to assist management in carrying out Aegon’s strategy within the Group’s capital and liquidity resources.

Management of capital

The Company’s overall capital management strategy is based on adequate solvency capital, capital quality and the use of leverage.

Capital adequacy

Aegon’s goal for both its operating units and for the Aegon Group as a whole is to maintain a strong financial position and to be able to sustain losses resulting from adverse business and market conditions. The capitalization of Aegon and its operating units is managed in accordance with the most stringent of local regulatory requirements, rating agency requirements and self-imposed criteria.

Regulatory capital requirements

For EU-domiciled insurance and reinsurance entities, the Solvency II regulatory framework determines the regulatory

capital requirements. In Aegon’s Non-EEA (European Economic Arena) regions, (re)insurance entities domiciled in third-countries deemed (provisionally) equivalent (US Life insurance entities, Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements.

On November 9, 2018, the European Commission (EC) has published a proposal, for public consultation, for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework that was carried out by the EC. The EC has published a formal proposal on March 8, 2019. Aegon is investigating the impact, if any, of these upcoming amendments.

Please note that numbers and ratios related to Solvency II as disclosed in this section represent Aegon’s estimates and are subject to supervisory review. At December 31, 2018, Aegon has applied a loss absorbing capacity of deferred taxes (LAC-DT) factor in the Netherlands of 75% unchanged from 2017, while the corporate tax rate was lowered to reflect the upcoming tax rate changes in 2020 and 2021. The LAC-DT factor will be recalibrated on a quarterly basis using the agreed methodology. In 2018 the Dynamic Volatility Adjustment (VA) model has been updated for Aegon the Netherlands, to align with the guidance from the European Insurance and Occupational Pensions Authority (EIOPA). The Solvency II capital ratios of the Group and Aegon the Netherlands do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.

On November 9, 2018, the European Commission has published a proposal, for public consultation, for the amendment of the Solvency II Delegated Regulation. This draft proposal is the preliminary result of the 2018 review of the Solvency II framework. The consultation period ended on December 7, 2018. On March 8, 2019 the European Commission has adopted the formal text for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework. The amendments are expected to enter into force, after the scrutiny period of three months, that is available to the European Parliament and the European Council has ended, and the amendments have been approved accordingly by the European Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments. The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of Dutch mortgages under the standard formula. These changes also impact the Standard Formula scope of the Partial Internal Model. Furthermore, amongst others, the proposal contains amendments related to tiering requirements for subordinated liabilities, as part of Own Funds and LAC DT. Currently it is not

 
 

 

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yet clear when the amendments will enter into force but is monitoring the finalization of the legislative process closely.

Furthermore, EIOPA has recently launched (end of 2018) consultations on the integration of sustainability risks and factors in the Solvency and the Insurance Distribution Directive. During 2019 more consultations on sustainability are expected.

In addition, as per January 1, 2019, amendments to the Solvency II framework entered into force, relating to Solvency II standard formula treatment of standardized, transparent and simple (STS) securitizations. Aegon will take these amended provisions into account as of first quarter 2019 (confidential) supervisory reporting and future Solvency II public disclosures.

Adequate capitalization

To calculate its Group Solvency Ratio, Aegon applies a combination of the Group consolidation methods available under Solvency II: the Accounting Consolidation (AC) and Deduction & Aggregation (D&A) based methods. Solvency II capital requirements are mainly used for the EEA-based insurance and reinsurance entities, applying the Accounting Consolidation method. Local requirements are used for insurance and reinsurance entities in (provisionally) equivalent third-country jurisdictions. Aegon Bank is excluded from the Group Solvency ratio, as required by the Group Solvency II supervisor, the DNB.

As at December 31, 2018, Aegon’s estimated capital position was:

 
      December 31, 2018 1,2,3    December 31, 2017 2,3

Group own funds

   17,602    15,628

Group SCR

   8,349    7,774

Group Solvency II ratio

   211%    201%

 

1 

The Solvency II ratios are estimates and subject to supervisory review.

2 

The Solvency II ratios are based on Aegon’s partial internal model.

3 

Aegon Bank is not included in the Group Solvency II ratio.

 

Aegon Group Own Funds amounted to EUR 17,602 million on December 31, 2018 (2017: EUR 15,628 million). The increase of EUR 1,974 million in Own Funds since December 31, 2017, is mostly driven by normalized capital generation by Aegon’s operating units and favorable one-time items. These one-items include the sale of Aegon Ireland, introduction of unit matching in Aegon UK, and the merger of the captive US insurance entity named Firebird into Transamerica Life Insurance Company (TLIC). The increase was partly offset by the negative impact from new business strain, the impact of the dividend paid and the impact from framework, model and assumption changes (including the decrease in Ultimate Forward Rate (UFR) (from 4.2% to 4.05%) following revision of the UFR methodology by the European Insurance and Ocupational Pension Authority (EIOPA).

Aegon Group Partial Internal Model (PIM) Solvency Capital Requirement (SCR) amounted to EUR 8,349 million on December 31, 2018 (2017: EUR 7,774 million). The SCR increase by EUR 575 million is mainly due to various large offsetting actions. The SCR increased mainly due to negative market movements, SCR for new business and one-time items (mainly US Tax Reform and the impact of tax changes in the Netherlands). These were largely offset by SCR release following the sale of Aegon Ireland and the merger of Firebird into TLIC.

As a result of the above changes in Own Funds and PIM SCR, the Group Solvency II ratio improved by 10% to 211% in 2018. The capitalization levels of the most relevant country units are as follows:

 

 

      Capitalization December 31, 2018 1,2    Capitalization December 31, 2017 2

Aegon USA (Life entities) (RBC CAL)

   465%    472%

Aegon the Netherlands (Solvency II ratio)

   181%    199%

Aegon United Kingdom (Solvency II ratio)

   184%    176%

 

1 

The Solvency II ratios are estimates, are not final until filed with the regulator and are subject to supervisory review.

2 

Refer to section ‘Internal capital management framework’ for Aegon’s capitalization target ranges.

 

Aegon Americas

In the United States, regulation of the insurance business is principally undertaken at the state level. State insurance regulators and the National Association of Insurance Commissioners have adopted RBC requirements for insurance companies. RBC calculations measure the ratio of a company’s statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market

risk, and general business risk. The formula, as used for calculating the solvency ratio, applies a covariance diversification offset to determine the appropriate Risk-Based Capital. Life reinsurance is treated as life insurance. The most pertinent RBC measure is the CAL risk-based capital requirement. This is the regulatory intervention level at which a company has to submit a plan to its state regulators. The domiciliary state regulator has the authority to require additional capital depending on the type, volume and nature of the business

 
 

 

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