Securities and Exchange Commission
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 of 15d/16
of the Securities Exchange Act of 1934
April 2014
AEGON N.V.
Aegonplein 50
2591 TV THE HAGUE
The Netherlands
Aegons Supplemental Annual Report 2013, dated April 15, 2014, is included as appendix and incorporated herein by reference. This Supplemental Annual Report is based on Aegons 2013 Annual Report on Form 20-F dated March 19, 2014 and has been enhanced with the impacts, to all periods reported, of voluntary accounting policies changes related to the deferral of policy acquisition costs and longevity reserving in the Netherlands which are effective January 1, 2014 as announced on January 22, 2014. Compared to Aegons 2013 Annual Report on Form 20-F no changes have been processed other than the impact of the retrospective application of the voluntary changes to Aegons accounting policies.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AEGON N.V. | ||||||
(Registrant) | ||||||
Date: April 17, 2014 | By | /s/ J.H.P.M. van Rossum | ||||
J.H.P.M. van Rossum | ||||||
Senior Vice President and | ||||||
Corporate Controller |
I
Cross reference table Supplemental Annual Report
Item 1
|
Identity of Directors, Senior Management and Advisers
|
|
n/a
|
| ||
Item 2
|
Offer Statistics and Expected Timetable
|
|
n/a
|
| ||
Item 3
|
Key Information |
|||||
3A |
Selected financial data |
13-15 | ||||
3B |
Capitalization and indebtedness |
n/a | ||||
3C |
Reasons for the offer and use of proceeds |
n/a | ||||
3D
|
Risk factors
|
|
85-87; 160-205; 322-337
|
| ||
Item 4 |
Information on the Company |
|||||
4A |
History and development of the company |
12; 16-84; 282 | ||||
4B |
Business overview |
16; 31-42; 47-52; 57-61; 68-84 | ||||
4C |
Organizational structure |
12 | ||||
4D
|
Property, plants and equipment
|
|
338
|
| ||
Item 4A
|
Unresolved Staff Comments
|
|
n/a
|
| ||
Item 5 |
Operating and Financial Review and Prospects |
|||||
5A |
Operating results |
17-30; 43-46; 53-56; 62-67; 160-205; 266-270 | ||||
5B |
Liquidity and capital resources |
88-91; 242-244; 271-272 | ||||
5C |
Research and development, patent and licenses etc. |
n/a | ||||
5D |
Trend information |
8-10 | ||||
5E |
Off-balance sheet arrangements |
274-277 | ||||
5F |
Tabular disclosure of contractual obligations |
202-204; 274-280 | ||||
5G
|
Safe harbor
|
|
n/a
|
| ||
Item 6 |
Directors, Senior Management and Employees |
|||||
6A |
Directors and senior management |
6-7; 99-100 | ||||
6B |
Compensation |
101-107; 218-220; 286-290 | ||||
6C |
Board practices |
6-7; 93-100; 108-111 | ||||
6D |
Employees |
338 | ||||
6E
|
Share ownership
|
|
109-111; 285-290
|
| ||
Item 7 |
Major Shareholders and Related Party Transactions |
|||||
7A |
Major shareholders |
310-312 | ||||
7B |
Related party transactions |
285-290 | ||||
7C
|
Interest of experts and counsel
|
|
n/a
|
| ||
Item 8 |
Financial Information |
|||||
8A |
Consolidated Statements and Other Financial Information |
122-128; 313-318 | ||||
8B
|
Significant Changes
|
|
n/a
|
| ||
Item 9 |
The Offer and Listing |
|||||
9A |
Offer and listing details |
340 | ||||
9B |
Plan of distribution |
n/a | ||||
9C |
Markets |
340 | ||||
9D |
Selling shareholders |
n/a | ||||
9E |
Dilution |
n/a | ||||
9F
|
Expenses of the issue
|
|
n/a
|
|
Supplemental Annual Report 2013 |
II
Item 10 |
Additional Information |
|||||
10A |
Share capital |
n/a | ||||
10B |
Memorandum and articles of association |
341-342 | ||||
10C |
Material contracts |
343 | ||||
10D |
Exchange controls |
343 | ||||
10E |
Taxation |
343-349 | ||||
10F |
Dividends and paying agents |
n/a | ||||
10G |
Statement by experts |
n/a | ||||
10H |
Documents on display |
352 | ||||
10I
|
Subsidiary Information
|
|
n/a
|
| ||
Item 11
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
87; 177-205
|
| ||
Item 12
|
Description of Securities Other than Equity Securities
|
|
n/a
|
| ||
Item 13
|
Defaults, Dividend Arrearages and Delinquencies
|
|
n/a
|
| ||
Item 14
|
Material Modifications to the Rights of Security Holders and Use of Proceeds
|
|
n/a
|
| ||
Item 15
|
Controls and Procedures
|
|
114-115
|
| ||
16A |
Audit committee financial expert |
96 | ||||
16B |
Code of Ethics |
113 | ||||
16C |
Principal Accountant Fees and Services |
349-350 | ||||
16D |
Exemptions from the Listing Standards for Audit Committees |
n/a | ||||
16E |
Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
351 | ||||
16F |
Change in Registrants Certifying Accountant |
351 | ||||
16G |
Corporate Governance |
108-111 | ||||
16H
|
Mine Safety Disclosure
|
|
n/a
|
| ||
17
|
Financial Statements
|
|
n/a
|
| ||
18
|
Financial Statements
|
|
122-291
|
| ||
19
|
Exhibits
|
|
361
|
|
This page has been intentionally left blank.
|
Supplemental Annual Report 2013 |
1
2 | Strategic information Introduction |
|
Supplemental Annual Report 2013 |
3
4 | Strategic information Letter of the CEO |
In 2013 we achieved strong results across our markets and experienced increasing demand for our core products and services, as we pursue our mission of helping individuals and families take responsibility for their financial future. Over the past year, we have made significant progress in enhancing the growth prospects for our business, strengthening our financial position, and in transforming our business to create value for our many stakeholders.
|
Supplemental Annual Report 2013 |
5
6 | Strategic information Composition of the Executive Board and the Management Board |
Composition of the Executive Board
and the Management Board
|
Supplemental Annual Report 2013 |
7
8 | Strategic information Aegons strategy |
Aegon is an international provider of life insurance, pensions and asset management products, with businesses in more than 25 markets in the Americas, Europe and Asia, and just over EUR 475 billion in revenue-generating investments. Aegon employs nearly 27,000 people, and has millions of customers across the globe.
|
Supplemental Annual Report 2013 |
9
10 | Strategic information Aegons strategy |
|
Supplemental Annual Report 2013 |
11
Solvency II and related developments Solvency II will become operational on January 1, 2016; to ensure a smooth transition, many national prudential frameworks are undergoing adjustment. Aegon continues to remain on track with its preparations. Aegon has allocated considerable resources to the development of its partial internal model. This model is currently in the pre-application phase with Aegons College of Supervisors. Aegon aims to contribute to the resolution of any outstanding issues relating to Solvency II by active participation in discussions with several industry bodies. In particular, it provides input to measures to address long-term guarantee issues. At the request of their national supervisory authorities, a number of Aegon companies participated in the recent long-term guarantees assessment. In accordance with Solvency II requirements, Aegon has set up risk management processes and governance structures. Aegon actively manages its business in a market-consistent and risk-sensitive manner. These processes and structures include product pricing, asset and liability management, capital management, and business strategy setting. The company is also optimizing its reporting process to be aligned with the requirements to be introduced by Solvency II. Aegon is on track with embedding Solvency II requirements into its existing business processes in a business-as-usual environment, while keeping abreast of the latest national, EU and international policy and regulatory developments relevant to insurance groups. To ensure that Aegon is not disadvantaged competitively by the implementation of Solvency II, or related wider international developments, Aegon contributes to discussions with European and International regulators and supervisors. For example, Aegon is participating in the EU-US dialogue and global initiatives by the International Association of Insurance Supervisors (IAIS) to establish a common framework for the supervision of internationally active insurance groups (ComFrame) and develop a basic international capital standard.
|
12 | Business overview History and development of Aegon |
History and development of Aegon
Aegon N.V., domiciled in the Netherlands, is a public limited liability company organized under Dutch law. Aegon N.V. was formed in 1983 through the merger of AGO and Ennia, both of which were successors to insurance companies founded in the 1800s.
|
Supplemental Annual Report 2013 |
13
The financial results in this Supplemental Annual Report are based on Aegons consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
Selected consolidated income statement information | ||||||||||||||||||||
In EUR million (except per share amount) | 2013 1) | 2012 1), 2) | 2011 1), 3) | 2010 1), 3) | 2009 1), 3), 4) | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Premium income |
19,939 | 19,049 | 19,521 | 21,097 | 19,473 | |||||||||||||||
Investment income |
7,909 | 8,413 | 8,167 | 8,762 | 8,681 | |||||||||||||||
Total revenues 5) |
29,805 | 29,327 | 29,159 | 31,608 | 29,751 | |||||||||||||||
Income/ (loss) before tax |
1,189 | 2,005 | 1,027 | 1,727 | (413 | ) | ||||||||||||||
Net income/ (loss) | 989 | 1,633 | 936 | 1,605 | 240 | |||||||||||||||
Earnings per common share |
||||||||||||||||||||
Basic |
0.36 | 0.72 | (0.03 | ) | 0.67 | (0.13 | ) | |||||||||||||
Diluted |
0.36 | 0.72 | (0.03 | ) | 0.61 | (0.13 | ) | |||||||||||||
Earnings per common share B |
||||||||||||||||||||
Basic |
0.01 | - | - | - | - | |||||||||||||||
Diluted |
0.01 | - | - | - | - |
1 | As described in note 2.1.3 of the Consolidated Financial Statements, amounts have been retrospectively restated for the voluntary change in accounting policy on deferred policy acquisition costs and the use of prospective mortality tables. |
2 | As described in notes 2.1.1 and 2.1.2 of the Consolidated Financial Statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IFRS 10, IFRS 11 and IAS 19. |
3 | The consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IAS 19. |
4 | 2009 numbers have not been adjusted for the change in longevity reserving as no reliable data was available. |
5 | Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts. |
Selected consolidated balance sheet information | ||||||||||||||||||||
In million EUR (except per share amount) | 2013 1) | 2012 1), 2) | 2011 1), 3) | 2010 1), 3) | 2009 1), 3), 4) | |||||||||||||||
Amounts based upon IFRS | ||||||||||||||||||||
Total assets |
351,860 | 363,063 | 343,155 | 330,158 | 296,816 | |||||||||||||||
Insurance and investment contracts |
283,234 | 277,596 | 272,105 | 272,236 | 248,918 | |||||||||||||||
Borrowings and trust pass-through securities 5) |
12,159 | 13,846 | 10,040 | 8,604 | 7,314 | |||||||||||||||
Shareholders equity |
17,694 | 21,037 | 17,545 | 14,320 | 10,614 |
1 | As described in note 2.1.3 of the Consolidated Financial Statements, amounts have been retrospectively restated for the voluntary change in accounting policy on deferred policy acquisition costs and the use of prospective mortality tables. |
2 | As described in notes 2.1.1 and 2.1.2 of the Consolidated Financial Statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IFRS 10, IFRS 11 and IAS 19. |
3 | The consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IAS 19. |
4 | 2009 numbers have not been adjusted for the change in longevity reserving as no reliable data was available. |
5 | Includes subordinated borrowings and excludes bank overdrafts. |
14 | Business overview Selected financial data |
Number of common shares | ||||||||||||||||||||
In thousands | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Balance at January 1 |
1,972,030 | 1,909,654 | 1,736,049 | 1,736,049 | 1,578,227 | |||||||||||||||
Share issuance |
120,713 | - | 173,605 | - | 157,822 | |||||||||||||||
Stock dividends |
38,716 | 62,376 | - | - | - | |||||||||||||||
Balance at end of period | 2,131,459 | 1,972,030 | 1,909,654 | 1,736,049 | 1,736,049 | |||||||||||||||
Number of common shares B | ||||||||||||||||||||
In thousands | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
Balance at January 1 |
- | - | - | - | - | |||||||||||||||
Share issuance |
579,005 | - | - | - | - | |||||||||||||||
Stock dividends |
- | - | - | - | - | |||||||||||||||
Share withdrawal |
- | - | - | - | - | |||||||||||||||
Balance at end of period | 579,005 | - | - | - | - |
EUR per common share 1) | USD per common share 1) | |||||||||||||||||||||||
Year | Interim | Final | Total | Interim | Final | Total | ||||||||||||||||||
2009 |
- | - | - | - | - | - | ||||||||||||||||||
2010 |
- | - | - | - | - | - | ||||||||||||||||||
2011 |
- | 0.10 | 0.10 | - | 0.13 | 0.13 | ||||||||||||||||||
2012 |
0.10 | 0.11 | 0.21 | 0.12 | 0.14 | 0.26 | ||||||||||||||||||
2013 |
0.11 | 0.112) | 0.22 | 0.15 | - | - |
1 | Paid at each shareholders option in cash or in stock. |
2 | Proposed. |
|
Supplemental Annual Report 2013 |
15
Closing rates | Sept. 2013 | Oct. 2013 | Nov. 2013 | Dec. 2013 | Jan. 2014 | Feb. 2014 | ||||||||||||||||||
High (USD per EUR) |
1.3537 | 1.3810 | 1.3606 | 1.3816 | 1.3682 | 1.3806 | ||||||||||||||||||
Low (USD per EUR) |
1.3120 | 1.3490 | 1.3357 | 1.3552 | 1.3500 | 1.3507 |
Year ended December 31, | Average rate 1) | |||
2009 |
1.3955 | |||
2010 |
1.3216 | |||
2011 |
1.4002 | |||
2012 |
1.2909 | |||
2013 |
1.3303 |
1 | The US dollar exchange rates are the noon buying rates in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York. |
16 | Business overview Business lines |
|
Supplemental Annual Report 2013 |
17
Underlying earnings geographically |
||||||||||||
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Net underlying earnings | 1,531 | 1,510 | 1% | |||||||||
Tax on underlying earnings |
437 | 472 | (7%) | |||||||||
Underlying earnings before tax geographically |
||||||||||||
Americas |
1,314 | 1,294 | 2% | |||||||||
The Netherlands |
454 | 556 | (18%) | |||||||||
United Kingdom |
87 | 90 | (3%) | |||||||||
New markets |
227 | 266 | (15%) | |||||||||
Holding and other activities |
(113) | (224) | 50% | |||||||||
Underlying earnings before tax | 1,968 | 1,982 | (1%) | |||||||||
Net fair value items |
(1,118) | (56) | - | |||||||||
Gains / (losses) on investments |
500 | 418 | 20% | |||||||||
Impairment charges |
(122) | (176) | 31% | |||||||||
Other income / (charges) |
(52) | (162) | 68% | |||||||||
Run-off businesses |
21 | 14 | 50% | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 1,197 | 2,020 | (41%) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
8 | 15 | (47%) | |||||||||
Income tax |
(208) | (387) | 46% | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(8) | (15) | 47% | |||||||||
Net income | 989 | 1,633 | (39%) | |||||||||
Commissions and expenses |
5,873 | 5,817 | 1% | |||||||||
of which operating expenses |
3,328 | 3,177 | 5% |
18 | Business overview Results of operations Worldwide |
New life sales |
||||||||||||
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Americas |
464 | 520 | (11%) | |||||||||
The Netherlands |
206 | 246 | (16%) | |||||||||
United Kingdom |
1,014 | 936 | 8% | |||||||||
New markets |
228 | 253 | (10%) | |||||||||
Total life production | 1,911 | 1,955 | (2%) | |||||||||
Gross deposits (on and off balance) |
||||||||||||
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Americas |
28,424 | 27,042 | 5% | |||||||||
The Netherlands |
1,338 | 1,484 | (10%) | |||||||||
United Kingdom |
281 | 37 | - | |||||||||
New markets |
14,287 | 10,909 | 31% | |||||||||
Total gross deposits | 44,330 | 39,472 | 12% |
Worldwide revenues geographically 2013 |
Americas | |
The Nether- lands |
|
|
United Kingdom |
|
|
New Markets |
|
|
Holding, other activities and elimina- tions |
|
|
Segment total |
|
|
Associ- ates and Joint Ventures elimina- tions |
|
|
Consoli- dated |
| ||||||||||
Amounts in EUR millions | ||||||||||||||||||||||||||||||||
Total life insurance gross premiums |
6,187 | 3,515 | 6,537 | 1,349 | (59) | 17,529 | (416) | 17,112 | ||||||||||||||||||||||||
Accident and health insurance premiums |
1,787 | 243 | - | 170 | - | 2,200 | (10) | 2,190 | ||||||||||||||||||||||||
General insurance premiums |
- | 487 | - | 194 | - | 681 | (44) | 637 | ||||||||||||||||||||||||
Total gross premiums |
7,975 | 4,245 | 6,537 | 1,713 | (59) | 20,410 | (471) | 19,939 | ||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,054 | 233 | - | 7,968 | (58) | 7,909 | ||||||||||||||||||||||||
Fees and commision income |
1,273 | 328 | 80 | 583 | (238) | 2,026 | (76) | 1,950 | ||||||||||||||||||||||||
Other revenue |
4 | - | - | 2 | 4 | 10 | (3) | 6 | ||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,670 | 2,531 | (293) | 30,413 | (608) | 29,805 | ||||||||||||||||||||||||
Number of employees, including agent employees |
12,256 | 4,282 | 2,400 | 7,651 | 302 | 26,891 | (3,417) | 23,474 |
By product segment |
||||||||||||
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Life |
976 | 1,027 | (5%) | |||||||||
Individual Savings & Retirement |
487 | 462 | 5% | |||||||||
Pensions |
467 | 552 | (15%) | |||||||||
Non-life |
12 | 15 | (20%) | |||||||||
Distribution |
16 | 15 | 7% | |||||||||
Asset management |
95 | 101 | (6%) | |||||||||
Other |
(109) | (224) | 50% | |||||||||
Associates |
24 | 34 | (29%) | |||||||||
Underlying earnings before tax | 1,968 | 1,982 | (1%) |
|
Supplemental Annual Report 2013 |
19
Results 2013 worldwide
Aegons 2013 net income amounted to EUR 989 million. Underlying earnings before tax of EUR 1,968 million were impacted by a loss of EUR 1,118 million on fair value items driven by losses on the hedging programs and long-term economic assumption changes. This was partly offset by lower impairment charges and lower other charges since 2012 included a charge of EUR 265 million in relation to the acceleration of product improvements for unit-linked insurance policies.
20 | Business overview Results of operations Worldwide |
|
Supplemental Annual Report 2013 |
21
Results 2012 worldwide
Underlying earnings geographically | ||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Net underlying earnings |
1,510 | 1,408 | 7% | |||||||||
Tax on underlying earnings |
472 | 367 | 29% | |||||||||
Underlying earnings before tax geographically |
||||||||||||
Americas |
1,294 | 1,243 | 4% | |||||||||
The Netherlands |
556 | 618 | (10%) | |||||||||
United Kingdom |
90 | (23 | ) | - | ||||||||
New markets |
266 | 240 | 11% | |||||||||
Holding and other activities |
(224 | ) | (303 | ) | 26% | |||||||
Underlying earnings before tax | 1,982 | 1,775 | 12% | |||||||||
Net fair value items |
(56 | ) | (587 | ) | 90% | |||||||
Gains / (losses) on investments |
418 | 477 | (12%) | |||||||||
Impairment charges |
(176 | ) | (390 | ) | 55% | |||||||
Other income / (charges) |
(162 | ) | (269 | ) | 40% | |||||||
Run-off businesses |
14 | 30 | (53%) | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) | 2,020 | 1,036 | 95% | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
15 | 9 | 67% | |||||||||
Income tax |
(387 | ) | (100 | ) | - | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(15 | ) | (9 | ) | (67%) | |||||||
Net income | 1,633 | 936 | 74% | |||||||||
Commissions and expenses |
5,817 | 6,281 | (7%) | |||||||||
of which operating expenses |
3,177 | 3,420 | (7%) | |||||||||
New life sales |
||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Americas |
520 | 418 | 24% | |||||||||
The Netherlands |
246 | 254 | (3%) | |||||||||
United Kingdom |
936 | 852 | 10% | |||||||||
New markets |
253 | 311 | (19%) | |||||||||
Total life production | 1,955 | 1,835 | 7% | |||||||||
Gross deposits (on and off balance) |
||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Americas |
27,042 | 23,028 | 17% | |||||||||
The Netherlands |
1,484 | 2,048 | (28%) | |||||||||
United Kingdom |
37 | 56 | (34%) | |||||||||
New markets |
10,909 | 6,556 | 66% | |||||||||
Total gross deposits | 39,472 | 31,688 | 25% |
22 | Business overview Results of operations Worldwide |
Worldwide revenues geographically 2012 Amounts in EUR millions |
Americas | The Nether- lands |
United Kingdom |
New Markets |
Holding, other activities and elimina- tions |
Segment total |
Associ- ates and Joint Ventures elimina- tions |
Consoli- dated |
||||||||||||||||||||||||
Total life insurance gross premiums |
6,541 | 3,004 | 6,047 | 1,374 | (73 | ) | 16,893 | (693 | ) | 16,200 | ||||||||||||||||||||||
Accident and health insurance premiums |
1,833 | 220 | - | 188 | - | 2,241 | (11 | ) | 2,230 | |||||||||||||||||||||||
General insurance premiums |
- | 475 | - | 144 | - | 619 | - | 619 | ||||||||||||||||||||||||
Total gross premiums |
8,374 | 3,699 | 6,047 | 1,706 | (73 | ) | 19,753 | (704 | ) | 19,049 | ||||||||||||||||||||||
Investment income |
3,654 | 2,273 | 2,337 | 319 | - | 8,583 | (170 | ) | 8,413 | |||||||||||||||||||||||
Fees and commision income |
1,177 | 329 | 133 | 524 | (263 | ) | 1,900 | (44 | ) | 1,856 | ||||||||||||||||||||||
Other revenue |
5 | - | - | 3 | 5 | 13 | (4 | ) | 9 | |||||||||||||||||||||||
Total revenues | 13,210 | 6,301 | 8,517 | 2,552 | (331 | ) | 30,249 | (922 | ) | 29,327 | ||||||||||||||||||||||
Number of employees, including agent employees |
11,967 | 4,457 | 2,793 | 7,160 | 473 | 26,850 | (2,443 | ) | 24,407 |
By product segment | ||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Life |
1,027 | 996 | 3% | |||||||||
Individual Savings & Retirement |
462 | 429 | 8% | |||||||||
Pensions |
552 | 501 | 10% | |||||||||
Non-life |
15 | 51 | (71%) | |||||||||
Distribution |
15 | - | - | |||||||||
Asset management |
101 | 60 | 68% | |||||||||
Other |
(224 | ) | (303 | ) | 26% | |||||||
Associates |
34 | 41 | (17%) | |||||||||
Underlying earnings before tax | 1,982 | 1,775 | 12% |
|
Supplemental Annual Report 2013 |
23
Results 2012 worldwide
Aegons 2012 net income of EUR 1,633 million and underlying earnings before tax of EUR 1,982 million were higher than in 2011, as a result of business growth, implemented cost reduction programs, the non-recurrence of certain charges in the United Kingdom, and favorable markets. Sales and deposits increased compared to 2011 despite repricing and product changes made to reflect the continued low interest rate environment. Growth was driven mostly by pensions, variable annuities, mortgages, and asset management. Aegon has continued to maintain a strong capital position while maintaining its commitment to delivering sustainable earnings growth with an improved risk-return profile.
24 | Business overview Results of operations Worldwide |
|
Supplemental Annual Report 2013 |
25
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2013 | 2012 | % | 2013 | 2012 | % | |||||||||||||||||||
Net underlying earnings |
1,280 | 1,228 | 4% | 965 | 956 | 1% | ||||||||||||||||||
Tax on underlying earnings |
463 | 435 | 7% | 349 | 338 | 3% | ||||||||||||||||||
Underlying earnings before tax by product segment |
||||||||||||||||||||||||
Life & Protection |
719 | 697 | 3% | 542 | 542 | 0% | ||||||||||||||||||
Fixed annuities |
215 | 257 | (16% | ) | 162 | 200 | (19%) | |||||||||||||||||
Variable annuities |
414 | 321 | 29% | 312 | 250 | 25% | ||||||||||||||||||
Retail mutual funds |
33 | 25 | 32% | 25 | 19 | 32% | ||||||||||||||||||
Individual Savings & Retirement |
662 | 603 | 10% | 499 | 469 | 6% | ||||||||||||||||||
Employer Solutions & Pensions |
350 | 319 | 10% | 263 | 248 | 6% | ||||||||||||||||||
Canada |
4 | 32 | (88% | ) | 3 | 26 | (88%) | |||||||||||||||||
Latin America |
9 | 12 | (25% | ) | 7 | 9 | (22%) | |||||||||||||||||
Underlying earnings before tax |
1,744 | 1,663 | 5% | 1,314 | 1,294 | 2% | ||||||||||||||||||
Net fair value items |
(1,300 | ) | (85 | ) | - | (980 | ) | (67 | ) | - | ||||||||||||||
Gains / (losses) on investments |
145 | 238 | (39% | ) | 110 | 186 | (41%) | |||||||||||||||||
Impairment charges |
(58 | ) | (151 | ) | 62% | (44 | ) | (117 | ) | 62% | ||||||||||||||
Other income / (charges) |
95 | (37 | ) | - | 72 | (28 | ) | - | ||||||||||||||||
Run-off businesses |
28 | 19 | 47% | 21 | 14 | 50% | ||||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
655 | 1,647 | (60% | ) | 493 | 1,282 | (62%) | |||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
4 | 4 | 0% | 3 | 3 | 0% | ||||||||||||||||||
Income tax |
(115 | ) | (322 | ) | 64% | (86 | ) | (251 | ) | 66% | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(4 | ) | (4 | ) | 0% | (3 | ) | (3 | ) | 0% | ||||||||||||||
Net income |
540 | 1,325 | (59% | ) | 407 | 1,031 | (61%) | |||||||||||||||||
Life insurance gross premiums |
8,212 | 8,405 | (2% | ) | 6,187 | 6,541 | (5%) | |||||||||||||||||
Accident and health insurance premiums |
2,372 | 2,356 | 1% | 1,787 | 1,833 | (3%) | ||||||||||||||||||
Total gross premiums | 10,584 | 10,761 | (2% | ) | 7,975 | 8,374 | (5%) | |||||||||||||||||
Investment income |
4,473 | 4,694 | (5% | ) | 3,370 | 3,654 | (8%) | |||||||||||||||||
Fees and commission income |
1,689 | 1,512 | 12% | 1,273 | 1,177 | 8% | ||||||||||||||||||
Other revenues |
6 | 6 | 0% | 4 | 5 | (20%) | ||||||||||||||||||
Total revenues | 16,752 | 16,973 | (1% | ) | 12,622 | 13,210 | (4%) | |||||||||||||||||
Commissions and expenses |
4,394 | 4,319 | 2% | 3,311 | 3,362 | (2%) | ||||||||||||||||||
of which operating expenses |
1,985 | 1,823 | 9% | 1,496 | 1,419 | 5% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2013 | 2012 | % | 2013 | 2012 | % | ||||||||||||||||||
Life & Protection |
505 | 563 | (10% | ) | 380 | 438 | (13%) | |||||||||||||||||
Canada |
68 | 60 | 13% | 51 | 47 | 9% | ||||||||||||||||||
Latin America |
42 | 45 | (7% | ) | 32 | 35 | (9%) | |||||||||||||||||
Total recurring plus 1/10 single | 615 | 668 | (8% | ) | 464 | 520 | (11%) |
26 | Business overview Results of operations Americas |
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2013 | 2012 | % | 2013 | 2012 | % | |||||||||||||||||||
New premium production accident and health insurance |
902 | 905 | 0% | 680 | 705 | (4%) | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2013 | 2012 | % | 2013 | 2012 | % | ||||||||||||||||||
Life & Protection |
11 | 12 | (8% | ) | 8 | 9 | (11%) | |||||||||||||||||
Fixed annuities |
552 | 371 | 49% | 416 | 289 | 44% | ||||||||||||||||||
Variable annuities |
8,496 | 5,350 | 59% | 6,402 | 4,163 | 54% | ||||||||||||||||||
Retail mutual funds |
4,301 | 3,437 | 25% | 3,241 | 2,675 | 21% | ||||||||||||||||||
Individual Savings & Retirement |
13,349 | 9,158 | 46% | 10,058 | 7,127 | 41% | ||||||||||||||||||
Employer Solutions & Pensions |
24,222 | 25,383 | (5% | ) | 18,251 | 19,755 | (8%) | |||||||||||||||||
Canada |
125 | 177 | (29% | ) | 94 | 138 | (32%) | |||||||||||||||||
Latin America |
18 | 17 | 6% | 14 | 13 | 8% | ||||||||||||||||||
Total gross deposits | 37,725 | 34,747 | 9% | 28,424 | 27,042 | 5% | ||||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates Per 1 EUR |
2013 | 2012 |
December 31, |
December 31, 2012 |
||||||||||||||||||||
USD |
1.3272 | 1.2849 | 1.3780 | 1.3184 | ||||||||||||||||||||
CAD |
1.3674 | 1.2839 | 1.4641 | 1.3127 |
|
Supplemental Annual Report 2013 |
27
Results 2013 Americas
Net income of USD 540 million for the year 2013 was negatively impacted by long-term economic assumption changes and losses on equity macro hedges, which have been put in place to protect Aegons capital position. Underlying earnings before tax increased to USD 1,744 million in 2013, mainly driven by higher earnings from variable annuities and pensions. New life sales decreased, primarily due to focus on profitability of universal life products, while gross deposits increased.
28 | Business overview Results of operations Americas |
Results 2012 Americas
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2012 | 2011 | % | 2012 | 2011 | % | |||||||||||||||||||
Net underlying earnings | 1,228 | 1,305 | (6% | ) | 956 | 938 | 2% | |||||||||||||||||
Tax on underlying earnings |
435 | 426 | 2% | 338 | 305 | 11% | ||||||||||||||||||
Underlying earnings before tax by product segment |
||||||||||||||||||||||||
Life & Protection |
697 | 796 | (12% | ) | 542 | 572 | (6% | ) | ||||||||||||||||
Fixed annuities |
257 | 271 | (5% | ) | 200 | 195 | 3% | |||||||||||||||||
Variable annuities |
321 | 312 | 3% | 250 | 224 | 12% | ||||||||||||||||||
Retail mutual funds |
25 | 23 | 9% | 19 | 16 | 19% | ||||||||||||||||||
Individual Savings & Retirement |
603 | 606 | 0% | 469 | 435 | 8% | ||||||||||||||||||
Employer Solutions & Pensions |
319 | 278 | 15% | 248 | 200 | 24% | ||||||||||||||||||
Canada |
32 | 50 | (36% | ) | 26 | 36 | (28% | ) | ||||||||||||||||
Latin America |
12 | 1 | - | 9 | - | - | ||||||||||||||||||
Underlying earnings before tax | 1,663 | 1,731 | (4% | ) | 1,294 | 1,243 | 4% | |||||||||||||||||
Net fair value items |
(85 | ) | (662 | ) | 87% | (67 | ) | (476 | ) | 86% | ||||||||||||||
Gains / (losses) on investments |
238 | 208 | 14% | 186 | 150 | 24% | ||||||||||||||||||
Impairment charges |
(151 | ) | (351 | ) | 57% | (117 | ) | (252 | ) | 54% | ||||||||||||||
Other income / (charges) |
(37 | ) | (53 | ) | 30% | (28 | ) | (37 | ) | 24% | ||||||||||||||
Run-off businesses |
19 | 44 | (57% | ) | 14 | 30 | (53% | ) | ||||||||||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
1,647 | 917 | 80% | 1,282 | 658 | 95% | ||||||||||||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
4 | 1 | - | 3 | 1 | - | ||||||||||||||||||
Income tax |
(322 | ) | (21 | ) | - | (251 | ) | (15 | ) | - | ||||||||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(4 | ) | (1 | ) | - | (3 | ) | (1 | ) | - | ||||||||||||||
Net income | 1,325 | 896 | 48% | 1,031 | 643 | 60% | ||||||||||||||||||
Life insurance gross premiums |
8,405 | 8,350 | 1% | 6,541 | 6,004 | 9% | ||||||||||||||||||
Accident and health insurance premiums |
2,356 | 2,326 | 1% | 1,833 | 1,672 | 10% | ||||||||||||||||||
Total gross premiums | 10,761 | 10,676 | 1% | 8,374 | 7,676 | 9% | ||||||||||||||||||
Investment income |
4,694 | 4,959 | (5% | ) | 3,654 | 3,565 | 2% | |||||||||||||||||
Fees and commission income |
1,512 | 1,066 | 42% | 1,177 | 766 | 54% | ||||||||||||||||||
Other revenues |
6 | 2 | - | 5 | 1 | - | ||||||||||||||||||
Total revenues | 16,973 | 16,703 | 2% | 13,210 | 12,008 | 10% | ||||||||||||||||||
Commissions and expenses |
4,319 | 4,920 | (12% | ) | 3,362 | 3,537 | (5% | ) | ||||||||||||||||
of which operating expenses |
1,823 | 1,931 | (6% | ) | 1,419 | 1,388 | 2% |
|
Supplemental Annual Report 2013 |
29
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2012 | 2011 | % | 2012 | 2011 | % | ||||||||||||||||||
Life & Protection |
563 | 466 | 21% | 438 | 334 | 31% | ||||||||||||||||||
Canada |
60 | 65 | (8%) | 47 | 47 | - | ||||||||||||||||||
Latin America |
45 | 51 | (12%) | 35 | 37 | (5%) | ||||||||||||||||||
Total recurring plus 1/10 single | 668 | 582 | 15% | 520 | 418 | 24% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
2012 | 2011 | % | 2012 | 2011 | % | |||||||||||||||||||
New premium production accident and health insurance |
905 | 812 | 11% | 705 | 584 | 21% | ||||||||||||||||||
Amounts in USD millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2012 | 2011 | % | 2012 | 2011 | % | ||||||||||||||||||
Life & Protection |
12 | 12 | - | 9 | 9 | - | ||||||||||||||||||
Fixed annuities |
371 | 313 | 19% | 289 | 225 | 28% | ||||||||||||||||||
Variable annuities |
5,350 | 5,314 | 1% | 4,163 | 3,821 | 9% | ||||||||||||||||||
Retail mutual funds |
3,437 | 2,785 | 23% | 2,675 | 2,002 | 34% | ||||||||||||||||||
Individual Savings & Retirement |
9,158 | 8,412 | 9% | 7,127 | 6,048 | 18% | ||||||||||||||||||
Employer Solutions & Pensions |
25,383 | 23,266 | 9% | 19,755 | 16,727 | 18% | ||||||||||||||||||
Canada |
177 | 335 | (47%) | 138 | 241 | (43%) | ||||||||||||||||||
Latin America |
17 | 4 | - | 13 | 3 | - | ||||||||||||||||||
Total gross deposits | 34,747 | 32,029 | 8% | 27,042 | 23,028 | 17% | ||||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates Per 1 EUR |
2012 | 2011 |
December 31, |
December 31, 2011 |
||||||||||||||||||||
USD |
1.2849 | 1.3909 | 1.3184 | 1.2982 | ||||||||||||||||||||
CAD |
1.2839 | 1.3744 | 1.3127 | 1.3218 |
30 | Business overview Results of operations Americas |
Results 2012 Americas
Aegons businesses in the Americas1 continued to perform well in 2012. Sales of life, accident and health insurance all increased over 2011 on expanded distribution capabilities. Variable annuity, pension and retail mutual fund balances increased while fixed annuity balances continued to decline, a direct result of Aegons efforts to grow its fee-based earnings.
1 | As of the first quarter of 2012, Aegon has revised its financial reporting to reflect changes in its organization. Businesses in Asia, which were previously managed by Aegon Americas, are included in the Asia line of business within the New Markets segment. For the full year 2011, the underlying earnings before tax generated by the Asian operations totaling EUR 37 million were previously reported under the Americas segment. The 2011 and 2010 figures have been revised to reflect this change. |
|
Supplemental Annual Report 2013 |
31
Overview of Americas
Aegon Americas comprises Aegon USA, Aegon Canada and the operations in Brazil and Mexico.
1 | Source: LIMRA. |
2 | Source: Brand Power Analysis. |
32 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
33
34 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
35
36 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
37
1 | Source: Reports from LIMRA International and the Stable Value Investment Associations Stable Value and Funding Agreement Products as of the first three quarters of 2013 |
38 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
39
40 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
41
42 | Business overview Results of operations Americas |
|
Supplemental Annual Report 2013 |
43
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Net underlying earnings | 352 | 436 | (19%) | |||||||||
Tax on underlying earnings |
102 | 120 | (15%) | |||||||||
Underlying earnings before tax by product segment |
||||||||||||
Life & Savings |
247 | 276 | (11%) | |||||||||
Pensions |
206 | 289 | (29%) | |||||||||
Non-life |
(20) | (27) | 26% | |||||||||
Distribution |
18 | 16 | 13% | |||||||||
Share in underlying earnings before tax of associates |
2 | 2 | 0% | |||||||||
Underlying earnings before tax | 454 | 556 | (18%) | |||||||||
Net fair value items |
(41) | 47 | - | |||||||||
Gains / (losses) on investments |
342 | 138 | 148% | |||||||||
Impairment charges |
(32) | (29) | (10%) | |||||||||
Other income / (charges) |
(36) | (279) | 87% | |||||||||
Income before tax |
687 | 433 | 59% | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in |
- | (3) | - | |||||||||
Income tax |
(166) | (46) | - | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates |
- | 3 | - | |||||||||
Net income | 521 | 387 | 35% | |||||||||
Life insurance gross premiums |
3,515 | 3,004 | 17% | |||||||||
Accident and health insurance premiums |
243 | 220 | 10% | |||||||||
General insurance premiums |
487 | 475 | 3% | |||||||||
Total gross premiums | 4,245 | 3,699 | 15% | |||||||||
Investment income |
2,310 | 2,273 | 2% | |||||||||
Fees and commission income |
328 | 329 | 0% | |||||||||
Total revenues | 6,883 | 6,301 | 9% | |||||||||
Commissions and expenses |
990 | 1,026 | (4%) | |||||||||
of which operating expenses |
732 | 746 | (2%) | |||||||||
New life sales Amounts in EUR millions |
2013 | 2012 | % | |||||||||
Life & Savings |
40 | 46 | (13%) | |||||||||
Pensions |
166 | 200 | (17%) | |||||||||
Total recurring plus 1/10 single | 206 | 246 | (16%) | |||||||||
Amounts in EUR million | 2013 | 2012 | % | |||||||||
New premium production accident and health insurance |
24 | 21 | 11% | |||||||||
New premium production general insurance |
26 | 30 | (13%) | |||||||||
Gross deposits (on and off balance) | 2013 | 2012 | % | |||||||||
Life & Savings |
1,338 | 1,484 | (10%) | |||||||||
Total gross deposits | 1,338 | 1,484 | (10%) |
44 | Business overview Results of operations the Netherlands |
Results 2013 the Netherlands1
2013 net income increased to EUR 521 million compared to 2012 due to higher realized gains on investments which is partly offset by lower underlying earnings before tax and a loss on fair value items (compared to a gain in 2012). The decrease in underlying earnings before tax was mostly driven by Pensions earnings, partially offset by lower operating expenses following implemented cost reduction initiatives.
1 | Throughout this report, Aegon the Netherlands refers to all Aegon companies operating in the Netherlands. |
|
Supplemental Annual Report 2013 |
45
Results 2012 the Netherlands
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Net underlying earnings | 436 | 481 | (9%) | |||||||||
Tax on underlying earnings |
120 | 137 | (12%) | |||||||||
Underlying earnings before tax by product segment |
||||||||||||
Life & Savings |
276 | 191 | 45% | |||||||||
Pensions |
289 | 412 | (30%) | |||||||||
Non-life |
(27) | 6 | - | |||||||||
Distribution |
16 | 8 | 100% | |||||||||
Share in underlying earnings before tax of associates |
2 | 1 | 100% | |||||||||
Underlying earnings before tax | 556 | 618 | (10%) | |||||||||
Net fair value items |
47 | (16) | - | |||||||||
Gains / (losses) on investments |
138 | 269 | (49%) | |||||||||
Impairment charges |
(29) | (15) | (93%) | |||||||||
Other income / (charges) |
(279) | (164) | (70%) | |||||||||
Income before tax |
433 | 692 | (37%) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(3) | - | - | |||||||||
Income tax |
(46) | (160) | 71% | |||||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
3 | - | - | |||||||||
Net income | 387 | 532 | (27%) | |||||||||
Life insurance gross premiums |
3,004 | 3,213 | (7%) | |||||||||
Accident and health insurance premiums |
220 | 216 | 2% | |||||||||
General insurance premiums |
475 | 452 | 5% | |||||||||
Total gross premiums | 3,699 | 3,881 | (5%) | |||||||||
Investment income |
2,273 | 2,192 | 4% | |||||||||
Fees and commission income |
329 | 329 | - | |||||||||
Total revenues | 6,301 | 6,402 | (2%) | |||||||||
Commissions and expenses |
1,026 | 1,113 | (8%) | |||||||||
of which operating expenses |
746 | 823 | (9%) | |||||||||
New life sales | ||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Life & Savings |
46 | 81 | (43%) | |||||||||
Pensions |
200 | 173 | 16% | |||||||||
Total recurring plus 1/10 single | 246 | 254 | (3%) | |||||||||
Amounts in EUR million | 2012 | 2011 | % | |||||||||
New premium production accident and health insurance |
21 | 27 | (22%) | |||||||||
New premium production general insurance |
30 | 27 | 11% | |||||||||
Gross deposits (on and off balance) | 2012 | 2011 | % | |||||||||
Life & Savings |
1,484 | 1,968 | (25%) | |||||||||
Pensions |
- | 80 | - | |||||||||
Total gross deposits | 1,484 | 2,048 | (28%) |
46 | Business overview Results of operations the Netherlands |
Results 2012 the Netherlands
Aegons business in the Netherlands realized EUR 89 million of the targeted EUR 100 million reduction in operating expenses. Net income was impacted by a one-off charge of EUR 265 million related to the acceleration of product improvement for unit-linked insurance products.
|
Supplemental Annual Report 2013 |
47
Overview of the Netherlands
Aegon has operated in the Netherlands for more than 150 years, and is today known as Aegon the Netherlands, one of the countrys leading1 providers of life insurance and pensions, with approximately 4,300 employees. Aegon the Netherlands is headquartered in The Hague, has offices in Leeuwarden and Groningen, and owns the Unirobe Meeùs Group, one of the largest2 intermediaries in the Netherlands.
48 | Business overview Results of operations the Netherlands |
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Supplemental Annual Report 2013 |
49
50 | Business overview Results of operations the Netherlands |
|
Supplemental Annual Report 2013 |
51
52 | Business overview Results of operations the Netherlands |
|
Supplemental Annual Report 2013 |
53
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2013 | 2012 | % | 2013 | 2012 | % | |||||||||||||||||||
Net underlying earnings | 118 | 82 | 44% | 139 | 101 | 38% | ||||||||||||||||||
Tax on underlying earnings |
(44 | ) | (9 | ) | - | (52 | ) | (11 | ) | - | ||||||||||||||
Underlying earnings before tax by product segment |
||||||||||||||||||||||||
Life |
85 | 68 | 25% | 100 | 83 | 20% | ||||||||||||||||||
Pensions |
(10 | ) | 7 | - | (12 | ) | 9 | - | ||||||||||||||||
Distribution |
(2 | ) | (2 | ) | 0% | (2 | ) | (2 | ) | 0% | ||||||||||||||
Underlying earnings before tax | 74 | 73 | 1% | 87 | 90 | (3%) | ||||||||||||||||||
Net fair value items |
(14 | ) | (26 | ) | 46% | (16 | ) | (31 | ) | 48% | ||||||||||||||
Gains / (losses) on investments |
41 | 68 | (40%) | 48 | 84 | (43%) | ||||||||||||||||||
Impairment charges |
(26 | ) | - | - | (31 | ) | - | - | ||||||||||||||||
Other income / (charges) |
(38 | ) | 28 | - | (45 | ) | 34 | - | ||||||||||||||||
Income before tax |
37 | 143 | (74%) | 43 | 177 | (76%) | ||||||||||||||||||
Income tax attributible to policyholder return |
(27 | ) | (32 | ) | 16% | (32 | ) | (40 | ) | 20% | ||||||||||||||
Income before tax on shareholders return |
9 | 111 | (92%) | 11 | 137 | (92%) | ||||||||||||||||||
Income tax on shareholders return |
56 | (2 | ) | - | 66 | (2 | ) | - | ||||||||||||||||
Net income | 65 | 109 | (40%) | 76 | 135 | (44%) | ||||||||||||||||||
Life insurance gross premiums |
5,546 | 4,900 | 13% | 6,537 | 6,047 | 8% | ||||||||||||||||||
Total gross premiums | 5,546 | 4,900 | 13% | 6,537 | 6,047 | 8% | ||||||||||||||||||
Investment income |
1,743 | 1,894 | (8%) | 2,054 | 2,337 | (12%) | ||||||||||||||||||
Fees and commission income |
68 | 108 | (37%) | 80 | 133 | (40%) | ||||||||||||||||||
Total revenues | 7,356 | 6,902 | 7% | 8,670 | 8,517 | 2% | ||||||||||||||||||
Commissions and expenses |
640 | 610 | 5% | 754 | 754 | 0% | ||||||||||||||||||
of which operating expenses |
328 | 269 | 22% | 387 | 333 | 16% | ||||||||||||||||||
|
||||||||||||||||||||||||
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2013 | 2012 | % | 2013 | 2012 | % | ||||||||||||||||||
Life |
58 | 72 | (19%) | 68 | 89 | (24%) | ||||||||||||||||||
Pensions |
802 | 686 | 17% | 946 | 847 | 12% | ||||||||||||||||||
Total recurring plus 1/10 single | 860 | 758 | 13% | 1,014 | 936 | 8% | ||||||||||||||||||
|
||||||||||||||||||||||||
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2013 | 2012 | % | 2013 | 2012 | % | ||||||||||||||||||
Variable annuities |
3 | 22 | (86%) | 3 | 27 | (89%) | ||||||||||||||||||
Pensions |
236 | 8 | - | 278 | 10 | - | ||||||||||||||||||
Total gross deposits | 239 | 30 | - | 281 | 37 | - | ||||||||||||||||||
|
||||||||||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates Per 1 EUR |
2013 | 2012 | 31-Dec-13 | December 31, 2012 |
||||||||||||||||||||
GBP |
0.8484 | 0.8103 | 0.832 | 0.8111 |
54 | Business overview Results of operations United Kingdom |
Results 2013 United Kingdom
2013 net income of GBP 65 million was 40% lower than 2012 due to the impact of business transformation costs, higher impairment charges and lower underlying earnings before tax as the positive impact of higher equity markets was more than offset by adverse persistency related to the Retail Distribution Review (RDR) and investments in technology. New life sales increased by 13% to GBP 860 million due to higher sales in group pensions and strong platform growth. Platform assets reached GBP 1.3 billion by the end of 2013.
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Results 2012 United Kingdom
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
2012 | 2011 | % | 2012 | 2011 | % | |||||||||||||||||||
Net underlying earnings | 82 | (4 | ) | - | 101 | (4 | ) | - | ||||||||||||||||
Tax on underlying earnings |
(9 | ) | (15 | ) | 40% | (11 | ) | (19 | ) | 42% | ||||||||||||||
Underlying earnings before tax by product segment |
||||||||||||||||||||||||
Life |
68 | 90 | (24% | ) | 83 | 104 | (20% | ) | ||||||||||||||||
Pensions |
7 | (103 | ) | - | 9 | (119 | ) | - | ||||||||||||||||
Distribution |
(2 | ) | (6 | ) | 67% | (2 | ) | (8 | ) | 75% | ||||||||||||||
Underlying earnings before tax | 73 | (19 | ) | - | 90 | (23 | ) | - | ||||||||||||||||
Net fair value items |
(26 | ) | (5 | ) | - | (31 | ) | (6 | ) | - | ||||||||||||||
Gains / (losses) on investments |
68 | 44 | 55% | 84 | 51 | 65% | ||||||||||||||||||
Impairment charges |
- | (55 | ) | - | - | (62 | ) | - | ||||||||||||||||
Other income / (charges) |
28 | (49 | ) | - | 34 | (57 | ) | - | ||||||||||||||||
Income before tax |
143 | (84 | ) | - | 177 | (97 | ) | - | ||||||||||||||||
Income tax attributible to policyholder return |
(32 | ) | (37 | ) | 14% | (40 | ) | (43 | ) | 7% | ||||||||||||||
Income before tax on shareholders return |
111 | (121 | ) | - | 137 | (140 | ) | - | ||||||||||||||||
Income tax on shareholders return |
(2 | ) | 40 | - | (2 | ) | 46 | - | ||||||||||||||||
Net income | 109 | (81 | ) | - | 135 | (94 | ) | - | ||||||||||||||||
Life insurance gross premiums |
4,900 | 5,611 | (13% | ) | 6,047 | 6,474 | (7% | ) | ||||||||||||||||
Total gross premiums | 4,900 | 5,611 | (13% | ) | 6,047 | 6,474 | (7% | ) | ||||||||||||||||
Investment income |
1,894 | 1,867 | 1% | 2,337 | 2,154 | 8% | ||||||||||||||||||
Fees and commission income |
108 | 119 | (9% | ) | 133 | 137 | (3% | ) | ||||||||||||||||
Total revenues | 6,902 | 7,597 | (9% | ) | 8,517 | 8,765 | (3% | ) | ||||||||||||||||
Commissions and expenses |
610 | 757 | (19% | ) | 753 | 874 | (14% | ) | ||||||||||||||||
of which operating expenses |
269 | 402 | (33% | ) | 333 | 463 | (28% | ) | ||||||||||||||||
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
New life sales | 2012 | 2011 | % | 2012 | 2011 | % | ||||||||||||||||||
Life |
72 | 66 | 9% | 89 | 77 | 16% | ||||||||||||||||||
Pensions |
686 | 672 | 2% | 847 | 775 | 9% | ||||||||||||||||||
Total recurring plus 1/10 single | 758 | 738 | 3% | 936 | 852 | 10% | ||||||||||||||||||
Amounts in GBP millions | Amounts in EUR millions | |||||||||||||||||||||||
Gross deposits (on and off balance) | 2012 | 2011 | % | 2012 | 2011 | % | ||||||||||||||||||
Variable annuities |
22 | 49 | (55% | ) | 27 | 56 | (52% | ) | ||||||||||||||||
Pensions |
8 | - | - | 10 | - | - | ||||||||||||||||||
Total gross deposits | 30 | 49 | (39% | ) | 37 | 56 | (34% | ) | ||||||||||||||||
Weighted average rate | Closing rate as of | |||||||||||||||||||||||
Exchange rates |
December 31, | December 31, | ||||||||||||||||||||||
Per 1 EUR |
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||
GBP |
0.8103 | 0.8667 | 0.8111 | 0.8353 |
56 | Business overview Results of operations United Kingdom |
Results 2012 United Kingdom
Underlying earnings before tax from Aegons operations in the United Kingdom improved to GBP 73 million driven by lower expenses following the implementation of the cost reduction program in 2011 and the absence of charges and expenses related to the customer redress program in 2011. Aegon introduced a new platform to the market in 2012.
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Overview of United Kingdom
In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products, annuities, and savings products such as Individual Savings Accounts (ISAs). Aegon UK has some two million customers, approximately 2,400 employees, and GBP 57.3 billion in revenue-generating investments. Aegon UKs main offices are in Edinburgh and London.
58 | Business overview Results of operations United Kingdom |
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60 | Business overview Results of operations United Kingdom |
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62 | Business overview Results of operations New Markets |
Amounts in EUR millions | 2013 | 2012 | % | |||||||||
Net underlying earnings |
153 | 179 | (15%) | |||||||||
Tax on underlying earnings |
74 | 87 | (15%) | |||||||||
Underlying earnings before tax by product segment |
||||||||||||
Central & Eastern Europe |
57 | 84 | (32%) | |||||||||
Asia |
34 | 12 | 183% | |||||||||
Spain and France |
33 | 69 | (52%) | |||||||||
Variable Annuities Europe |
7 | - | - | |||||||||
Aegon Asset Management |
95 | 101 | (6%) | |||||||||
Underlying earnings before tax |
227 | 266 | (15%) | |||||||||
Net fair value items |
(21 | ) | (1 | ) | - | |||||||
Gains / (losses) on investments |
- | 10 | - | |||||||||
Impairment charges |
(16 | ) | (26 | ) | 38% | |||||||
Other income / (charges) |
(33 | ) | 113 | - | ||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
158 | 362 | (56%) | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
5 | 15 | (67%) | |||||||||
Income tax |
(31 | ) | (119 | ) | 74% | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(5 | ) | (15 | ) | 67% | |||||||
Net income |
127 | 243 | (48%) | |||||||||
Life insurance gross premiums |
1,349 | 1,374 | (2%) | |||||||||
Accident and health insurance premiums |
170 | 188 | (10%) | |||||||||
General insurance premiums |
194 | 144 | 35% | |||||||||
Total gross premiums |
1,713 | 1,706 | 0% | |||||||||
Investment income |
233 | 319 | (27%) | |||||||||
Fees and commission income |
583 | 524 | 11% | |||||||||
Other revenues |
2 | 3 | (33%) | |||||||||
Total revenues |
2,531 | 2,552 | (1%) | |||||||||
Commissions and expenses |
999 | 878 | 14% | |||||||||
of which operating expenses |
656 | 613 | 7% |
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New life sales Amounts in EUR millions |
2013 | 2012 | % | |||||||||
Central & Eastern Europe |
108 | 114 | (5%) | |||||||||
Asia |
67 | 53 | 26% | |||||||||
Spain and France |
54 | 86 | (37%) | |||||||||
Total recurring plus 1/10 single |
228 | 253 | (10%) | |||||||||
Amounts in EUR million |
2013 | 2012 | % | |||||||||
New premium production accident and health insurance |
43 | 42 | 2% | |||||||||
New premium production general insurance |
35 | 25 | 40% | |||||||||
Gross deposits (on and off balance) |
2013 | 2012 | % | |||||||||
Central & Eastern Europe |
248 | 316 | (22%) | |||||||||
Asia |
587 | 169 | - | |||||||||
Spain and France |
9 | 45 | (80%) | |||||||||
Variable Annuities Europe |
424 | 463 | (8%) | |||||||||
Aegon Asset Management |
13,018 | 9,916 | 31% | |||||||||
Total gross deposits |
14,287 | 10,909 | 31% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates Per 1 EUR |
2013 | 2012 | ||||||||||
US dollar |
1.3272 | 1.2849 | ||||||||||
Canadian dollar |
1.3674 | 1.2839 | ||||||||||
Pound sterling |
0.8484 | 0.8103 | ||||||||||
Czech koruna |
25.9238 | 25.1140 | ||||||||||
Hungarian florint |
296.3309 | 288.8606 | ||||||||||
Polish zloty |
4.1940 | 4.1809 | ||||||||||
Romanian leu |
4.4167 | 4.4548 | ||||||||||
Turkish Lira |
2.5305 | 2.3132 | ||||||||||
Chinese rin bin bi yuan |
8.1637 | 8.1377 |
64 | Business overview Results of operations New Markets |
Results 2013 New Markets
Net income in 2013 decreased to EUR 127 million as gains from divestments were more than offset by a write down of intangible assets in Poland following legislative changes and lower underlying earnings before tax as increases in underlying earnings before tax in Asia and Variable Annuities Europe were more than offset by decreases in Central & Eastern Europe, Spain and Aegon Asset Management.
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Results 2012 New Markets
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Net underlying earnings |
179 | 177 | 1% | |||||||||
Tax on underlying earnings |
87 | 63 | 38% | |||||||||
Underlying earnings before tax by product segment |
||||||||||||
Central & Eastern Europe |
84 | 93 | (10%) | |||||||||
Asia |
12 | (10 | ) | - | ||||||||
Spain and France |
69 | 88 | (22%) | |||||||||
Variable Annuities Europe |
- | 9 | - | |||||||||
Aegon Asset Management |
101 | 60 | 68% | |||||||||
Underlying earnings before tax |
266 | 240 | 11% | |||||||||
Net fair value items |
(1 | ) | (30 | ) | 97% | |||||||
Gains / (losses) on investments |
10 | 7 | 43% | |||||||||
Impairment charges |
(26 | ) | (61 | ) | 57% | |||||||
Other income / (charges) |
113 | 7 | - | |||||||||
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) |
362 | 163 | 122% | |||||||||
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
15 | 8 | 88% | |||||||||
Income tax |
(119 | ) | (59 | ) | (102%) | |||||||
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax |
(15 | ) | (8 | ) | (88%) | |||||||
Net income |
243 | 104 | 134% | |||||||||
Life insurance gross premiums |
1,374 | 1,600 | (14%) | |||||||||
Accident and health insurance premiums |
188 | 179 | 5% | |||||||||
General insurance premiums |
144 | 149 | (3%) | |||||||||
Total gross premiums |
1,706 | 1,928 | (12%) | |||||||||
Investment income |
319 | 320 | 0% | |||||||||
Fees and commission income |
524 | 469 | 12% | |||||||||
Other revenues |
3 | 1 | - | |||||||||
Total revenues |
2,552 | 2,718 | (6%) | |||||||||
Commissions and expenses |
878 | 834 | 5% | |||||||||
of which operating expenses |
613 | 578 | 6% | |||||||||
New life sales |
||||||||||||
Amounts in EUR millions | 2012 | 2011 | % | |||||||||
Central & Eastern Europe |
114 | 110 | 4% | |||||||||
Asia |
53 | 58 | (9%) | |||||||||
Spain and France |
86 | 143 | (40%) | |||||||||
Total recurring plus 1/10 single |
253 | 311 | (19%) | |||||||||
Amounts in EUR million | 2012 | 2011 | % | |||||||||
New premium production accident and health insurance |
42 | 34 | 24% | |||||||||
New premium production general insurance |
25 | 25 | - |
66 | Business overview Results of operations New Markets |
Gross deposits (on and off balance) | 2012 | 2011 | % | |||||||||
Central & Eastern Europe |
316 | 662 | (52%) | |||||||||
Asia |
169 | 59 | 186% | |||||||||
Spain and France |
45 | 61 | (26%) | |||||||||
Variable Annuities Europe |
463 | 530 | (13%) | |||||||||
Aegon Asset Management |
9,916 | 5,244 | 89% | |||||||||
Total gross deposits |
10,909 | 6,556 | 66% | |||||||||
Weighted average rate | ||||||||||||
Exchange rates |
||||||||||||
Per 1 EUR |
2012 | 2011 | ||||||||||
US dollar |
1.2849 | 1.3909 | ||||||||||
Canadian dollar |
1.2839 | 1.3744 | ||||||||||
Pound sterling |
0.8103 | 0.8667 | ||||||||||
Czech koruna |
25.1140 | 24.5636 | ||||||||||
Hungarian florint |
288.8606 | 278.9417 | ||||||||||
Polish zloty |
4.1809 | 4.1154 | ||||||||||
Romanian leu |
4.4548 | 4.2353 | ||||||||||
Turkish Lira |
2.3132 | 2.3333 | ||||||||||
Chinese rin bin bi yuan |
8.1377 | 9.0576 |
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Results 2012 New Markets
Aegons operations in New Markets reported higher underlying earnings before tax in 2012 as growth in Asset Management and Asia offset declines in Central & Eastern Europe and Spain due to new pension legislation in Poland and changes to Aegons joint venture partnerships in Spain.
68 | Business overview Results of operations CEE |
Overview of Central & Eastern Europe
Aegon has operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey, and Ukraine. Aegon first entered the Central & Eastern European market in 1992 with the purchase of a majority stake in Hungarys former state-owned insurance company, Állami Biztosító. Aegon Hungary is Aegons leading business in the region and a springboard for further expansion. Aegons regional expansion continued in 2013 with entry into the Ukrainian market.
1 | Source: www.knf.gov.pl. |
2 | Source: www.mabisz.hu. |
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1 | Sources: Polish Financial Supervision Authority, www.knf.gov.pl; the Association of Pension Fund Management Companies, Slovakia, www.adss.sk; Authority for Financial Supervision, http://asfro.ro/; The Central Bank of Hungary, https://felugyelet.mnb.hu. |
2 | Sources: Polish Financial Supervision Authority, www.knf.gov.pl; Authority for Financial Supervision, http://asfro.ro/; The Central Bank of Hungary, https:// felugyelet.mnb.hu. |
70 | Business overview Results of operations CEE |
1 | Source: www.mabisz.hu. |
2 | Source: www.mabisz.hu. |
3 | Source: www.mabisz.hu. |
4 | Source: www.knf.gov.pl. |
5 | Source: http://uainsur.com. |
6 | Source: The Central Bank of Hungary, https://felugyelet.mnb.hu. |
7 | Source: The Association of Pension Fund Management Companies, Slovakia, www.adss.sk. |
8 | Source: www.knf.gov.pl/. |
9 | Source: www.knf.gov.pl/. |
10 | Source: Authority for Financial Supervision, http://asfro.ro. |
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72 | Business overview Results of operations Asia |
Overview of Asia
Aegon Asia operates in the Asia region through three major joint ventures in China, India and Japan, and a network of wholly-owned subsidiaries.
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1 | Source: China Insurance Regulatory Commission (CIRC). |
74 | Business overview Results of operations Asia |
1 | Source: China Internet Network Information Centre as of June 2013. |
2 | Source: Monthly New Business Report from Insurance Regulatory and Development Authority (IRDA) / IRDA Annual Report 2012-2013. |
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76 | Business overview Results of operations Asia |
|
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78 | Business overview Results of operations Spain |
Overview of Spain
Aegon entered the Spanish market in 1980 with the purchase of local insurer Seguros Galicia. In recent years, Aegons activities in Spain have developed through distribution partnerships with Spanish banks.
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80 | Business overview Results of operations France |
Overview of France
Aegon is present in the French insurance market, the second largest in Europe, through a partnership agreement with AG2R La Mondiale.
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Overview of Variable Annuities Europe
Variable Annuities Europes legal entity is Aegon Ireland plc, located in Dublin. Its primary business line is variable annuities for Europe, active in the United Kingdom, Germany, France, and the Netherlands. In addition Aegon Ireland offers offshore bonds for the market in the United Kingdom.
82 | Business overview Overview of Variable Annuities Europe |
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83
Overview of Aegon Asset Management
Aegon Asset Management was formed in October 2009, and brings together Aegons asset management businesses from around the world. Aegon reports results from Aegon Asset Management through the New Markets reporting line.
84 | Business overview Overview of Aegon Asset Management |
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86 | Risk and capital management Risk management |
1 | Please note that the information here is intended as an overview only. A more detailed explanation of credit risk, equity and other investment risk, interest rate risk, currency exchange rate risk, liquidity risk, underwriting risk and operational risk, as well as other company-wide risk management policies may be found in note 4 of the consolidated financial statements. Further information on sensitivity analyses may also be found on these pages. |
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88 | Risk and capital management Capital and liquidity management |
Capital and liquidity management
|
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89
90 | Risk and capital management Capital and liquidity management |
Capital requirements | Legal/regulatory minimum capital requirement |
Actual capitalization | Excess over legal/ regulatory minimum | |||||
United States1) |
100% Authorized Control Level (NAIC RBC ACL) | ~880% of combined ACL | ~EUR 5.1 bln | |||||
The Netherlands2) |
100% Solvency I | ~240% Solvency I | ~EUR 2.3 bln | |||||
United Kingdom3) |
100% Solvency I (Pillar 1) | ~150% Solvency I (Pillar 1 | ) | ~EUR 0.7 bln |
1 | Capitalization for the United States represents the internally defined combined risk-based capital (RBC) ratio of Aegons life insurance subsidiaries in the United States. The combined RBC ratio unilizes the NAIC RBC ratio excluding affiliated notes and taking into account excess or deficient amounts related to offshore life affiliates. |
2 | Excluding the banking activities. |
3 | Including the With Profits fund at unaudited 30 June 2013 values. |
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Agency December 31, 2013 |
Aegon N.V. | Aegon USA | Aegon The Netherlands |
Aegon UK | ||||||||||||
Standard & Poors |
A- | AA- | AA- | A+ | ||||||||||||
Moodys Investors Service |
A3 | A1 | - | - | ||||||||||||
Fitch Ratings |
A | AA- | - | - |
92 | Risk and capital management In control statement |
Internal risk management and control systems
The Executive Board is responsible for designing, implementing and maintaining internal controls, including proper accounting records and other management information suitable for running the business.
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Report of the Supervisory Board
The Supervisory Board is entrusted with the task of supervising and advising the Executive Board on management of the company, and overseeing Aegons strategy and the general course of its businesses.
94 | Governance Report of the Supervisory Board |
Name | Regular SB meeting |
SB conference call |
Audit Committee |
Risk Committee |
Nominating Committee |
Compensation Committee |
||||||||||||||||||
Rob Routs |
7/7 | 6/6 | - | 6/6 | 6/6 | |||||||||||||||||||
Irv Bailey |
7/7 | 6/6 | - | 6/6 | - | 6/6 | ||||||||||||||||||
Antony Burgmans |
6/7 | 5/6 | 6/7 | - | - | |||||||||||||||||||
Shemaya Levy |
7/7 | 6/6 | 7/7 | - | 6/6 | |||||||||||||||||||
Karla Peijs1) |
5/5 | 5/5 | - | - | 4/4 | 4/4 | ||||||||||||||||||
Kees Storm |
6/7 | 6/6 | - | 5/6 | 5/6 | |||||||||||||||||||
Ben van der Veer |
6/7 | 6/6 | 7/7 | 6/6 | - | |||||||||||||||||||
Dick Verbeek |
7/7 | 6/6 | 7/7 | 6/6 | - | - | ||||||||||||||||||
Leo van Wijk |
7/7 | 5/6 | - | - | 6/6 | 6/6 | ||||||||||||||||||
Dona Young1) |
4/4 | 3/3 | 4/4 | 4/4 | - |
1 | Where a Supervisory Board member retired from the SB or stepped down from a Committee or was appointed during the year, only meetings that were held during his / her tenure are taken into account. |
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96 | Governance Report of the Supervisory Board
|
|
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97
98 | Governance Report of the Supervisory Board |
|
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99
Members of the Supervisory Board
100 | Governance Members of the Supervisory Board |
|
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101
Global Remuneration Principles
The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout the Aegon Group. They are applied regionally and/or locally.
102 | Governance Remuneration policy and report |
Base fee for membership of the Supervisory Board | EUR / year | |||
Chairman |
80,000 | |||
Vice-Chairman |
50,000 | |||
Member |
40,000 |
Fee for membership of a Supervisory Board committee | EUR / year | |||
Chairman of the Audit Committee |
13,000 | |||
Member of the Audit Committee |
8,000 | |||
Chairman of other committees |
10,000 | |||
Member of other committees |
5,000 |
1 | Members of the Compensation Committee are as follows: Leo M. van Wijk (Chair); Irving W. Bailey II; Robert J. Routs. |
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Attendance fees | EUR / year | |||
Extra Supervisory Board meeting |
3,000 | |||
Audit Committee |
3,000 | |||
Other committees |
2,000 |
in EUR | 2013 | 2012 | ||||||
Robert J. Routs |
169,400 | 109,250 | ||||||
Irving W. Bailey. II |
151,250 | 98,000 | ||||||
Antony Burgmans |
105,270 | 87,000 | ||||||
Shemaya Levy |
135,520 | 104,500 | ||||||
Kornelis J. Storm |
110,110 | 83,000 | ||||||
Ben van der Veer |
127,050 | 101,250 | ||||||
Dirk P.M. Verbeek |
127,050 | 101,250 | ||||||
Leo M. van Wijk |
117,370 | 86,250 | ||||||
Dona D. Young (as of May 15, 2013) |
93,321 | - | ||||||
Total for active members |
1,136,341 | 770,500 | ||||||
Karla M.H. Peijs (up to September 30, 2013) |
86,515 | 78,250 | ||||||
Total |
1,222,856 | 848,750 |
104 | Governance Remuneration policy and report |
|
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105
Variable compensation schedule
Objectives | Maximum % of variable compensation |
Performance indicator | ||||
Group financial IFRS based |
30% | Group underlying earnings after tax, return on equity | ||||
Group financial risk adjusted based |
30% |
Group market consistent value of new business 2013, group pre-tax return on required capital 2013 | ||||
Group sustainability |
15% | Objective measuring corporate responsibility | ||||
Personal objectives |
25% |
Individual basket of strategic and personal objectives related to Aegons strategy |
106 | Governance Remuneration policy and report |
1 | For complete disclosures on Executive Board Remuneration see pages 286 to 289. |
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Member | 2013 | 2012 | ||||||
Alexander R. Wynaendts CEO & Chairman EB |
1,049,156 | 1,049,156 | ||||||
Darryl D. Button CFO & Member EB1) |
474,789 | - | ||||||
Jan J. Nooitgedagt CFO & Member EB (retired)2) |
433,959 | 743,930 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board |
2 | Mr. Nooitgedagts fixed compensation is reflective of his time with Aegon till retirement as per August 1, 2013 |
3 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Conditional variable compensation is disclosed for the period that Mr. Button has been part of the Executive Board. |
4 | Mr. Nooitgedagts conditional variable compensation is reflective of his time with Aegon till retirement as per August 1, 2013. |
5 | Mr. Nooitgedagts variable compensation is paid out as follows. 40% equally split in cash (EUR 86,792) and shares (17,650) both vesting in 2014. The remaining part (60%, EUR 130,188 and 26,478 shares) will be split in thee equal parts and will vest in cash and shares in 2015, 2016 and 2017. The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt. |
108 | Governance Corporate governance |
Aegon is incorporated and based in the Netherlands. As a company established in the Netherlands, Aegon is to comply with the Dutch law and is subject to the Dutch Corporate Governance Code1.
1 | For further details on how Aegons corporate governance practices differ from those required of US companies under New York Stock Exchange standards, please refer to the NYSE Listing standards in the Governance section of Aegons website at aegon.com. |
2 | For more details, please see Major Shareholders on pages 307-309. |
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109
1 | For an overview of the members of the Executive Board and of the Management Board, please refer to pages 6 and 7. |
2 | For further information, please see here under for the description of special control rights. |
110 | Governance Corporate governance |
1 | The 1983 Merger Agreement, as amended in May 2013, is published on Aegons corporate website (aegon.com) |
2 | The Voting Rights Agreement is published on Aegons corporate website (aegon.com). |
3 | For more details, please refer to clause 14A of Aegons Articles of Association or clause 10.6 of the 1983 Amended Merger Agreement. |
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Supplemental Annual Report 2013 |
111
112 | Governance Differences between Dutch and US company laws |
US company laws
1 | As a result of a change in Dutch corporate law, with effect of 1 January 2013, new members of the Executive Board will not be employees of the company, but will enter into engagement agreements with the company regarding their position as member of the Executive Board. |
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114 | Governance Controls and procedures |
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116 |
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118 | Consolidated financial statements of Aegon N.V. |
Table of contents
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119
120 | Exchange rates |
Exchange rates at December 31, 2013
EUR | USD | GBP | CAD | CNY | PLN | RON | TRY | UAH | CZK | HUF | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3780 | 0.8320 | 1.4641 | 8.3420 | 4.1579 | 4.4640 | 2.9605 | 11.3543 | 27.3725 | 297.0751 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.726 | - | 0.604 | 1.062 | 6.054 | 3.017 | 3.239 | 2.148 | 8.240 | 19.864 | 215.584 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.202 | 1.656 | - | 1.760 | 10.026 | 4.997 | 5.365 | 3.558 | 13.647 | 32.900 | 357.061 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.683 | 0.941 | 0.568 | - | 5.698 | 2.840 | 3.049 | 2.022 | 7.755 | 18.696 | 202.906 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.120 | 0.165 | 0.100 | 0.176 | - | 0.498 | 0.535 | 0.355 | 1.361 | 3.281 | 35.612 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.241 | 0.331 | 0.200 | 0.352 | 2.006 | - | 1.074 | 0.712 | 2.731 | 6.583 | 71.448 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.224 | 0.309 | 0.186 | 0.328 | 1.869 | 0.931 | - | 0.663 | 2.544 | 6.132 | 66.549 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.338 | 0.465 | 0.281 | 0.495 | 2.818 | 1.404 | 1.508 | - | 3.835 | 9.246 | 100.346 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.088 | 0.121 | 0.073 | 0.129 | 0.735 | 0.366 | 0.393 | 0.261 | - | 2.411 | 26.164 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.653 | 5.034 | 3.040 | 5.349 | 30.476 | 15.190 | 16.308 | 10.816 | 41.481 | - | 1,085.305 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.337 | 0.464 | 0.280 | 0.493 | 2.808 | 1.400 | 1.503 | 0.997 | 3.822 | 9.214 | - |
Exchange rates at December 31, 2012
EUR | USD | GBP | CAD | CNY | PLN | RON | TRY | UAH | CZK | HUF | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3184 | 0.8111 | 1.3127 | 8.2140 | 4.0803 | 4.4455 | 2.3530 | 10.6131 | 25.0956 | 291.2151 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.758 | - | 0.615 | 0.996 | 6.230 | 3.095 | 3.372 | 1.785 | 8.050 | 19.035 | 220.885 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.233 | 1.625 | - | 1.618 | 10.127 | 5.031 | 5.481 | 2.901 | 13.085 | 30.940 | 359.037 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.762 | 1.004 | 0.618 | - | 6.257 | 3.108 | 3.387 | 1.792 | 8.085 | 19.118 | 221.844 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.122 | 0.161 | 0.099 | 0.160 | - | 0.497 | 0.541 | 0.286 | 1.292 | 3.055 | 35.454 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.245 | 0.323 | 0.199 | 0.322 | 2.013 | - | 1.090 | 0.577 | 2.601 | 6.150 | 71.371 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.225 | 0.297 | 0.182 | 0.295 | 1.848 | 0.918 | - | 0.529 | 2.387 | 5.645 | 65.508 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.425 | 0.560 | 0.345 | 0.558 | 3.491 | 1.734 | 1.889 | - | 4.510 | 10.665 | 123.763 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.094 | 0.124 | 0.076 | 0.124 | 0.774 | 0.384 | 0.419 | 0.222 | - | 2.365 | 27.439 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.985 | 5.254 | 3.232 | 5.231 | 32.731 | 16.259 | 17.714 | 9.376 | 42.291 | - | 1,160.423 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.343 | 0.453 | 0.279 | 0.451 | 2.821 | 1.401 | 1.527 | 0.808 | 3.644 | 8.618 | - |
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121
Weighted average exchange rates 2013
EUR | USD | GBP | CAD | CNY | PLN | RON | TRY | UAH | CZK | HUF | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3272 | 0.8484 | 1.3674 | 8.1637 | 4.1940 | 4.4167 | 2.5305 | 10.8249 | 25.9238 | 296.3309 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.753 | - | 0.639 | 1.030 | 6.151 | 3.160 | 3.328 | 1.907 | 8.156 | 19.533 | 223.275 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.179 | 1.564 | - | 1.612 | 9.622 | 4.943 | 5.206 | 2.983 | 12.759 | 30.556 | 349.282 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.731 | 0.971 | 0.620 | - | 5.970 | 3.067 | 3.230 | 1.851 | 7.916 | 18.958 | 216.711 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.122 | 0.163 | 0.104 | 0.167 | - | 0.514 | 0.541 | 0.310 | 1.326 | 3.175 | 36.299 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.238 | 0.316 | 0.202 | 0.326 | 1.947 | - | 1.053 | 0.603 | 2.581 | 6.181 | 70.656 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.226 | 0.300 | 0.192 | 0.310 | 1.848 | 0.950 | - | 0.573 | 2.451 | 5.869 | 67.093 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.395 | 0.524 | 0.335 | 0.540 | 3.226 | 1.657 | 1.745 | - | 4.278 | 10.245 | 117.104 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.092 | 0.123 | 0.078 | 0.126 | 0.754 | 0.387 | 0.408 | 0.234 | - | 2.395 | 27.375 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.857 | 5.120 | 3.273 | 5.275 | 31.491 | 16.178 | 17.037 | 9.761 | 41.757 | - | 1,143.084 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.337 | 0.448 | 0.286 | 0.461 | 2.755 | 1.415 | 1.490 | 0.854 | 3.653 | 8.748 | - |
Weighted average exchange rates 2012
EUR | USD | GBP | CAD | CNY | PLN | RON | TRY | UAH | CZK | HUF | ||||||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.2849 | 0.8103 | 1.2839 | 8.1377 | 4.1809 | 4.4548 | 2.3132 | 10.4363 | 25.1140 | 288.8606 | ||||||||||||||||||||||||||||||||||
1 |
USD | 0.778 | - | 0.631 | 0.999 | 6.333 | 3.254 | 3.467 | 1.800 | 8.122 | 19.545 | 224.812 | ||||||||||||||||||||||||||||||||||
1 |
GBP | 1.234 | 1.586 | - | 1.584 | 10.043 | 5.160 | 5.498 | 2.855 | 12.880 | 30.993 | 356.486 | ||||||||||||||||||||||||||||||||||
1 |
CAD | 0.779 | 1.001 | 0.631 | - | 6.338 | 3.256 | 3.470 | 1.802 | 8.129 | 19.561 | 224.987 | ||||||||||||||||||||||||||||||||||
1 |
CNY | 0.123 | 0.158 | 0.100 | 0.158 | - | 0.514 | 0.547 | 0.284 | 1.282 | 3.086 | 35.497 | ||||||||||||||||||||||||||||||||||
1 |
PLN | 0.239 | 0.307 | 0.194 | 0.307 | 1.946 | - | 1.066 | 0.553 | 2.496 | 6.007 | 69.091 | ||||||||||||||||||||||||||||||||||
1 |
RON | 0.224 | 0.288 | 0.182 | 0.288 | 1.827 | 0.939 | - | 0.519 | 2.343 | 5.638 | 64.843 | ||||||||||||||||||||||||||||||||||
1 |
TRY | 0.432 | 0.555 | 0.350 | 0.555 | 3.518 | 1.807 | 1.926 | - | 4.512 | 10.857 | 124.875 | ||||||||||||||||||||||||||||||||||
1 |
UAH | 0.096 | 0.123 | 0.078 | 0.123 | 0.780 | 0.401 | 0.427 | 0.222 | - | 2.406 | 27.678 | ||||||||||||||||||||||||||||||||||
100 |
CZK | 3.982 | 5.116 | 3.226 | 5.112 | 32.403 | 16.648 | 17.738 | 9.211 | 41.556 | - | 1,150.197 | ||||||||||||||||||||||||||||||||||
100 |
HUF | 0.346 | 0.445 | 0.281 | 0.444 | 2.817 | 1.447 | 1.542 | 0.801 | 3.613 | 8.694 | - |
Weighted average exchange rates 2011
EUR | USD | GBP | CAD | CNY | PLN | RON | TRY | CZK | HUF | |||||||||||||||||||||||||||||||||
1 |
EUR | - | 1.3909 | 0.8667 | 1.3744 | 9.0576 | 4.1154 | 4.2353 | 2.3333 | 24.5636 | 278.9417 | |||||||||||||||||||||||||||||||
1 |
USD | 0.719 | - | 0.623 | 0.988 | 6.512 | 2.959 | 3.045 | 1.678 | 17.660 | 200.548 | |||||||||||||||||||||||||||||||
1 |
GBP | 1.154 | 1.605 | - | 1.586 | 10.451 | 4.748 | 4.887 | 2.692 | 28.342 | 321.843 | |||||||||||||||||||||||||||||||
1 |
CAD | 0.728 | 1.012 | 0.631 | - | 6.590 | 2.994 | 3.082 | 1.698 | 17.872 | 202.955 | |||||||||||||||||||||||||||||||
1 |
CNY | 0.110 | 0.154 | 0.096 | 0.152 | - | 0.454 | 0.468 | 0.258 | 2.712 | 30.796 | |||||||||||||||||||||||||||||||
1 |
PLN | 0.243 | 0.338 | 0.211 | 0.334 | 2.201 | - | 1.029 | 0.567 | 5.969 | 67.780 | |||||||||||||||||||||||||||||||
1 |
RON | 0.236 | 0.328 | 0.205 | 0.325 | 2.139 | 0.972 | - | 0.551 | 5.800 | 65.861 | |||||||||||||||||||||||||||||||
1 |
TRY | 0.429 | 0.596 | 0.371 | 0.589 | 3.882 | 1.764 | 1.815 | - | 10.527 | 119.548 | |||||||||||||||||||||||||||||||
100 |
CZK | 4.071 | 5.662 | 3.528 | 5.595 | 36.874 | 16.754 | 17.242 | 9.499 | - | 1,135.590 | |||||||||||||||||||||||||||||||
100 |
HUF | 0.358 | 0.499 | 0.311 | 0.493 | 3.247 | 1.475 | 1.518 | 0.836 | 8.806 | - |
122 | Consolidated financial statements of Aegon N.V. |
Consolidated income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million (except per share data) | Note | 2013 2) | 2012 1), 2) | 2011 1), 2) | ||||||||||||
Premium income |
6 | 19,939 | 19,049 | 19,521 | ||||||||||||
Investment income |
7 | 7,909 | 8,413 | 8,167 | ||||||||||||
Fee and commission income |
8 | 1,950 | 1,856 | 1,465 | ||||||||||||
Other revenues |
6 | 9 | 6 | |||||||||||||
Total revenues |
29,805 | 29,327 | 29,159 | |||||||||||||
Income from reinsurance ceded |
9 | 2,838 | 4,096 | 2,775 | ||||||||||||
Results from financial transactions |
10 | 15,393 | 13,008 | (187 | ) | |||||||||||
Other income |
11 | 393 | 149 | 39 | ||||||||||||
Total income | 48,430 | 46,580 | 31,786 | |||||||||||||
Premiums to reinsurers |
6 | 3,108 | 3,702 | 3,407 | ||||||||||||
Policyholder claims and benefits |
12 | 37,688 | 34,475 | 20,107 | ||||||||||||
Profit sharing and rebates |
13 | 28 | 33 | 55 | ||||||||||||
Commissions and expenses |
14 | 5,656 | 5,610 | 6,176 | ||||||||||||
Impairment charges / (reversals) |
15 | 294 | 199 | 483 | ||||||||||||
Interest charges and related fees |
16 | 355 | 519 | 491 | ||||||||||||
Other charges |
17 | 134 | 52 | 69 | ||||||||||||
Total charges |
47,262 | 44,590 | 30,788 | |||||||||||||
Income before share in profit / (loss) of joint ventures, associates and tax |
1,168 | 1,990 | 998 | |||||||||||||
Share in profit / (loss) of joint ventures |
- | (13 | ) | - | ||||||||||||
Share in profit / (loss) of associates |
21 | 28 | 29 | |||||||||||||
Income / (loss) before tax |
1,189 | 2,005 | 1,027 | |||||||||||||
Income tax |
18 | (200 | ) | (372 | ) | (91 | ) | |||||||||
Net income / (loss) | 989 | 1,633 | 936 | |||||||||||||
Net income / (loss) attributable to: | ||||||||||||||||
Equity holders of Aegon N.V. |
986 | 1,632 | 933 | |||||||||||||
Non-controlling interests |
3 | 1 | 3 | |||||||||||||
Earnings per share (EUR per share) | 19 | |||||||||||||||
Basic earnings per common share |
0.36 | 0.72 | (0.03 | ) | ||||||||||||
Basic earnings per common share B |
0.01 | - | - | |||||||||||||
Diluted earnings per common share |
0.36 | 0.72 | (0.03 | ) | ||||||||||||
Diluted earnings per common share B |
0.01 | - | - |
1 | Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes. |
2 | Amounts for 2013, 2012 and 2011 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 for details about these changes. |
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Supplemental Annual Report 2013 |
123
Consolidated statement of comprehensive income of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2013 2) | 2012 1), 2) | 2011 1), 2) | |||||||||
Net income |
989 | 1,633 | 936 | |||||||||
Items that will not be reclassified to profit or loss: |
||||||||||||
Changes in revaluation reserve real estate held for own use |
(6 | ) | (5 | ) | 3 | |||||||
Remeasurements of defined benefit plans |
562 | (149 | ) | (583 | ) | |||||||
Income tax relating to items that will not be reclassified |
(201 | ) | 38 | 179 | ||||||||
Items that may be reclassified to profit or loss: |
||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
(3,376 | ) | 4,191 | 3,104 | ||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
(435 | ) | (465 | ) | (513 | ) | ||||||
Changes in cash flow hedging reserve |
(555 | ) | (86 | ) | 1,058 | |||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(727 | ) | (129 | ) | 341 | |||||||
Equity movements of joint ventures |
(4 | ) | 27 | - | ||||||||
Equity movements of associates |
54 | 22 | (18 | ) | ||||||||
Income tax relating to items that may be reclassified |
1,295 | (1,058 | ) | (1,162 | ) | |||||||
Other |
(6 | ) | (2 | ) | 4 | |||||||
Total other comprehensive income |
(3,398 | ) | 2,384 | 2,413 | ||||||||
Total comprehensive income | (2,409 | ) | 4,017 | 3,349 | ||||||||
Total comprehensive income attributable to: | ||||||||||||
Equity holders of Aegon N.V. |
(2,406 | ) | 4,018 | 3,346 | ||||||||
Non-controlling interests |
(3 | ) | (1 | ) | 3 |
1 | Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes. |
2 | Amounts for 2013, 2012 and 2011 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 for details about these changes. |
124 | Consolidated financial statements of Aegon N.V. |
Consolidated statement of financial position of Aegon N.V.
As at December 31
Amounts in EUR million | Note | 2013 2) | 2012 1), 2) | January 1, 2012 1), 2) |
||||||||||||
Assets |
||||||||||||||||
Intangible assets |
21 | 2,272 | 2,506 | 2,719 | ||||||||||||
Investments |
22 | 135,533 | 144,969 | 142,705 | ||||||||||||
Investments for account of policyholders |
23 | 165,032 | 152,968 | 141,663 | ||||||||||||
Derivatives |
24 | 13,531 | 21,134 | 15,478 | ||||||||||||
Investments in joint ventures |
25 | 1,426 | 1,567 | 1,223 | ||||||||||||
Investments in associates |
26 | 470 | 771 | 713 | ||||||||||||
Reinsurance assets |
28 | 10,344 | 11,966 | 11,511 | ||||||||||||
Defined benefit assets |
43 | 34 | 22 | 18 | ||||||||||||
Deferred tax assets |
45 | 164 | 320 | 320 | ||||||||||||
Deferred expenses |
29 | 10,006 | 9,627 | 9,434 | ||||||||||||
Other assets and receivables |
30 | 7,357 | 7,623 | 8,063 | ||||||||||||
Cash and cash equivalents |
31 | 5,691 | 9,590 | 7,995 | ||||||||||||
Total assets | 351,860 | 363,063 | 341,842 | |||||||||||||
Equity and liabilities |
||||||||||||||||
Shareholders equity |
32 | 17,694 | 21,037 | 17,423 | ||||||||||||
Other equity instruments |
34 | 5,015 | 5,018 | 4,720 | ||||||||||||
Issued capital and reserves attributable to equity holders of Aegon N.V. |
22,709 | 26,055 | 22,143 | |||||||||||||
Non-controlling interests |
10 | 13 | 14 | |||||||||||||
Group equity | 22,719 | 26,068 | 22,157 | |||||||||||||
Trust pass-through securities |
35 | 135 | 155 | 159 | ||||||||||||
Subordinated borrowings |
36 | 44 | 42 | - | ||||||||||||
Insurance contracts |
37 | 101,769 | 105,242 | 104,950 | ||||||||||||
Insurance contracts for account of policyholders |
38 | 84,311 | 76,169 | 72,559 | ||||||||||||
Investment contracts |
39 | 14,545 | 17,767 | 20,846 | ||||||||||||
Investment contracts for account of policyholders |
40 | 82,608 | 78,418 | 71,433 | ||||||||||||
Derivatives |
24 | 11,838 | 18,052 | 12,900 | ||||||||||||
Borrowings |
41 | 12,020 | 13,742 | 11,216 | ||||||||||||
Provisions |
42 | 182 | 330 | 444 | ||||||||||||
Defined benefit liabilities |
43 | 3,060 | 3,550 | 3,331 | ||||||||||||
Deferred revenue liabilities |
44 | 88 | 104 | 103 | ||||||||||||
Deferred tax liabilities |
45 | 1,657 | 2,501 | 1,133 | ||||||||||||
Other liabilities |
46 | 16,625 | 20,594 | 19,431 | ||||||||||||
Accruals |
47 | 259 | 329 | 1,180 | ||||||||||||
Total liabilities | 329,141 | 336,995 | 319,685 | |||||||||||||
Total equity and liabilities | 351,860 | 363,063 | 341,842 |
1 | Amounts for 2012 and January 1, 2012 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes. |
2 | Amounts for 2013, 2012 and 2011 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 for details about these changes. |
|
Supplemental Annual Report 2013 |
125
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2013
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revaluation reserves |
Remea- surement of defined benefit plans |
Other reserves |
Other equity instru- ments |
Issued capital and reserves 1) |
Non-con- trolling interests |
Total | ||||||||||||||||||||||||||||||
At January 1, 2013 (restated) 2) | 9,099 | 8,010 | 6,116 | (1,085) | (1,103) | 5,018 | 26,055 | 13 | 26,068 | |||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | 986 | - | - | - | - | 986 | 3 | 989 | |||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | (6 | ) | - | - | - | (6 | ) | - | (6 | ) | ||||||||||||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | - | 562 | - | - | 562 | - | 562 | |||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | 1 | (202 | ) | - | - | (201 | ) | - | (201 | ) | ||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | (3,376 | ) | - | - | - | (3,376 | ) | - | (3,376 | ) | ||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available- for-sale investments |
- | - | (435 | ) | - | - | - | (435 | ) | - | (435 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | (555 | ) | - | - | - | (555 | ) | - | (555 | ) | ||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | 19 | (746 | ) | - | (727 | ) | - | (727 | ) | ||||||||||||||||||||||||||||
Equity movements of joint ventures |
- | - | - | - | (4 | ) | - | (4 | ) | - | (4 | ) | ||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | 54 | - | 54 | - | 54 | |||||||||||||||||||||||||||||||
Disposal of group assets |
- | 3 | - | - | - | - | 3 | (3 | ) | - | ||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | - | 1,274 | - | 21 | - | 1,295 | - | 1,295 | |||||||||||||||||||||||||||||||
Transfer from / to other headings |
- | (3 | ) | 3 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other |
- | (4 | ) | - | - | - | - | (4 | ) | (2 | ) | (6 | ) | |||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
(4
|
)
|
|
(3,093
|
)
|
|
379
|
|
|
(675
|
)
|
|
-
|
|
|
(3,392
|
)
|
|
(5
|
)
|
|
(3,398
|
)
| |||||||||||||
Total comprehensive income / (loss) for 2013 | - | 982 | (3,093 | ) | 379 | (675 | ) | - | (2,406 | ) | (3 | ) | (2,409 | ) | ||||||||||||||||||||||||||
Shares issued and withdrawn |
2 | - | - | - | - | - | 2 | - | 2 | |||||||||||||||||||||||||||||||
Repurchased and sold own shares |
(400 | ) | (1 | ) | - | - | - | - | (401 | ) | - | (401 | ) | |||||||||||||||||||||||||||
Treasury shares |
- | (77 | ) | - | - | - | - | (77 | ) | - | (77 | ) | ||||||||||||||||||||||||||||
Dividends paid on common shares |
- | (240 | ) | - | - | - | - | (240 | ) | - | (240 | ) | ||||||||||||||||||||||||||||
Preferred dividend |
- | (83 | ) | - | - | - | - | (83 | ) | - | (83 | ) | ||||||||||||||||||||||||||||
Coupons on perpetual securities |
- | (146 | ) | - | - | - | - | (146 | ) | - | (146 | ) | ||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
- | (21 | ) | - | - | - | - | (21 | ) | - | (21 | ) | ||||||||||||||||||||||||||||
Share options and share-based incentive plans |
- | 30 | - | - | - | (3 | ) | 27 | - | 27 | ||||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||
At December 31, 2013 | 32, 33, 34 | 8,701 | 8,455 | 3,023 | (706 | ) | (1,778 | ) | 5,015 | 22,709 | 10 | 22,719 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
2 | Amounts for 2013, 2012 and 2011 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 for details about these changes. |
126 | Consolidated financial statements of Aegon N.V. |
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2012
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revaluation reserves |
Remea- surement of defined benefit plans |
Other reserves |
Other equity instru- ments |
Issued capital and reserves 1) |
Non-con- trolling |
Total | ||||||||||||||||||||||||||||||
At January 1, 2012 (restated) 2) | 9,097 | 6,931 | 3,499 | (979) | (1,003) | 4,720 | 22,265 | 14 | 22,279 | |||||||||||||||||||||||||||||||
Changes in accounting policies relating to IFRS 10 |
- | (122 | ) | - | - | - | - | (122 | ) | - | (122 | ) | ||||||||||||||||||||||||||||
Changes in accounting policies relating to IFRS 11 |
- | - | 17 | - | (17 | ) | - | - | - | - | ||||||||||||||||||||||||||||||
At January 1, 2012 (restated) | 9,097 | 6,809 | 3,516 | (979) | (1,020) | 4,720 | 22,143 | 14 | 22,157 | |||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | 1,632 | - | - | - | - | 1,632 | 1 | 1,633 | |||||||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | (5 | ) | - | - | - | (5 | ) | - | (5 | ) | ||||||||||||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | - | (149 | ) | - | - | (149 | ) | - | (149 | ) | ||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | 1 | 37 | - | - | 38 | - | 38 | |||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | 4,191 | - | - | - | 4,191 | - | 4,191 | |||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
- | - | (465 | ) | - | - | - | (465 | ) | - | (465 | ) | ||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | (86 | ) | - | - | - | (86 | ) | - | (86 | ) | ||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | 6 | (135 | ) | - | (129 | ) | - | (129 | ) | ||||||||||||||||||||||||||||
Equity movements of joint ventures |
- | - | - | - | 27 | - | 27 | - | 27 | |||||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | 22 | - | 22 | - | 22 | |||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | (6 | ) | (1,055 | ) | - | 3 | - | (1,058 | ) | - | (1,058 | ) | |||||||||||||||||||||||||||
Transfer from / to other headings |
- | (19 | ) | 19 | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | - | (2 | ) | (2 | ) | |||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
(25
|
)
|
|
2,600
|
|
|
(106
|
)
|
|
(83
|
)
|
|
-
|
|
|
2,386
|
|
|
(2
|
)
|
|
2,384
|
| |||||||||||||
Total comprehensive income / (loss) for 2012 | - | 1,607 | 2,600 | (106 | ) | (83 | ) | - | 4,018 | (1 | ) | 4,017 | ||||||||||||||||||||||||||||
Shares issued and withdrawn |
2 | - | - | - | - | - | 2 | - | 2 | |||||||||||||||||||||||||||||||
Treasury shares |
- | 3 | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||||||||||||
Dividends paid on common shares |
- | (148 | ) | - | - | - | - | (148 | ) | - | (148 | ) | ||||||||||||||||||||||||||||
Preferred dividend |
- | (59 | ) | - | - | - | - | (59 | ) | - | (59 | ) | ||||||||||||||||||||||||||||
Coupons on perpetual securities |
- | (172 | ) | - | - | - | - | (172 | ) | - | (172 | ) | ||||||||||||||||||||||||||||
Issuance of non-cumulative subordinated notes |
- | - | - | - | - | 271 | 271 | - | 271 | |||||||||||||||||||||||||||||||
Coupons on non-cumulative subordinated notes |
- | (23 | ) | - | - | - | - | (23 | ) | - | (23 | ) | ||||||||||||||||||||||||||||
Cost of issuance of non-cumulative subordinated notes (net of tax) |
- | (10 | ) | - | - | - | - | (10 | ) | - | (10 | ) | ||||||||||||||||||||||||||||
Dividend withholding tax reduction |
- | 3 | - | - | - | - | 3 | - | 3 | |||||||||||||||||||||||||||||||
Share options and share-based incentive plans |
- | - | - | - | - | 27 | 27 | - | 27 | |||||||||||||||||||||||||||||||
At December 31, 2012 | 32, 33, 34 | 9,099 | 8,010 | 6,116 | (1,085 | ) | (1,103 | ) | 5,018 | 26,055 | 13 | 26,068 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
2 | Amounts have been restated for the changes in accounting policy IAS 19 and the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2 for details about these changes. |
|
Supplemental Annual Report 2013 |
127
Consolidated statement of changes in equity of Aegon N.V.
For the year ended December 31, 2011
Amounts in EUR million | Note | Share capital |
Retained earnings |
Revaluation reserves |
Remea- surement of defined benefit plans |
Other reserves |
Convertible core capital securities |
Other equity instru- ments |
Issued capital and reserves 1) |
Non-con- trolling |
Total | |||||||||||||||||||||||||||||||||
At January 1, 2011 (as previously stated) | 8,184 | 9,529 | 958 | - | (1,343) | 1,500 | 4,704 | 23,532 | 11 | 23,543 | ||||||||||||||||||||||||||||||||||
Changes in accounting policies relating to IAS 19 |
- | - | - | (547 | ) | - | - | - | (547 | ) | - | (547 | ) | |||||||||||||||||||||||||||||||
Changes in accounting policies relating to Deferred policy acquisition costs |
- | (1,354 | ) | 40 | - | - | - | - | (1,314 | ) | - | (1,314 | ) | |||||||||||||||||||||||||||||||
Changes in accounting policies relating to Policy longevity methodology |
- | (1,182 | ) | - | - | - | - | - | (1,182 | ) | - | (1,182 | ) | |||||||||||||||||||||||||||||||
At January 1, 2011 (restated) | 8,184 | 6,993 | 998 | (547) | (1,343) | 1,500 | 4,704 | 20,489 | 11 | 20,500 | ||||||||||||||||||||||||||||||||||
Net income / (loss) recognized in the income statement |
- | 933 | - | - | - | - | - | 933 | 3 | 936 | ||||||||||||||||||||||||||||||||||
Other comprehensive income: |
||||||||||||||||||||||||||||||||||||||||||||
Items that will not be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
- | - | 3 | - | - | - | - | 3 | - | 3 | ||||||||||||||||||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | - | (583 | ) | - | - | - | (583 | ) | - | (583 | ) | |||||||||||||||||||||||||||||||
Income tax relating to items that will not be reclassified |
- | - | (1 | ) | 180 | - | - | - | 179 | - | 179 | |||||||||||||||||||||||||||||||||
Items that may be reclassified subsequently to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
- | - | 3,104 | - | - | - | - | 3,104 | - | 3,104 | ||||||||||||||||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
- | - | (513 | ) | - | - | - | - | (513 | ) | - | (513 | ) | |||||||||||||||||||||||||||||||
Changes in cash flow hedging reserve |
- | - | 1,058 | - | - | - | - | 1,058 | - | 1,058 | ||||||||||||||||||||||||||||||||||
Movements in foreign currency translation and net foreign investment hedging reserves |
- | - | - | (29 | ) | 370 | - | - | 341 | - | 341 | |||||||||||||||||||||||||||||||||
Equity movements of associates |
- | - | - | - | (18 | ) | - | - | (18 | ) | - | (18 | ) | |||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
- | - | (1,150 | ) | - | (12 | ) | - | - | (1,162 | ) | - | (1,162 | ) | ||||||||||||||||||||||||||||||
Other |
- | 4 | - | - | - | - | - | 4 | - | 4 | ||||||||||||||||||||||||||||||||||
Total other comprehensive income / (loss)
|
|
-
|
|
|
4
|
|
|
2,501
|
|
|
(432
|
)
|
|
340
|
|
|
-
|
|
|
-
|
|
|
2,413
|
|
|
-
|
|
|
2,413
|
| ||||||||||||||
Total comprehensive income / (loss) for 2011 | - | 937 | 2,501 | (432 | ) | 340 | - | - | 3,346 | 3 | 3,349 | |||||||||||||||||||||||||||||||||
Shares issued and withdrawn |
913 | - | - | - | - | - | - | 913 | - | 913 | ||||||||||||||||||||||||||||||||||
Repurchase of convertible core capital securities |
- | - | - | - | - | (1,500 | ) | - | (1,500 | ) | - | (1,500 | ) | |||||||||||||||||||||||||||||||
Preferred dividend |
- | (59 | ) | - | - | - | - | - | (59 | ) | - | (59 | ) | |||||||||||||||||||||||||||||||
Coupons on perpetual securities |
- | (177 | ) | - | - | - | - | - | (177 | ) | - | (177 | ) | |||||||||||||||||||||||||||||||
Coupons and premiums on convertible core capital securities |
- | (750 | ) | - | - | - | - | - | (750 | ) | - | (750 | ) | |||||||||||||||||||||||||||||||
Share options and share-based incentive plans |
- | - | - | - | - | - | 16 | 16 | - | 16 | ||||||||||||||||||||||||||||||||||
Other |
- | (13 | ) | - | - | - | - | - | (13 | ) | - | (13 | ) | |||||||||||||||||||||||||||||||
At December 31, 2011 | 32, 33, 34 | 9,097 | 6,931 | 3,499 | (979 | ) | (1,003 | ) | - | 4,720 | 22,265 | 14 | 22,279 |
1 | Issued capital and reserves attributable to equity holders of Aegon N.V. |
128 | Consolidated financial statements of Aegon N.V. |
Consolidated cash flow statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | Note | 2013 4) | 2012 3), 4) | 2011 3), 4) | ||||||||||||
Income / (loss) before tax |
1,189 | 2,005 | 1,027 | |||||||||||||
Results from financial transactions |
(16,219 | ) | (12,903 | ) | 187 | |||||||||||
Amortization and depreciation |
1,011 | 1,239 | 1,433 | |||||||||||||
Impairment losses |
322 | 198 | 483 | |||||||||||||
Income from joint ventures |
- | 13 | - | |||||||||||||
Income from associates |
(21 | ) | (26 | ) | (29 | ) | ||||||||||
Release of cash flow hedging reserve |
(26 | ) | (62 | ) | (18 | ) | ||||||||||
Remeasurements of defined benefit plans |
562 | (149 | ) | (583 | ) | |||||||||||
Other |
(146 | ) | (175 | ) | (138 | ) | ||||||||||
Adjustments of non-cash items |
(14,517 | ) | (11,865 | ) | 1,335 | |||||||||||
Insurance and investment liabilities |
(679 | ) | (3,418 | ) | (5,068 | ) | ||||||||||
Insurance and investment liabilities for account of policyholders |
18,787 | 10,801 | (154 | ) | ||||||||||||
Accrued expenses and other liabilities |
(2,509 | ) | 550 | 140 | ||||||||||||
Accrued income and prepayments |
(927 | ) | (1,501 | ) | (1,203 | ) | ||||||||||
Changes in accruals |
14,672 | 6,432 | (6,285 | ) | ||||||||||||
Purchase of investments (other than money market investments) |
(34,100 | ) | (32,018 | ) | (29,612 | ) | ||||||||||
Purchase of derivatives |
(850 | ) | (1,528 | ) | (1,350 | ) | ||||||||||
Disposal of investments (other than money market investments) |
31,176 | 33,742 | 34,924 | |||||||||||||
Disposal of derivatives |
182 | 507 | 1,599 | |||||||||||||
Net purchase of investments for account of policyholders |
(1,395 | ) | 1,197 | (1,577 | ) | |||||||||||
Net change in cash collateral |
(1,414 | ) | (177 | ) | 2,180 | |||||||||||
Net purchase of money market investments |
3,502 | 556 | 445 | |||||||||||||
Cash flow movements on operating items not reflected in income |
(2,899 | ) | 2,279 | 6,609 | ||||||||||||
Tax paid |
(164 | ) | 133 | (375 | ) | |||||||||||
Other |
(9 | ) | 19 | (45 | ) | |||||||||||
Net cash flows from operating activities | (1,730 | ) | (997 | ) | 2,266 | |||||||||||
Purchase of individual intangible assets (other than VOBA and future servicing rights) |
(22 | ) | (36 | ) | (18 | ) | ||||||||||
Purchase of equipment and real estate for own use |
(66 | ) | (63 | ) | (72 | ) | ||||||||||
Acquisition of subsidiaries, joint ventures and associates, net of cash |
(291 | ) | (23 | ) | (99 | ) | ||||||||||
Disposal of intangible asset |
- | - | 1 | |||||||||||||
Disposal of equipment |
15 | 10 | 18 | |||||||||||||
Disposal of subsidiaries, joint ventures and associates, net of cash |
811 | 276 | 823 | |||||||||||||
Dividend received from joint ventures and associates |
64 | 72 | 3 | |||||||||||||
Other |
5 | 1 | (3 | ) | ||||||||||||
Net cash flows from investing activities | 516 | 237 | 653 | |||||||||||||
Issuance of share capital |
2 | 2 | 913 | |||||||||||||
Issuance and purchase of treasury shares |
(92 | ) | - | - | ||||||||||||
Issuance of non-cumulative subordinated notes |
- | 271 | - | |||||||||||||
Proceeds from TRUPS 1), subordinated loans and borrowings |
2,011 | 6,453 | 5,627 | |||||||||||||
Repurchase of convertible core capital securities |
- | - | (1,500 | ) | ||||||||||||
Repayment of share premium |
(401 | ) | - | - | ||||||||||||
Repayment of TRUPS 1), subordinated loans and borrowings |
(3,519 | ) | (3,737 | ) | (4,342 | ) | ||||||||||
Dividends paid |
(323 | ) | (207 | ) | (59 | ) | ||||||||||
Coupons and premium on convertible core capital securities |
- | - | (750 | ) | ||||||||||||
Coupons on perpetual securities |
(194 | ) | (230 | ) | (237 | ) | ||||||||||
Coupons on non-cumulative subordinated notes |
(28 | ) | (30 | ) | - | |||||||||||
Other |
(8 | ) | (11 | ) | (26 | ) | ||||||||||
Net cash flows from financing activities | (2,552 | ) | 2,511 | (374 | ) | |||||||||||
Net increase / (decrease) in cash and cash equivalents 2) | (3,766 | ) | 1,751 | 2,545 | ||||||||||||
Net cash and cash equivalents at the beginning of the year |
9,497 | 7,717 | 5,174 | |||||||||||||
Effects of changes in exchange rate |
(79 | ) | 29 | 107 | ||||||||||||
Net cash and cash equivalents at the end of the year | 31 | 5,652 | 9,497 | 7,826 |
1 | Trust pass-through securities. |
2 | Included in net increase / (decrease) in cash and cash equivalents are interest received (2013: EUR 6,731 million, 2012: EUR 8,091 million, 2011 and EUR 7,407 million) dividends received (2013: EUR 1,021 million, 2012: EUR 1,069 million, and 2011: EUR 760 million) and interest paid (2013: EUR 347 million, 2012: EUR 1,261 million and 2011: EUR 273 million). |
3 | Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes. |
4 | Amounts for 2013, 2012 and 2011 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 for details about these changes. |
The cash flow statement is prepared according to the indirect method.
|
Supplemental Annual Report 2013 |
129
Notes to the consolidated financial statements
Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Aegon N.V. (or The company) and its subsidiaries (Aegon or The Group) have life insurance and pensions operations in over twenty countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs nearly 27,000 people worldwide (2012: 26,500).
2 Summary of significant accounting policies
2.1 Basis of presentation
Aegon prepares its consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS) and with Part 9 of Book 2 of the Netherlands Civil Code for purposes of reporting with the U.S. Securities and Exchange Commission (SEC), including financial information contained in this Supplemental Annual Report.
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2013 is provided below in note 2.1.1. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount. Certain amounts in prior years have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders equity or earnings per share.
With regard to the income statements of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters.
The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on March 19, 2014. The financial statements are put to the Annual General Meeting of Shareholders on May 21, 2014 for adoption. The shareholders meeting can decide not to adopt the financial statements but cannot amend them.
Other than for SEC reporting, Aegon prepares its Annual Accounts under International Financial Reporting Standards as adopted by the European Union, including the decisions Aegon made with regard to the options available under International Financial Reporting Standards as adopted by the EU (IFRS-EU). IFRS-EU differs from IFRS in respect of certain paragraphs in IAS 39 Financial Instruments: Recognition and Measurement regarding hedge accounting for portfolio hedges of interest rate risk. Under IFRS-EU, Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (fair value macro hedges) in accordance with the EU carve out version of IAS 39. Under IFRS, hedge accounting for fair value macro hedges cannot be applied to mortgage loans and ineffectiveness arises whenever the revised estimate of the amount of cash flows in scheduled time buckets is either more or less than the original designated amount of that bucket.
130 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
A reconciliation between IFRS and IFRS-EU is included in the table below.
Shareholders equity | Net income | |||||||||||||||||||||||
2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||||||||||||
In accordance with IFRS |
17,694 | 21,037 | 17,545 | 989 | 1,633 | 936 | ||||||||||||||||||
Adjustment of EU IAS 39 carve out |
(124 | ) | 52 | - | (176 | ) | 52 | - | ||||||||||||||||
Tax effect of the adjustment |
31 | (13 | ) | - | 44 | (13 | ) | - | ||||||||||||||||
Effect of the adjustment after tax |
(93 | ) | 39 | - | (132 | ) | 39 | - | ||||||||||||||||
In accordance with IFRS-EU | 17,601 | 21,076 | 17,545 | 857 | 1,672 | 936 |
2.1.1 Adoption of new IFRS accounting standards
Aegon adopted new and amended standards that require restatement of previous financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 19 Employee Benefits and IAS 1 Presentation of Financial Statements. Application of IFRS 13 Fair Value Measurement is required prospectively as of the beginning of the annual reporting period.
The nature and the impact of each new standard/amendment that has been applied for the first time in 2013 is described below:
IFRS 7 Financial Instruments: Disclosures Offsetting Financial Assets and Financial Liabilities
The amendments to IFRS 7 enable users of the financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entitys recognized financial assets and recognized financial liabilities, on the entitys financial position. The amendment affects disclosure only and is included in note 53.
IFRS 10 Consolidated Financial Statements
IFRS 10 replaces all the guidance on control and consolidation in IAS 27, Consolidated and Separate Financial Statements, and SIC-12, Consolidation Special Purpose Entities. The application of this new standard impacted the financial position of Aegon by consolidating one securitization vehicle that was previously not consolidated. In addition, for several investment funds the consolidation conclusion has been evaluated which resulted in changes compared to previous years (note 3). The impact of the adoption of IFRS 10 on the financial position of Aegon is described in note 2.1.2. For the corresponding accounting policy refer to note 2.2.
IFRS 11 Joint Arrangements
IFRS 11 replaces IAS 31, Interests in Joint Ventures and SIC-13, Jointly-Controlled Entities Non-Monetary Contributions by Venturers. IFRS 11 removes the option to account for joint arrangements using proportionate consolidation. Instead, joint arrangements that meet the definition of a joint venture under IFRS 11 must be accounted for using the equity method. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Therefore Aegon has changed its accounting treatment for joint ventures from proportionate consolidation to equity accounting. The impact of the adoption of IFRS 11 on the financial position of Aegon is described in note 2.1.2. For the corresponding accounting policy refer to note 2.10.
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 provides disclosure requirements on interests in subsidiaries, associates, joint ventures, and structured entities. This standard affects disclosure only and has therefore no impact on Aegons financial position or performance. Aegon has included the required disclosures in notes 4, 25, 26 and 27. In accordance with the transitional provisions of IFRS 12, comparatives for disclosures regarding unconsolidated structured entities are not presented.
IFRS 13 Fair Value Measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The application of IFRS 13 has not impacted the fair value measurements carried out by the Group, which is described in note 3. IFRS 13 requires specific disclosures on fair values, some of which replace existing disclosure requirements in other standards, including IFRS 7 Financial Instruments: Disclosures. In accordance with the transitional provisions of IFRS 13, comparatives are not presented. Aegon provides these disclosures in note 3.
|
Supplemental Annual Report 2013 |
131
IAS 1 Financial Statement Presentation Presentation of Items of Other Comprehensive Income
The amendments require the grouping of items within other comprehensive income that may be reclassified to the profit or loss section of the income statement. The amendments also reaffirm existing requirements that items in other comprehensive income and profit or loss should be presented as either a single statement or two consecutive statements. The amendment affects presentation only and changes are included in the statement of comprehensive income as Aegon presents two consecutive statements.
IAS 19 Employee Benefits
The revised standard eliminates the option to defer the recognition of actuarial gains and losses, known as the corridor method. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income, to immediately recognize all past service costs and to replace interest cost and expected return on plan assets with a net interest amount that is calculated by applying the discount rate to the net defined benefit liability (asset). Aegon has used the corridor method in previous years, therefore upon adoption of IAS 19 the actuarial gains and losses are recognized and included in the defined benefit plan. Further details on the impact of the adoption of the revised IAS 19 on the financial position of Aegon are described in note 2.1.2. For the corresponding accounting policy refer to note 2.22.
In addition, the following new standards, amendments to existing standards and interpretations are mandatory for the first time for the financial year beginning January 1, 2013, but are not currently relevant or do not significantly impact the financial position or financial statements:
¿ | Annual improvements 2009-2011 Cycle; |
¿ | IFRS 1 First Time Adoption - Government Loans; |
¿ | IAS 27 Separate Financial Statements; |
¿ | IAS 28 Investments in Associates and Joint Ventures; and |
¿ | IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine. |
132 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
2.1.2 Impact of mandatory changes in accounting policies on the financial position
Impact of mandatory changes in accounting policies on the consolidated income statement
2012 (previously reported) |
Change in accounting policy |
2012 1) | 2011 (previously reported) |
Change in accounting policy |
2011 1) | |||||||||||||||||||||||
IFRS 10/11 | IAS 19 | IAS 19 | ||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated income statement | ||||||||||||||||||||||||||||
Premium income |
19,526 | (477 | ) | - | 19,049 | 19,521 | - | 19,521 | ||||||||||||||||||||
Investment income |
8,501 | (88 | ) | - | 8,413 | 8,167 | - | 8,167 | ||||||||||||||||||||
Fee and commission income |
1,900 | (44 | ) | - | 1,856 | 1,465 | - | 1,465 | ||||||||||||||||||||
Other revenues |
10 | (1 | ) | - | 9 | 6 | - | 6 | ||||||||||||||||||||
Total revenues |
29,937 | (610 | ) | - | 29,327 | 29,159 | - | 29,159 | ||||||||||||||||||||
Income from reinsurance ceded |
4,128 | (32 | ) | - | 4,096 | 2,775 | - | 2,775 | ||||||||||||||||||||
Results from financial transactions |
12,996 | 12 | - | 13,008 | (187 | ) | - | (187 | ) | |||||||||||||||||||
Other income |
151 | (2 | ) | - | 149 | 39 | - | 39 | ||||||||||||||||||||
Total income | 47,212 | (632 | ) | - | 46,580 | 31,786 | - | 31,786 | ||||||||||||||||||||
Premiums to reinsurers |
3,735 | (33 | ) | - | 3,702 | 3,407 | - | 3,407 | ||||||||||||||||||||
Policyholder claims and benefits |
35,155 | (490 | ) | - | 34,665 | 20,230 | - | 20,230 | ||||||||||||||||||||
Profit sharing and rebates |
34 | (1 | ) | - | 33 | 55 | - | 55 | ||||||||||||||||||||
Commissions and expenses |
5,736 | (112 | ) | (65 | ) | 5,559 | 6,164 | (22 | ) | 6,142 | ||||||||||||||||||
Impairment charges / (reversals) |
206 | (7 | ) | - | 199 | 483 | - | 483 | ||||||||||||||||||||
Interest charges and related fees |
467 | 52 | - | 519 | 491 | - | 491 | |||||||||||||||||||||
Other charges |
53 | (1 | ) | - | 52 | 69 | - | 69 | ||||||||||||||||||||
Total charges | 45,386 | (592 | ) | (65 | ) | 44,729 | 30,899 | (22 | ) | 30,877 | ||||||||||||||||||
Income before share in profit / (loss) of joint ventures, associates and tax | 1,826 | (40 | ) | 65 | 1,851 | 887 | 22 | 909 | ||||||||||||||||||||
Share in net result of joint ventures |
- | (13 | ) | - | (13 | ) | - | - | - | |||||||||||||||||||
Share in net result of associates |
26 | 2 | - | 28 | 29 | - | 29 | |||||||||||||||||||||
Income before tax |
1,852 | (51 | ) | 65 | 1,866 | 916 | 22 | 938 | ||||||||||||||||||||
Income tax (expense) / benefit |
(320 | ) | 19 | (22 | ) | (323 | ) | (44 | ) | (7 | ) | (51 | ) | |||||||||||||||
Net income | 1,532 | (32 | ) | 43 | 1,543 | 872 | 15 | 887 | ||||||||||||||||||||
Net income attributable to: | ||||||||||||||||||||||||||||
Equity holders of Aegon N.V. |
1,531 | (32 | ) | 43 | 1,542 | 869 | 15 | 884 | ||||||||||||||||||||
Non-controlling interests |
1 | - | - | 1 | 3 | - | 3 | |||||||||||||||||||||
Earnings per share (EUR per share) | ||||||||||||||||||||||||||||
Basic earnings per share |
0.67 | (0.01 | ) | 0.02 | 0.68 | (0.06 | ) | 0.01 | (0.05 | ) | ||||||||||||||||||
Diluted earnings per share |
0.67 | (0.01 | ) | 0.02 | 0.68 | (0.06 | ) | 0.01 | (0.05 | ) | ||||||||||||||||||
Earnings per common share calculation | ||||||||||||||||||||||||||||
Net income attributable to equity holders of Aegon N.V. |
1,531 | (32 | ) | 43 | 1,542 | 869 | 15 | 884 | ||||||||||||||||||||
Preferred dividend |
(59 | ) | - | - | (59 | ) | (59 | ) | - | (59 | ) | |||||||||||||||||
Coupons on other equity instruments |
(195 | ) | - | - | (195 | ) | (177 | ) | - | (177 | ) | |||||||||||||||||
Coupons and premium on convertible core capital securities |
(750 | ) | - | (750 | ) | |||||||||||||||||||||||
Earnings attributable to common shareholders |
1,277 | (32 | ) | 43 | 1,288 | (117 | ) | 15 | (102 | ) | ||||||||||||||||||
Weighted average number of common shares outstanding (in million) |
1,907 | - | - | 1,907 | 1,852 | - | 1,852 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
|
Supplemental Annual Report 2013 |
133
Impact of mandatory changes in accounting policies on the consolidated statement of comprehensive income
2012 (previously reported) |
Change in accounting policy |
2012 1) | 2011 (previously reported) |
Change in accounting policy |
2011 1) | |||||||||||||||||||||||
IFRS 10/11 | IAS 19 | IAS 19 | ||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated statement of comprehensive income | ||||||||||||||||||||||||||||
Net income |
1,532 | (32 | ) | 43 | 1,543 | 872 | 15 | 887 | ||||||||||||||||||||
Items that will not be reclassified to profit or loss: |
||||||||||||||||||||||||||||
Changes in revaluation reserve real estate held for own use |
(5 | ) | - | - | (5 | ) | 3 | - | 3 | |||||||||||||||||||
Remeasurements of defined benefit plans |
- | - | (149 | ) | (149 | ) | - | (583 | ) | (583 | ) | |||||||||||||||||
Income tax relating to items that will not be reclassified |
1 | - | 37 | 38 | - | 179 | 179 | |||||||||||||||||||||
Items that may be reclassified to profit or loss: |
||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
4,221 | (45 | ) | - | 4,176 | 3,113 | - | 3,113 | ||||||||||||||||||||
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments |
(465 | ) | - | - | (465 | ) | (513 | ) | - | (513 | ) | |||||||||||||||||
Changes in cash flow hedging reserve |
(92 | ) | 6 | - | (86 | ) | 1,058 | - | 1,058 | |||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(116 | ) | - | 6 | (110 | ) | 409 | (29 | ) | 380 | ||||||||||||||||||
Equity movements of joint ventures |
- | 27 | - | 27 | - | - | - | |||||||||||||||||||||
Equity movements of associates |
22 | - | - | 22 | (18 | ) | - | (18 | ) | |||||||||||||||||||
Income tax relating to items that may be reclassified |
(1,064 | ) | 13 | - | (1,051 | ) | (1,167 | ) | 1 | (1,166 | ) | |||||||||||||||||
Other comprehensive income for the period |
(1 | ) | (1 | ) | - | (2 | ) | 4 | - | 4 | ||||||||||||||||||
Total other comprehensive income for the period | 2,501 | - | (106 | ) | 2,395 | 2,889 | (432 | ) | 2,457 | |||||||||||||||||||
Total comprehensive income | 4,033 | (32 | ) | (63 | ) | 3,938 | 3,761 | (417 | ) | 3,344 | ||||||||||||||||||
Total comprehensive income attributable to: |
||||||||||||||||||||||||||||
Equity holders of Aegon N.V. |
4,034 | (32 | ) | (63 | ) | 3,939 | 3,758 | (417 | ) | 3,341 | ||||||||||||||||||
Non-controlling interests |
(1 | ) | - | - | (1 | ) | 3 | - | 3 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
134 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
Impact of mandatory changes in accounting policies on the consolidated statement of financial position
December 31, 2012 (previously reported) |
Change in accounting policy |
December 31, 2012 1) |
January 1, 2012 (previously reported) |
Change in accounting policy |
January 1, 2012 1) |
|||||||||||||||||||||||||||
IFRS 10/11 | IAS 19 | IFRS 10/11 | IAS 19 | |||||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated statement of financial position | ||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||
Intangible assets |
2,948 | (463 | ) | - | 2,485 | 3,285 | (590 | ) | - | 2,695 | ||||||||||||||||||||||
Investments |
146,182 | (1,213 | ) | - | 144,969 | 144,079 | (1,374 | ) | - | 142,705 | ||||||||||||||||||||||
Investments for account of policyholders |
153,670 | (702 | ) | - | 152,968 | 142,529 | (866 | ) | - | 141,663 | ||||||||||||||||||||||
Derivatives |
21,154 | (20 | ) | 21,134 | 15,504 | (26 | ) | - | 15,478 | |||||||||||||||||||||||
Investments in joint ventures |
- | 1,568 | - | 1,568 | - | 1,224 | - | 1,224 | ||||||||||||||||||||||||
Investments in associates |
829 | (58 | ) | - | 771 | 742 | (29 | ) | - | 713 | ||||||||||||||||||||||
Reinsurance assets |
11,987 | (22 | ) | - | 11,965 | 11,517 | (7 | ) | - | 11,510 | ||||||||||||||||||||||
Defined benefit assets |
201 | - | (179 | ) | 22 | 303 | - | (285 | ) | 18 | ||||||||||||||||||||||
Deferred tax assets |
33 | 60 | - | 93 | 89 | 229 | - | 318 | ||||||||||||||||||||||||
Deferred expenses |
11,687 | (43 | ) | - | 11,644 | 11,432 | (38 | ) | - | 11,394 | ||||||||||||||||||||||
Other assets and receivables |
7,722 | (99 | ) | - | 7,623 | 7,792 | 271 | - | 8,063 | |||||||||||||||||||||||
Cash and cash equivalents |
9,653 | (63 | ) | - | 9,590 | 8,104 | (109 | ) | - | 7,995 | ||||||||||||||||||||||
Total assets | 366,066 | (1,055 | ) | (179 | ) | 364,832 | 345,376 | (1,315 | ) | (285 | ) | 343,776 | ||||||||||||||||||||
Equity and liabilities |
||||||||||||||||||||||||||||||||
Shareholders equity |
24,630 | (154 | ) | (1,027 | ) | 23,449 | 21,000 | (122 | ) | (964 | ) | 19,914 | ||||||||||||||||||||
Other equity instruments |
5,018 | - | - | 5,018 | 4,720 | - | - | 4,720 | ||||||||||||||||||||||||
Issued capital and reserves attributable to equity holders of Aegon N.V. | 29,648 | (154 | ) | (1,027 | ) | 28,467 | 25,720 | (122 | ) | (964 | ) | 24,634 | ||||||||||||||||||||
Non-controlling interests |
13 | - | - | 13 | 14 | - | - | 14 | ||||||||||||||||||||||||
Group equity | 29,661 | (154 | ) | (1,027 | ) | 28,480 | 25,734 | (122 | ) | (964 | ) | 24,648 | ||||||||||||||||||||
Trust pass-through securities |
155 | - | - | 155 | 159 | - | - | 159 | ||||||||||||||||||||||||
Subordinated borrowings |
61 | (19 | ) | - | 42 | 18 | (18 | ) | - | - | ||||||||||||||||||||||
Insurance contracts |
105,209 | (1,205 | ) | - | 104,004 | 104,974 | (1,452 | ) | - | 103,522 | ||||||||||||||||||||||
Insurance contracts for account of policyholders |
76,871 | (702 | ) | - | 76,169 | 73,425 | (866 | ) | - | 72,559 | ||||||||||||||||||||||
Investment contracts |
17,768 | (1 | ) | - | 17,767 | 20,847 | (1 | ) | - | 20,846 | ||||||||||||||||||||||
Investment contracts for account of policyholders |
78,418 | - | - | 78,418 | 71,433 | - | - | 71,433 | ||||||||||||||||||||||||
Derivatives |
17,848 | 204 | - | 18,052 | 12,728 | 172 | - | 12,900 | ||||||||||||||||||||||||
Borrowings |
12,758 | 984 | - | 13,742 | 10,141 | 1,075 | - | 11,216 | ||||||||||||||||||||||||
Provisions |
331 | (1 | ) | - | 330 | 444 | - | - | 444 | |||||||||||||||||||||||
Defined benefit liabilities |
2,222 | - | 1,328 | 3,550 | 2,184 | - | 1,147 | 3,331 | ||||||||||||||||||||||||
Deferred revenue liabilities |
106 | (2 | ) | - | 104 | 104 | (1 | ) | - | 103 | ||||||||||||||||||||||
Deferred tax liabilities |
3,609 | (33 | ) | (480 | ) | 3,096 | 2,499 | (27 | ) | (468 | ) | 2,004 | ||||||||||||||||||||
Other liabilities |
20,716 | (122 | ) | - | 20,594 | 19,501 | (70 | ) | - | 19,431 | ||||||||||||||||||||||
Accruals |
333 | (4 | ) | - | 329 | 1,185 | (5 | ) | - | 1,180 | ||||||||||||||||||||||
Total liabilities | 336,405 | (901 | ) | 848 | 336,352 | 319,642 | (1,193 | ) | 679 | 319,128 | ||||||||||||||||||||||
Total equity and liabilities | 366,066 | (1,055 | ) | (179 | ) | 364,832 | 345,376 | (1,315 | ) | (285 | ) | 343,776 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
|
Supplemental Annual Report 2013 |
135
Impact of changes in accounting policies on the consolidated statement of changes in equity
December 31, 2012 (previously reported) |
Change in accounting policy |
December 31, 2012 1) |
December 31, 2011 (previously reported) |
Change in accounting policy |
December 31, 2011 1) |
|||||||||||||||||||||||||||
IFRS 10/11 | IAS 19 | IFRS 10/11 | IAS 19 | |||||||||||||||||||||||||||||
Impact of changes in accounting policies on the statement of changes in equity | ||||||||||||||||||||||||||||||||
Share capital |
9,099 | - | - | 9,099 | 9,097 | - | - | 9,097 | ||||||||||||||||||||||||
Retained earnings |
10,504 | (155 | ) | 58 | 10,407 | 9,403 | - | 15 | 9,418 | |||||||||||||||||||||||
Revaluation reserves |
6,082 | (9 | ) | - | 6,073 | 3,464 | - | - | 3,464 | |||||||||||||||||||||||
Remeasurement of defined benefit plans |
- | - | (1,085 | ) | (1,085 | ) | - | - | (979 | ) | (979 | ) | ||||||||||||||||||||
Other reserves |
(1,055 | ) | 10 | - | (1,045 | ) | (964 | ) | - | - | (964 | ) | ||||||||||||||||||||
Shareholders equity | 24,630 | (154 | ) | (1,027 | ) | 23,449 | 21,000 | - | (964 | ) | 20,036 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
136 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
Impact of mandatory changes in accounting policies on the consolidated cash flow statement
2012 (previously reported) |
Change in accounting policy |
2012 1) | 2011 (previously reported) |
Change in accounting |
2011 1) | |||||||||||||||||||||||
IFRS 10/11 | IAS 19 | IAS 19 | ||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated cash flow statement | ||||||||||||||||||||||||||||
Income / (loss) before tax |
1,852 | (51 | ) | 65 | 1,866 | 916 | 22 | 938 | ||||||||||||||||||||
Results from financial transactions |
(12,903 | ) | - | - | (12,903 | ) | 187 | - | 187 | |||||||||||||||||||
Amortization and depreciation |
1,439 | (22 | ) | - | 1,417 | 1,651 | - | 1,651 | ||||||||||||||||||||
Impairment losses |
206 | (8 | ) | - | 198 | 483 | - | 483 | ||||||||||||||||||||
Income from joint ventures |
- | 13 | - | 13 | - | - | - | |||||||||||||||||||||
Income from associates |
(26 | ) | - | - | (26 | ) | (29 | ) | - | (29 | ) | |||||||||||||||||
Release of cash flow hedging reserve |
(62 | ) | - | - | (62 | ) | (18 | ) | - | (18 | ) | |||||||||||||||||
Other |
(139 | ) | (36 | ) | (149 | ) | (324 | ) | (138 | ) | (583 | ) | (721 | ) | ||||||||||||||
Adjustments of non-cash items |
(11,485 | ) | (53 | ) | (149 | ) | (11,687 | ) | 2,136 | (583 | ) | 1,553 | ||||||||||||||||
Insurance and investment liabilities |
(3,224 | ) | (3 | ) | - | (3,227 | ) | (4,940 | ) | - | (4,940 | ) | ||||||||||||||||
Insurance and investment liabilities for account of policyholders |
11,042 | (241 | ) | - | 10,801 | (154 | ) | - | (154 | ) | ||||||||||||||||||
Accrued expenses and other liabilities |
536 | (70 | ) | 84 | 550 | (421 | ) | 561 | 140 | |||||||||||||||||||
Accrued income and prepayments |
(1,743 | ) | 12 | - | (1,731 | ) | (1,460 | ) | - | (1,460 | ) | |||||||||||||||||
Changes in accruals |
6,611 | (302 | ) | 84 | 6,393 | (6,975 | ) | 561 | (6,414 | ) | ||||||||||||||||||
Purchase of investments (other than money market investments) |
(32,464 | ) | 446 | - | (32,018 | ) | (29,612 | ) | - | (29,612 | ) | |||||||||||||||||
Purchase of derivatives |
(1,528 | ) | - | - | (1,528 | ) | (1,350 | ) | - | (1,350 | ) | |||||||||||||||||
Disposal of investments (other than money market investments) |
34,050 | (308 | ) | - | 33,742 | 34,924 | - | 34,924 | ||||||||||||||||||||
Disposal of derivatives |
507 | - | - | 507 | 1,599 | - | 1,599 | |||||||||||||||||||||
Net purchase of investments for account of policyholders |
960 | 237 | - | 1,197 | (1,577 | ) | - | (1,577 | ) | |||||||||||||||||||
Net change in cash collateral |
(179 | ) | 2 | - | (177 | ) | 2,180 | - | 2,180 | |||||||||||||||||||
Net purchase of money market investments |
552 | 4 | - | 556 | 445 | - | 445 | |||||||||||||||||||||
Cash flow movements on operating items not reflected in income | 1,898 | 381 | - | 2,279 | 6,609 | - | 6,609 | |||||||||||||||||||||
Tax paid |
105 | 28 | - | 133 | (375 | ) | - | (375 | ) | |||||||||||||||||||
Other |
53 | (34 | ) | - | 19 | (45 | ) | - | (45 | ) | ||||||||||||||||||
Net cash flows from operating activities | (966 | ) | (31 | ) | - | (997 | ) | 2,266 | - | 2,266 | ||||||||||||||||||
Purchase of individual intangible assets (other than VOBA and future servicing rights) |
(38 | ) | 2 | - | (36 | ) | (18 | ) | - | (18 | ) | |||||||||||||||||
Purchase of equipment and real estate for own use |
(65 | ) | 2 | - | (63 | ) | (72 | ) | - | (72 | ) | |||||||||||||||||
Acquisition of subsidiaries and associates, net of cash |
(126 | ) | 103 | - | (23 | ) | (99 | ) | - | (99 | ) | |||||||||||||||||
Disposal of intangible asset |
1 | (1 | ) | - | - | 1 | - | 1 | ||||||||||||||||||||
Disposal of equipment |
10 | - | - | 10 | 18 | - | 18 | |||||||||||||||||||||
Disposal of subsidiaries and associates, net of cash |
286 | (10 | ) | - | 276 | 823 | - | 823 | ||||||||||||||||||||
Dividend received from associates |
2 | 70 | - | 72 | 3 | - | 3 | |||||||||||||||||||||
Other |
1 | - | - | 1 | (3 | ) | - | (3 | ) | |||||||||||||||||||
Net cash flows from investing activities | 71 | 166 | - | 237 | 653 | - | 653 | |||||||||||||||||||||
Issuance of share capital |
2 | - | - | 2 | 913 | - | 913 | |||||||||||||||||||||
Issuance of non-cumulative subordinated notes |
271 | - | - | 271 | - | - | - | |||||||||||||||||||||
Proceeds from TRUPS, subordinated loans and borrowings |
6,693 | (240 | ) | - | 6,453 | 5,627 | - | 5,627 | ||||||||||||||||||||
Repurchase of convertible core capital securities |
- | - | - | - | (1,500 | ) | - | (1,500 | ) | |||||||||||||||||||
Repayment of TRUPS, subordinated loans and borrowings |
(3,886 | ) | 149 | - | (3,737 | ) | (4,342 | ) | - | (4,342 | ) | |||||||||||||||||
Dividends paid |
(207 | ) | - | - | (207 | ) | (59 | ) | - | (59 | ) | |||||||||||||||||
Coupons and premium on convertible core capital securities |
- | - | - | - | (750 | ) | - | (750 | ) | |||||||||||||||||||
Coupons on perpetual securities |
(230 | ) | - | - | (230 | ) | (237 | ) | - | (237 | ) | |||||||||||||||||
Coupons on non-cumulative subordinated notes |
(30 | ) | - | - | (30 | ) | - | - | - | |||||||||||||||||||
Other |
(11 | ) | - | - | (11 | ) | (26 | ) | - | (26 | ) | |||||||||||||||||
Net cash flows from financing activities | 2,602 | (91 | ) | - | 2,511 | (374 | ) | - | (374 | ) | ||||||||||||||||||
Net increase / (decrease) in cash and cash equivalents | 1,707 | 44 | - | 1,751 | 2,545 | - | 2,545 | |||||||||||||||||||||
Net cash and cash equivalents at the beginning of the year |
7,826 | (109 | ) | - | 7,717 | 5,174 | - | 5,174 | ||||||||||||||||||||
Effects of changes in exchange rate |
27 | 2 | - | 29 | 107 | - | 107 | |||||||||||||||||||||
Net cash and cash equivalents at the end of the year | 9,560 | (63 | ) | - | 9,497 | 7,826 | - | 7,826 | ||||||||||||||||||||
Cash and cash equivalents |
9,653 | (63 | ) | - | 9,590 | 8,104 | - | 8,104 | ||||||||||||||||||||
Bank overdrafts |
(93 | ) | - | - | (93 | ) | (278 | ) | - | (278 | ) | |||||||||||||||||
Net cash and cash equivalents | 9,560 | (63 | ) | - | 9,497 | 7,826 | - | 7,826 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
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2.1.3 Voluntary changes in accounting policies
Aegon adopted voluntary changes in accounting policies, effective January 1, 2014 which are applied retrospectively for all periods presented. Changes to these policies relate to deferred policy acquisition costs and how Aegon accounts for longevity trends in The Netherlands. In the paragraphs below, details are provided for these changes in accounting policies.
Aegon has amended its 2013 financial statements for these changes and filed 2013 supplemental financial statements on Form 6-K. As Aegon is aware that the changes which are effective as of January 1, 2014 have significant impact on its comparatives, Aegon amended its 2013 financial statements prior to issuance of the 2014 financial statements in order to increase the usefulness of the comparative information for users of the financial statements.
Deferred policy acquisition costs
Aegon adopted one single group-wide accounting policy for deferral of policy acquisition costs as of January 1, 2014. Upon initial adoption of IFRS, entities were permitted to continue existing accounting policies for insurance contracts even though such policies were often non-uniform between countries. Through adoption of a uniform, group-wide accounting policy, Aegon eliminates this lack of uniformity for the deferral of policy acquisition costs thereby providing the users of the financial statements with more meaningful information. Details for the deferred policy acquisition costs are included in note 2.13.
IFRS 4 neither prohibits nor requires the deferral of policy acquisition costs, nor does it prescribe what acquisition costs are deferrable. Thus, in developing the new policy, Aegon considered and sought alignment with the proposed description of deferrable policy acquisition costs within the IFRS Insurance Contracts Phase II exposure draft (Exposure Draft). In the absence of detailed guidance in the Exposure Draft, Aegon also considered the recently adopted guidance in U.S. GAAP (ASU 2010-26 Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts), if not conflicting with IFRS 4 or the Exposure Draft. IFRS currently differs from US GAAP by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied. Under the new accounting policy, deferred policy acquisition costs include costs that are directly attributable to the acquisition or renewal of insurance contracts. The previous accounting policy was based on a broader definition of costs that could be deferred.
Details of the impact of applying this voluntary accounting policy change to previous periods are provided in the tables presented below.
Longevity reserving
As of January 1, 2014, Aegon amended its policy to determine the insurance contract liability of Aegon The Netherlands to account for longevity risk assumed by Aegon. This change will provide more current information about the financial effects of changes in life expectancy of the insured population. The change will also increase alignment with market pricing of longevity risk. It will supply users of the financial statements with more relevant decision making information on the insurance contract liability and will improve transparency on the longevity risks assumed by Aegon.
Mortality tables will be updated annually based on the prospective tables taking into account longevity trends. The new methodology will take into account the contractual cash flows related to the longevity risk assumed. Previously the methodology applied by Aegon The Netherlands considered realized mortalities based on retrospective mortality tables. Details for the accounting for insurance contracts are included in note 2.19.
138 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
Details of the impact of applying this voluntary accounting policy change to previous periods are provided in the tables presented below.
2013 1) | Change in accounting policy |
2013 (restated) |
2012 1) | Change in accounting policy |
2012 (restated) |
2011 1) | Change in accounting policy |
2011 (restated) |
||||||||||||||||||||||||||||||||||||||||
Deferred policy acquisition costs |
Longevity reserving |
Deferred policy acquisition costs |
Longevity reserving |
Deferred policy acquisition costs |
Longevity reserving |
|||||||||||||||||||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated income statement | ||||||||||||||||||||||||||||||||||||||||||||||||
Policyholder claims and benefits |
37,793 | 12 | (117 | ) | 37,688 | 34,665 | 7 | (197 | ) | 34,475 | 20,230 | 16 | (139 | ) | 20,107 | |||||||||||||||||||||||||||||||||
Commissions and expenses |
5,593 | 63 | - | 5,656 | 5,559 | 51 | - | 5,610 | 6,142 | 34 | - | 6,176 | ||||||||||||||||||||||||||||||||||||
Income tax (expense) / benefit |
(166 | ) | (10 | ) | (24 | ) | (200 | ) | (323 | ) | (4 | ) | (45 | ) | (372 | ) | (51 | ) | (7 | ) | (33 | ) | (91 | ) | ||||||||||||||||||||||||
Net effect | (85 | ) | 93 | (62 | ) | 152 | (57 | ) | 106 | |||||||||||||||||||||||||||||||||||||||
Earnings per share (EUR per share) | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic earnings per common share |
0.36 | (0.04 | ) | 0.05 | 0.36 | 0.68 | (0.03 | ) | 0.07 | 0.72 | (0.05 | ) | (0.03 | ) | 0.05 | (0.03 | ) | |||||||||||||||||||||||||||||||
Basic earnings per common share B |
0.01 | - | - | 0.01 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Diluted earnings per common share |
0.36 | (0.04 | ) | 0.05 | 0.36 | 0.68 | (0.03 | ) | 0.07 | 0.72 | (0.05 | ) | (0.03 | ) | 0.05 | (0.03 | ) | |||||||||||||||||||||||||||||||
Diluted earnings per common share B |
0.01 | - | - | 0.01 | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||
Earnings per common share calculation | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to equity holders of Aegon N.V. |
978 | (85 | ) | 93 | 986 | 1,542 | (62 | ) | 152 | 1,632 | 884 | (57 | ) | 106 | 933 | |||||||||||||||||||||||||||||||||
Preferred dividend |
(83 | ) | - | - | (83 | ) | (59 | ) | - | - | (59 | ) | (59 | ) | - | - | (59 | ) | ||||||||||||||||||||||||||||||
Coupons on other equity instruments |
(167 | ) | - | - | (167 | ) | (195 | ) | - | - | (195 | ) | (177 | ) | - | - | (177 | ) | ||||||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities |
- | - | - | - | - | - | - | - | (750 | ) | - | - | (750 | ) | ||||||||||||||||||||||||||||||||||
Earnings attributable to common shareholders |
728 | (85 | ) | 93 | 736 | 1,288 | (62 | ) | 152 | 1,378 | (102 | ) | (57 | ) | 106 | (53 | ) | |||||||||||||||||||||||||||||||
Weighted average number of common shares outstanding (in million) |
2,035 | - | - | 2,035 | 1,907 | - | - | 1,907 | 1,852 | - | - | 1,852 | ||||||||||||||||||||||||||||||||||||
Weighted average number of common shares B outstanding (in million) |
366 | - | - | 366 | - | - | - | - | - | - | - | - |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
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2013 1) | Change in accounting policy |
2013 (restated) |
2012 1) | Change in accounting policy |
2012 (restated) |
2011 1) | Change in accounting policy |
2011 (restated) |
||||||||||||||||||||||||||||||||||||||||
Deferred policy acquisition costs |
Longevity reserving |
Deferred policy acquisition costs |
Longevity reserving |
Deferred policy acquisition costs |
Longevity reserving |
|||||||||||||||||||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated statement of comprehensive income | ||||||||||||||||||||||||||||||||||||||||||||||||
Net income |
980 | (85 | ) | 93 | 989 | 1,543 | (62 | ) | 152 | 1,633 | 887 | (57 | ) | 106 | 936 | |||||||||||||||||||||||||||||||||
Items that may be reclassified to profit or loss: | ||||||||||||||||||||||||||||||||||||||||||||||||
Gains / (losses) on revaluation of available-for-sale investments |
(3,349 | ) | (26 | ) | - | (3,376 | ) | 4,176 | 15 | - | 4,191 | 3,113 | (9 | ) | - | 3,104 | ||||||||||||||||||||||||||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(784 | ) | 57 | - | (727 | ) | (110 | ) | (19 | ) | - | (129 | ) | 380 | (39 | ) | - | 341 | ||||||||||||||||||||||||||||||
Income tax relating to items that may be reclassified |
1,286 | 8 | - | 1,295 | (1,051 | ) | (7 | ) | - | (1,058 | ) | (1,166 | ) | 4 | - | (1,162 | ) | |||||||||||||||||||||||||||||||
Net effect other comprehensive income for the period | 39 | - | (11 | ) | - | (44 | ) | - | ||||||||||||||||||||||||||||||||||||||||
Net effect comprehensive income | (46 | ) | 93 | (73 | ) | 152 | (101 | ) | 106 | |||||||||||||||||||||||||||||||||||||||
Total comprehensive income attributable to: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equity holders of Aegon N.V. |
(46 | ) | 93 | (73 | ) | 152 | (101 | ) | 106 | |||||||||||||||||||||||||||||||||||||||
Non-controlling interests |
- | - | - | - | - | - |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
140 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
Decem- ber 31, 2013 1) |
Change in accounting policy |
Reclas- sification 2) |
Decem- ber 31, 2013 (restated) |
Decem- ber 31, 2012 1) |
Change in accounting policy |
Reclas- sification 2) |
Decem- ber 31, 2012 (restated) |
January 1, 2012 1) |
Change in accounting policy |
January 1, 2012 (restated) |
||||||||||||||||||||||||||||||||||||||||||||||
Deferred tion |
Lon- gevity reser- ving |
Deferred tion |
Lon- gevity reser- ving |
Deferred policy acquisi- tion costs |
Lon- ving |
|||||||||||||||||||||||||||||||||||||||||||||||||||
Impact of changes in accounting policies on the consolidated statement of financial position | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Intangible assets |
2,246 | 26 | - | - | 2,272 | 2,485 | 21 | - | - | 2,506 | 2,695 | 24 | - | 2,719 | ||||||||||||||||||||||||||||||||||||||||||
Investments in joint ventures |
1,427 | (1 | ) | - | - | 1,426 | 1,568 | (1 | ) | - | - | 1,567 | 1,224 | (1 | ) | - | 1,223 | |||||||||||||||||||||||||||||||||||||||
Reinsurance assets |
10,345 | (2 | ) | - | - | 10,344 | 11,965 | 1 | - | - | 11,966 | 11,510 | 1 | - | 11,511 | |||||||||||||||||||||||||||||||||||||||||
Deferred |
37 | 2 | - | 125 | 164 | 93 | 2 | - | 225 | 320 | 318 | 2 | - | 320 | ||||||||||||||||||||||||||||||||||||||||||
Deferred expenses |
12,040 | (2,035 | ) | - | - | 10,006 | 11,644 | (2,017 | ) | - | - | 9,627 | 11,394 | (1,960 | ) | - | 9,434 | |||||||||||||||||||||||||||||||||||||||
Equity and liabilities |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shareholders equity |
20,059 | (1,533 | ) | (832 | ) | - | 17,694 | 23,449 | (1,487 | ) | (925 | ) | - | 21,037 | 19,914 | (1,415 | ) | (1,076 | ) | 17,423 | ||||||||||||||||||||||||||||||||||||
Insurance contracts |
100,642 | 54 | 1,073 | - | 101,769 | 104,004 | 48 | 1,190 | - | 105,242 | 103,522 | 41 | 1,387 | 104,950 | ||||||||||||||||||||||||||||||||||||||||||
Deferred tax liabilities |
2,304 | (531 | ) | (241 | ) | 125 | 1,657 | 3,096 | (555 | ) | (265 | ) | 225 | 2,501 | 2,004 | (560 | ) | (311 | ) | 1,133 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
2 | As a result of the voluntary accounting changes the balance of the Dutch tax group as at December 31, 2013 and December 31, 2012 changed from a deferred tax liability to a deferred tax asset. |
Decem- ber 31, 2013 1) |
Change in accounting policy |
Decem- ber 31, 2013 (restated) |
Decem- ber 31, 2012 1) |
Change in accounting policy |
Decem- ber 31, 2012 (restated) |
Decem- ber 31, 2011 1) |
Change in accounting policy |
Decem- ber 31, 2011 (restated) |
||||||||||||||||||||||||||||||||||||||||
Deferred policy acquisition costs |
Lon- gevity reser- ving |
Deferred policy acquisition costs |
Lon- gevity reser- ving |
Deferred policy acquisition costs |
Lon- gevity reser- ving |
|||||||||||||||||||||||||||||||||||||||||||
Impact of changes in accounting policies on the statement of changes in equity | ||||||||||||||||||||||||||||||||||||||||||||||||
Share capital |
8,701 | - | - | 8,701 | 9,099 | - | - | 9,099 | 9,097 | - | - | 9,097 | ||||||||||||||||||||||||||||||||||||
Retained earnings |
10,843 | (1,557 | ) | (832 | ) | 8,455 | 10,407 | (1,472 | ) | (925 | ) | 8,010 | 9,418 | (1,411 | ) | (1,076 | ) | 6,931 | ||||||||||||||||||||||||||||||
Revaluation reserves |
2,998 | 26 | - | 3,023 | 6,073 | 43 | - | 6,116 | 3,464 | 35 | - | 3,499 | ||||||||||||||||||||||||||||||||||||
Remeasurement of defined benefit plans |
(706 | ) | - | - | (706 | ) | (1,085 | ) | - | - | (1,085 | ) | (979 | ) | - | - | (979 | ) | ||||||||||||||||||||||||||||||
Other reserves |
(1,777 | ) | (1 | ) | - | (1,778 | ) | (1,045 | ) | (58 | ) | - | (1,103 | ) | (964 | ) | (39 | ) | - | (1,003 | ) | |||||||||||||||||||||||||||
Shareholders equity | 20,059 | (1,533 | ) | (832 | ) | 17,694 | 23,449 | (1,487 | ) | (925 | ) | 21,037 | 20,036 | (1,415 | ) | (1,076 | ) | 17,545 |
1 | As reported in Aegons Annual Report on Form 20-F dated March 19, 2014. |
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2.1.4 Future adoption of new IFRS accounting standards
The following standards, amendments to existing standards and interpretations, published prior to January 1, 2014, were not early adopted by the Group, but will be applied in future years:
¿ | IFRS 9 Financial Instruments*; |
¿ | IAS 36 Impairment of Assets Recoverable Amounts Disclosures for Non-Financial Assets; and |
¿ | IAS 39 Novation of Derivatives and Continuation of Hedge Accounting. |
* Not yet endorsed by the European Union.
IFRS 9 Financial Instruments
The IFRS 9 project is to replace IAS 39 with a new standard. The project is divided into the following components: Classification and Measurement of Financial Instruments, Impairment and Hedge Accounting. The IASB recently has decided tentatively to defer the mandatory effective date to January 1, 2018. In addition, the IASB decided to reopen IFRS 9 in order to consider interaction with the insurance project as well as the US FASBs classification and measurement model for financial instruments. For the Impairment component, the IASB issued an exposure draft proposing the recognition and measurement of a credit loss allowance or provision based on expected losses rather than incurred losses. On November 19, 2013, the IASB issued a new version of Hedge Accounting, which includes the new hedge accounting requirements. Macro hedging is decoupled from the hedge accounting component in order to avoid impact on the effective date or timing of the completion of the IFRS 9 project. IFRS 9 is expected to have a significant impact on the Groups financial statements because it will likely result in a reclassification and remeasurement of Aegons financial assets. However, the full impact of IFRS 9 will only be clear after the remaining stages of the IASBs project on IFRS 9 are completed and issued.
IAS 36 Impairment of Assets Recoverable Amounts Disclosures for Non-Financial Assets
The IASB has issued amendments to IAS 36, Impairment of Assets relating to disclosures in respect of fair value less costs of disposal. The IASB has made changes to three disclosure requirements, including the requirement to add information about the fair value measurement of impaired assets when the recoverable amount is based on fair value less costs of disposal. The amendments are effective per January 1, 2014, with earlier application permitted. The amendment affects disclosure only and has therefore no impact on Aegons financial position or performance.
IAS 39 Novation of Derivatives and Continuation of Hedge Accounting
IASB made a narrow-scope amendment to IAS 39 to permit the continuation of hedge accounting in certain circumstances in which the counterparty to a hedging instrument changes in order to achieve clearing for that instrument. The amendment is to be applied retrospectively with effective date January 1, 2014. Aegon expects that the amendment does not result in any changes to the classification, measurement or presentation of any items in the financial statements.
The following amendments to the existing standard and interpretation, published prior to January 1, 2014, which are not yet effective for or early adopted by the Group, will not significantly impact the financial position or financial statements:
¿ | IFRS 10 Consolidated Financial Statements - Amendment Investment Entities; |
¿ | IFRS 14 Regulatory Deferral Accounts; |
¿ | IAS 19 Employee Benefits Amendment Employee Contributions; |
¿ | IAS 32 Financial Instruments: Presentation Amendment Offsetting Financial Assets and Financial Liabilities; |
¿ | Annual improvements 2010-2012 Cycle; |
¿ | Annual improvements 2011-2013 Cycle; and |
¿ | IFRIC 21 Levies. |
2.2 Basis of consolidation
a. Subsidiaries
Changes in accounting policies
Aegon adopted IFRS 10, Consolidated Financial Statements on January 1, 2013. Aegon also adopted IFRS 11, Joint Arrangements, IFRS 12, Disclosure of Interests in Other Entities, and consequential amendments to IAS 28, Investments in Associates and Joint Ventures and IAS 27, Separate Financial Statements, at the same time. Aegons accounting policy for consolidation, as set out below, reflects the changes under IFRS 10 for the control definition.
Aegon has applied the new policy for consolidated financial statements on or after January 1, 2012. In accordance with the transitional provisions of IFRS 10, if control in a former subsidiary was lost before January 1, 2013, Aegon has not restated the carrying amount of those investments. The effect of the change in accounting policies on the financial position, comprehensive income and the cash flows of Aegon at January 1, 2012 and December 31, 2012 are summarized together with the impact of IFRS 11 in note 2.1.2. In accordance with the transitional provisions of IFRS 10, comparative numbers of 2011 are not restated.
142 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
The consolidated financial statements include the financial statements of Aegon N.V. and its subsidiaries. Subsidiaries (including consolidated structured entities) are entities over which Aegon has control. Aegon controls an entity when Aegon is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, the holder must have the practical ability to exercise that right.
The subsidiarys assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the Groups accounting policies, which is consistent with IFRS. Intra-group transactions, including Aegon N.V. shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses are eliminated, except to the extent that the underlying asset is impaired. Non-controlling interests are initially stated at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the non-controlling share in changes in the subsidiarys equity.
The excess of the consideration paid to acquire the interest and the fair value of any interest already owned, over the Groups share in the net fair value of assets, liabilities and contingent liabilities acquired is recognized as goodwill. Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting from the emergence of new evidence within twelve months after the acquisition date are made against goodwill. Contingent consideration is discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination prior to the adoption of IFRS 3 (as revised in 2008) are recognized as goodwill. Any changes in the estimated value of contingent consideration given in a business combination after the adoption of IFRS 3 (as revised in 2008) are recognized in the income statement.
The identifiable assets, liabilities and contingent liabilities are stated at fair value when control is obtained.
Subsidiaries are deconsolidated when control ceases to exist. Any difference between the net proceeds plus the fair value of any retained interest and the carrying amount of the subsidiary including non-controlling interests is recognized in the income statement.
Transactions with non-controlling interests
Transactions with non-controlling interests are accounted for as transactions with equity holders. Therefore disposals to non-controlling interests and acquisitions from non-controlling interests, not resulting in losing or gaining control of the subsidiary are recorded in other comprehensive income. Any difference between consideration paid or received and the proportionate share in net assets is accounted for in equity attributable to shareholders of Aegon N.V.
Investment funds
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The assessment of control is based on the substance of the relationship between the Group and the investment fund and, among other things, considers existing and potential voting rights that are currently exercisable and convertible. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless the fund meets the definition of a silo or when, under strict facts and circumstances, a direct link between the policyholder and the fund can be assumed).
On consolidation of an investment fund, a liability is recognized to the extent that the Group is legally obliged to buy back participations held by third parties. The liability is presented in the consolidated financial statements as investment contracts for account of policyholders. Where this is not the case, other participations held by third parties are presented as non-controlling interests in equity. The assets allocated to participations held by third parties or by the Group on behalf of policyholders are presented in the consolidated financial statements as investments for account of policyholders.
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Equity instruments issued by the Group that are held by investment funds are eliminated on consolidation. However, the elimination is reflected in equity and not in the measurement of the related financial liabilities towards policyholders or other third parties.
b. Joint arrangements
In general, joint arrangements are contractual agreements whereby the Group undertakes with other parties an economic activity that is subject to joint control. Joint control exists when it is contractually agreed to share control of an economic activity. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Changes in accounting policy
Aegon adopted IFRS 11 - Joint arrangements, on January 1, 2013. This resulted in the Group changing its accounting policy for its interests in joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. The accounting policy for joint ventures will then be equity accounting and therefore joint ventures are no longer recognized using proportionate consolidated.
Prior to January 1, 2013, Aegons interests in joint ventures were recognized using proportionate consolidation, combining items on a line by line basis from the date the jointly controlled interest commences. Gains and losses on transactions between the Group and the joint venture were recognized to the extent that they were attributable to the interests of other ventures, with the exception of losses that were evidence of impairment and that were recognized immediately. The use of proportionate consolidation was discontinued from the date on which the Group ceases to have joint control.The new policy for interests in joint ventures is included in note 2.10.
Aegon has applied the new policy for interests in joint ventures occurring on or after January 1, 2012, in accordance with the transitional provisions of IFRS 11. The Group recognized its investment in joint ventures at January 1, 2012, as the total of the carrying amounts of the assets and liabilities previously proportionately consolidated by the Group. This is the deemed cost of the Groups investments in joint ventures for applying the equity method of accounting. In accordance with the transitional provisions of IFRS 11, comparative numbers of 2011 are not restated.
The effects of the change in accounting policies on the financial position, comprehensive income, the cash flows and statement of changes in equity of the group at January 1, 2012 and December 31, 2012 are included in note 2.1.2.
2.3 Foreign exchange translation
a. Translation of foreign currency transactions
The Groups consolidated financial statements are presented in euros. Items included in the financial statements of individual group companies are recorded in their respective functional currency which is the currency of the primary economic environment in which each entity operates. Transactions in foreign currencies are initially recorded at the exchange rate prevailing at the date of the transaction.
At the balance sheet date, monetary assets and monetary liabilities in foreign currencies and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in other comprehensive income as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in other comprehensive income or the income statement, consistently with other gains and losses on these items.
b. Translation of foreign currency operations
On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the balance sheet date. Income, expenses and capital transactions (such as dividends) are translated at average exchange rates or at the prevailing rates on the transaction date, if more appropriate. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are translated at the closing rates on the balance sheet date.
144 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
The resulting exchange differences are recognized in the foreign currency translation reserve, which is part of shareholders equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement.
2.4 Segment reporting
Aegons operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. The operating segments are:
¿ | Aegon Americas: Covers business units in the United States, Canada, Mexico and Brazil, including any of the units activities located outside these countries. |
¿ | Aegon the Netherlands: Covers businesses operating in the Netherlands. |
¿ | Aegon United Kingdom: Covers businesses operating in the United Kingdom. |
¿ | New Markets: Covers businesses operating in Central & Eastern Europe, Asia, Spain and France as well as Aegons variable annuity activities in Europe and Aegon Asset Management. |
¿ | Holding and other activities: Includes financing, employee and other administrative expenses of holding companies. |
The line item Run-off businesses includes earnings of certain business units where management has decided to exit the market and to run-off the existing block of business. Aegon believes that excluding the earnings of these blocks of businesses from underlying earnings enhances the comparability from period to period of Aegons key earnings measure, underlying earnings.
2.5 Offsetting of assets and liabilities
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously.
2.6 Intangible assets
a. Goodwill
Goodwill is recognized as an intangible asset for interests in subsidiaries and joint ventures acquired after January 1, 2004 and is measured as the positive difference between the acquisition cost and the Groups interest in the net fair value of the entitys identifiable assets, liabilities and contingent liabilities. Subsequently, goodwill is carried at cost less accumulated impairment charges. It is derecognized when the interest in the subsidiary or joint venture is disposed of.
b. Value of business acquired
When a portfolio of insurance contracts is acquired, whether directly from another insurance company or as part of a business combination, the difference between the fair value and the carrying amount of the insurance liabilities is recognized as value of business acquired (VOBA). The Group also recognizes VOBA when it acquires a portfolio of investment contracts with discretionary participation features.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with DPAC where appropriate, is assessed for recoverability at least annually on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
When unrealized gains or losses arise on available-for-sale assets, VOBA is adjusted to equal the effect that the realization of the gains or losses (through a sale or impairment) would have had on VOBA. The adjustment is recognized directly in shareholders equity. VOBA is derecognized when the related contracts are settled or disposed of.
c. Future servicing rights
On the acquisition of a portfolio of investment contracts without discretionary participation features under which Aegon will render investment management services, the present value of future servicing rights is recognized as an intangible asset. Future servicing rights can also be recognized on the sale of a loan portfolio or the acquisition of insurance agency activities.
The present value of the future servicing rights is amortized over the servicing period as the fees from services emerge and is subject to impairment testing. It is derecognized when the related contracts are settled or disposed of.
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d. Software and other intangible assets
Software and other intangible assets are recognized to the extent that the assets can be identified, are controlled by the Group, are expected to provide future economic benefits and can be measured reliably. The Group does not recognize internally generated intangible assets arising from research or internally generated goodwill, brands, customer lists and similar items.
Software and other intangible assets are carried at cost less accumulated depreciation and impairment losses. Depreciation of the asset is over its useful life as the future economic benefits emerge and is recognized in the income statement as an expense. The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement.
An intangible asset is derecognized when it is disposed of or when no future economic benefits are expected from its use or disposal.
2.7 Investments
Investments comprise financial assets, excluding derivatives, as well as investments in real estate.
a. Financial assets, excluding derivatives
Financial assets are recognized on the trade date when the Group becomes a party to the contractual provisions of the instrument and are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased.
Classification
The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the Groups investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced.
Financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell in the near future or for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, are accounted for as loans. To the extent that the Group has the intention and ability to hold a quoted financial asset with fixed payments to the maturity date, it is classified as held-to-maturity.
All remaining non-derivative financial assets are classified as available-for-sale.
Measurement
Financial assets are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
Loans and financial assets held-to-maturity are subsequently carried at amortized cost using the effective interest rate method. Financial assets at fair value through profit or loss are measured at fair value with all changes in fair value recognized in the income statement as incurred. Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting.
Amortized cost
The amortized cost of a debt instrument is the amount at which it is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization of any difference between the initial amount and the maturity amount, and minus any reduction for impairment. The effective interest rate method is a method of calculating the amortized cost and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument. When calculating the effective interest rate, all contractual terms are considered. Possible future credit losses are not taken into account. Charges and interest paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts are included in the calculation.
146 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
Fair value
The consolidated financial statements provide information on the fair value of all financial assets, including those carried at amortized cost where the values are provided in the notes to the financial statements.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
Derecognition
A financial asset is derecognized when the contractual rights to the assets cash flows expire and when the Group retains the right to receive cash flows from the asset or has an obligation to pay received cash flows in full without delay to a third party and either: has transferred the asset and substantially all the risks and rewards of ownership, or has neither transferred nor retained all the risks and rewards but has transferred control of the asset. Financial assets of which the Group has neither transferred nor retained significantly all the risk and rewards are recognized to the extent of the Groups continuing involvement. If significantly all risks are retained, the assets are not derecognized.
On derecognition, the difference between the disposal proceeds and the carrying amount is recognized in the income statement as a realized gain or loss. Any cumulative unrealized gain or loss previously recognized in the revaluation reserve in shareholders equity is also recognized in the income statement.
Security lending and repurchase agreements
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash (collateral) received, on which interest is accrued.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash (collateral) paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
Collateral
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure defaults. When cash collateral is recognized, a liability is recorded for the same amount.
b. Real estate
Investments in real estate include property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as investments. Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in Other assets and receivables.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for long-term construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders equity and are released to other comprehensive income over the remaining useful life of the property.
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On disposal of an asset, the difference between the net proceeds received and the carrying amount is recognized in the income statement. Any remaining surplus attributable to real estate in own use in the revaluation reserve is transferred to retained earnings.
Property under construction
The Group develops property itself with the intention to hold it as investments in real estate. During the construction phase both the land and the building are presented as investments in real estate and carried at fair value unless this cannot be determined reliably in which case the real estate is valued at directly attributable costs, including borrowing costs. All fair value gains or losses are recognized in the income statement.
Maintenance costs and other subsequent expenditure
Expenditure incurred after initial recognition of the asset is capitalized to the extent that the level of future economic benefits of the asset is increased. Costs that restore or maintain the level of future economic benefits are recognized in the income statement as incurred.
2.8 Investments for account of policyholders
Investments held for account of policyholders consist of investments in financial assets, excluding derivatives, as well as investments in real estate. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. Investments for account of policyholders are valued at fair value through profit or loss.
2.9 Derivatives
a. Definition
Derivatives are financial instruments, classified as held for trading financial assets or financial liabilities, of which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date.
Assets and liabilities may include derivative-like terms and conditions. With the exception of features embedded in contracts held at fair value through profit or loss, embedded derivatives that are not considered closely related to the host contract are bifurcated, carried at fair value and presented as derivatives. In assessing whether a derivative-like feature is closely related to the contract in which it is embedded, the Group considers the similarity of the characteristics of the embedded derivative and the host contract. Embedded derivatives that transfer significant insurance risk are accounted for as insurance contracts.
Derivatives with positive values are reported as assets and derivatives with negative values are reported as liabilities. Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of Aegon N.V. equity instruments are accounted for in shareholders equity.
b. Measurement
All derivatives recognized on the statement of financial position are carried at fair value.
The fair value is calculated net of the interest accrued to date and is based on market prices, when available. When market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that market participants would consider and are based on observable market data, to the extent possible.
c. Hedge accounting
As part of its asset liability management, the Group enters into economic hedges to limit its risk exposure. These transactions are assessed to determine whether hedge accounting can and should be applied.
To qualify for hedge accounting, the hedge relationship is designated and formally documented at inception, detailing the particular risk management objective and strategy for the hedge (which includes the item and risk that is being hedged), the derivative that is being used and how hedge effectiveness is being assessed. A derivative has to be effective in accomplishing the objective of offsetting either changes in fair value or cash flows for the risk being hedged. The effectiveness of the hedging relationship is evaluated on a prospective and retrospective basis using qualitative and quantitative measures of correlation. Qualitative methods may include comparison of critical terms of the derivative to the hedged item. Quantitative methods include a comparison of the changes in the fair value or discounted cash flow of the hedging instrument to the hedged item. A hedging relationship is considered effective if the results of the hedging instrument are within a ratio of 80% to 125% of the result of the hedged item.
148 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
For hedge accounting purposes, a distinction is made between fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in the profit and loss account, together with fair value adjustments to the hedged item attributable to the hedged risk. If the hedge relationship no longer meets the criteria for hedge accounting, the cumulative adjustment of the hedged item is, in the case of interest bearing instruments, amortized through the profit and loss account over the remaining term of the original hedge or recognized directly when the hedged item is derecognized.
Cash flow hedges
Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk of a forecasted transaction or a recognized asset or liability and could affect profit or loss. To the extent that the hedge is effective, the change in the fair value of the derivative is recognized in the related revaluation reserve in shareholders equity. Any ineffectiveness is recognized directly in the income statement. The amount recorded in shareholders equity is released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of a non-financial asset or liability. In this case, the amount in shareholders equity is included in the initial cost of the asset or liability.
Net investment hedges
Net investment hedges are hedges of currency exposures on a net investment in a foreign operation. To the extent that the hedge is effective, the change in the fair value of the hedging instrument is recognized in shareholders equity. Any ineffectiveness is recognized in the income statement. The amount in shareholders equity is released to the income statement when the foreign operation is disposed of.
Hedge accounting is discontinued prospectively for hedges that are no longer considered effective. When hedge accounting is discontinued for a fair value hedge, the derivative continues to be carried on the statement of financial position with changes in its fair value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains or losses in shareholders equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item.
2.10 Investments in joint ventures
Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations each investor has rather than the legal structure of the joint arrangement. Joint control exists when it is contractually agreed to share control of an economic activity. This exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
Under the equity method of accounting, interests in joint ventures are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If joint ventures are obtained in successive share purchases, each significant transaction is accounted for separately.
The carrying amount is subsequently adjusted to reflect the change in the Groups share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Groups accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are reflected in other reserves in shareholders equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement. The Groups share in losses is recognized until the investment in the joint ventures equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
Gains and losses on transactions between the Group and the joint ventures are eliminated to the extent of the Groups interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the joint venture are not eliminated.
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On disposal of an interest in a joint venture, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement.
2.11 Investments in associates
Entities over which the Group has significant influence through power to participate in financial and operating policy decisions, but which do not meet the definition of a subsidiary, are accounted for using the equity method. Interests held by venture capital entities, mutual funds and investment funds that qualify as an associate are accounted for as an investment held at fair value through profit or loss. Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss.
Interests in associates are initially recognized at cost, which includes positive goodwill arising on acquisition. Negative goodwill is recognized in the income statement on the acquisition date. If associates are obtained in successive share purchases, each significant transaction is accounted for separately.
The carrying amount is subsequently adjusted to reflect the change in the Groups share in the net assets of the associate and is subject to impairment testing. The net assets are determined based on the Groups accounting policies. Any gains and losses recorded in other comprehensive income by the associate are reflected in other reserves in shareholders equity, while the share in the associates net income is recognized as a separate line item in the consolidated income statement. The Groups share in losses is recognized until the investment in the associates equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
Gains and losses on transactions between the Group and the associate are eliminated to the extent of the Groups interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the associate are not eliminated.
On disposal of an interest in an associate, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in the revaluation reserve are reversed and recorded through the income statement.
2.12 Reinsurance assets
Reinsurance contracts are contracts entered into by the Group in order to receive compensation for losses on contracts written by the Group (outgoing reinsurance). For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement.
Reinsurance assets are measured consistently with the amounts associated with the underlying insurance contracts and in accordance with the terms of each reinsurance contract. They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Aegon is not relieved of its legal liabilities when entering into reinsurance transactions, therefore the reserves relating to the underlying reinsured contracts will continue to be reported on the consolidated statement of financial position during the run-off period of the underlying business.
Reinsurance premiums are accounted for in the same way as the original contracts for which the reinsurance was concluded.
2.13 Deferred expenses
a. Deferred policy acquisition costs (DPAC)
DPAC relates to all insurance contracts and investment contracts with discretionary participation features and represents directly attributable costs that are related to the selling, underwriting and initiating of these insurance contracts.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States and Canada with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, disability and lapse assumptions, maintenance expenses and expected inflation rates.
150 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-by-country basis as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
For products sold in the United States or Canada, when unrealized gains or losses arise on available-for-sale assets, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized directly in the related revaluation reserve in shareholders equity.
DPAC is derecognized when the related contracts are settled or disposed off.
b. Deferred cost of reinsurance
A deferred cost of reinsurance is established when Aegon enters into a reinsurance transaction. Aegon is not relieved of its legal liabilities, so the reserves relating to the underlying reinsured contracts will continue to be reported on the consolidated statement of financial position during the run-off period of the underlying business.
Gains or losses on buying reinsurance are amortized based on the assumptions of the underlying reinsured contracts. The amortization is recognized in the income statement.
c. Deferred transaction costs
Deferred transaction costs relate to investment contracts without discretionary participation features under which Aegon will render investment management services. Incremental costs that are directly attributable to securing these investment management contracts are recognized as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered.
For contracts involving both the origination of a financial liability and the provision of investment management services, only the transaction costs allocated to the servicing component are deferred. The other transaction costs are included in the carrying amount of the financial liability.
The deferred transaction costs are amortized in line with fee income, unless there is evidence that another method better represents the provision of services under the contract. The amortization is recognized in the income statement. Deferred transaction costs are subject to impairment testing at least annually.
Deferred transaction costs are derecognized when the related contracts are settled or disposed off.
2.14 Other assets and receivables
Other assets include trade and other receivables, prepaid expenses, equipment and real estate held for own use. Trade and other receivables are initially recognized at fair value and are subsequently measured at amortized cost. Equipment is initially carried at cost, depreciated on a straight line basis over its useful life to its residual value and is subject to impairment testing. The accounting for real estate held for own use is described in note 2.7.
2.15 Cash and cash equivalents
Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
2.16 Impairment of assets
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. For tangible and intangible assets, financial assets and reinsurance assets, if not held at fair value through profit or loss, the recoverable amount of the asset is estimated when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets with an indefinite useful life that are not amortized, are tested at least annually.
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a. Impairment of non-financial assets
Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an assets value in use and its net selling price. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties.
Impairment losses are charged to shareholders equity to the extent that they offset a previously recorded revaluation reserve relating to the same item. Any further losses are recognized directly in the income statement.
With the exception of goodwill, impairment losses are reversed when there is evidence that there has been a change in the estimates used to determine the assets recoverable amount since the recognition of the last impairment loss. The reversal is recognized in the income statement to the extent that it reverses impairment losses previously recognized in the income statement. The carrying amount after reversal cannot exceed the amount that would have been recognized had no impairment taken place.
Non-financial assets that only generate cash flows in combination with other assets and liabilities are tested for impairment at the level of the cash-generating unit. The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets recoverable amounts.
b. Impairment of debt instruments
Debt instruments are impaired if there is objective evidence that a credit event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. Individually significant loans and other receivables are first assessed separately. All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
For debt instruments carried at amortized cost, the carrying amount of impaired financial assets is reduced through an allowance account. The impairment loss is calculated as the difference between the carrying and recoverable amount of the investment. The recoverable amount is determined by discounting the estimated probable future cash flows at the original effective interest rate of the asset. For variable interest debt instruments, the current effective interest rate under the contract is applied.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized loss previously recognized in other comprehensive income is taken to the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-for-sale is based on the rate of return that would be required by the market for similar rated instruments at the date of impairment.
Impairment losses recognized for debt instruments can be reversed if in subsequent periods the amount of the impairment loss decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized. For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed what the amortized cost would have been at the reversal date, had the impairment not been recognized.
c. Impairment of equity instruments
For equity instruments, a significant or prolonged decline in fair value below initial cost is considered objective evidence of impairment and always results in a loss being recognized in the income statement. Significant or prolonged decline is defined as an unrealized loss position for generally more than six months or a fair value of less than 80% of the cost price of the investment. Equity investments are impaired to the assets fair value and any unrealized gain or loss previously recognized in shareholders equity is taken to the income statement as an impairment loss. The amount exceeding the balance of previously recognized unrealized gains or losses is recognized in the income statement.
Impairment losses on equity instruments cannot be reversed.
152 | Notes to the consolidated financial statements of Aegon N.V. Note 2 |
d. Impairment of reinsurance assets
Reinsurance assets are impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that not all amounts due under the terms of the contract may be received. In such a case, the value of the reinsurance asset recoverable is determined based on the best estimate of future cash flows, taking into consideration the reinsurers current and expected future financial conditions plus any collateral held in trust for Aegons benefit. The carrying value is reduced to this calculated recoverable value, and the impairment loss recognized in the income statement.
2.17 Equity
Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares, the Group has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that are directly attributable to the issuing or buying back of the compound instruments are recognized proportionate to the equity component and liability component, net of tax.
Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Treasury shares are shares issued by Aegon N.V. that are held by Aegon, one of its subsidiaries or by another entity controlled by Aegon. Treasury shares are deducted from Group equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
2.18 Trust pass-through securities, subordinated borrowings and other borrowings
A financial instrument issued by the Group is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the Group.
Trust pass-through securities, subordinated borrowings and other borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through profit or loss as they are managed and evaluated on a fair value basis. The liability is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled.
Subordinated borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on the accounting policy of the non-cumulative subordinated notes refer to note. 2.17.
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2.19 Insurance contracts
Insurance contracts are accounted for under IFRS 4 Insurance Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS, with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies in general non-uniform accounting policies for insurance liabilities and intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegons operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS adoption, Aegon was applying US GAAP for its United States operations whereas in the Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS.
Insurance contracts are contracts under which the Group accepts a significant risk other than a financial risk from a policyholder by agreeing to compensate the beneficiary on the occurrence of an uncertain future event by which he or she will be adversely affected. Contracts that do not meet this definition are accounted for as investment contracts. The Group reviews homogeneous books of contracts to assess whether the underlying contracts transfer significant insurance risk on an individual basis. This is considered the case when at least one scenario with commercial substance can be identified in which the Group has to pay significant additional benefits to the policyholder. Contracts that have been classified as insurance are not reclassified subsequently.
Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when the contract expires, is discharged or is cancelled.
Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to the transition to IFRS and with consideration of standards effective subsequent to the date of transition to IFRS, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts.
Included under insurance contracts are interest rate rebates. Interest rate rebate is a form of profit sharing whereby the Group determines the premium based on the expected interest that will be earned on the contract. The expected interest is calculated with reference to a portfolio of government bonds. Interest rate rebates that are expected to be recovered in future periods are deferred and amortized as the interest is realized. The amortization is recognized in Aegons income statement. They are considered in the liability adequacy test for insurance liabilities. Deferred interest rebates are derecognized when the related contracts are settled or disposed off.
a. Life insurance contracts
Life insurance contracts are insurance contracts with guaranteed life-contingent benefits. The measurement of the liability for life insurance contracts varies depending on the nature of the product.
Some products, such as traditional life insurance products in continental Europe and products in the United States, for which account terms are fixed and guaranteed, are measured using the net premium method. The liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is either based on current assumptions or calculated using the assumptions established at the time the contract was issued, in which case a margin for risk and adverse deviation is generally included. Furthermore, the liability for life insurance comprises reserves for unearned premiums and accrued annuity benefits payable.
Other products with account terms that are not fixed or guaranteed are generally measured at the policyholders account balance. Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years. In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19 c or, if bifurcated from the host contract, as described in note 2.9.
One insurance product in the United States is carried at fair value through profit or loss as it contains an embedded derivative that could not be reliably bifurcated. The fair value of the contract is measured using market consistent valuation techniques.
154 | Notes to the consolidated financial statements of Aegon N.V. NOTE 2 |
b. Life insurance contracts for account of policyholders
Life insurance contracts under which the policyholder bears the risks associated with the underlying investments are classified as insurance contracts for account of policyholders.
The liability for the insurance contracts for account of policyholders is measured at the policyholder account balance. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. If applicable, the liability representing the nominal value of the policyholder unit account is amortized over the term of the contract so that interest on actuarial funding is at an expected rate of return.
c. Embedded derivatives and participation features
Life insurance contracts typically include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives.
Other terms and conditions, such as participation features and expected lapse rates, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the balance sheet date for future distribution to policyholders.
Guaranteed minimum benefits
The Group issues life insurance contracts, which do not expose the Group to interest rate risk as the account terms are not fixed or guaranteed or because the return on the investments held is passed on to the policyholder. Some of these contracts, however, may contain guaranteed minimum benefits. Bifurcated guaranteed minimum benefits are classified as derivatives.
In the United States, the additional liability for guaranteed minimum benefits that are not bifurcated is determined each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder.
In the Netherlands, an additional liability is established for guaranteed minimum benefits that are not bifurcated on group pension plans with profit sharing and on traditional insurance contracts with profit sharing based on an external interest index. These guarantees are measured at fair value.
d. Shadow accounting
Shadow accounting ensures that all gains and losses on investments affect the measurement of the insurance assets and liabilities in the same way, regardless of whether they are realized or unrealized and regardless of whether the unrealized gains and losses are recognized in the income statement or directly in equity in the revaluation reserve. In some instances, realized gains or losses on investments have a direct effect on the measurement of the insurance assets and liabilities. For example, some insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses on available-for-sale investments can lead to unlocking of VOBA or DPAC and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns. For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains or losses on available-for-sale investments for which the unrealized gains or losses are recognized in the revaluation reserve in equity, shadow accounting is applied. This means that the increase in the liability is also charged to equity to offset the unrealized gains rather than to the income statement.
e. Non-life insurance contracts
Non-life insurance contracts are insurance contracts where the insured event is not life-contingent. For non-life products the insurance liability generally includes reserves for unearned premiums, unexpired risk, inadequate premium levels and outstanding claims and benefits. No catastrophe or equalization reserves are included in the measurement of the liability.
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The reserve for unearned premiums includes premiums received for risks that have not yet expired. Generally, the reserve is released over the coverage period of the premium and is recognized as premium income.
The liability for outstanding claims and benefits is established for claims that have not been settled and any related cash flows, such as claims handling costs. It includes claims that have been incurred but have not been reported to the Group. The liability is calculated at the reporting date using statistical methods based on empirical data and current assumptions that may include a margin for adverse deviation. Liabilities for claims subject to periodic payment are calculated using actuarial methods consistent with those applied to life insurance contracts. Discounting is applied if allowed by the local accounting principles used to measure the insurance liabilities. Discounting of liabilities is generally applied when there is a high level of certainty concerning the amount and settlement term of the cash outflows.
f. Liability adequacy testing
At each reporting date, the adequacy of the life insurance liabilities, net of VOBA and DPAC, is assessed using a liability adequacy test. Additional recoverability tests for policies written in the last year may also result in loss recognition.
Life insurance contracts for account of policyholders and any related VOBA and DPAC are considered in the liability adequacy test performed on insurance contracts. To the extent that the account balances are insufficient to meet future benefits and expenses, additional liabilities are established and included in the liability for life insurance.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio of contracts that are subject to broadly similar risks and managed together as a single portfolio. Specifically, in the Netherlands and the UK the liability adequacy test is performed on a consolidated basis for all life and non-life business, whereas in the Americas it is performed at the level of the portfolio of contracts. To the extent that the tests involve discounting of future cash flows, the interest rate applied is based on market rates or is based on managements expectation of the future return on investments. These future returns on investments take into account managements best estimate related to the actual investments and, where applicable, reinvestments of these investments at maturity. The fair value of the assets carried at amortized cost is considered in determining any liability adequacy surplus or deficit.
Any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place.
The adequacy of the non-life insurance liability is tested at each reporting date. Changes in expected claims that have occurred, but that have not been settled, are reflected by adjusting the liability for claims and future benefits. The reserve for unexpired risk is increased to the extent that the future claims and expenses in respect of current insurance contracts exceed the future premiums plus the current unearned premium reserve.
2.20 Investment contracts
Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders. Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged or is cancelled.
a. Investment contracts with discretionary participation features
Some investment contracts have participation features whereby the policyholder has the right to receive potentially significant additional benefits which are based on the performance of a specified pool of investment contracts, specific investments held by the Group or on the issuers net income. If the Group has discretion over the amount or timing of the distribution of the returns to policyholders, the investment contract liability is measured based on the accounting principles that apply to insurance contracts with similar features.
Some unitized investment contracts provide policyholders with the option to switch between funds with and without discretionary participation features. The entire contract is accounted for as an investment contract with discretionary participation features if there is evidence of actual switching resulting in discretionary participation benefits that are a significant part of the total contractual benefits.
156 | Notes to the consolidated financial statements of Aegon N.V. NOTE 2 |
b. Investment contracts without discretionary participation features
At inception, investment contracts without discretionary features are carried at amortized cost.
Investment contracts without discretionary participation features are carried at amortized cost based on the expected cash flows and using the effective interest rate method. The expected future cash flows are re-estimated at each reporting date and the carrying amount of the financial liability is recalculated as the present value of estimated future cash flows using the financial liabilitys original effective interest rate. Any adjustment is immediately recognized in the income statement.
The consolidated financial statements provide information on the fair value of all financial liabilities, including those carried at amortized cost. As these contracts are not quoted in active markets, their value is determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling. For investment contracts that can be cancelled by the policyholder, the fair value cannot be less than the surrender value.
c. Investment contracts for account of policyholders
Investment contracts for account of policyholders are investment contracts for which the actual return on investments allocated to the contract is passed on to the policyholder. Also included are participations held by third parties in consolidated investment funds that meet the definition of a financial liability.
Investment contracts for account of policyholders are designated at fair value through profit or loss. Contracts with unit-denominated payments are measured at current unit values, which reflect the fair values of the assets of the fund.
For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and is deferred. It is subsequently amortized over the life of the contract or a shorter period, if appropriate.
2.21 Provisions
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated.
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date, considering all its inherent risks and uncertainties, as well as the time value of money. The unwinding of the effect of discounting is recorded in the income statement as an interest expense.
Onerous contracts
With the exception of insurance contracts and investment contracts with discretionary participation features for which potential future losses are already considered in establishing the liability, a provision is recognized for onerous contracts in which the unavoidable costs of meeting the resulting obligations exceed the expected future economic benefits. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it.
2.22 Assets and liabilities relating to employee benefits
Changes in accounting policy
Aegon adopted IAS 19 - Employee Benefits, on January 1, 2013. This resulted in the Group changing its accounting policy for the assets and liabilities relating to employee benefits.
Aegon has applied the new policy for employee benefits on or after January 1, 2011, in accordance with the transitional provisions of the revised IAS 19. Aegons accounting policy for assets and liabilities relating to employee benefits as set out below reflects the changes under the revised IAS 19.
a. Short-term employee benefits
Prior to January 1, 2013, short-term benefits were recognized based on the employees entitlement to the benefits. Under the revised IAS 19 a liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
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b. Post-employment benefits
The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the Group has no further obligation than the payment of a fixed contribution. All other plans are classified as defined benefit plans.
Defined contribution plans
The contribution payable to a defined contribution plan for services provided is recognized as an expense in the income statement. An asset is recognized to the extent that the contribution paid exceeds the amount due for services provided.
Defined benefit plans
Measurement
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yields for high-quality corporate bonds on the balance sheet date. Prior to January 1, 2013, Aegon charged plan improvements directly to the income statement, unless they were conditional on the continuation of employment. In that case, the related cost was deducted from the liability as past service cost and amortized over the vesting period. Under the revised IAS 19, plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
Plan assets are qualifying insurance policies and assets held by long-term employee benefit funds that can only be used to pay the employee benefits under the plan and are not available to the Groups creditors. They are measured at fair value and are deducted in determining the amount recognized on the statement of financial position.
Profit or loss recognition
Prior to January 1, 2013, Aegon determined the cost of the plans at the beginning of the year, based on the prevalent actuarial assumptions, discount rate and expected return on plan assets. Changes in assumptions, discount rate and experience adjustments were not charged to the income statement in the period in which they occur, but were deferred. Unrecognized actuarial gains and losses were amortized in a straight line over the average remaining working life of the employees covered by the plan, to the extent that the gains or losses exceeded the corridor limits. The corridor was defined as ten percent of the greater of the defined benefit obligation or the plan assets.
Under the revised IAS 19, the cost of the plans are determined at the beginning of the year and comprise the following components:
¿ | Current year service cost which is recognized in profit or loss; and |
¿ | Net interest on the net defined benefit liability (asset) which is recognized in profit or loss; |
Remeasurements of the net defined benefit liability (asset) which is recognized in other comprehensive income are revisited quarterly.
Remeasurements of the net defined benefit liability (asset) shall not be reclassified to profit or loss in a subsequent period.
Any employee contributions are deducted from the current year service cost. Net interest on the net defined benefit liability (asset) shall be determined by multiplying the net defined benefit liability (asset) by the applicable discount rate. Net interest on the net defined benefit liability (asset) comprises interest income on plan assets and interest cost on the defined benefit obligation. Whereby interest income on plan assets is a component of the return on plan assets and is determined by multiplying the fair value of the plan assets by the applicable discount rate. The difference between the interest income on plan assets and the actual return on plan assets is included in the remeasurement of the net defined benefit liability (asset).
Remeasurements of the net defined benefit liability (asset) comprise of:
¿ | Actuarial gains and losses; |
¿ | The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and |
¿ | Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset). |
158 | Notes to the consolidated financial statements of Aegon N.V. NOTE 2 |
Settlements
Prior to January 1, 2013, gains or losses on the curtailment or settlement of a defined benefit plan included any related actuarial gains and losses and past service cost that had not previously been recognized. Under the revised IAS 19 the gain or loss on a curtailment or settlement is the difference between:
¿ | The present value of the defined benefit obligation being settled, as determined on the date of settlement; and |
¿ | The settlement price, including any plan assets transferred and any payments made directly by Aegon in connection with the settlement. |
Aegon recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs.
The effects of the change in accounting policies on the financial position, comprehensive income, and changes in equity of the Group are summarized in note 2.1.2.
c. Share-based payments
The Group has issued share-based plans that entitle employees to receive equity instruments issued by the Group or cash payments based on the price of Aegon N.V. common shares. Some plans provide employees of the Group with the choice of settlement.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the Groups shares. The cost is recognized in the income statement, together with a corresponding increase in shareholders equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects managements best estimate of the number of shares expected to vest ultimately.
Share appreciation right plans are initially recognized at fair value at the grant date, taking into account the terms and conditions on which the instruments were granted. The fair value is expensed over the period until vesting, with recognition of a corresponding liability. The liability is remeasured at each reporting date and at the date of settlement, with any changes in fair value recognized in the income statement.
Share option plans that can be settled in either shares or cash at the discretion of the employee are accounted for as a compound financial instrument, which includes a debt component and an equity component.
2.23 Deferred revenue liability
Initial fees and front-end loadings paid by policyholders and other clients for future investment management services related to investment contracts without discretionary participation features are deferred and recognized as revenue when the related services are rendered.
2.24 Tax assets and liabilities
a. Current tax assets and liabilities
Tax assets and liabilities for current and prior periods are measured at the amount that is expected to be received from or paid to the taxation authorities, using the tax rates that have been enacted or substantively enacted by the reporting date.
b. Deferred tax assets and liabilities
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the carrying value of an item and its tax value, with the exception of differences arising from the initial recognition of goodwill and of assets and liabilities that do not impact taxable or accounting profits. A tax asset is recognized for tax loss carryforwards to the extent that it is probable at the reporting date that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilized.
Deferred tax liabilities relating to investments in subsidiaries, associates and joint ventures are not recognized if the Group is able to control the timing of the reversal of the temporary difference and it is probable that the difference will not be reversed in the foreseeable future.
Deferred tax assets and liabilities are reviewed at the balance sheet date and are measured at tax rates that are expected to apply when the asset is realized or the liability is settled. The carrying amount is not discounted and reflects the Groups expectations concerning the manner of recovery or settlement.
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Deferred tax assets and liabilities are recognized in relation to the underlying transaction either in profit and loss, other comprehensive income or directly in equity.
2.25 Contingent assets and liabilities
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote.
2.26 Premium income
Gross premiums, including recurring and single premiums, from life and non-life insurance and investment contracts with discretionary participation features are recognized as revenue when they become receivable. Not reflected as premium income are deposits from certain products that are sold only in the United States and Canada, such as deferred annuities. For these products the surrender charges and charges assessed have been included in gross premiums.
Premium loadings for installment payments and additional payments by the policyholder towards costs borne by the insurer are included in the gross premiums. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium, others are recognized as an expense. Depending on the applicable local accounting principles, bonuses that are used to increase the insured benefits may be recognized as gross premiums.
2.27 Investment income
For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument. Investment income includes the interest income and dividend income on financial assets carried at fair value through profit or loss.
Investment income also includes rental income due, as well as fees received for security lending.
2.28 Fee and commission income
Fees and commissions from investment management services and mutual funds, and from sales activities are recognized as revenue over the period in which the services are performed or the sales have been closed.
2.29 Policyholder claims and benefits
Policyholder claims and benefits consist of claims and benefits paid to policyholders, including benefit claims in excess of account value for products for which deposit accounting is applied and the change in the valuation of liabilities for insurance and investment contracts. It includes internal and external claims handling costs that are directly related to the processing and settlement of claims. Amounts receivable in respect of salvage and subrogation are also considered.
2.30 Results from financial transactions
Results from financial transactions include:
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives include fair value changes of financial assets carried at fair value through profit or loss. The net gains and losses do not include interest or dividend income.
Realized gains and losses on financial investments
Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss.
Net fair value change of derivatives
All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net investment in a foreign operation. Fair value movements of fair value hedge instruments are offset by the fair value movements of the hedged item, and the resulting hedge ineffectiveness, if any, is included in this line. In addition, the fair value movements of bifurcated embedded derivatives are included in this line.
160 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
Net fair value change on for account of policyholder financial assets at fair value through profit or loss
Net fair value change on for account of policyholder financial assets at fair value through profit or loss includes fair value movements of investments held for account of policyholders (refer to note 2.8). The net fair value change does not include interest or dividend income.
Other
In addition, results from financial transactions include gains/losses on real estate (general account and account of policyholders), net foreign currency gains/(losses) and net fair value change on borrowings and other financial liabilities and realized gains on repurchased debt.
2.31 Impairment charges/(reversals)
Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and liabilities and other non-financial assets and receivables. Refer to note 15.
2.32 Interest charges and related fees
Interest charges and related fees includes interest expense on trust pass-through securities and other borrowings. Interest expense on trust pass-through securities and other borrowings carried at amortized cost is recognized in profit or loss using the effective interest method.
2.33 Leases
Arrangements that do not take the form of a lease but convey a right to use an asset in return for a payment are assessed at inception to determine whether they are, or contain, a lease. This involves an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the purchaser (lessee) has the right to control the use of the underlying asset.
Leases that do not transfer substantially all the risks and rewards of ownership are classified as operating leases.
Payments made under operating leases, where the Group is the lessee, are charged to the income statement on a straight line basis over the period of the lease.
Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases are recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.
2.34 Events after the balance sheet date
The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date are disclosed, but do not result in an adjustment of the financial statements themselves.
3 Critical accounting estimates and judgment in applying accounting policies
Application of the accounting policies in the preparation of the financial statements requires management to apply judgment involving assumptions and estimates concerning future results or other developments, including the likelihood, timing or amount of future transactions or events. There can be no assurance that actual results will not differ materially from those estimates. Accounting policies that are critical to the financial statement presentation and that require complex estimates or significant judgment are described in the following sections.
Valuation of assets and liabilities arising from life insurance contracts
The liability for life insurance contracts with guaranteed or fixed account terms is generally based on current assumptions or on the assumptions established at inception of the contract. All contracts are subject to liability adequacy testing which reflects managements current estimates of future cash flows (including investment returns). To the extent that the liability is based on current
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assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency relates to unrealized gains and losses on available-for-sale investments, the additional liability is recognized in the revaluation reserve in equity.
Some insurance contracts without a guaranteed or fixed contract term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force are recorded as DPAC and VOBA assets respectively and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability.
Actuarial assumptions
The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender rates may be considered.
Mortality tables applied are generally developed based on a blend of company experience and industry wide studies, taking into consideration product characteristics, own risk selection criteria, target market and past experience. Mortality experience is monitored through regular studies, the results of which are fed into the pricing cycle for new products and reflected in the liability calculation when appropriate. For contracts insuring survivorship, allowance may be made for further longevity improvements. Morbidity assumptions are based on own claims severity and frequency experience, adjusted where appropriate for industry information.
Investment assumptions are prescribed by the local regulator, market observable or based on managements future expectations. In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller country units, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
Assumptions on future expenses are based on the current level of expenses, adjusted for expected expense inflation if appropriate.
Surrender rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor and policyholder behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
In the third quarter of 2013, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4% over the next 10 years and 6% thereafter from its previous assumptions of 4% over the next 5 years and 6% thereafter. In addition, Aegon changed its long-term equity market return assumption for the estimated gross profit in variable life and variable annuity products in the Americas from 9% to 8%. In total, these assumption changes led to a negative impact on earnings of EUR 405 million in the third quarter of 2013. Both the assumptions for the bond fund and that for the long-term equity market are gross assumptions from which asset management and policy fees are deducted to determine the policyholder return. The 90-day Treasury yield is 0.07% at December 31, 2013 and is assumed to remain level for the next two years followed by an eight year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated equity market return and the actual return.
162 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
In 2012, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 9% (2011: 9%). The 90-day Treasury yield was 0.05% at December 31, 2012 and was assumed to remain level for the next two years followed by a three year grade to 3%. Aegons assumptions on the long term credit spread or default assumptions, remained unchanged in 2012.
In 2011, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US treasury yields by 50 basis points to 4.75% (graded uniformly over the next five years) and lowered the 90-day treasury yield to 0.02% for the next two years followed by a three year grade to 3%. In addition, Aegon lowered its assumed return for US separate account bond fund returns by 200 basis points to 4% over the next five years, followed by a return of 6% thereafter.
A 1% decrease in the expected long-term equity growth rate with regards to Aegons variable annuities and variable life insurance products in the United States and Canada would result in a decrease in DPAC and VOBA balances and reserve strengthening of approximately EUR 169 million (2012: EUR 150 million). The DPAC and VOBA balances for these products in the United States and Canada amounted to EUR 2.3 billion at December 31, 2013 (2012: EUR 2.1 billion).
For the fixed annuities and fixed universal life insurance products, the estimated gross profits (EGP) calculations include a net interest rate margin, which Aegon assumes will remain practically stable under any reasonably likely interest-rate scenario.
Applying a reasonably possible increase to the mortality assumption, which varies by block of business, would reduce net income by approximately EUR 105 million (2012: EUR 53 million). A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 18 million (2012: EUR 42 million).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 37 million (per assumption change) (2012: EUR 39 million).
Determination of having control over investees
In making the determination whether Aegon controls an investee, Aegon analyses whether it has power over the investee (existing rights that give it the current ability to direct the relevant activities). The outcome of this analysis depends on the following criteria:
¿ | Purpose and design of the investee; |
¿ | What are the relevant activities (that drive the investees returns) and how decisions about them are taken; and |
¿ | Whether rights of the investor give current ability to direct the relevant activities. |
The analysis also depends on whether Aegon is exposed or has rights to variable returns from its involvement with the investee and whether Aegon has the ability to use its powers over the investee to affect the amount of the investors returns.
In addition, IFRS requires that the assessment also consider Aegons relationships with other parties (who may be acting on Aegons behalf) and the possibility that the investee contains deemed separate entities that should be assessed for control separately.
In specific cases, which are described below, Aegon applied judgment involving the criteria for consolidation to come to the conclusion whether Aegon controls an investee.
Investment vehicle
An investment vehicle is considered to be any vehicle (fund) whose primary objective is investing and managing its assets with a view to generate returns. For the purpose of determining whether Aegon controls an investment vehicle and whether Aegon is an agent or a principal, the following has been analyzed:
¿ | The scope of its decision-making authority over the investee; |
¿ | The rights held by other parties; |
¿ | The remuneration to which it is entitled in accordance with the remuneration agreement; and |
¿ | The decision makers exposure to variability of returns from other interests that it holds in the investee. |
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Investment funds
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless the fund meets the definition of a deemed separate entity or under strict facts and circumstances a direct link between the policyholder and the fund can be assumed).
In determining whether Aegon has power the following has been considered:
¿ | Is the asset manager external or internal (i.e. an Aegon subsidiary); |
¿ | Is the investment mandate broad or narrow; |
¿ | Does the policyholder have legal rights to the separate assets in the investment vehicle (e.g. policyholders could have the voting rights related to these investments); |
¿ | The governance structure, such as an independent board of directors, representing the policyholders, which has substantive rights (e.g. to elect or remove the asset manager); and |
¿ | Rights held by other parties (e.g. voting rights of policyholders that are substantive or not). |
If the above assessment indicates that Aegon has power, it has been assessed whether Aegon has exposure or rights to variability of returns. The following items were assessed:
¿ | General account investment of Aegon; |
¿ | Aegons investment held for policyholder; |
¿ | Guarantees provided by Aegon on return of policyholders in specific investment vehicles; |
¿ | Fees dependent on fund value (including, but not limited to, asset management fees); and |
¿ | Fees dependent on performance of the fund (including, but not limited to, performance fees). |
For some investment funds Aegon concludes that Aegon is an agent and thus does not control those investment funds. In particular, for some separate accounts, Aegon concluded that the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts and in that case Aegon acts as an agent.
For some limited partnerships, determining whether Aegon has control over these entities is dependent on whether Aegon is a limited partner, general partner and whether other parties have substantive removal rights. The conclusion differs per situation and judgment is applied on the substantiveness of the removal rights and on the magnitude of the exposure to variable returns.
Structured entities
A structured entity is defined in IFRS 12 as An entity that has been designed so that voting rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. In these instances the tests and indicators to assess control provided by IFRS 10 have more focus on the purpose and design of the investee (with relation to the relevant activities that most significantly affect the structured entity) and the exposure to variable returns, which for structured entities lies in interests through e.g. derivatives, and will not be focused on entities that are controlled by voting rights.
Aegon concluded for several structured entities that the Group controls those investees. In particular the implementation of IFRS 10 resulted in a change in consolidation conclusion for a structured entity, as Aegon concluded it has control over that structured entity. Aegon has been involved in the design of certain mortgage backed securitization deals and Aegon also has the ability to use its power to affect the amount of the investees returns. Furthermore, Aegon fully services the investees and can therefore influence the defaults of the mortgage portfolios. In addition, for several of these securitization deals the majority of risks are maintained by Aegon. These factors contributed to the conclusion that Aegon has control. Restatements due to the implementation of IFRS 10 are disclosed in note 2.1.2.
Determination of fair value and fair value hierarchy
The following is a description of Aegons methods of determining fair value, and a quantification of its exposure to assets and liabilities measured at fair value.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). A fair value measurement assumes that the transaction to sell the asset or transfer the liability takes place either:
¿ | In the principal market for the asset or liability; or |
¿ | In the absence of a principal market, in the most advantageous market for the asset or liability. |
164 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
In accordance with IFRS 13, Aegon uses the following hierarchy for measuring and disclosing of the fair value of assets and liabilities:
¿ | Level I: quoted prices (unadjusted) in active markets for identical assets or liabilities that Aegon can access at the measurement date; |
¿ | Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices of identical or similar assets and liabilities) using valuation techniques for which all significant inputs are based on observable market data; and |
¿ | Level III: inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) using valuation techniques for which any significant input is not based on observable market data. |
The best evidence of fair value is a quoted price in an actively traded market. In the event that the market for a financial instrument is not active or quoted market prices are not available, a valuation technique is used.
The degree of judgment used in measuring the fair value of assets and liabilities generally inversely correlates with the level of observable valuation inputs. Aegon maximizes the use of observable inputs and minimizes the use of unobservable valuation inputs when measuring fair value. Financial instruments, for example, with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
The assets and liabilities categorization within the fair value hierarchy is based on the lowest input that is significant to the fair value measurement.
The judgment as to whether a market is active may include, although not necessarily determinative, lower transaction volumes, reduced transaction sizes and, in some cases, no observable trading activity for short periods. In inactive markets, assurance is obtained that the transaction price provides evidence of fair value or determined that the adjustments to transaction prices are necessary to measure the fair value of the instrument.
The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument in its entirety is classified as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instruments carrying amount is driven by unobservable inputs. Unobservable in this context means that there is little or no current market data available from which to determine the price at which an arms length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Additional information is provided in the table headed Effect of changes in significant unobservable assumptions to reasonably possible alternatives below. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
To operationalize Aegons fair value hierarchy, individual instruments (both financial and non-financial) are assigned a fair value level based primarily on the type of instrument and the source of the prices (e.g. index, third-party pricing service, broker, internally modeled). Periodically, this logic for assigning fair value levels is reviewed to determine if any modifications are necessary in the context of the current market environment.
Fair value of assets and liabilities
The estimated fair values of Aegons assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arms length basis. A fair value measurement assumes that an asset or liability is exchanged in an orderly transaction between market participants, and accordingly, fair value is not determined based upon a forced liquidation or distressed sale.
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Valuation techniques are used when Aegon determines the market is inactive or quoted market prices are not available for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). Therefore, unobservable inputs reflect Aegons own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available.
Aegon employs an oversight structure over valuation of financial instruments that includes appropriate segregation of duties. Senior management, independent of the investing functions, is responsible for the oversight of control and valuation policies and for reporting the results of these policies. For fair values determined by reference to external quotation or evidenced pricing parameters, independent price determination or validation is utilized to corroborate those inputs. Further details of the validation processes are set out below.
Valuation of assets and liabilities is based on a pricing hierarchy, in order to maintain a controlled process that will systematically promote the use of prices from sources in which Aegon has the most confidence, where the least amount of manual intervention exists and to embed consistency in the selection of price sources. Depending on asset type the pricing hierarchy consists of a waterfall that starts with making use of market prices from indices and follows with making use of third-party pricing services or brokers.
Shares
When available, Aegon uses quoted market prices in active markets to determine the fair value of its investments in shares. Fair values for unquoted shares are estimated using observations of the price/earnings or price/cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for company-specific issues and the lack of liquidity inherent in an unquoted investment. Illiquidity adjustments are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
Real estate funds, private equity funds and hedge funds
The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate.
Debt securities
The fair values of debt securities are determined by management after taking into consideration several sources of data. When available, Aegon uses quoted market prices in active markets to determine the fair value of its debt securities. As stated previously, Aegons valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. The majority of brokers quotes are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
To understand the valuation methodologies used by third-party pricing services Aegon reviews and monitors the applicable methodology documents of the third-party pricing services. Any changes to their methodologies are noted and reviewed for reasonableness. In addition, Aegon performs in-depth reviews of prices received from third-party pricing services on a sample basis. The objective for such reviews is to demonstrate that Aegon can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.
Third-party pricing services will often determine prices using recently reported trades for identical or similar securities. The third-party pricing service makes adjustments for the elapsed time from the trade date to the balance sheet date to take into account available
166 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
market information. Lacking recently reported trades, third-party pricing services and brokers will use modeling techniques to determine a security price where expected future cash flows are developed based on the performance of the underlying collateral and discounted using an estimated market rate.
Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs are reasonable and produce a reasonable estimate of fair value. Aegons asset specialists and investment valuation specialists consider both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities. Additionally, Aegon performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and the transaction price are investigated to explain the cause of the difference.
Credit ratings are also an important consideration in the valuation of securities and are included in the internal process for determining Aegons view of the risk associated with each security. However, Aegon does not rely solely on external credit ratings and there is an internal process, based on market observable inputs, for determining Aegons view of the risks associated with each security.
Aegons portfolio of private placement securities (held at fair value under the classification of available-for-sale or fair value through profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegons asset specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and an illiquidity premium to account for the illiquid nature of these securities. The illiquidity premiums are determined based upon the pricing of recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security. The impact of the illiquidity premium for private placement securities to the overall valuation is insignificant.
Aegons portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgage-backed securities (CMBS), Asset backed securities (ABS), Corporate bonds and Sovereign debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
Residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and asset backed securities (ABS)
Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available, Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant unobservable input is illiquidity premium which is embedded in the discount rate.
Corporate bonds
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These unobservable inputs may include subordination, liquidity and maturity differences.
Sovereign debt
When available, Aegon uses quoted market prices in active markets to determine the fair value of its sovereign debt investments. When Aegon cannot make use of quoted market prices, market prices from indices or quotes from third-party pricing services or brokers are used.
Tax credit investments
The fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits
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of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits/tax benefits (and the timing of those cash flows). These inputs are unobservable in the market place.
Mortgage loans, policy loans and private loans (held at amortized cost)
For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio.
The fair value of floating interest rate mortgage loans, policy loans and private placements used for disclosure purposes is assumed to be approximated by their carrying amount, adjusted for changes in credit risk. Credit risk adjustments are based on market observable credit spreads if available, or managements estimate if not market observable.
Money market and other short-term investments and deposits with financial institutions
The fair value of assets maturing within a year is assumed to be approximated by their carrying amount adjusted for credit risk where appropriate. Credit risk adjustments are based on market observable credit spreads if available, or managements estimate if not market observable.
Derivatives
Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that a typical market participant would consider and are based on observable market data when available. Models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices.
Fair values for exchange-traded derivatives, principally futures and certain options, are based on quoted market prices in active markets. Fair values for over-the-counter (OTC) derivative financial instruments represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivatives are valued using pricing models based on the net present value of estimated future cash flows, directly observed prices from exchange-traded derivatives, other OTC trades, or external pricing services. Most valuations are derived from swap and volatility matrices, which are constructed for applicable indices and currencies using current market data from many industry standard sources. Option pricing is based on industry standard valuation models and current market levels, where applicable. The pricing of complex or illiquid instruments is based on internal models or an independent third party. For long-dated illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. To value OTC derivatives, management uses observed market information, other trades in the market and dealer prices.
Some OTC derivatives are so called longevity derivatives. The payout of longevity derivatives is linked to publicly available mortality tables. The derivatives are measured using the present value of the best estimate of expected payouts of the derivative plus a risk margin. The best estimate of expected payouts is determined using best estimate of mortality developments. Aegon determined the risk margin by stressing the best estimate mortality developments to quantify the risk and applying a cost-of-capital methodology. The most significant unobservable input for these derivatives is the (projected) mortality development.
Aegon normally mitigates counterparty credit risk in derivative contracts by entering into collateral agreements where practical and in ISDA master netting agreements for each of the Groups legal entities to facilitate Aegons right to offset credit risk exposure. Changes in the fair value of derivatives attributable to changes in counterparty credit risk were not significant.
Embedded derivatives in insurance contracts including guarantees
Certain bifurcated guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include Guaranteed minimum withdrawal benefits (GMWB) in the United States, United Kingdom and Japan which are offered on some variable annuity products and are also assumed from a ceding company; minimum interest rate guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe and Japan, and guaranteed minimum accumulation benefits on segregated funds sold in Canada.
168 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is credit spread.
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments to other creditors). Aegons assumptions are set by region to reflect differences in the valuation of the guarantee embedded in the insurance contracts.
In 2013, Aegon updated the way it extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegons major currencies (USD, GBP and EUR) is set at 30 years. Additionally, Aegon updated the manner in which it estimates guarantees embedded within individual life contracts in the Netherlands. The impact on income before tax of these updates was EUR 27 million negative.
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 48 for more details about Aegons guarantees .
Real estate
Valuations of both investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the balance sheet date. Appraisals are different for each specific local market, but are based on market guidelines such as International Valuation Standards, Uniform Standards of Professional Appraisal Practice or guidelines issued by the Investment Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the propertys net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single years net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been let out.
Investment contracts
Investment contracts issued by Aegon are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). These contracts are not quoted in active markets and their fair values are determined by using valuation techniques, such as discounted cash flow methods and stochastic modeling or in relation to the unit price of the underlying assets. All models are validated and calibrated. A variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments.
Similar to embedded derivatives in insurance contracts, certain investment products are not quoted in active markets and their fair values are determined by using valuation techniques. Because of the dynamic and complex nature of these cash flows, stochastic or similar techniques under a variety of market return scenarios are often used. A variety of factors are considered, including expected market rates of return, market volatility, correlations of market returns, discount rates and actuarial assumptions.
The expected returns are based on risk-free rates, such as the current London Inter-Bank Offered Rate (LIBOR) swap rates and associated forward rates or the current rates on local government bonds. Market volatility assumptions for each underlying index are based on observed market implied volatility data and/or observed market performance. Correlations of market returns for various underlying indices are based on observed market returns and their inter-relationships over a number of years preceding the valuation date. Current risk-free spot rates are used to determine the present value of expected future cash flows produced in the stochastic projection process.
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Assumptions on customer behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Trust pass-through securities, subordinated borrowings and other borrowings
Trust pass-through securities, subordinated borrowings and other borrowings are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). For the determination of the fair value of these instruments, the level hierarchy as described by IFRS is used. The preferred method of obtaining the fair value of the fair value option bonds is the quoted price (Level I). In case markets are less liquid or the quoted prices are not available, an internal model is used, using parameters which are market observable (Level II). Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rate and 3-month swap rates. In addition, Aegon includes own credit spread based on Aegons credit default swap curve.
Fair value hierarchy
The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy:
Level I | Level II | Level III | Total 2013 | |||||||||||||
Assets carried at fair value |
||||||||||||||||
Available-for-sale investments |
||||||||||||||||
Shares |
202 | 262 | 322 | 787 | ||||||||||||
Debt securities |
20,815 | 64,184 | 3,162 | 88,162 | ||||||||||||
Money market and other short-term instruments |
- | 5,524 | - | 5,524 | ||||||||||||
Other investments at fair value |
25 | 312 | 826 | 1,163 | ||||||||||||
21,043 | 70,282 | 4,310 | 95,635 | |||||||||||||
Fair value through profit or loss |
||||||||||||||||
Shares |
1,120 | 130 | - | 1,250 | ||||||||||||
Debt securities |
64 | 1,268 | 17 | 1,350 | ||||||||||||
Money market and other short-term instruments |
95 | 354 | - | 449 | ||||||||||||
Other investments at fair value |
- | 567 | 1,217 | 1,784 | ||||||||||||
Investments for account of policyholders 1) |
99,040 | 63,008 | 1,989 | 164,037 | ||||||||||||
Derivatives |
69 | 13,134 | 328 | 13,531 | ||||||||||||
Investments in real estate |
- | - | 1,532 | 1,532 | ||||||||||||
Investments in real estate for policyholders |
- | - | 996 | 996 | ||||||||||||
100,388 | 78,461 | 6,079 | 184,929 | |||||||||||||
Revalued amounts |
||||||||||||||||
Real estate held for own use |
- | - | 288 | 288 | ||||||||||||
- | - | 288 | 288 | |||||||||||||
Total assets at fair value |
121,431 | 148,744 | 10,677 | 280,852 | ||||||||||||
Liabilities carried at fair value |
||||||||||||||||
Investment contracts for account of policyholders |
12,872 | 19,641 | 114 | 32,628 | ||||||||||||
Borrowings 2) |
517 | 500 | - | 1,017 | ||||||||||||
Derivatives |
24 | 10,383 | 1,431 | 11,838 | ||||||||||||
Total liabilities at fair value |
13,413 | 30,524 | 1,545 | 45,482 |
1 | The investments for account of policyholders included in the table above represents those investments carried at fair value through profit or loss. |
2 | Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule. |
Significant transfers between Level I and II
Aegons policy is to record transfers of assets and liabilities between Level I and Level II at their fair values as of the beginning of each reporting period. During 2013, the amount of assets transferred from Level I to Level II classification was EUR 2 million. During 2013, the amount of assets and liabilities transferred from Level II to Level I classification was EUR 473 million. Transfers are identified based on transaction volume and frequency which are indicative of an active market.
170 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
The table below shows transfers between Level I and Level II for assets recorded at fair value on a recurring basis during 2013:
Total 2013 | ||||||||
Transfers Level I to Level II |
Transfers Level II to Level I |
|||||||
Assets carried at fair value |
||||||||
Available-for-sale investments |
||||||||
Shares |
- | 1 | ||||||
Debt securities |
2 | 209 | ||||||
2 | 210 | |||||||
Fair value through profit or loss |
||||||||
Investments for account of policyholders |
- | 263 | ||||||
- | 263 | |||||||
Total assets at fair value |
2 | 473 |
There were no transfers between Level I and Level II for liabilities recorded at fair value on a recurring basis during 2013.
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171
Movements in Level III financial instruments measured at fair value
The following table summarizes the change of all assets and liabilities measured at estimated fair value on a recurring basis using significant unobservable inputs (Level III), including realized and unrealized gains (losses) of all assets and liabilities and unrealized gains (losses) of all assets and liabilities still held at the end of the respective period.
Assets carried at fair value |
At January 1, 2013 |
Total gains / losses in income state- ment 1) |
Total gains / losses in OCI 2) |
Pur- chases |
Sales | Settle- ments |
Net ex- change differ- ence |
Trans- fers from levels I and II |
Trans- fers to levels I and II |
At Decem- ber 31, 2013 |
Total unrealized |
|||||||||||||||||||||||||||||||||
Available for sale investments |
||||||||||||||||||||||||||||||||||||||||||||
Shares |
376 | 4 | 14 | 44 | (98 | ) | (11 | ) | (6 | ) | 1 | (1 | ) | 322 | - | |||||||||||||||||||||||||||||
Debt securities |
2,643 | 4 | 98 | 1,285 | (192 | ) | (466 | ) | (80 | ) | 488 | (619 | ) | 3,162 | - | |||||||||||||||||||||||||||||
Other investments at fair value |
883 | (106 | ) | 73 | 134 | (51 | ) | (70 | ) | (37 | ) | - | - | 826 | - | |||||||||||||||||||||||||||||
3,902 | (98 | ) | 185 | 1,464 | (342 | ) | (546 | ) | (123 | ) | 489 | (620 | ) | 4,310 | - | |||||||||||||||||||||||||||||
Fair value through profit or loss |
||||||||||||||||||||||||||||||||||||||||||||
Debt securities |
13 | (2 | ) | - | - | - | (1 | ) | (1 | ) | 10 | (2 | ) | 17 | 1 | |||||||||||||||||||||||||||||
Other investments at fair value |
1,416 | 145 | - | 53 | (360 | ) | - | (56 | ) | 106 | (86 | ) | 1,217 | 146 | ||||||||||||||||||||||||||||||
Investments for account of policyholders |
1,715 | 197 | - | 338 | (407 | ) | - | (15 | ) | 210 | (50 | ) | 1,989 | 153 | ||||||||||||||||||||||||||||||
Derivatives |
301 | 2 | - | 47 | (15 | ) | - | (7 | ) | - | - | 328 | (1 | ) | ||||||||||||||||||||||||||||||
Investments in real estate |
1,627 | (49 | ) | - | 91 | (105 | ) | - | (33 | ) | - | - | 1,532 | (60 | ) | |||||||||||||||||||||||||||||
Investments in real estate for policyholders |
1,008 | (12 | ) | - | 205 | (180 | ) | - | (25 | ) | - | - | 996 | (12 | ) | |||||||||||||||||||||||||||||
6,080 | 281 | - | 734 | (1,067 | ) | (1 | ) | (137 | ) | 326 | (138 | ) | 6,079 | 227 | ||||||||||||||||||||||||||||||
Revalued amounts |
||||||||||||||||||||||||||||||||||||||||||||
Real estate held for own use |
305 | (2 | ) | (5 | ) | (2 | ) | (1 | ) | - | (7 | ) | - | - | 287 | (2 | ) | |||||||||||||||||||||||||||
305 | (2 | ) | (5 | ) | (2 | ) | (1 | ) | - | (7 | ) | - | - | 287 | (2 | ) | ||||||||||||||||||||||||||||
Total assets at fair value |
10,287 | 181 | 180 | 2,196 | (1,410 | ) | (547 | ) | (267 | ) | 815 | (758 | ) | 10,676 | 225 | |||||||||||||||||||||||||||||
Liabilities carried at fair value |
||||||||||||||||||||||||||||||||||||||||||||
Investment contracts for account of policyholders |
(109 | ) | (20 | ) | - | (3 | ) | 13 | - | 5 | - | - | (114 | ) | (19 | ) | ||||||||||||||||||||||||||||
Derivatives |
(2,317 | ) | 903 | - | - | - | - | 12 | (30 | ) | 2 | (1,431 | ) | 868 | ||||||||||||||||||||||||||||||
(2,427 | ) | 883 | - | (3 | ) | 13 | - | 17 | (30 | ) | 2 | (1,545 | ) | 848 |
1 | Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement. |
2 | Total gains and losses are recorded in line items: Gains/(losses) on revaluation of available-for-sale investments, (Gains)/losses transferred to the income statement on disposal and impairment of available-for-sale investment and Changes in revaluation reser real estate held for own use of the statement of other comprehensive income. |
3 | Total gains/(losses) for the period during which the financial instrument was in Level III. |
172 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
Aegons policy is to record transfers of assets and liabilities between Level I, Level II and Level III at their fair values as of the beginning of each reporting period. During 2013, Aegon transferred certain financial instruments from Levels I and Level II to Level III of the fair value hierarchy. The reason for the change in level was that the market liquidity for these securities decreased, which led to a change in market observability of prices. Prior to transfer, the fair value for the Level I and Level II securities was determined using observable market transactions or corroborated broker quotes respectively for the same or similar instruments. Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Similarly, during 2013, Aegon transferred certain financial instruments from Level III to other levels of the fair value hierarchy. The change in level was mainly the result of a return of activity in the market for these securities and that for these securities the fair value could be determined using observable market transactions or corroborated broker quotes for the same or similar instruments.
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Significant unobservable assumptions
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level III assets and liabilities.
December 31, 2013 |
Valuation technique 1) |
Significant unobservable input 2) |
Range (weighted average) |
|||||||||||||
Assets carried at fair value |
||||||||||||||||
Available-for-sale investments |
||||||||||||||||
Shares |
203 | Broker quote | n.a. | n.a. | ||||||||||||
119 | Other | n.a. | n.a. | |||||||||||||
322 | ||||||||||||||||
Debt securities |
||||||||||||||||
RMBS |
276 | Broker quote | n.a. | n.a. | ||||||||||||
61 | Other | n.a. | n.a. | |||||||||||||
CMBS |
21 | Broker quote | n.a. | n.a. | ||||||||||||
7 | Other | n.a. | n.a. | |||||||||||||
ABS |
202 | Discounted cash flow | Discount rate | 3% - 8% (6.62% | ) | |||||||||||
2,030 | Broker quote | n.a. | n.a. | |||||||||||||
59 | Other | n.a. | n.a. | |||||||||||||
Corporate bonds |
212 | Discounted cash flow | Credit spread | 0.4% - 2.6% (2.33% | ) | |||||||||||
259 | Broker quote | n.a. | n.a. | |||||||||||||
16 | Other | n.a. | n.a. | |||||||||||||
Sovereign debt |
19 | Broker quote | n.a. | n.a. | ||||||||||||
3,162 | ||||||||||||||||
Other investments at fair value |
||||||||||||||||
Tax credit investments |
696 | Discounted cash flow | Discount rate | 8.2% | ||||||||||||
Other |
126 | Net asset value | n.a. | n.a. | ||||||||||||
4 | Other | n.a. | n.a. | |||||||||||||
826 | ||||||||||||||||
At December 31 |
4,310 | |||||||||||||||
Fair value through profit or loss |
||||||||||||||||
Debt securities |
17 | Other | n.a. | n.a. | ||||||||||||
17 | ||||||||||||||||
Other investments at fair value |
||||||||||||||||
Real estate funds |
591 | Net asset value | n.a. | n.a. | ||||||||||||
Private equity funds |
564 | Net asset value | n.a. | n.a. | ||||||||||||
Hedge funds |
62 | Net asset value | n.a. | n.a. | ||||||||||||
1,217 | ||||||||||||||||
Derivatives 3) |
||||||||||||||||
Longevity swap |
128 | Discounted cash flow | Mortality | n.a. | ||||||||||||
Other |
124 | Other | n.a. | n.a. | ||||||||||||
Real estate |
||||||||||||||||
Investments in real estate |
595 | Direct capitalization technique | Capitalization rate | 4.50% - 11.50% (7.3% | ) | |||||||||||
809 | Appraisal value | n.a. | n.a. | |||||||||||||
127 | Other | n.a. | n.a. | |||||||||||||
3,017 | ||||||||||||||||
Revalued amounts |
||||||||||||||||
Real estate held for own use |
129 | Direct capitalization technique | Capitalization rate | 6.50% - 9.50% (7.98% | ) | |||||||||||
104 | Appraisal value | n.a. | n.a. | |||||||||||||
54 | Other | n.a. | n.a. | |||||||||||||
287 | ||||||||||||||||
At December 31 |
3,304 | |||||||||||||||
|
||||||||||||||||
Total assets at fair value |
7,614 | |||||||||||||||
Liabilities carried at fair value |
||||||||||||||||
Derivatives |
||||||||||||||||
Embedded derivatives in insurance contracts |
1,213 | Discounted cash flow | Credit spread | 0.50% | ||||||||||||
Other |
218 | Other | n.a. | n.a. | ||||||||||||
Total liabilities at fair value |
1,431 |
1 | Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. |
2 | Not applicable (n.a.) has been included when no significant unobservable assumption has been identified and used. |
3 | Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions. Policyholder assets, and their returns, belong to policyholders and do not impact Aegons net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 76 million. |
174 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
Available-for-sale shares include shares in the Federal Home Loan Bank of EUR 94 million that are measured at par, which are reported as part of Other. The bank has implicit financial support from the United States government. The redemption value of the shares is fixed at par and they can only be redeemed by the bank.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
December 31, 2013 |
Significant unobservable input |
Effect of reasonably possible alternative assumptions (+/-) |
||||||||||||||||
Increase | Decrease | |||||||||||||||||
Financial assets carried at fair value |
||||||||||||||||||
Available-for-sale investments |
||||||||||||||||||
Debt securities |
||||||||||||||||||
ABS |
a | 202 | Discount rate | 19 | (20 | ) | ||||||||||||
Corporate bonds |
b | 212 | Credit spread | 25 | (19 | ) | ||||||||||||
Other investments at fair value |
||||||||||||||||||
Tax credit investments |
c | 696 | Discount rate | 13 | (13 | ) | ||||||||||||
Fair value through profit or loss |
||||||||||||||||||
Derivatives |
d | 128 | Mortality | 11 | (17 | ) | ||||||||||||
Financial liabilities carried at fair value |
||||||||||||||||||
Embedded derivatives in insurance contracts |
e | 1,213 | Credit spread | 37 | (36 | ) |
The table above presents the impact on a fair value measurement of a change in an unobservable input for financial instruments. The impact of changes in inputs may not be independent, therefore the descriptions provided below indicate the impact of a change in an input in isolation.
a. | The primary unobservable assumptions used in fair value measurement of asset backed securities is in general a liquidity premium in the discount rate. Changing the liquidity premium changes the discount rate when using the discounted cash flow model. Increasing or decreasing the liquidity premium respectively decreases or increases the value of the investment. Aegon adjusted the discount rate with 100 basis points up or down for this input. |
b. | For corporate bonds the most significant unobservable input for the valuation of these securities is the credit spread. An increase in credit spread results in a lower valuation, while a decrease in credit spread results in a higher valuation. Aegon adjusted the discount rate by 50 basis points up or down for this input. |
c. | Tax credit investments are measured at fair value using an internal model. The most significant unobservable input for valuation of these tax credits is the discount rate. Increasing or decreasing the discount rate would result in respectively a lower or higher valuation. Aegon adjusted the discount rate by 50 basis points up or down for this input. |
d. | The derivative included is a longevity index derivative. Most significant unobservable input is expected mortality. Changing the expected mortality changes the cash flow expectations from this derivative. Increasing (decreasing) the mortality rates decreases (increases) the value of the investment. Aegon adjusted longevity with 2% up or down for this input, compared to the expected mortality in determining the value of this derivative. |
e. | To determine the fair value of the bifurcated embedded derivatives related to guarantees, a discount rate is used including credit spread. An increase in the credit spread results in lower valuation, while a decrease results in a higher valuation of the embedded derivatives. Aegon increased or decreased the credit spread by 20 basis points. |
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175
Fair value information about assets and liabilities not measured at fair value
The following table presents the carrying values and estimated fair values of assets and liabilities, excluding assets and liabilities which are carried at fair value on a recurring basis.
Carrying amount December 31, 2013 |
Estimated fair value hierarchy | Total estimated fair value December 31, 2013 |
||||||||||||||||||
Level I | Level II | Level III | ||||||||||||||||||
Assets |
||||||||||||||||||||
Mortgage loans - held at amortized cost |
29,369 | - | 2 | 32,867 | 32,869 | |||||||||||||||
Private loans - held at amortized cost |
1,783 | - | 96 | 1,792 | 1,888 | |||||||||||||||
Other loans - held at amortized cost |
2,381 | - | 2,034 | 348 | 2,381 | |||||||||||||||
Liabilities |
||||||||||||||||||||
Trust pass-through securities - held at amortized cost |
135 | - | 122 | - | 122 | |||||||||||||||
Subordinated borrowings - held at amortized cost |
44 | - | 73 | - | 73 | |||||||||||||||
Borrowings held at amortized cost |
11,003 | 2,067 | 1,527 | 7,697 | 11,291 | |||||||||||||||
Investment contracts - held at amortized cost |
14,079 | - | 4,299 | 10,088 | 14,387 |
Certain financial instruments that are not carried at fair value are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and cash equivalents, short-term receivables and accrued interest receivable, short-term liabilities, and accrued liabilities. These instruments are not included in the table above.
Impairment of financial assets
There are a number of significant risks and uncertainties inherent in the process of monitoring investments and determining if impairment exists. These risks and uncertainties include the risk that the Groups assessment of an issuers ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Any of these situations could result in a charge against the income statement to the extent of the impairment charge recorded.
Debt securities
Aegon regularly monitors industry sectors and individual debt securities for evidence of impairment. This evidence may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations, 5) high probability of bankruptcy of the issuer or 6) recognized credit rating agency downgrades. Additionally, for ABS, cash flow trends and underlying levels of collateral are monitored.
Residential mortgage-backed securities (RMBS) are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are performed quarterly. Model output is generated under a base and several stress-case scenarios. Aegons RMBS asset specialists utilize industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to-value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized.
Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific securitys collateral attributes and historical performance. Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Once the entire pool is modeled, the results are analyzed by internal asset specialists to determine whether or not a particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held. Aegon will impair its particular tranche to fair value where it would not be able to receive all contractual cash flows.
176 | Notes to the consolidated financial statements of Aegon N.V. Note 3 |
Commercial mortgage-backed securities (CMBS) are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are performed quarterly. Model output is generated under base and several stress-case scenarios by Aegons CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach to modeling. For non-conduit securities, a CMBS asset specialist works closely with Aegons real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur. Aegon will impair a particular tranche to fair value where it would not be able to receive all contractual cash flows.
Other ABS securities are monitored and reviewed on a monthly basis. Where ratings have declined to below investment grade, the individual debt securities have been modeled. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur. Aegon will impair its particular tranche to fair value where it would not be able to receive all contractual cash flows.
Shares
Objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. Significant or prolonged decline is defined as an unrealized loss position for more than six months or a fair value of less than 80% of the original cost price of the investment. Additionally, as part of an ongoing process, the equity analysts actively monitor earnings releases, company fundamentals, new developments and industry trends for any signs of possible impairment. If an available-for-sale equity security is impaired based upon Aegons qualitative or quantitative impairment criteria, any further declines in the fair value at subsequent reporting dates are recognized as impairments. Therefore, at each reporting period, for an equity security that is determined to be impaired based upon Aegons impairment criteria, an impairment is recognized for the difference between the fair value and the original cost basis, less any previously recognized impairments.
Goodwill
Goodwill is reviewed and tested for impairment under a fair value approach. Goodwill must be tested for impairment at least annually or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The recoverable amount is the higher of the value in use and fair value less costs to sell for a cash-generating unit. Impairment testing requires the determination of the value in use or fair value less costs for each of Aegons identified cash generating units.
The valuation utilized the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 21 for more details.
Valuation of defined benefit plans
The liabilities or assets recognized in the statement of financial position in respect of defined benefit plans is the difference between the present value of the projected defined benefit obligation at the balance sheet date and the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected.
Recognition of deferred tax assets
Deferred tax assets are established for the tax benefit related to deductible temporary differences, carry forwards of unused tax losses and carry forwards of unused tax credits when in the judgment of management it is probable that Aegon will receive the tax benefits. Since there is no absolute assurance that these assets will ultimately be realized, management reviews Aegons deferred tax positions periodically to determine if it is probable that the assets will be realized. Periodic reviews include, among other things, the nature and amount of the taxable income and deductible expenses, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning strategies it can utilize to increase the likelihood that the tax assets will be realized. These strategies are also considered in the periodic reviews.
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177
Recognition of provisions
Provisions are established when it is probable that a past event has given rise to a present obligation or loss, the settlement of the obligation will probably lead to an outflow of resources embodying economic benefits and the amount can be reasonably estimated. Management exercises judgment in evaluating the probability that a loss will be incurred. The estimate of the amount of a loss requires management judgment in the selection of a proper calculation model and the specific assumptions related to the particular exposure.
4 Financial and insurance risks
General
As an insurance group, Aegon is in the business of risk and as a result is exposed to a variety of risks. A description of Aegons risk management and control systems is given below on the basis of significant identified risks for the company. Some risks, such as currency translation risk, are related to the international nature of Aegons business. Other risks include insurance related risks, such as changes in mortality and morbidity. However, Aegons largest exposures are to changes in financial markets (e.g. interest rate, credit and equity market risks) that affect the value of the investments, liabilities from products that Aegon sells, deferred expenses and value of business acquired.
Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegons integrated approach to risk management involves common measurement of risk and scope of risk coverage to allow for aggregation of the Groups risk position.
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Groups exposure to major risks such as equity, interest rates, credit, underwriting and currency. The limits in these policies in aggregate remain within the Groups overall tolerance for risk and the Groups financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models, hedging programs (which are largely conducted via the use of derivatives) and insurance programs (which are largely conducted through the use of reinsurance). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Groups overall risk strategy.
Aegon operates a Derivative Use Policy and a Reinsurance Use Policy to govern its usage of derivatives and reinsurance. These policies establish the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, these policies stipulate necessary mitigation of credit risk created through these derivatives and reinsurance risk management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements. For reinsurance, credit risk is normally mitigated by downgrade triggers allowing Aegons recapture of business, funds withheld by treaties (when Aegon owns the assets) and assets held in trust for the benefit of Aegon (in the event of reinsurer insolvency).
As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders equity under both deterministic and stochastic scenarios. Management uses the insight gained through these what if? scenarios to manage the Groups risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Results of Aegons sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegons regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
Each sensitivity analysis reflects the extent to which the shock tested would affect managements critical accounting estimates and judgment in applying Aegons accounting policies. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although managements short-term assumptions may change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses.
178 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on managements long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders equity. Aegon has classified a significant part of its investment portfolio as available-for-sale, which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal. Aegons target ratio for the composition of its capital base is based on shareholders equity excluding the revaluation reserve.
The sensitivities do not reflect what the net income for the period would have been if risk variables had been different because the analysis is based on the exposures in existence at the reporting date rather than on those that actually occurred during the year. Nor are the results of the sensitivities intended to be an accurate prediction of Aegons future shareholders equity or earnings. The analysis does not take into account the impact of future new business, which is an important component of Aegons future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear. No risk management process can clearly predict future results.
Concentration risk for financial risks are measured and managed at the following levels:
¿ | Concentration per risk type: Risk exposures are measured per risk type as part of Aegons internal economic framework. A risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types. |
¿ | Concentration per counterparty: Risk exposure are measured and risk limits are in place per counterparty as part of the Counterparty Name Limit Policy. |
¿ | Concentration per sector, geography and asset class: Aegons investment strategy is translated in investment mandates for our internal and external asset managers. Through these investment mandates limits on sector, geography and asset class are set. Compliance monitoring of the investment mandates is done by the insurance operating companies. |
Moreover concentration of financial risks are measured in Aegon business planning cycle. As part of business planning, the resilience of Aegons business strategy is tested in several extreme event scenarios. In the Depression and Inflation scenario financial markets are stressed without assuming diversification across different market factors. As part of the Extreme Event Scenario testing, appropriate management actions are implemented when management deems this necessary.
Concentration risk for insurance risks are measured and managed at the following levels:
¿ | Concentration per risk type: Insurance risks include mortality, longevity, morbidity and policyholder behavior risk. Similar to financial risks, a risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types. |
¿ | Concentration per insured life: Mortality risk retention limit per life is set as part of the Underwriting Risk Policy. |
Risk mitigation/transfer programs are taken for the exposures that are close to or exceed the limit. More generally, Aegons processes for managing insurance risks include risk-based pricing, underwriting and claim process, risk analysis and modeling, and management actions such as repricing, risk mitigation/transfer, enhancing customer service, etc.
Currency exchange rate risk
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure exists when policies are denominated in currencies other than the issuers functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders equity is required to satisfy regulatory and self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders equity as a result of translation of subsidiaries into euro, the Groups presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders equity because of these fluctuations.
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Aegon operates a Currency Risk Policy which applies currency risk exposure limits both at Group and regional levels, and under which direct currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group Risk and Capital Committee. Assets should be held in the functional currency of the business written or hedged back to that currency. Where this is not possible or practical, remaining currency exposure should be sufficiently documented and limits are placed on the total exposure at both group level and for individual country units.
Information on Aegons 3-year historical net income / (loss) and shareholders equity in functional currency are shown in the table below:
2013 | 2012 | 2011 | ||||||||||
Net income |
||||||||||||
Americas (in USD) |
540 | 1,325 | 896 | |||||||||
The Netherlands (in EUR) |
521 | 387 | 532 | |||||||||
United Kingdom (in GBP) |
65 | 109 | (81 | ) | ||||||||
New markets (in EUR) |
127 | 243 | 104 | |||||||||
Equity in functional currency |
||||||||||||
Americas (in USD) |
19,891 | 22,437 | 21,322 | |||||||||
The Netherlands (in EUR) |
3,350 | 3,979 | 2,879 | |||||||||
United Kingdom (in GBP) |
2,845 | 2,593 | 2,125 | |||||||||
New markets (in EUR) |
1,873 | 2,406 | 2,280 |
The exchange rates for US dollar and UK pound per euro for each of the last five year-ends are set forth in the table below:
Closing rates | 2013 | 2012 | 2011 | 2010 | 2009 | |||||||||||||||
USD |
1.38 | 1.32 | 1.30 | 1.34 | 1.44 | |||||||||||||||
GBP |
0.83 | 0.81 | 0.84 | 0.86 | 0.89 |
Aegon Group companies foreign currency exposure from monetary assets and liabilities denominated in foreign currencies is not material.
The sensitivity analysis in the table below shows an estimate of the effect of movements in the exchange rates of Aegons non-euro currencies relative to the euro on net income and shareholders equity. The effects as included in the table below are due to the translation of subsidiaries and joint-ventures in the consolidated financial statements.
Sensitivity analysis of net income and shareholders equity to translation risk
Movement of markets 1) | Estimated approximate effects on net income |
Estimated approximate effects on shareholders equity |
||||||
2013 |
||||||||
Increase by 15% of non-euro currencies relative to the euro |
61 | 1,951 | ||||||
Decrease by 15% of non-euro currencies relative to the euro |
(61 | ) | (1,950 | ) | ||||
2012 |
||||||||
Increase by 15% of non-euro currencies relative to the euro |
193 | 2,621 | ||||||
Decrease by 15% of non-euro currencies relative to the euro |
(193 | ) | (2,621 | ) |
1 | The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31. |
Interest rate risk
Aegon bears interest rate risk with many of its products. In cases where cash flows are highly predictable, investing in assets that closely match the cash flow profile of the liabilities can offset this risk. For some Aegon country units, local capital markets are not well developed, which prevents the complete matching of assets and liabilities for those businesses. For some products, cash flows are less predictable as a result of policyholder actions that can be affected by the level of interest rates.
In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in
180 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
During periods of sustained low interest rates, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided on policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. Mortgages and redeemable bonds in the investment portfolio are more likely to be repaid as borrowers seek to borrow at lower interest rates and Aegon may be required to reinvest the proceeds in securities bearing lower interest rates. Accordingly, net income declines as a result of a decrease in the spread between returns on the investment portfolio and the interest rates either credited to policyholders or assumed in reserves.
Aegon manages interest rate risk closely taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest Rate Risk policy that limits the amount of interest rate risk to which the Group is exposed. All derivative use is governed by Aegons Derivative Use Policy.
The following table shows interest rates at the end of each of the last five years.
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
3-month US LIBOR |
0.25% | 0.31% | 0.58% | 0.30% | 0.25% | |||||||||||||||
3-month EURIBOR |
0.29% | 0.19% | 1.36% | 1.01% | 0.70% | |||||||||||||||
10-year US Treasury |
3.03% | 1.76% | 1.88% | 3.29% | 3.83% | |||||||||||||||
10-year Dutch government |
2.23% | 1.50% | 2.19% | 3.15% | 3.56% |
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders equity. In general, increases in interest rates have a negative effect on shareholders equity and a positive impact on net income in the current year because it results in unrealized losses on investments that are carried at fair value. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. Over time, the medium-term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. Therefore, higher interest rates are not considered a long-term risk to the Group.
Parallel Movement of Yield Curve | Estimated approximate effects on net income |
Estimated approximate effects on shareholders equity |
||||||
2013 | ||||||||
Shift up 100 basis points |
443 | (3,159 | ) | |||||
Shift down 100 basis points |
(398 | ) | 3,432 | |||||
2012 | ||||||||
Shift up 100 basis points |
65 | (4,005 | ) | |||||
Shift down 100 basis points |
(47 | ) | 4,226 |
Credit risk
As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), OTC derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During the financial crisis, Aegon incurred significant investment impairments on Aegons investment assets due to defaults and overall declines in the capital markets. Further excessive defaults or other reductions in the value of these securities and loans could have a materially adverse effect on Aegons business, results of operations and financial condition.
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181
The table that follows shows the Groups maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 51 and note 52 for further information on capital commitments and contingencies, and on collateral given, which may expose the Group to credit risk.
2013 | Maximum exposure to credit risk |
Cash | Securities | Letters of credit / guarantees |
Real estate property |
Master netting agree- ments |
Other | Total collateral |
Surplus collateral (or overcollater- alization) |
Net exposure |
||||||||||||||||||||||||||||||
Shares |
2,036 | - | - | - | - | - | - | - | - | 2,036 | ||||||||||||||||||||||||||||||
Debt securities - carried at fair value |
89,511 | - | - | 725 | - | - | - | 725 | - | 88,787 | ||||||||||||||||||||||||||||||
Money market and other short-term investments - carried at fair value |
5,974 | - | 1,078 | - | - | - | - | 1,078 | 31 | 4,926 | ||||||||||||||||||||||||||||||
Mortgage loans - carried at amortized cost |
29,369 | 1,717 | - | 1,810 | 39,447 | - | 2 | 42,976 | 14,442 | 835 | ||||||||||||||||||||||||||||||
Private loans - carried at amortized cost |
1,783 | 21 | - | - | - | - | - | 21 | - | 1,761 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost |
2,381 | - | - | - | - | - | 1,925 | 1,925 | 1,149 | 1,606 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value |
2,947 | - | - | - | - | - | - | - | - | 2,947 | ||||||||||||||||||||||||||||||
Derivatives |
13,293 | 2,898 | 416 | - | - | 9,433 | - | 12,746 | 78 | 625 | ||||||||||||||||||||||||||||||
Reinsurance assets |
10,255 | - | 5,327 | 165 | - | - | - | 5,492 | - | 4,763 | ||||||||||||||||||||||||||||||
At December 31 | 157,550 | 4,636 | 6,821 | 2,700 | 39,447 | 9,433 | 1,927 | 64,963 | 15,699 | 108,286 | ||||||||||||||||||||||||||||||
2012 | Maximum exposure to credit risk |
Cash | Securities | Letters of credit / guarantees |
Real estate property |
Master netting agree- ments |
Other | Total collateral |
Surplus collateral (or overcollater- alization) |
Net exposure |
||||||||||||||||||||||||||||||
Shares |
1,867 | - | - | - | - | - | - | - | - | 1,867 | ||||||||||||||||||||||||||||||
Debt securities - carried at fair value |
96,825 | - | - | 805 | - | - | - | 805 | - | 96,020 | ||||||||||||||||||||||||||||||
Money market and other short-term investments - carried at fair value |
9,771 | - | 718 | - | - | - | - | 718 | 17 | 9,070 | ||||||||||||||||||||||||||||||
Mortgage loans - carried at amortized cost |
28,298 | 1,513 | - | 1,652 | 37,224 | - | 2 | 40,391 | 13,066 | 973 | ||||||||||||||||||||||||||||||
Private loans - carried at amortized cost |
1,012 | - | - | - | - | - | - | - | - | 1,012 | ||||||||||||||||||||||||||||||
Other loans - carried at amortized cost |
2,350 | - | - | - | - | - | 2,073 | 2,073 | 1,324 | 1,601 | ||||||||||||||||||||||||||||||
Other financial assets - carried at fair value |
3,219 | - | 1 | - | - | - | - | 1 | - | 3,218 | ||||||||||||||||||||||||||||||
Derivatives |
20,824 | 5,241 | 655 | - | - | 14,597 | - | 20,493 | 121 | 452 | ||||||||||||||||||||||||||||||
Reinsurance assets |
11,869 | - | 6,516 | 201 | - | - | - | 6,717 | - | 5,152 | ||||||||||||||||||||||||||||||
At December 31 | 176,035 | 6,754 | 7,890 | 2,658 | 37,224 | 14,597 | 2,075 | 71,198 | 14,528 | 119,365 |
182 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Shares
Further information on equity risk is provided in section equity market and other investment risk.
Debt securities
Several bonds in Aegon USAs portfolio are insured by monoline insurers. Further information on the monoline insurers is provided in section Additional information on credit risk, unrealized losses and impairments.
Money market and short term investments
The collateral reported for the money market and short term investments are related to tri-party repurchase agreements (repos). Within tri-party repos Aegon invests under short term reverse repurchase agreements and the counterparty posts collateral to a third party custodian. The collateral posted is typically high-quality short term securities and is only accessible to Aegon in the event the counterparty defaults.
Mortgage loans
The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum, on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the propertys net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically.
Cash collateral for mortgage loans includes the savings that have been received to redeem the underlying mortgage loans at redemption date. These savings are part of the credit side of the statement of financial position, but reduce the credit risk for the mortgage loan as a whole.
Guarantees that have been received regarding mortgage loans that fulfill certain criteria of the Dutch Mortgage loan Guarantee (NHG) are presented in the letters of credit/guarantees column. These specific mortgage loans are partly guaranteed by a Dutch Government Trust (Stichting Waarborgfonds Eigen Woningen). The guarantee encompasses the remaining debt for these mortgage loans (being the remainder of the mortgage loan minus the forced sale auction value).
Derivatives
The master netting agreements column in the table relates to derivative liability positions which are used in Aegons credit risk management. The offset in the master netting agreements column includes balances where there is a legally enforceable right of offset, but no intention to settle these balances on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes.
Reinsurance assets
The collateral related to the reinsurance assets include assets in trust that are held by the reinsurer for the benefit of Aegon. The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 28.
Other loans
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 22.1.
The total collateral includes both under- and over-collateralized positions. To present a net exposure of credit risk, the over collateralization, which is shown in the surplus collateral column, is extracted from the total collateral.
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183
Credit risk management
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegons legal entities to facilitate Aegons right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated A or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, currency swaps, and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. In 2013 and 2012, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized.
Aegon may also mitigate credit risk in reinsurance contracts by including down-grade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modelling in order to assess the Groups credit risk profile, associated earnings and capital implications due to various credit loss scenarios.
Aegon operates a Credit Name Limit Policy under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moodys and Fitch) and Aegons internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from Aegons Group Risk and Capital Committee (GRCC). The policy is reviewed regularly.
At December 31, 2013, there was one violation of the Credit Name Limit Policy at Group level, which received an exemption from Aegons GRCC. This exposure is an reinsurance exposure. At December 31, 2012, there were four violations of the Credit Name Limit Policy at Group level. Three of these exposures have been reduced in 2013.
At December 31, 2013, Aegons largest corporate credit exposures are to Rabobank, ING, Citigroup, General Electric and Berkshire Hathaway. Aegon had large investments in sovereign backed assets, the largest being in USA, the Netherlands, Germany, UK and Austria. Highly rated sovereign assets (AAA rated) and domestically issued and owned in local currency sovereign exposures are excluded from the Credit Name Limit Policy.
Aegon Group level long-term counterparty exposure limits are as follows:
Group Limit | ||||||||
Amounts in EUR million | 2013 | 2012 | ||||||
AAA |
900 | 900 | ||||||
AA |
900 | 900 | ||||||
A |
675 | 600 | ||||||
BBB |
450 | 400 | ||||||
BB |
250 | 250 | ||||||
B |
125 | 125 | ||||||
CCC or lower |
50 | 50 |
184 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Credit rating
The ratings distribution of general account portfolios of Aegons major country units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Disclosure of ratings follows a hierarchy of S&P, Moodys, Fitch, Internal and National Association of Insurance Commissioners (NAIC).
Americas | The Netherlands | United Kingdom | New Markets | Total 2013 1) | ||||||||||||||||||||||||||||||||||||||
Credit rating general |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Amor- tized cost |
Fair value |
Total carrying value | |||||||||||||||||||||||||||||||
Sovereign exposure |
- | 5,943 | 173 | 11,142 | - | 2,640 | - | 225 | 173 | 19,950 | 20,123 | |||||||||||||||||||||||||||||||
AAA |
919 | 6,673 | 506 | 1,289 | - | 248 | - | 147 | 1,425 | 8,461 | 9,886 | |||||||||||||||||||||||||||||||
AA |
3,030 | 7,475 | 143 | 1,076 | - | 1,767 | - | 233 | 3,173 | 10,552 | 13,725 | |||||||||||||||||||||||||||||||
A |
1,744 | 21,352 | 215 | 2,776 | - | 3,649 | 86 | 678 | 2,046 | 28,501 | 30,547 | |||||||||||||||||||||||||||||||
BBB |
257 | 17,249 | 181 | 2,520 | - | 2,159 | 57 | 1,014 | 494 | 22,941 | 23,435 | |||||||||||||||||||||||||||||||
BB |
198 | 1,755 | 3 | 203 | - | 183 | 4 | 398 | 205 | 2,539 | 2,744 | |||||||||||||||||||||||||||||||
B |
11 | 1,160 | 4 | 70 | - | 11 | 5 | 23 | 20 | 1,264 | 1,284 | |||||||||||||||||||||||||||||||
CCC or lower |
- | 797 | - | 19 | - | - | 2 | 2 | 2 | 818 | 820 | |||||||||||||||||||||||||||||||
Assets not rated |
1,954 | 4,092 | 22,845 | 12,386 | 1 | 70 | 194 | 140 | 24,993 | 17,026 | 42,019 | |||||||||||||||||||||||||||||||
Total |
8,113 | 66,496 | 24,070 | 31,480 | 1 | 10,727 | 348 | 2,860 | 32,532 | 112,051 | 144,583 | |||||||||||||||||||||||||||||||
Past due and / or impaired assets |
79 | 1,497 | 638 | 160 | - | 26 | 160 | 28 | 877 | 1,711 | 2,588 | |||||||||||||||||||||||||||||||
At December 31 | 8,192 | 67,992 | 24,708 | 31,641 | 1 | 10,753 | 508 | 2,888 | 33,409 | 113,762 | 147,171 | |||||||||||||||||||||||||||||||
1 Includes investments of Holding and other activities |
|
|||||||||||||||||||||||||||||||||||||||||
Americas | The Netherlands | United Kingdom | New Markets | Total 2012 1) | ||||||||||||||||||||||||||||||||||||||
Credit rating general account investments, excluding reinsurance assets 2012 |
Amor- tized cost |
Fair value | Amor- tized cost |
Fair value | Amor- tized cost |
Fair value | Amor- tized cost |
Fair value | Amor- tized cost |
Fair value | Total carrying value | |||||||||||||||||||||||||||||||
Sovereign exposure |
- | 6,551 | 26 | 11,503 | - | 2,730 | - | 79 | 26 | 20,863 | 20,889 | |||||||||||||||||||||||||||||||
AAA |
879 | 7,878 | 478 | 985 | - | 198 | - | 150 | 1,357 | 9,970 | 11,327 | |||||||||||||||||||||||||||||||
AA |
3,431 | 9,124 | 206 | 1,392 | - | 2,189 | - | 371 | 3,637 | 13,076 | 16,713 | |||||||||||||||||||||||||||||||
A |
1,662 | 26,841 | 127 | 3,120 | - | 3,880 | 90 | 746 | 1,879 | 34,604 | 36,483 | |||||||||||||||||||||||||||||||
BBB |
408 | 18,402 | 70 | 1,928 | - | 2,057 | 82 | 895 | 560 | 23,282 | 23,842 | |||||||||||||||||||||||||||||||
BB |
232 | 2,145 | 11 | 173 | - | 160 | 6 | 427 | 249 | 2,905 | 3,154 | |||||||||||||||||||||||||||||||
B |
9 | 1,318 | 4 | 131 | - | 27 | 2 | 33 | 15 | 1,509 | 1,524 | |||||||||||||||||||||||||||||||
CCC or lower |
8 | 883 | - | 15 | - | 10 | - | 15 | 8 | 923 | 931 | |||||||||||||||||||||||||||||||
Assets not rated |
2,109 | 4,257 | 20,766 | 18,726 | 5 | 64 | 209 | 132 | 23,089 | 23,566 | 46,655 | |||||||||||||||||||||||||||||||
Total |
8,738 | 77,399 | 21,688 | 37,973 | 5 | 11,315 | 389 | 2,848 | 30,820 | 130,698 | 161,518 | |||||||||||||||||||||||||||||||
Past due and / or impaired assets |
172 | 1,506 | 557 | 266 | - | 30 | 162 | 8 | 891 | 1,810 | 2,701 | |||||||||||||||||||||||||||||||
At December 31 | 8,910 | 78,905 | 22,245 | 38,239 | 5 | 11,345 | 551 | 2,856 | 31,711 | 132,508 | 164,219 | |||||||||||||||||||||||||||||||
1 Includes investments of Holding and other activities |
|
|
Supplemental Annual Report 2013 |
185
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically:
Carrying value 2013 |
Carrying value 2012 | |||||||||||
AAA |
7 | 6 | ||||||||||
AA |
3,246 | 3,955 | ||||||||||
A |
5,049 | 5,540 | ||||||||||
Below A |
1,620 | 1,895 | ||||||||||
Not rated |
334 | 472 | ||||||||||
At December 31 |
10,255 | 11,868 | ||||||||||
Credit risk concentration | ||||||||||||
The tables that follow present specific credit risk concentration information for general account financial assets. | ||||||||||||
Credit risk concentrations debt securities and money market investments 2013 |
Americas | The Netherlands |
United Kingdom |
New Markets | Total 2013 1) |
Of which assets | ||||||
Residential mortgage backed securities (RMBSs) |
4,360 | 1,143 | 19 | 112 | 5,634 | 1,282 | ||||||
Commercial mortgage backed securities (CMBSs) |
4,723 | 82 | 398 | 134 | 5,337 | 43 | ||||||
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans |
562 | 1,379 | - | - | 1,941 | 43 | ||||||
ABSs Other |
2,079 | 184 | 1,682 | 97 | 4,041 | 64 | ||||||
Financial - Banking |
5,768 | 1,079 | 1,501 | 267 | 8,710 | 20 | ||||||
Financial - Other |
9,124 | 189 | 1,242 | 239 | 10,802 | 2 | ||||||
Industrial |
22,911 | 3,122 | 2,089 | 837 | 28,959 | 37 | ||||||
Utility |
5,027 | 687 | 823 | 162 | 6,699 | - | ||||||
Sovereign exposure |
8,233 | 11,231 | 2,930 | 968 | 23,362 | - | ||||||
At December 31 |
62,787 | 19,095 | 10,683 | 2,816 | 95,485 | 1,491 | ||||||
1 Includes investments of Holding and other activities | ||||||||||||
Credit risk concentrations mortgage loans |
Americas | The Netherlands |
United Kingdom |
New Markets | Total 2013 1) |
Of which / or impaired assets | ||||||
Agricultural |
142 | - | - | - | 142 | 6 | ||||||
Apartment |
1,253 | - | - | - | 1,253 | 17 | ||||||
Industrial |
882 | - | - | - | 882 | 18 | ||||||
Office |
2,023 | 16 | - | - | 2,039 | 26 | ||||||
Retail |
1,640 | 15 | - | - | 1,655 | 9 | ||||||
Other commercial |
300 | 42 | - | - | 342 | 11 | ||||||
Residential |
27 | 22,705 | - | 324 | 23,056 | 702 | ||||||
At December 31 |
6,267 | 22,777 | - | 324 | 29,369 | 789 |
186 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Credit risk concentrations debt securities and money market investments 2012 |
Americas | The Netherlands |
United Kingdom |
New Markets | Total 2012 1) | Of which past due and / or impaired assets | ||||||||||||||||
Residential mortgage backed securities (RMBSs) |
5,079 | 1,142 | 20 | 106 | 6,966 | 1,232 | ||||||||||||||||
Commercial mortgage backed securities (CMBSs) |
5,227 | 9 | 438 | 147 | 5,821 | 65 | ||||||||||||||||
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans |
507 | 780 | - | - | 1,287 | 18 | ||||||||||||||||
ABSs Other |
2,476 | 323 | 1,674 | 53 | 3,907 | 61 | ||||||||||||||||
Financial - Banking |
5,103 | 1,812 | 1,671 | 289 | 9,615 | 27 | ||||||||||||||||
Financial - Other |
13,086 | 234 | 1,453 | 220 | 15,012 | 8 | ||||||||||||||||
Industrial |
25,986 | 2,822 | 2,180 | 860 | 31,848 | 25 | ||||||||||||||||
Utility |
5,403 | 610 | 878 | 157 | 7,048 | 3 | ||||||||||||||||
Sovereign exposure |
9,611 | 11,524 | 2,966 | 991 | 25,092 | - | ||||||||||||||||
At December 31 |
72,478 | 19,256 | 11,280 | 2,823 | 106,596 | 1,439 | ||||||||||||||||
1 Includes investments of Holding and other activities | ||||||||||||||||||||||
Credit risk concentrations mortgage loans | Americas | The Netherlands |
United Kingdom |
New Markets | Total 2012 1) | Of which past due and / or impaired assets | ||||||||||||||||
Agricultural |
261 | - | - | - | 261 | 30 | ||||||||||||||||
Apartment |
1,152 | - | - | - | 1,152 | - | ||||||||||||||||
Industrial |
1,095 | - | - | - | 1,095 | 46 | ||||||||||||||||
Office |
2,314 | 16 | - | - | 2,330 | 46 | ||||||||||||||||
Retail |
1,728 | 17 | - | - | 1,745 | 45 | ||||||||||||||||
Other commercial |
253 | 40 | - | - | 293 | 12 | ||||||||||||||||
Residential |
34 | 21,040 | - | 349 | 21,423 | 702 | ||||||||||||||||
At December 31 |
6,837 | 21,113 | - | 349 | 28,299 | 881 |
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2013 amounts to EUR 6,514 million (2012: EUR 7,317 million). The loan to value (LTV) amounts to about 59% (2012: 61%). Of the portfolio 1.24% (2012: 1.43%) is in delinquency (defined as 60 days in arrears). In 2013, Aegon Americas recognized EUR 11 million impairments (net of recoveries) on this portfolio. In 2013, Aegon Americas foreclosed upon, or recovered EUR 73 million of real estate. The 2013 additional recoveries associated with these loans at the time of foreclosure amounted to EUR 4 million (2012: impairment recoveries of EUR 2 mllion).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2013 amounts to EUR 26,114 million (2012: EUR 24,114 million). The LTV amounts to about 99% (2012: 96%). A significant part of the portfolio (58%; 2012: 54%) is government guaranteed. Of the portfolio,1.2% (2012: 1.1%) is in delinquency (defined as 60 days in arrears). Impairments in 2013 amounted to EUR 22 million (2012: EUR 16 million). Historical defaults of the portfolio have been between 2 and 9 basis points per year.
|
Supplemental Annual Report 2013 |
187
Unconsolidated structured entities
Aegons unconsolidated structured entities such as RMBSs, CMBSs and ABSs are presented in the line item Investments of the statement of financial position. The composition of the structured entities portfolios of Aegon are widely dispersed looking at the individual amount per entity. This is shown in the following table together with the number of individual entities:
December 31, 2013 | ||||||||
Number of |
Carrying amount |
|||||||
EUR 0 - 25 mln |
2,303 | 9,476 | ||||||
EUR 26 - 50 mln |
139 | 4,602 | ||||||
EUR 51 - 75 mln |
30 | 1,724 | ||||||
EUR 76 - 100 mln |
10 | 848 | ||||||
EUR 101 - 150 mln |
1 | 146 | ||||||
EUR 151 - 250 mln |
1 | 158 | ||||||
> EUR 251 mln |
- | - | ||||||
At December 31 |
2,484 | 16,953 |
For the most significant structured entities the following table presents the maximum exposure to loss for Aegon by type of structured security and by seniority of interest. Also shown are the amounts of losses that in each case would be absorbed first by investors whose interests rank junior to those of Aegon. If Aegon has interests in multiple tranches of one individual structured entity, Aegons maximum exposure to loss is excluded from the amount shown as potential losses borne by more junior interests. In each case, the amounts shown reflect the fair value of those interests as at the reporting date. Furthermore, the table presents a comparison of Aegons interest with the total assets of those unconsolidated structured entities. The amount shown as total assets is based on the most current available information.
Subordinated interests | Mezzanine interests | Senior interests | Most senior interests |
Carrying amount of interest in structured entity |
Total | |||||||||||||||||||||||||||||||||||||||
2013 | Maximum exposure to loss |
Potential losses borne by more junior interests |
Maxi- mum exposure to loss |
Potential losses borne by more junior interests |
Maxi- mum exposure to loss |
Potential losses borne by more junior interests |
Maxi- mum exposure to loss |
Potential losses borne by more junior interests |
Assets | Liabilities | Assets of struc- tured entity |
|||||||||||||||||||||||||||||||||
Residential mortgage backed securities |
- | - | 35 | 6,037 | - | - | 298 | 8,948 | 333 | - | 29,319 | |||||||||||||||||||||||||||||||||
Commercial mortgage backed securities |
- | - | - | - | 134 | 987 | 109 | 1,183 | 243 | - | 3,580 | |||||||||||||||||||||||||||||||||
Asset backed securities |
52 | 198 | 69 | 354 | - | - | 179 | 557 | 300 | - | 1,234 | |||||||||||||||||||||||||||||||||
ABSs - Other |
- | - | - | - | 76 | - | - | - | 76 | - | 3,052 | |||||||||||||||||||||||||||||||||
December 31, 2013 |
52 | 198 | 105 | 6,391 | 211 | 987 | 585 | 10,688 | 952 | - | 37,184 |
Monoline insurers
About EUR 0.8 billion of the bonds in Aegon USAs portfolio are insured by monoline insurers (2012: EUR 0.9 billion), of which EUR 343 million of bonds (2012: EUR 419 million) in the EUR 1.0 billion subprime portfolio (2012: EUR 1.2 billion). Expected claims against the monolines amount to EUR 98 million (2012: EUR 108 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
188 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
The following table breaks down bonds in Aegon USAs portfolio that are insured by monoline insurers. The disclosure by rating follows a hierarchy of S&P, Moodys, Fitch, Internal and NAIC.
2013 | 2012 | |||||||||||||||||||||||
Bonds insured by monoline insurers | Amortized cost |
Fair value | Amortized cost |
Fair value | ||||||||||||||||||||
AAA |
46 | 48 | 53 | 57 | ||||||||||||||||||||
AA |
178 | 174 | 224 | 208 | ||||||||||||||||||||
< AA |
527 | 503 | 615 | 541 | ||||||||||||||||||||
At December 31 |
751 | 725 | 892 | 806 | ||||||||||||||||||||
The rating that is provided by the rating agencies on these guaranteed bonds is the higher of the guarantors rating or the rating of the underlying bond itself. | ||||||||||||||||||||||||
Of the EUR 751 million (2012: EUR 892 million) indirect exposure on the monoline insurers, 34% relates to MBIA, 28% to AMBAC, 7% to FGIC and 24% to FSA (2012: 34% related to MBIA, 27% to AMBAC, 7% to FGIC and 24% to FSA). | ||||||||||||||||||||||||
At the end of 2013, Aegon USA had no indirect exposure via wrapped bonds via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are Aegons counterparty (2012: no indirect exposure). | ||||||||||||||||||||||||
Additional information on credit risk, unrealized losses and impairments | ||||||||||||||||||||||||
Debt instruments | ||||||||||||||||||||||||
The amortized cost and fair value of debt securities, money market investments and other, included in Aegons available-for-sale (AFS) portfolios, are as follows as of December 31: | ||||||||||||||||||||||||
2013 | Amortized cost |
Unrealized gains |
Unrealized losses |
Total fair value |
Fair value of instruments with unrealized gains |
Fair value of instruments with unrealized losses |
||||||||||||||||||
Debt securities |
||||||||||||||||||||||||
United States Government |
5,538 | 241 | (257 | ) | 5,522 | 2,621 | 2,901 | |||||||||||||||||
Dutch Government |
3,705 | 144 | (25 | ) | 3,824 | 3,441 | 383 | |||||||||||||||||
Other Government |
12,766 | 738 | (232 | ) | 13,272 | 9,317 | 3,954 | |||||||||||||||||
Mortgage backed securities |
9,433 | 613 | (246 | ) | 9,800 | 6,886 | 2,914 | |||||||||||||||||
Asset backed securities |
6,780 | 401 | (162 | ) | 7,019 | 4,171 | 2,848 | |||||||||||||||||
Corporate |
45,851 | 3,586 | (712 | ) | 48,725 | 38,576 | 10,149 | |||||||||||||||||
Money market investments |
5,524 | - | - | 5,524 | 5,524 | - | ||||||||||||||||||
Other |
1,042 | 148 | (28 | ) | 1,163 | 1,002 | 160 | |||||||||||||||||
Total | 90,638 | 5,873 | (1,662 | ) | 94,849 | 71,539 | 23,310 | |||||||||||||||||
Of which held by Aegon Americas, NL and UK |
87,900 | 5,728 | (1,603 | ) | 92,026 | 69,573 | 22,453 |
|
Supplemental Annual Report 2013 |
189
2012 | Amortized cost |
Unrealized gains |
Unrealized losses |
Total fair value |
Fair value of instruments with unrealized gains |
Fair value of instruments with unrealized losses |
||||||||||||||||||
Debt securities |
||||||||||||||||||||||||
United States Government |
5,066 | 779 | (8 | ) | 5,837 | 5,256 | 581 | |||||||||||||||||
Dutch Government |
3,471 | 447 | - | 3,918 | 3,724 | 194 | ||||||||||||||||||
Other Government |
12,707 | 1,949 | (39 | ) | 14,617 | 13,325 | 1,292 | |||||||||||||||||
Mortgage backed securities |
10,217 | 837 | (321 | ) | 10,733 | 8,561 | 2,172 | |||||||||||||||||
Asset backed securities |
7,035 | 475 | (440 | ) | 7,070 | 4,387 | 2,683 | |||||||||||||||||
Corporate |
47,389 | 6,399 | (569 | ) | 53,219 | 48,207 | 5,012 | |||||||||||||||||
Money market investments |
8,687 | - | - | 8,687 | 8,687 | - | ||||||||||||||||||
Other |
1,147 | 123 | (56 | ) | 1,214 | 854 | 360 | |||||||||||||||||
Total |
95,719 | 11,009 | (1,433 | ) | 105,295 | 93,001 | 12,294 | |||||||||||||||||
Of which held by Aegon Americas, NL and UK |
93,066 | 10,793 | (1,397 | ) | 102,462 | 90,513 | 11,949 | |||||||||||||||||
Unrealized bond losses by sector | ||||||||||||||||||||||||
The composition by industry categories of debt securities and money market investments that are included in Aegons available-for-sale portfolios in an unrealized loss position held by Aegon at December 31 is presented in the following table: | ||||||||||||||||||||||||
December 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Unrealized losses - debt securities and money market investments | Carrying value of instruments with unrealized losses |
Gross unrealized losses |
Carrying value of instruments with unrealized losses |
Gross unrealized losses |
||||||||||||||||||||
Residential mortgage backed securities (RMBSs) |
1,842 | (210 | ) | 1,987 | (397 | ) | ||||||||||||||||||
Commercial mortgage backed securities (CMBSs) |
1,559 | (91 | ) | 847 | (102 | ) | ||||||||||||||||||
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans |
|
1,188 | (51 | ) | 993 | (86 | ) | |||||||||||||||||
ABSs - Other |
1,037 | (48 | ) | 967 | (162 | ) | ||||||||||||||||||
Financial Industry - Banking |
1,834 | (215 | ) | 1,414 | (328 | ) | ||||||||||||||||||
Financial Industry - Insurance |
827 | (47 | ) | 555 | (58 | ) | ||||||||||||||||||
Financial Industry - Other |
601 | (37 | ) | 344 | (24 | ) | ||||||||||||||||||
Industrial |
5,569 | (316 | ) | 2,143 | (117 | ) | ||||||||||||||||||
Utility |
916 | (63 | ) | 377 | (20 | ) | ||||||||||||||||||
Sovereign |
6,920 | (499 | ) | 1,963 | (47 | ) | ||||||||||||||||||
Total held by Aegon Americas, NL and UK | 22,293 | (1,575 | ) | 11,590 | (1,341 | ) | ||||||||||||||||||
Held by other segments |
857 | (60 | ) | 346 | (37 | ) | ||||||||||||||||||
Total |
23,150 | (1,635 | ) | 11,936 | (1,378 | ) |
As of December 31, 2013, there are EUR 5,580 million (2012: EUR 10,669 million) of gross unrealized gains and EUR 1,575 million (2012: EUR 1,341 million) of gross unrealized losses in the AFS debt securities portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. No one issuer represents more than 4% of the total unrealized loss position. The largest single issuer unrealized loss is EUR 257 million and relates to securities issued by the government of the United States of America and is primarily from rising interest rates.
Financial and credit market conditions were generally stronger in 2013. Developed-world growth remains below potential, frustrating attempts to generate a strong recovery. The credit crisis that began as a result of the subprime mortgage loan crisis continues to evolve into concerns about governmental borrowing and debt levels across much of the world. European sovereign debt, after coming under pressure in the first half of the year, rallied in the second half of 2013, though concerns for default risk in the peripheral European countries persist. High governmental debt levels remain a concern in the U.S. as well, including those of state and local governments. Most world equity markets performed well during 2013, with U.S., Japanese, and European markets up strongly. The U.S. Federal Reserve maintained a Fed Funds rate near zero. U.S. Treasury rates fell to new all-time lows during the second quarter, but rose significantly thereafter as the markets began to discount U.S. Federal Reserve tapering of quantitative easing. Corporate default rates
190 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
remained low in 2013 due largely to readily available access to funding and strong corporate balance sheet fundamentals. Commodity prices were mixed and volatile over the second half of 2013 after trending lower in the first half of 2013 as growth expectations weakened. The rise in US Treasury rates during 2013, as well as net outflows from run-off businesses in the Americas, caused the fair value of the debt securities portfolio to decline from 2012 to 2013.
Impairment of financial assets
Aegon regularly monitors industry sectors and individual debt securities for indicators of impairment. These indicators may include one or more of the following: 1) deteriorating market to book ratio, 2) increasing industry risk factors, 3) deteriorating financial condition of the issuer, 4) covenant violations of the issuer, 5) high probability of bankruptcy of the issuer, or 6) nationally recognized credit rating agency downgrades. Additionally, for asset-backed securities, cash flow trends and underlying levels of collateral are monitored. A security is impaired if there is objective evidence that a loss event has occurred after the initial recognition of the asset that has a negative impact on the estimated future cash flows. A specific security is considered to be impaired when it is determined that not all amounts due (both principal and interest) will be collected as contractually scheduled.
In the sections below a description is provided on the composition of the categories of debt securities and money market investments. Individual issuers rated below investment grade in any sector, which have unrealized loss positions greater than EUR 25 million, will be disclosed separately. Furthermore, quality ratings of investment portfolios are based on a hierarchy of S&P, Moodys, Fitch, Internal and NAIC.
Residential mortgage-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,461 million (2012: EUR 6,141 million) of residential mortgage-backed securities (RMBS), of which EUR 4,300 million (2012: EUR 4,979 million) is held by Aegon Americas, EUR 19 million (2012: EUR 20 million) by Aegon UK and EUR 1,143 million (2012: EUR 1,141 million) by Aegon the Netherlands. Residential mortgage-backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon USAs RMBS available-for-sale portfolio. Additionally, Aegon USA has investments in RMBS of EUR 60 million (2012: EUR 97 million), which are classified as fair value through profit or loss.
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
GSE guaranteed |
19 | 1,307 | - | - | - | 1,326 | 1,357 | |||||||||||||||||||||
Prime Jumbo |
- | 7 | 2 | 12 | 212 | 233 | 238 | |||||||||||||||||||||
Alt-A |
- | 34 | 8 | 8 | 495 | 546 | 642 | |||||||||||||||||||||
Negative Amortization Floaters |
- | 30 | - | 34 | 666 | 730 | 830 | |||||||||||||||||||||
Reverse Mortgage RMBS |
- | - | - | 135 | 116 | 251 | 179 | |||||||||||||||||||||
Subprime mortgage 1) |
89 | 204 | 74 | 80 | 528 | 974 | 1,003 | |||||||||||||||||||||
Manufactured housing 1) |
6 | 9 | 5 | 13 | 15 | 47 | 48 | |||||||||||||||||||||
Other housing 1) |
2 | - | - | - | - | 2 | 2 | |||||||||||||||||||||
At December 31, 2013 | 116 | 1,591 | 89 | 281 | 2,031 | 4,108 | 4,300 | |||||||||||||||||||||
Of which insured |
- | 145 | 7 | - | 233 | 385 | 372 |
1 | Reported as part of asset backed securities in the table on page 188. |
|
Supplemental Annual Report 2013 |
191
AFS RMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
GSE guaranteed |
- | 1,336 | 193 | - | - | 1,529 | 1,632 | |||||||||||||||||||||
Prime Jumbo |
10 | 11 | 3 | 14 | 252 | 290 | 290 | |||||||||||||||||||||
Alt-A |
18 | 43 | - | 10 | 571 | 642 | 735 | |||||||||||||||||||||
Negative Amortization Floaters |
- | 36 | 18 | 44 | 728 | 826 | 858 | |||||||||||||||||||||
Reverse Mortgage RMBS |
- | - | - | 222 | 77 | 299 | 213 | |||||||||||||||||||||
Subprime mortgage 1) |
177 | 285 | 61 | 69 | 644 | 1,236 | 1,124 | |||||||||||||||||||||
Manufactured housing 1) |
22 | 15 | 12 | 24 | 7 | 80 | 80 | |||||||||||||||||||||
Other housing 1) |
46 | - | - | - | - | 46 | 47 | |||||||||||||||||||||
At December 31, 2012 | 273 | 1,726 | 287 | 383 | 2,279 | 4,948 | 4,979 | |||||||||||||||||||||
Of which insured |
5 | 174 | 13 | 16 | 284 | 492 | 427 |
1 | Reported as part of asset backed securities in the table on page 189. |
RMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and stress-case scenarios. Aegons RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to-value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific securitys collateral attributes and historical performance.
Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions within Aegons modeling process for Prime Jumbo, Alt-A and Negative Amortization RMBS are as follows: prepayment assumptions range from approximately 0.5% to 25% with a weighted average of approximately 4.8% (2012: 4.8%), assumed defaults on delinquent loans range from 50% to 100% with a weighted average of approximately 84.3% (2012: 84.6%), assumed defaults on current loans are dependent on the specific securitys collateral attributes and historical performance, while loss severity assumptions range from approximately 13.9% to 75%, with a weighted average of approximately 54.5% (2012: 54.3%). Additionally, quantitative ranges of significant assumptions within Aegons modeling process for the RMBS subprime mortgage portfolio are as follows: prepayment assumptions range from approximately 2% to 6% with a weighted average of approximately 5.2% (2012: 5.2%), assumed defaults on delinquent loans range from 60% to 100% with a weighted average of approximately 87.2% (2012: 87.2%), assumed defaults on current loans are dependent on the specific securitys collateral attributes and historical performance, while loss severity assumptions range from approximately 65% to 103%, with a weighted average of approximately 72.6% (2012: 72.9%).
Once the entire pool is modeled, the results are closely analyzed by Aegons asset specialists to determine whether or not Aegons particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held. Aegon impaired its particular tranche to fair value where it would not be able to receive all contractual cash flows.
The total gross unrealized loss on AFS RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amount to EUR 210 million (2012: 397 million), of which EUR 190 million (2012: EUR 351 million) relates to positions of Aegon USA, and the total net unrealized gain on available-for-sale RMBS is EUR 229 million (2012: EUR 157 million), including a EUR 192 million (2012: EUR 31 million) net unrealized gain relating to positions of Aegon USA. The unrealized loss in the sector is primarily a result of the housing downturn in the United States that started in 2007. The housing market in the United States has shown signs of improvement as evidenced by rising home prices and sales volume. Positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated for subprime loans but are starting to show signs of improvement for other RMBS sectors. The improving home prices and credit performance led to credit spread tightening across the asset class.
There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than EUR 25 million.
192 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
The fair values of Aegon USAs RMBS instruments were determined as follows:
Level II | Level III | Total 2013 | Level II | Level III | Total 2012 | |||||||||||||||||||
RMBS |
4,089 | 271 | 4,360 | 4,730 | 349 | 5,079 |
Commercial mortgage-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,160 million (2012: EUR 5,606 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 4,663 million (2012: EUR 5,137 million) is held by Aegon USA, EUR 398 million (2012: EUR 438 million) by Aegon UK and EUR 82 million (2012: EUR 9 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The companys CMBS include conduit, large loan, single borrower, commercial real estate collateral debt obligations (CRE CDOs), collateral debt obligations (CDOs), government agency, and franchise loan receivable trusts.
The total gross unrealized loss on AFS CMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounts to EUR 91 million (2012: EUR 102 million), of which all relates to positions of Aegon USA. The total net unrealized gain on CMBS is EUR 162 million (2012: EUR 354 million), of which EUR 88 million (2012: EUR 247 million) relates to positions of Aegon USA and EUR 72 million relates to positions of Aegon UK. The commercial real estate market previously experienced a deterioration in property level fundamentals over 2008-2010, which led to an increase in CMBS loan-level delinquencies. The introduction of 30% credit enhanced tranches within the 2005-2008 vintage deals provide some offset to these negative fundamentals. Over the last year, the CMBS market experienced several positive factors as commercial real estate fundamentals have begun to display some signs of stabilization. The pace of credit deterioration appears to be moderating as property transactions have increased and there is greater availability of financing for commercial real estate. Liquidity has improved within the CMBS market, but a broad re-pricing of risk has kept credit spreads on legacy subordinate CMBS tranches at wide levels.
The tables below summarize the credit quality of Aegon USAs AFS CMBS portfolio. Additionally, Aegon USA has investments in CMBS of EUR 38 million (2012: EUR 62 million), which are classified as fair value through profit or loss.
CMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
CMBS |
3,664 | 300 | 295 | 173 | 143 | 4,575 | 4,663 | |||||||||||||||||||||
At December 31, 2013 |
3,664 | 300 | 295 | 173 | 143 | 4,575 | 4,663 | |||||||||||||||||||||
CMBS by quality | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
CMBS |
3,678 | 354 | 395 | 231 | 232 | 4,890 | 5,137 | |||||||||||||||||||||
At December 31, 2012 |
3,678 | 354 | 395 | 231 | 232 | 4,890 | 5,137 |
CMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegons internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegons real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
Securities are impaired to fair value when Aegon expects that it will not receive all contractual cash flows on its tranches. As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2013.
There are no individual issuers rated below investment grade in the CMBS sector which have unrealized loss position greater than EUR 25 million.
|
Supplemental Annual Report 2013 |
193
The fair values of Aegon USAs CMBS instruments were determined as follows:
Level II | Level III | Total 2013 | Level II | Level III | Total 2012 | |||||||||||||||||||
CMBS |
4,674 | 28 | 4,702 | 5,145 | 54 | 5,199 |
Asset-backed securities
Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,861 million (2012: EUR 5,744 million) of AFS ABS instruments of which EUR 2,592 million (2012: EUR 2,908 million) is held by Aegon USA, EUR 1,563 million (2012 : EUR 1,103 million) by Aegon the Netherlands and EUR 1,682 million (2012: EUR 1,674 million) by by Aegon UK. Additionally, Aegon Americas has investments in ABS of EUR 24 million (2012: EUR 16 million), which are classified as fair value through profit or loss. ABS are securitizations of underlying pools of credit card receivables, auto financing loans, small business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
The total gross unrealized loss on AFS ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounts to EUR 99 million. Aegon USA has 52 million of this gross unrealized loss, followed by Aegon the Netherlands at 40 million and Aegon UK at 7 million. The unrealized loss in the sector is primarily a result of the credit crisis that started in 2007 which resulted in weak liquidity and increased credit spreads. The stronger financial and economic conditions in 2013 have helped stabilize the performance of the underlying collateral backing many of these securities. New issuance in the asset-backed sector has been weak but buyers began returning to the market. The combination of these factors has led to a decrease in credit spreads in 2013.
The breakdown by quality of the available-for-sale ABS portfolio of Aegon USA, Aegon the Netherlands and Aegon UK is as follows:
ABS US, NL and UK | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
Credit Cards |
250 | 64 | 202 | 5 | 1 | 522 | 538 | |||||||||||||||||||||
Autos |
274 | 15 | 19 | - | - | 308 | 311 | |||||||||||||||||||||
Small business loans |
- | 3 | 19 | 99 | 98 | 219 | 211 | |||||||||||||||||||||
CDOs backed by ABS, Corp. Bonds, Bank loans |
738 | 623 | 338 | 93 | 186 | 1,978 | 1,950 | |||||||||||||||||||||
Other ABS |
442 | 696 | 965 | 300 | 196 | 2,599 | 2,827 | |||||||||||||||||||||
At December 31, 2013 |
1,704 | 1,401 | 1,543 | 497 | 481 | 5,626 | 5,837 | |||||||||||||||||||||
ABS US, NL and UK | AAA | AA | A | BBB | <BBB | Total amortized cost |
Total fair value |
|||||||||||||||||||||
Credit Cards |
391 | 63 | 337 | 112 | 3 | 906 | 943 | |||||||||||||||||||||
Autos |
292 | 7 | - | - | - | 299 | 306 | |||||||||||||||||||||
Small business loans |
5 | 10 | 46 | 152 | 87 | 300 | 242 | |||||||||||||||||||||
CDOs backed by ABS, Corp. Bonds, Bank loans |
380 | 537 | 187 | 49 | 171 | 1,324 | 1,252 | |||||||||||||||||||||
Other ABS |
567 | 954 | 690 | 281 | 216 | 2,708 | 2,942 | |||||||||||||||||||||
At December 31, 2012 |
1,635 | 1,571 | 1,260 | 594 | 477 | 5,537 | 5,685 |
There were no individual issuers rated below investment grade in this ABS sector which has unrealized loss position greater than EUR 25 million.
The fair values of Aegon USA, Aegon the Netherlands & Aegon UK ABS instruments were determined as follows:
Level II | Level III | Total 2013 | Level II | Level III | Total 2012 | |||||||||||||||||||
ABSs |
3,583 | 2,254 | 5,837 | 4,120 | 1,565 | 5,685 |
194 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Corporate - Financial sector
The Corporate Financial Sector is further subdivided into banking, brokerage, insurance, REITs and financial-other sub-sectors. A majority of the gross unrealized loss is from the banking sub-sector. Companies within Aegons financial sector are generally high in credit quality and, as a whole, represent a large portion of the corporate debt market.
Since the peak of the financial crisis, unrealized losses in the financial sector have declined materially as progress has been made toward reducing operational and systemic risk. Following on global Central Bank actions to provide liquidity and valuation support, regulators have now implemented a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity across the sector. Given significant progress, central banks have now begun preparing the market for less central bank support going forward. Capital and liquidity buffers will continue to be strengthened as required by Basel III and decisive steps in the Euro area toward a Banking Union, supervised by the ECB, should further increase confidence in the sectors ability to weather economic headwinds and reduce future risk to taxpayers.
Corporate Financial Sector Banking Sub-Sector
The banking sub-sector in Aegons portfolio is relatively large, diverse, and of high quality. Aegon holds EUR 8,288 million (2012: EUR 8,599 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounts to EUR 221 million (2012: EUR 335 million) and the net unrealized gain on these bonds amounts to EUR 226 million (2012: EUR 343 million). The gross unrealized losses in the banking sub-sector primarily reflect the size of Aegons holdings, low floating rate coupons on some securities, and credit spread widening since the time of acquisition due to the Sovereign debt crisis in Europe, residual impact from the U.S. financial crisis, and global economic uncertainty. Following the implementation of new, more stringent global legislation on bank capital and liquidity requirements, credit spreads in the sector have outperformed the broader corporate market in 2013. Decisive steps by EU leaders and world central banks continue to stabilize the euro and improve funding conditions for most banks. Globally, there remain pockets of concentrated risk on bank balance sheets, and ratings for some countries and banks remain under pressure, but the banking sub-sector has largely been strengthened and oversight increased.
Within the banking sub-sector, Aegon holds EUR 1,433 million (2012: EUR 1,606 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 130 million (2012 EUR 250 million).
There is one individual issuer rated below investment grade in the banking sub-sector which has unrealized losses greater than EUR 25 million.
Category | Fair value | Unrealized Loss |
Rating | Aging of unrealized Loss |
||||||||||||||||
Belfius Bank & Insurance |
Banking | 99 | (26 | ) | BB | > 24 months |
Aegons available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 99 million as of December 31, 2013. These below investment grade securities are Upper Tier 2 and had gross unrealized losses of EUR 26 million as of December 31, 2013. Belfius Bank SA was created subsequent to the restructuring of Dexia SA. Dexias reliance on short-term wholesale funding caused a near-collapse as funding markets froze in 2008 and 2009. Capital injections from Belgium, France and Luxembourg along with guarantees on Dexias funding provided sufficient access to funding markets until the Sovereign debt crisis in 2011 put too much strain on Dexias large funding needs. In November 2011, a new restructuring plan was put in place for Dexia SA and 100% of Dexia Bank Belgium was sold to the Belgian state. Aegons bonds now form part of the capital structure of that entity which was rebranded as Belfius Bank SA during the first half of 2012. Payments continue to be made on Aegons holdings in accordance with the original bond agreements. Aegon evaluated the near-term prospects of the issuer and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
|
Supplemental Annual Report 2013 |
195
Corporate - Industrial sector
The Industrial sector is further subdivided into various sub-sectors with a majority of its gross unrealized loss in Basic Industry and Consumer Non-Cyclical sub-sectors. The Basic Industries sector encompasses various sub-sectors including metals and mining, chemicals and paper and forest products with the majority of the loss relating to metals and mining. Fundamentals for the metals and mining industry have been negatively impacted by falling prices for base metals, non-ferrous metals, precious metals, coal and steel. Slowing economic data out of China has been the main driver of the pricing pressure for the base metals and bulk steel-making commodities as the country comprises from 40%-60% of the demand for most of these commodities. Rising interest rates have put pressure on precious metals as investors become less worried about inflation and look to put money to work in income generating assets. Chemicals have been positively impacted by continued low natural gas prices within the US, but given the global scale of most players in the industry, they have also been harmed by a slowdown in global growth as well as volatility in raw material costs and increasing competition from global peers. Paper and forest products have shown some improvement as the housing recovery takes hold in the United States, but more traditional paper products such as newsprint remains challenged. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2013.
The Consumer Non-Cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food and beverage and pharmaceuticals. The slow growth environment in food and beverage combined with improved balance sheets resulted in an increase in acquisition activity and shareholder friendly activity. Volumes were challenged, but largely offset by previous price increases and tight cost controls, along with relatively benign input cost inflation. While starting to show signs of stabilization, the Pharmaceutical sector continues to deal with patent cliff issues. As drugs roll off patent, generic competition takes market share and pulls down margins. Additionally, shareholder friendly activities in the form of increased dividends and share repurchases continue. Merger and acquisition activity is increasing in the sector, at times resulting in additional leverage. Finally, some companies have analyzed their business models and decided to spin-off business lines, in an effort to concentrate on their core competencies. In certain instances, this has resulted in smaller, less diversified companies. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
There are no individual issuers rated below investment grade in the corporate industrial sector which have unrealized loss positions greater than EUR 25 million.
Sovereign
Aegon Americas, Aegon the Netherlands and Aegon UKs government issued available-for-sale debt securities include emerging market sovereign bonds, US Treasury bonds, agency and state bonds. All of the issuers in the sovereign sector continue to make payments in accordance with their bond agreements. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
There are no individual issuers rated below investment grade in the sovereign sector which have unrealized loss positions greater than EUR 25 million.
Unrealized loss by maturity
The table below shows the composition by maturity of all debt securities, available-for-sale, in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
December 31, 2013 | December 31, 2012 | |||||||||||||||
Carrying value of |
Gross unrealized losses |
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
|||||||||||||
One year or less |
406 | (8 | ) | 939 | (22 | ) | ||||||||||
Over 1 thru 5 years |
2,955 | (100 | ) | 2,938 | (198 | ) | ||||||||||
Over 5 thru 10 years |
6,196 | (327 | ) | 2,251 | (286 | ) | ||||||||||
Over 10 years |
12,736 | (1,140 | ) | 5,462 | (835 | ) | ||||||||||
Total |
22,293 | (1,575 | ) | 11,590 | (1,341 | ) |
|
196 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Unrealized loss by credit quality
The table below shows the composition by credit quality of debt securities, available-for-sale, in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK.
December 31, 2013 | December 31, 2012 | |||||||||||||||
Carrying value of |
Gross unrealized losses |
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
|||||||||||||
Treasury Agency |
6,015 | (452 | ) | 1,748 | (18 | ) | ||||||||||
AAA |
2,047 | (76 | ) | 1,029 | (17 | ) | ||||||||||
AA |
2,482 | (102 | ) | 1,417 | (109 | ) | ||||||||||
A |
4,202 | (242 | ) | 2,079 | (174 | ) | ||||||||||
BBB |
5,529 | (382 | ) | 3,031 | (355 | ) | ||||||||||
BB |
1,059 | (158 | ) | 1,114 | (228 | ) | ||||||||||
B |
497 | (75 | ) | 701 | (207 | ) | ||||||||||
Below B |
463 | (88 | ) | 471 | (233 | ) | ||||||||||
Total |
22,293 | (1,575 | ) | 11,590 | (1,341 | ) | ||||||||||
The table below provides the length of time a security has been below cost and the respective unrealized loss.
|
| |||||||||||||||
At December 31, 2013 | ||||||||||||||||
Investment grade carrying value of securities with gross unrealized losses |
Below investment grade carrying value of securities with gross unrealized losses |
Investment grade unrealized loss |
Below investment grade unrealized loss |
|||||||||||||
0 6 months |
9,171 | 513 | (303 | ) | (27 | ) | ||||||||||
6 12 months |
7,313 | 253 | (583 | ) | (32 | ) | ||||||||||
> 12 months |
3,791 | 1,253 | (368 | ) | (263 | ) | ||||||||||
Total |
20,275 | 2,019 | (1,253 | ) | (322 | ) | ||||||||||
At December 31, 2012 | ||||||||||||||||
Investment grade carrying value of securities with gross unrealized losses |
Below investment grade carrying value of securities with gross unrealized losses |
Investment grade unrealized loss |
Below investment grade unrealized loss |
|||||||||||||
0 6 months |
3,258 | 245 | (104 | ) | (8 | ) | ||||||||||
6 12 months |
507 | 59 | (21 | ) | (4 | ) | ||||||||||
> 12 months |
5,539 | 1,982 | (548 | ) | (656 | ) | ||||||||||
Total |
9,304 | 2,286 | (673 | ) | (668 | ) |
The majority of the unrealized losses relate to investment grade holdings resulting from the increase in interest rates during the second half of 2013.
|
Supplemental Annual Report 2013 |
197
The table below provides the length of time a below investment grade security has been in an unrealized loss and the percentage of carrying value (CV) to amortized cost.
Aging and severity unrealized losses
2013 | 2012 | |||||||||||||||
Aging and severity unrealized losses |
Carrying |
Unrealized losses |
Carrying value |
Unrealized losses |
||||||||||||
CV 70-100% of amortized cost |
512 | (25 | ) | 243 | (7 | ) | ||||||||||
CV 40-70% of amortized cost |
1 | (1 | ) | 1 | - | |||||||||||
CV < 40 % of amortized cost |
- | - | 1 | (1 | ) | |||||||||||
0-6 months |
513 | (27 | ) | 245 | (8 | ) | ||||||||||
CV 70-100% of amortized cost |
242 | (25 | ) | 59 | (4 | ) | ||||||||||
CV 40-70% of amortized cost |
11 | (6 | ) | - | - | |||||||||||
CV < 40 % of amortized cost |
- | - | - | - | ||||||||||||
6-12 months |
253 | (32 | ) | 59 | (4 | ) | ||||||||||
CV 70-100% of amortized cost |
46 | (4 | ) | 164 | (28 | ) | ||||||||||
CV 40-70% of amortized cost |
1 | - | 3 | (3 | ) | |||||||||||
CV < 40 % of amortized cost |
- | - | - | (2 | ) | |||||||||||
12-24 months |
47 | (4 | ) | 167 | (33 | ) | ||||||||||
CV 70-100% of amortized cost |
1,141 | (200 | ) | 1,519 | (273 | ) | ||||||||||
CV 40-70% of amortized cost |
59 | (38 | ) | 264 | (224 | ) | ||||||||||
CV < 40 % of amortized cost |
6 | (21 | ) | 32 | (126 | ) | ||||||||||
> 24 months
|
1,206 | (259 | ) | 1,815 | (623 | ) | ||||||||||
Total |
2,019 | (322 | ) | 2,286 | (668 | ) | ||||||||||
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK
|
| |||||||||||||||
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and
Aegon UK |
Gross realized gains |
Gross realized losses |
||||||||||||||
December 31, 2013 | ||||||||||||||||
Debt securities |
565 | (148 | ) | |||||||||||||
December 31, 2012 |
||||||||||||||||
Debt securities |
755 | (285 | ) | |||||||||||||
The table below provides the length of time the security was below cost prior to the sale and the respective realized loss for assets not considered impaired.
|
| |||||||||||||||
Gross realized losses | ||||||||||||||||
0 -12 months | >12 months | Total | ||||||||||||||
December 31, 2013 | ||||||||||||||||
Debt securities |
(92 | ) | (56 | ) | (148 | ) | ||||||||||
December 31, 2012 |
||||||||||||||||
Debt securities |
(59 | ) | (226 | ) | (285 | ) |
198 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Impairment losses and recoveries
The composition of Aegon Americas, Aegon the Netherlands and Aegon UKs bond impairment losses and recoveries by issuer for the periods ended December 31, 2013 and December 31, 2012 is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
2013 | 2012 | |||||||
(Impairment) / Recovery |
(Impairment) / Recovery |
|||||||
Impairments: | ||||||||
Soundview Home Equity Loan 2006-OPT1 |
(29 | ) | - | |||||
Other (none individually greater than EUR 25 million) |
(102 | ) | (157 | ) | ||||
Subtotal |
(131 | ) | (157 | ) | ||||
Recoveries: |
||||||||
Total recoveries |
60 | 54 | ||||||
Sub-total
|
60 | 54 | ||||||
Net (impairments) and recoveries |
(71 | ) | (103 | ) |
Net (impairments) and recoveries
Net impairments during 2013 totaled EUR 71 million, including EUR 66 million (2012: EUR 120 million) of gross impairments related to residential mortgage backed securities in the Americas.
During 2013, Aegon recognized EUR 60 million (2012: EUR 54 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
Past due and impaired assets
The tables that follow provide information on past due and individually impaired financial assets for the whole Aegon Group. An asset is past due when a counterparty has failed to make a payment when contractually due. Assets are impaired when an impairment loss has been charged to the income statement relating to this asset. After the impairment loss is reversed in subsequent periods, the asset is no longer considered to be impaired. When the terms and conditions of financial assets have been renegotiated, the terms and conditions of the new agreement apply in determining whether the financial assets are past due.
Aegons policy is to pursue realization of the collateral in an orderly manner as and when liquidity permits. Aegon generally does not use the non-cash collateral for its own operations.
2013 | 2012 | |||||||||||||||||||||||||||||||
Past due but not impaired assets | 0-6 months |
6-12 months |
> 1 year | Total | 0-6 months |
6-12 months |
> 1 year | Total | ||||||||||||||||||||||||
Debt securities - carried at fair value |
50 | 37 | 14 | 101 | 1 | 63 | 24 | 88 | ||||||||||||||||||||||||
Mortgage loans |
49 | 7 | 5 | 60 | 70 | 4 | 42 | 116 | ||||||||||||||||||||||||
Other loans |
70 | - | 4 | 74 | 1 | - | 2 | 3 | ||||||||||||||||||||||||
Accrued interest |
- | - | 1 | 1 | - | - | 2 | 2 | ||||||||||||||||||||||||
At December 31 |
169 | 43 | 24 | 236 | 72 | 67 | 70 | 209 |
|
Supplemental Annual Report 2013 |
199
Impaired financial assets |
Carrying amount |
Carrying amount 2012 |
||||||
Shares |
203 | 347 | ||||||
Debt securities - carried at fair value |
1,390 | 1,352 | ||||||
Mortgage loans |
728 | 767 | ||||||
Private Loans |
11 | 2 | ||||||
Other loans |
4 | 4 | ||||||
Other financial assets - carried at fair value |
16 | 23 | ||||||
At December 31 |
2,352 | 2,495 |
Equity instruments classified as available-for-sale
Objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment. Significant or prolonged decline is generally defined within Aegon as an unrealized loss position for more than six months or a fair value of less than 80% of the cost price of the investment. Additionally, as part of an ongoing process, the equity analysts actively monitor earnings releases, company fundamentals, new developments and industry trends for any signs of possible impairment.
These factors typically require significant management judgment. The impairment review process has resulted in EUR 3 million of impairment charges for the period ended December 31, 2013 (2012: EUR 1 million) for Aegon Americas, Aegon the Netherlands and Aegon UK.
As of December 31, 2013, there are EUR 309 million of gross unrealized gains and EUR 11 million of gross unrealized losses in the equity portfolio of Aegon (2012: EUR 262 million of gross unrealized gains and EUR 18 million of gross unrealized losses). There are no securities held by Aegon with an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
Cost basis | Carrying value | Net unrealized gains / (losses) |
Carrying value of securities with gross unrealized gains |
Gross unrealized gains |
Carrying value of securities with gross unrealized losses |
Gross unrealized losses |
||||||||||||||||||||||
December 31, 2013 | ||||||||||||||||||||||||||||
Shares |
477 | 775 | 298 | 689 | 309 | 86 | (11 | ) | ||||||||||||||||||||
December 31, 2012 |
||||||||||||||||||||||||||||
Shares |
568 | 812 | 244 | 731 | 262 | 81 | (18 | ) |
The composition of shares by industry sector in an unrealized loss position held by Aegon Americas, Aegon the Netherlands and Aegon UK at December 31, 2013 and December 31, 2012 is presented in the table below.
2013 | 2012 | |||||||||||||||
Unrealized losses on shares | Carrying value of instruments with unrealized losses |
Gross unrealized losses |
Carrying value of instruments with unrealized losses |
Gross unrealized losses |
||||||||||||
Consumer |
10 | - | 17 | - | ||||||||||||
Financials |
60 | (11 | ) | 42 | (17 | ) | ||||||||||
Funds |
8 | - | 7 | (1 | ) | |||||||||||
Other |
8 | - | 15 | - | ||||||||||||
Total |
86 | (11 | ) | 81 | (18 | ) |
|
200 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Impairment losses on shares
The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to the impairment in 2013.
In million EUR | 0- 6 months | |||
December 31, 2013 | ||||
Shares |
(2 | ) | ||
December 31, 2012 |
||||
Shares |
(2 | ) |
Equity market risk and other investments risk
Fluctuations in the equity, real estate and capital markets have affected Aegons profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts policyholder accounts where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees. Aegon also operates an Investment and Counterparty Policy that limits the Groups overall counterparty risk exposure.
The general account equity, real estate and other non-fixed-income portfolio of Aegon is as follows:
Equity, real estate and non-fixed income exposure | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Total 2013 | ||||||||||||||||||
Equity funds |
1,001 | 729 | - | 17 | - | 1,747 | ||||||||||||||||||
Common shares 1) |
266 | 11 | 55 | 28 | 36 | 395 | ||||||||||||||||||
Preferred shares |
214 | - | - | - | - | 214 | ||||||||||||||||||
Investments in real estate |
721 | 810 | - | 1 | - | 1,532 | ||||||||||||||||||
Hedge funds |
603 | 1 | - | - | - | 604 | ||||||||||||||||||
Other alternative investments |
1,363 | - | - | - | - | 1,363 | ||||||||||||||||||
Other financial assets |
633 | - | 4 | 26 | - | 663 | ||||||||||||||||||
At December 31 |
4,801 | 1,550 | 58 | 72 | 36 | 6,517 |
1 | Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 10 million. |
Equity, real estate and non-fixed income exposure | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Total 2012 | ||||||||||||||||||
Equity funds |
868 | 686 | - | 12 | - | 1,566 | ||||||||||||||||||
Common shares 1) |
322 | 10 | 51 | 4 | - | 387 | ||||||||||||||||||
Preferred shares |
221 | - | - | - | - | 221 | ||||||||||||||||||
Investments in real estate |
766 | 860 | - | 1 | - | 1,627 | ||||||||||||||||||
Hedge funds |
625 | 2 | - | - | - | 627 | ||||||||||||||||||
Other alternative investments |
1,503 | - | - | - | - | 1,503 | ||||||||||||||||||
Other financial assets |
768 | - | - | 15 | - | 783 | ||||||||||||||||||
At December 31 |
5,073 | 1,558 | 51 | 32 | - | 6,714 |
1 | Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 8 million. |
|
Supplemental Annual Report 2013 |
201
Market risk concentrations shares | Americas | The Netherlands |
United Kingdom |
New Markets |
Total 2013 1) |
Of which impaired assets |
||||||||||||||||||
Communication |
34 | 1 | - | - | 36 | - | ||||||||||||||||||
Consumer |
15 | 3 | - | - | 29 | 2 | ||||||||||||||||||
Financials |
1,373 | 1 | 1 | - | 1,390 | 33 | ||||||||||||||||||
Funds |
- | 429 | 54 | 40 | 523 | 161 | ||||||||||||||||||
Industries |
20 | 3 | - | 2 | 30 | - | ||||||||||||||||||
Other |
13 | 10 | - | 3 | 29 | 8 | ||||||||||||||||||
At December 31 |
1,456 | 447 | 55 | 45 | 2,036 | 203 | ||||||||||||||||||
1 Includes investments of Holding and other activities.
|
| |||||||||||||||||||||||
Market risk concentrations shares | Americas | The Netherlands |
United Kingdom |
New Markets |
Total 2012 1) |
Of which impaired assets |
||||||||||||||||||
Communication |
37 | 1 | - | - | 38 | - | ||||||||||||||||||
Consumer |
36 | 3 | - | - | 39 | 33 | ||||||||||||||||||
Financials |
1,274 | 3 | 7 | - | 1,284 | 161 | ||||||||||||||||||
Funds |
- | 395 | 44 | 12 | 451 | 139 | ||||||||||||||||||
Industries |
19 | 2 | - | 1 | 22 | - | ||||||||||||||||||
Other |
24 | 8 | - | 3 | 33 | 14 | ||||||||||||||||||
At December 31 |
1,390 | 412 | 51 | 16 | 1,867 | 347 | ||||||||||||||||||
1 Includes investments of Holding and other activities. |
|
|||||||||||||||||||||||
The table that follows sets forth the closing levels of certain major indices at the end of the last five years.
|
|
|||||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||
S&P 500 |
1,848 | 1,426 | 1,258 | 1,258 | 1,115 | |||||||||||||||||||
Nasdaq |
4,177 | 3,020 | 2,605 | 2,653 | 2,269 | |||||||||||||||||||
FTSE 100 |
6,749 | 5,898 | 5,572 | 5,900 | 5,413 | |||||||||||||||||||
AEX |
402 | 343 | 312 | 355 | 335 |
The sensitivity analysis of net income and shareholders equity to changes in equity prices is presented in the table below. The sensitivity of shareholders equity and net income to changes in equity markets reflects changes in the market value of Aegons portfolio, changes in DPAC amortization, contributions to pension plans for Aegons employees and the strengthening of the guaranteed minimum benefits, when applicable. The results of equity sensitivity tests are non-linear. The main reason for this is due to equity options sold to clients that are embedded in some of these products and that more severe scenarios could cause accelerated DPAC amortization and guaranteed minimum benefits provisioning, while moderate scenarios may not. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon added out-of-money options in its portfolio to provide additional protection for equity market declines.
|
202 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
Sensitivity analysis of net income and shareholders equity to equity markets Immediate change of |
Estimated approximate effects on net income |
Estimated approximate effects on shareholders equity |
||||||
2013 | ||||||||
Equity increase 10% |
181 | 294 | ||||||
Equity decrease 10% |
(184 | ) | (332 | ) | ||||
Equity increase 20% |
299 | 544 | ||||||
Equity decrease 20% |
(322 | ) | (602 | ) | ||||
2012 |
||||||||
Equity increase 10% |
(28 | ) | 61 | |||||
Equity decrease 10% |
(136 | ) | (246 | ) | ||||
Equity increase 20% |
(99 | ) | 93 | |||||
Equity decrease 20% |
(254 | ) | (460 | ) |
Liquidity risk
Liquidity risk is inherent in much of Aegons business. Each asset purchased and liability sold has its own liquidity characteristics. Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity. If Aegon requires significant amounts of cash on short notice in excess of normal cash requirements and existing credit facilities, it may have difficulty selling these investments at attractive prices or in a timely manner.
Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegons financial strength due to multiple downgrades of the Groups credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All units and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario.
Aegon holds EUR 28,134 million of general account investments in cash, money market products and sovereign bonds that are readily saleable or redeemable on demand (2012: EUR 34,295 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back up credit facilities, as described in note 41, amounting to EUR 3,451 million which were unused at the end of the reporting period (2012: EUR 3,268 million).
The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category On demand. If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.
To manage the liquidity risk arising from financial liabilities, Aegon holds liquid assets comprising cash and cash equivalents and investment grade investment securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. Hence, Aegon believes that it is not necessary to disclose a maturity analysis in respect of these assets to enable users to evaluate the nature and extent of liquidity risk.
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Supplemental Annual Report 2013 |
203
Maturity analysis gross undiscounted contractual cash (for non-derivatives) |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount |
||||||||
2013 |
||||||||||||||
Trust pass-through securities |
- | 8 | 32 | 40 | 168 | 248 | ||||||||
Subordinated loans |
- | - | - | - | 396 | 396 | ||||||||
Borrowings 1) |
39 | 1,191 | 8,661 | 818 | 3,218 | 13,927 | ||||||||
Investment contracts 2) |
8,624 | 1,358 | 2,017 | 821 | 885 | 13,705 | ||||||||
Investment contracts for account of policyholders 2) |
24,770 | 3,420 | - | - | 31 | 28,221 | ||||||||
Other financial liabilities |
9,004 | 2,102 | 506 | 575 | 67 | 12,254 | ||||||||
2012 | ||||||||||||||
Trust pass-through securities |
- | 8 | 35 | 44 | 188 | 275 | ||||||||
Subordinated loans |
- | - | - | - | 398 | 398 | ||||||||
Borrowings 1) |
93 | 2,807 | 8,862 | 873 | 3,370 | 16,005 | ||||||||
Investment contracts 2) |
8,434 | 3,019 | 3,902 | 968 | 1,090 | 17,413 | ||||||||
Investment contracts for account of policyholders 2) |
20,342 | 5,192 | - | - | 2 | 25,536 | ||||||||
Other financial liabilities |
9,774 | 4,609 | 1,430 | 724 | 26 | 16,563 |
1 | Borrowings include debentures and other loans, short term deposits, bank overdrafts and commercial paper; refer to note 41 for more details. |
2 | Excluding investment contracts with discretionary participating features. |
Aegons liquidity management is based on expected claims and benefit payments rather than on the contractual maturities. The projected cash benefit payments in the table below are based on managements best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefit payments are based on mortality, morbidity and lapse assumptions based on Aegons historical experience, modified for recently observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefit payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance.
Financial liabilities relating to insurance and investment contracts 1) |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount |
||||||||
2013 |
||||||||||||||
Insurance contracts |
- | 6,970 | 25,793 | 25,402 | 135,672 | 193,838 | ||||||||
Insurance contracts for account of policyholders |
- | 5,611 | 24,303 | 22,495 | 71,801 | 124,210 | ||||||||
Investment contracts |
- | 2,753 | 5,807 | 2,419 | 6,020 | 16,999 | ||||||||
Investment contracts for account of policyholders
|
100
|
8,095
|
22,659
|
22,169
|
61,272
|
|
114,295
|
| ||||||
2012 | ||||||||||||||
Insurance contracts |
- | 7,373 | 29,497 | 25,794 | 143,915 | 206,579 | ||||||||
Insurance contracts for account of policyholders |
- | 5,029 | 20,883 | 19,882 | 70,891 | 116,685 | ||||||||
Investment contracts |
- | 6,177 | 7,235 | 2,462 | 4,606 | 20,480 | ||||||||
Investment contracts for account of policyholders |
95 | 6,417 | 23,191 | 20,653 | 57,291 | 107,647 |
1 | The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 37, 38, 39 and 40. |
|
204 | Notes to the consolidated financial statements of Aegon N.V. Note 4 |
The following table details the Groups liquidity analysis for its derivative financial instruments, based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.
Maturity analysis (derivatives 1)) (Contractual cash flows) 2013 |
On demand |
< 1 yr |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount | ||||||||||||||||
Gross settled |
||||||||||||||||||||||
Cash inflows |
- | 12,653 | 18,622 | 27,077 | 55,301 | 113,652 | ||||||||||||||||
Cash outflows |
- | (12,505 | ) | (18,014 | ) | (26,708 | ) | (53,826 | ) | (111,054) | ||||||||||||
Net settled | ||||||||||||||||||||||
Cash inflows |
- | 384 | 1,563 | 3,162 | 5,713 | 10,822 | ||||||||||||||||
Cash outflows |
- | (323 | ) | (1,164 | ) | (2,970 | ) | (5,323 | ) | (9,781) | ||||||||||||
1 Financial derivatives include all derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows.
| ||||||||||||||||||||||
Maturity analysis (derivatives 1)) (Contractual cash flows) 2012 |
On demand | < 1 yr amount |
1 < 5 yrs amount |
5 < 10 yrs amount |
> 10 yrs amount |
Total amount | ||||||||||||||||
Gross settled |
||||||||||||||||||||||
Cash inflows |
- | 11,346 | 15,435 | 19,038 | 38,762 | 84,581 | ||||||||||||||||
Cash outflows |
- | (11,414 | ) | (15,738 | ) | (19,264 | ) | (37,479 | ) | (83,895) | ||||||||||||
Net settled | ||||||||||||||||||||||
Cash inflows |
- | 1,049 | 6,528 | 560 | 2,525 | 10,662 | ||||||||||||||||
Cash outflows |
- | (930 | ) | (4,951 | ) | (294 | ) | (2,033 | ) | (8,208) | ||||||||||||
1 Financial derivatives include all derivatives regardless whether they have a positive or a negative value. It does not include bifurcated embedded derivatives. These are presented together with the host contract. For interest rate derivatives only cash flows related to the pay leg are taken into account for determining the gross undiscounted cash flows. |
Underwriting risk
Aegons earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability. This could have a materially adverse effect on Aegons business, results of operations and financial condition.
Sources of underwriting risk include policy lapses and policy claims (such as mortality and morbidity). In general, Aegon is at risk if policy lapses increase as sometimes Aegon is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed by management.
Aegon monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. Aegons units also perform experience studies for underwriting risk assumptions, comparing Aegons experience to industry experience as well as
|
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205
combining Aegons experience and industry experience based on the depth of the history of each source to Aegons underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses as the basis for modifying these charges, with a view to maintain a balance between policyholder and shareholder interests. Aegon also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation.
Sensitivity analysis of net income and shareholders equity to various underwriting risks is shown in the table that follows. The sensitivities represent an increase or decrease of mortality and morbidity rates over best estimate. Increases in mortality rates lead to an increase in the level of benefits and claims. The impact on net income and shareholders equity of sales transactions of investments required to meet the higher cash outflow is reflected in the sensitivities. A change in actual experience with mortality or morbidity rates may not lead to a change in the assumptions underlying the measurement of the insurance liabilities as management may recognize that the change is temporary. Life insurers are also exposed to longevity risk. Increased life expectation above Aegons assumed life expectation at the time of underwriting negatively impacts its results. Refer to note 2.20 for a discussion on how longevity assumptions are accounted for.
Sensitivity analysis of net income and shareholders Estimated approximate effect |
2013 | 2012 | ||||||||||||||
On shareholders equity |
On net income | On shareholders equity |
On net income | |||||||||||||
20% increase in lapse rates |
(94 | ) | (77 | ) | (90 | ) | (77 | ) | ||||||||
20% decrease in lapse rates |
66 | 88 | 64 | 81 | ||||||||||||
10% increase in mortality rates |
(71 | ) | (74 | ) | (86 | ) | (70 | ) | ||||||||
10% decrease in mortality rates |
6 | 48 | 53 | 67 | ||||||||||||
10% increase in morbidity rates |
(80 | ) | (63 | ) | (83 | ) | (69 | ) | ||||||||
10% decrease in morbidity rates |
47 | 68 | 52 | 69 |
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. Aegon the Netherlands bought a longevity index derivative, which will pay out if in twenty years the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract. Payout of the derivative is defined based on a cumulative cash index, which represents the cumulative payout to a predefined (synthetic) insured population in relation to the expected payout (in the base scenario) to this same population. Both parties in the contract have the possibility to terminate the contract after ten years (early termination clause). The payout is maximized at a predetermined percentage compared to the base scenario.
To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative. This derivative will pay out in twenty-two years if some combination of higher than expected mortality rates in the United States and/or lower than expected mortality rates in the Netherlands persists over the next twenty years and, at that time, is expected to continue to do so. Payout of the derivative is defined based on a terminal present value, which represents the sum of 1) the cumulative payout to a predefined (synthetic) insured population over the next twenty years and 2) the remaining expected liability on this same population. The preceding sum is compared to amounts set at the moment of signing the contract to determine the actual payout.
On March 1, 2011, the European Court of Justice (ECJ) delivered a judgment in the Test Achats case which relates to the ability of an insurance company to use gender as a rating factor when pricing risk. The ECJ has ruled that using gender as a rating factor when pricing risk is invalid. However, the ECJ has granted a transitional period for relief for implementation. The effect of this is that, as from December 21, 2012, it is unlawful to use gender-related factors for determining premiums and benefits under insurance policies.
|
206 | Notes to the consolidated financial statements of Aegon N.V. Note 5 |
For segment reporting purposes, the following non-IFRS financial measures are included: underlying earnings before tax, income tax and income before tax. The reconciliation of these measures to the most comparable IFRS measures is presented in this note. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegons joint ventures and associated companies. Aegon believes that its non-IFRS measures provide meaningful information about the underlying results of Aegons business, including insight into the financial measures that Aegons senior management uses in managing the business.
Among other things, Aegons senior management is compensated based in part on Aegons results against targets using the non-IFRS measures presented here. While many other insurers in Aegons peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards. Readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.
Aegon believes the non-IFRS measures shown herein, when read together with Aegons reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegons business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult. Below details are provided for the individual line items presented in this note.
Underlying earnings
Certain assets held by Aegon Americas, Aegon the Netherlands and Aegon United Kingdom are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships), convertible bonds and structured products. Underlying earnings exclude any over- or underperformance compared to managements long-term expected return on assets.
Based on current holdings and asset returns, the long-term expected return on an annual basis is 8-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable.
In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis, including the segregated funds offered by Aegon Canada and the total return annuities and guarantees on variable annuities of Aegon USA. The earnings on these products are impacted, among others, by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings is a long-term expected return on these products and excluded is any over- or underperformance compared to managements expected return. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon the Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.
Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegons credit spread used in the valuation of these bonds are excluded from underlying earnings and reported under fair value items.
Fair value items
Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings. Changes to these long-term return assumptions are also included in the fair value items.
In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under fair value items.
Realized gains or losses on investments
Includes realized gains and losses on available-for-sale investments, mortgage loans and loan portfolios.
|
Supplemental Annual Report 2013 |
207
Impairment charges / reversals
Also included are impairments on mortgage loans and loan portfolios on amortised cost and associates.
Other income or charges
Other income or charges is used to report any items which cannot be directly allocated to a specific line of business. Also items that are outside the normal course of business are reported under this heading.
Other charges include restructuring charges that are considered other charges for segment reporting purposes because they are outside the normal course of business. In the consolidated income statement, these charges are included in operating expenses.
Run-off businesses
Includes underlying results of business units where management has decided to exit the market and to run off the existing block of business. This line includes the run-off of the institutional spread-based business, structured settlements blocks of business, Bank-Owned and Corporate-Owned Life Insurance (BOLI/COLI) business and life reinsurance business in Aegon Americas. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings.
Share in earnings of joint ventures and associates
Earnings from Aegons joint ventures in Spain, China and Japan and Aegons associates in insurance companies in India, Brazil and Mexico are reported on an underlying earnings basis.
Income statement - Underlying earnings |
Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Segment total |
Joint |
Consolidated | |||||||||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,314 | 454 | 87 | 227 | (109) | (3) | 1,968 | (50) | 1,918 | |||||||||||||||||||||||||||
Fair value items |
(980 | ) | (41 | ) | (16 | ) | (21 | ) | (61 | ) | - | (1,118 | ) | 37 | (1,082 | ) | ||||||||||||||||||||
Realized gains / (losses) on investments |
110 | 342 | 48 | - | - | - | 500 | - | 500 | |||||||||||||||||||||||||||
Impairment charges |
(111 | ) | (40 | ) | (31 | ) | (16 | ) | - | - | (198 | ) | - | (198 | ) | |||||||||||||||||||||
Impairment reversals |
67 | 8 | - | - | - | - | 75 | - | 75 | |||||||||||||||||||||||||||
Other income / (charges) |
72 | (36 | ) | (45 | ) | (33 | ) | (11 | ) | - | (52 | ) | 6 | (47 | ) | |||||||||||||||||||||
Run-off businesses |
21 | - | - | - | - | - | 21 | - | 21 | |||||||||||||||||||||||||||
Income before tax |
493 | 687 | 43 | 158 | (181 | ) | (3 | ) | 1,197 | (8 | ) | 1,189 | ||||||||||||||||||||||||
Income tax (expense) / benefit |
(86 | ) | (166 | ) | 33 | (31 | ) | 42 | - | (208 | ) | 8 | (200 | ) | ||||||||||||||||||||||
Net income | 407 | 521 | 76 | 127 | (139 | ) | (3 | ) | 989 | - | 989 | |||||||||||||||||||||||||
Intersegment underlying earnings |
(173 | ) | (54 | ) | (59 | ) | 257 | 29 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2013 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,187 | 3,515 | 6,537 | 1,349 | 14 | (73 | ) | 17,529 | (416 | ) | 17,112 | |||||||||||||||||||||||||
Accident and health insurance |
1,787 | 243 | - | 170 | 8 | (8 | ) | 2,200 | (10 | ) | 2,190 | |||||||||||||||||||||||||
General insurance |
- | 487 | - | 194 | - | - | 681 | (44 | ) | 637 | ||||||||||||||||||||||||||
Total gross premiums |
7,975 | 4,245 | 6,537 | 1,713 | 22 | (82 | ) | 20,410 | (471 | ) | 19,939 | |||||||||||||||||||||||||
Investment income |
3,370 | 2,310 | 2,054 | 233 | 336 | (336 | ) | 7,968 | (58 | ) | 7,909 | |||||||||||||||||||||||||
Fee and commission income |
1,273 | 328 | 80 | 583 | - | (238 | ) | 2,026 | (76 | ) | 1,950 | |||||||||||||||||||||||||
Other revenues |
4 | - | - | 2 | 4 | - | 10 | (3 | ) | 6 | ||||||||||||||||||||||||||
Total revenues | 12,622 | 6,883 | 8,670 | 2,531 | 362 | (656 | ) | 30,413 | (608 | ) | 29,805 | |||||||||||||||||||||||||
Inter-segment revenues |
20 | 1 | 1 | 292 | 342 |
208 | Notes to the consolidated financial statements of Aegon N.V. Note 5 |
Income statement - Underlying earnings |
Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Segment total |
Joint ventures and associates eliminations |
Consolidated | |||||||||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||||||||||
Underlying earnings before tax | 1,294 | 556 | 90 | 266 | (220) | (4) | 1,982 | (71 | ) | 1,911 | ||||||||||||||||||||||||||
Fair value items |
(67 | ) | 47 | (31 | ) | (1 | ) | (4 | ) | - | (56 | ) | 45 | (11 | ) | |||||||||||||||||||||
Realized gains / (losses) on investments |
186 | 138 | 84 | 10 | - | - | 418 | 3 | 421 | |||||||||||||||||||||||||||
Impairment charges |
(181 | ) | (37 | ) | - | (26 | ) | (4 | ) | 2 | (246 | ) | 9 | (237 | ) | |||||||||||||||||||||
Impairment reversals |
64 | 8 | - | - | - | (2 | ) | 70 | - | 70 | ||||||||||||||||||||||||||
Other income / (charges) |
(28 | ) | (279 | ) | 34 | 113 | (2 | ) | - | (162 | ) | (1 | ) | (163 | ) | |||||||||||||||||||||
Run-off businesses |
14 | - | - | - | - | - | 14 | - | 14 | |||||||||||||||||||||||||||
Income before tax |
1,282 | 433 | 177 | 362 | (230 | ) | (4 | ) | 2,020 | (15 | ) | 2,005 | ||||||||||||||||||||||||
Income tax (expense) / benefit |
(251 | ) | (46 | ) | (42 | ) | (119 | ) | 71 | - | (387 | ) | 15 | (372 | ) | |||||||||||||||||||||
Net income | 1,031 | 387 | 135 | 243 | (159 | ) | (4 | ) | 1,633 | - | 1,633 | |||||||||||||||||||||||||
Intersegment underlying earnings |
(191 | ) | (60 | ) | (62 | ) | 286 | 27 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2012 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,541 | 3,004 | 6,047 | 1,374 | - | (73 | ) | 16,893 | (693 | ) | 16,200 | |||||||||||||||||||||||||
Accident and health insurance |
1,833 | 220 | - | 188 | 5 | (5 | ) | 2,241 | (11 | ) | 2,230 | |||||||||||||||||||||||||
General insurance |
- | 475 | - | 144 | - | - | 619 | - | 619 | |||||||||||||||||||||||||||
Total gross premiums |
8,374 | 3,699 | 6,047 | 1,706 | 5 | (78 | ) | 19,753 | (704 | ) | 19,049 | |||||||||||||||||||||||||
Investment income |
3,654 | 2,273 | 2,337 | 319 | 374 | (374 | ) | 8,583 | (170 | ) | 8,413 | |||||||||||||||||||||||||
Fee and commission income |
1,177 | 329 | 133 | 524 | - | (263 | ) | 1,900 | (44 | ) | 1,856 | |||||||||||||||||||||||||
Other revenues |
5 | - | - | 3 | 5 | - | 13 | (4 | ) | 9 | ||||||||||||||||||||||||||
Total revenues | 13,210 | 6,301 | 8,517 | 2,552 | 384 | (715 | ) | 30,249 | (922 | ) | 29,327 | |||||||||||||||||||||||||
Inter-segment revenues |
31 | 2 | 1 | 310 | 371 |
|
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209
Income statement - Underlying earnings | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Segment total |
Joint ventures and associates eliminations |
Consolidated | |||||||||||||||||||||||||||
2011 | ||||||||||||||||||||||||||||||||||||
Underlying earnings before tax |
1,243 | 618 | (23 | ) | 240 | (306) | 3 | 1,775 | (13) | 1,762 | ||||||||||||||||||||||||||
Fair value items |
(476 | ) | (16 | ) | (6 | ) | (30 | ) | (59 | ) | - | (587 | ) | - | (587 | ) | ||||||||||||||||||||
Realized gains / (losses) on investments |
150 | 269 | 51 | 7 | - | - | 477 | - | 477 | |||||||||||||||||||||||||||
Impairment charges |
(308 | ) | (16 | ) | (62 | ) | (61 | ) | - | 1 | (446 | ) | 4 | (442 | ) | |||||||||||||||||||||
Impairment reversals |
56 | 1 | - | - | - | (1 | ) | 56 | - | 56 | ||||||||||||||||||||||||||
Other income / (charges) |
(37 | ) | (164 | ) | (57 | ) | 7 | (18 | ) | - | (269 | ) | - | (269 | ) | |||||||||||||||||||||
Run-off businesses |
30 | - | - | - | - | - | 30 | - | 30 | |||||||||||||||||||||||||||
Income before tax |
658 | 692 | (97 | ) | 163 | (383 | ) | 3 | 1,036 | (9 | ) | 1,027 | ||||||||||||||||||||||||
Income tax (expense) / benefit |
(15 | ) | (160 | ) | 3 | (59 | ) | 131 | - | (100 | ) | 9 | (91 | ) | ||||||||||||||||||||||
Net income | 643 | 532 | (94 | ) | 104 | (252 | ) | 3 | 936 | - | 936 | |||||||||||||||||||||||||
Intersegment underlying earnings |
(157 | ) | (105 | ) | (68 | ) | 257 | 73 | ||||||||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||||||||||
2011 |
||||||||||||||||||||||||||||||||||||
Life insurance gross premiums |
6,004 | 3,213 | 6,474 | 1,600 | - | (55 | ) | 17,236 | (383 | ) | 16,853 | |||||||||||||||||||||||||
Accident and health insurance |
1,672 | 216 | - | 179 | - | - | 2,067 | - | 2,067 | |||||||||||||||||||||||||||
General insurance |
- | 452 | - | 149 | - | - | 601 | - | 601 | |||||||||||||||||||||||||||
Total gross premiums |
7,676 | 3,881 | 6,474 | 1,928 | - | (55 | ) | 19,904 | (383 | ) | 19,521 | |||||||||||||||||||||||||
Investment income |
3,565 | 2,192 | 2,154 | 320 | 392 | (385 | ) | 8,238 | (70 | ) | 8,168 | |||||||||||||||||||||||||
Fee and commission income |
766 | 329 | 137 | 469 | - | (237 | ) | 1,464 | - | 1,464 | ||||||||||||||||||||||||||
Other revenues |
1 | - | - | 1 | 4 | - | 6 | - | 6 | |||||||||||||||||||||||||||
Total revenues | 12,008 | 6,402 | 8,765 | 2,718 | 396 | (677 | ) | 29,612 | (453 | ) | 29,159 | |||||||||||||||||||||||||
Inter-segment revenues |
28 | 2 | 2 | 270 | 375 |
The Group uses underlying earnings before tax in its segment reporting as an important indicator of its financial performance. The reconciliation of this measure to the income before tax is shown below. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate Aegons business relative to the businesses of its peers.
Note | 2013 | 2012 | 2011 | |||||||||||||
Underlying earnings before tax |
1,918 | 1,911 | 1,762 | |||||||||||||
Fair value items |
(1,110 | ) | 101 | (480 | ) | |||||||||||
Realized gains and (losses) on financial investments |
10 | 500 | 552 | 803 | ||||||||||||
Gains and (losses) on investments in real estate |
10 | (49 | ) | (9 | ) | (49 | ) | |||||||||
Fair value changes on economic hedges for which no hedge accounting is applied |
10 | 65 | (130 | ) | (117 | ) | ||||||||||
Ineffective portion of hedge transactions for which hedge accounting is applied |
10 | 12 | 10 | 13 | ||||||||||||
Realized gains and (losses) on repurchased debt |
10 | - | 7 | 4 | ||||||||||||
DPAC / VOBA offset 1) |
14 | (22 | ) | (119 | ) | (259 | ) | |||||||||
Impairment (charges)/reversals |
15 | (296 | ) | (173 | ) | (481 | ) | |||||||||
Other income/(charges) |
11, 12, 14, 17 | 149 | (160 | ) | (200 | ) | ||||||||||
Run-off businesses |
21 | 15 | 31 | |||||||||||||
Income/(loss) before tax |
1,189 | 2,005 | 1,027 |
1 | Including a fair value adjustment of EUR 1 million (2012: EUR 9 million; 2011: EUR (84) million). |
210 | Notes to the consolidated financial statements of Aegon N.V. Note 5 |
Other selected income statement items | Americas | The Netherlands |
United Kingdom |
New Markets | Holding and other activities |
Total | ||||||||||||||||||
2013 | ||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
572 | 58 | 234 | 143 | - | 1,007 | ||||||||||||||||||
Depreciation |
35 | 20 | 13 | 14 | - | 82 | ||||||||||||||||||
Impairment charges/(reversals) on financial assets, excluding receivables |
48 | 32 | 31 | 17 | - | 127 | ||||||||||||||||||
Impairment charges/(reversals) on non-financial assets and receivables |
(5 | ) | 1 | - | 169 | 2 | 167 | |||||||||||||||||
2012 |
||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
720 | 77 | 244 | 109 | - | 1,150 | ||||||||||||||||||
Depreciation |
31 | 23 | 10 | 12 | 11 | 87 | ||||||||||||||||||
Impairment charges/(reversals) on financial assets, excluding receivables |
122 | 22 | - | 25 | 4 | 173 | ||||||||||||||||||
Impairment charges/(reversals) on non-financial assets and receivables |
4 | 8 | - | 14 | - | 26 | ||||||||||||||||||
2011 |
||||||||||||||||||||||||
Amortization of deferred expenses, VOBA and future servicing rights |
941 | 85 | 213 | 115 | - | 1,354 | ||||||||||||||||||
Depreciation |
33 | 19 | 8 | 13 | 5 | 78 | ||||||||||||||||||
Impairment charges/(reversals) on financial assets, excluding receivables |
271 | 15 | 63 | 57 | - | 406 | ||||||||||||||||||
Impairment charges/(reversals) on non-financial assets and receivables |
(1 | ) | 71 | 5 | 2 | - | 77 | |||||||||||||||||
Number of employees | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and |
Total | ||||||||||||||||||
2013 | ||||||||||||||||||||||||
Number of employees - headcount |
12,256 | 4,282 | 2,400 | 7,651 | 302 | 26,891 | ||||||||||||||||||
Of which agents |
1,655 | 293 | 63 | 2,742 | - | 4,753 | ||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates |
441 | - | - | 1,021 | - | 1,462 | ||||||||||||||||||
2012 |
||||||||||||||||||||||||
Number of employees - headcount |
11,967 | 4,457 | 2,793 | 7,160 | 473 | 26,850 | ||||||||||||||||||
Of which agents |
1,604 | 321 | 72 | 2,382 | 23 | 4,402 | ||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates |
463 | - | - | 1,083 | - | 1,546 | ||||||||||||||||||
2011 |
||||||||||||||||||||||||
Number of employees - headcount |
12,242 | 4,839 | 3,203 | 8,659 | 327 | 29,270 | ||||||||||||||||||
Of which agents |
1,630 | 382 | 81 | 3,855 | - | 5,948 | ||||||||||||||||||
Of which Aegons share of employees in joint ventures and associates 1) |
430 | - | - | 643 | - | 1,073 |
1 | As described in note 2.1.2 of the consolidated financial statements, IFRS 10 and IFRS 11 are only applicable form 2012 onwards. |
|
Supplemental Annual Report 2013 |
211
Summarized assets and liabilities per segment | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Total | |||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
VOBA and future servicing rights |
1,559 | 58 | 369 | 21 | - | - | 2,006 | |||||||||||||||||||||
Investments general account |
75,780 | 45,478 | 10,743 | 3,396 | 139 | (2 | ) | 135,533 | ||||||||||||||||||||
Investments for account of policyholders |
75,224 | 25,646 | 57,813 | 6,357 | - | (8 | ) | 165,032 | ||||||||||||||||||||
Investments in joint ventures |
- | 819 | - | 607 | - | - | 1,426 | |||||||||||||||||||||
Investments in associates |
81 | 19 | 20 | 350 | 1 | - | 470 | |||||||||||||||||||||
Deferred expenses |
6,954 | 141 | 2,324 | 584 | 3 | - | 10,006 | |||||||||||||||||||||
Other assets |
14,065 | 16,837 | 2,387 | 2,332 | 29,962 | (28,196 | ) | 37,387 | ||||||||||||||||||||
Total assets | 173,663 | 88,997 | 73,656 | 13,647 | 30,105 | (28,206 | ) | 351,860 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Insurance contracts general account |
62,645 | 26,685 | 9,858 | 3,910 | 3 | (1,332 | ) | 101,769 | ||||||||||||||||||||
Insurance contracts for account of policyholders |
52,184 | 25,401 | 4,252 | 2,474 | - | - | 84,311 | |||||||||||||||||||||
Investment contracts general account |
9,536 | 4,542 | 466 | 1 | - | - | 14,545 | |||||||||||||||||||||
Investment contracts for account of policyholders |
23,040 | 1,650 | 54,036 | 3,883 | - | - | 82,608 | |||||||||||||||||||||
Other liabilities |
11,820 | 27,368 | 1,625 | 1,499 | 7,379 | (3,784 | ) | 45,908 | ||||||||||||||||||||
Total liabilities |
159,224 | 85,646 | 70,236 | 11,767 | 7,382 | (5,116 | ) | 329,141 |
Summarized assets and liabilities per segment | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Total | |||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||
Assets |
||||||||||||||||||||||||||||
VOBA and future servicing rights |
1,584 | 66 | 396 | 135 | - | - | 2,181 | |||||||||||||||||||||
Investments general account |
86,459 | 43,007 | 11,338 | 3,408 | 759 | (2 | ) | 144,969 | ||||||||||||||||||||
Investments for account of policyholders |
65,970 | 25,094 | 55,886 | 6,024 | - | (6 | ) | 152,968 | ||||||||||||||||||||
Investments in joint ventures |
- | 854 | - | 713 | - | - | 1,567 | |||||||||||||||||||||
Investments in associates |
90 | 21 | 8 | 648 | 4 | - | 771 | |||||||||||||||||||||
Deferred expenses |
6,420 | 174 | 2,454 | 579 | - | - | 9,627 | |||||||||||||||||||||
Other assets |
16,798 | 27,490 | 2,288 | 2,545 | 35,387 | (33,528 | ) | 50,980 | ||||||||||||||||||||
Total assets | 177,321 | 96,706 | 72,370 | 14,052 | 36,150 | (33,536 | ) | 363,063 | ||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Insurance contracts general account |
68,159 | 25,040 | 9,974 | 3,632 | (7 | ) | (1,556 | ) | 105,242 | |||||||||||||||||||
Insurance contracts for account of policyholders |
45,589 | 26,158 | 2,011 | 2,411 | - | - | 76,169 | |||||||||||||||||||||
Investment contracts general account |
12,256 | 4,655 | 672 | 184 | - | - | 17,767 | |||||||||||||||||||||
Investment contracts for account of policyholders |
20,381 | 2 | 54,422 | 3,613 | - | - | 78,418 | |||||||||||||||||||||
Other liabilities |
13,914 | 36,872 | 2,092 | 1,801 | 10,176 | (5,456 | ) | 59,399 | ||||||||||||||||||||
Total liabilities |
160,299 | 92,727 | 69,171 | 11,641 | 10,169 | (7,012 | ) | 336,995 |
212 | Notes to the consolidated financial statements of Aegon N.V. Note 5 |
Investments | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Total | |||||||||||||||||||||
2013 | ||||||||||||||||||||||||||||
Shares |
1,456 | 447 | 55 | 45 | 36 | (2 | ) | 2,036 | ||||||||||||||||||||
Bonds |
57,125 | 19,095 | 10,479 | 2,812 | - | - | 89,511 | |||||||||||||||||||||
Loans |
8,192 | 24,832 | 1 | 508 | - | - | 33,533 | |||||||||||||||||||||
Other financial assets |
8,286 | 293 | 208 | 30 | 103 | - | 8,920 | |||||||||||||||||||||
Investments in real estate |
721 | 810 | - | 1 | - | - | 1,532 | |||||||||||||||||||||
Investments general account |
75,780 | 45,478 | 10,743 | 3,396 | 139 | (2 | ) | 135,533 | ||||||||||||||||||||
Shares |
1,309 | 8,450 | 15,375 | 297 | - | (8 | ) | 25,423 | ||||||||||||||||||||
Bonds |
4,844 | 16,791 | 11,590 | 307 | - | - | 33,531 | |||||||||||||||||||||
Separate accounts and investment funds |
68,905 | - | 26,173 | 5,744 | - | - | 100,822 | |||||||||||||||||||||
Other financial assets |
167 | 405 | 3,680 | 9 | - | - | 4,261 | |||||||||||||||||||||
Investments in real estate |
- | - | 996 | - | - | - | 996 | |||||||||||||||||||||
Investments for account of policyholders |
75,224 | 25,646 | 57,813 | 6,357 | - | (8 | ) | 165,032 | ||||||||||||||||||||
Investments on balance sheet |
151,004 | 71,123 | 68,556 | 9,754 | 139 | (10 | ) | 300,566 | ||||||||||||||||||||
Off balance sheet investments third parties |
112,611 | 994 | 287 | 60,951 | - | - | 174,843 | |||||||||||||||||||||
Total revenue generating investments | 263,616 | 72,117 | 68,843 | 70,705 | 139 | (10 | ) | 475,409 | ||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||
Available-for-sale |
62,661 | 19,452 | 10,687 | 2,827 | 8 | - | 95,635 | |||||||||||||||||||||
Loans |
8,192 | 24,832 | 1 | 508 | - | - | 33,533 | |||||||||||||||||||||
Financial assets at fair value through profit or loss |
79,430 | 26,029 | 56,872 | 6,418 | 131 | (10 | ) | 168,870 | ||||||||||||||||||||
Investments in real estate |
721 | 810 | 996 | 1 | - | - | 2,528 | |||||||||||||||||||||
Total investments on balance sheet | 151,004 | 71,123 | 68,556 | 9,754 | 139 | (10 | ) | 300,566 | ||||||||||||||||||||
Investments in joint ventures |
- | 819 | - | 607 | - | - | 1,426 | |||||||||||||||||||||
Investments in associates |
81 | 19 | 20 | 350 | 1 | - | 470 | |||||||||||||||||||||
Other assets |
22,577 | 17,036 | 5,080 | 2,936 | 29,962 | (28,196 | ) | 49,399 | ||||||||||||||||||||
Consolidated total assets |
173,663 | 88,997 | 73,656 | 13,647 | 30,102 | (28,206 | ) | 351,860 |
|
Supplemental Annual Report 2013 |
213
Investments | Americas | The Netherlands |
United Kingdom |
New Markets |
Holding and other activities |
Eliminations | Total | |||||||||||||||||||||
2012 | ||||||||||||||||||||||||||||
Shares |
1,390 | 412 | 51 | 16 | - | (2 | ) | 1,867 | ||||||||||||||||||||
Bonds |
63,686 | 19,256 | 11,066 | 2,817 | - | - | 96,825 | |||||||||||||||||||||
Loans |
8,910 | 22,193 | 5 | 552 | - | - | 31,660 | |||||||||||||||||||||
Other financial assets |
11,707 | 286 | 216 | 22 | 759 | - | 12,990 | |||||||||||||||||||||
Investments in real estate |
766 | 860 | - | 1 | - | - | 1,627 | |||||||||||||||||||||
Investments general account |
86,459 | 43,007 | 11,338 | 3,408 | 759 | (2 | ) | 144,969 | ||||||||||||||||||||
Shares |
1,484 | 8,406 | 14,927 | 63 | - | (6 | ) | 24,874 | ||||||||||||||||||||
Bonds |
5,300 | 16,266 | 12,954 | 162 | - | - | 34,682 | |||||||||||||||||||||
Separate accounts and investment funds |
59,029 | - | 23,593 | 5,778 | - | - | 88,400 | |||||||||||||||||||||
Other financial assets |
157 | 422 | 3,404 | 21 | - | - | 4,004 | |||||||||||||||||||||
Investments in real estate |
- | - | 1,008 | - | - | - | 1,008 | |||||||||||||||||||||
Investments for account of policyholders |
65,970 | 25,094 | 55,886 | 6,024 | - | (6 | ) | 152,968 | ||||||||||||||||||||
Investments on balance sheet |
152,429 | 68,101 | 67,224 | 9,432 | 759 | (8 | ) | 297,937 | ||||||||||||||||||||
Off balance sheet investments third parties |
100,725 | 1,052 | 10 | 59,301 | - | - | 161,088 | |||||||||||||||||||||
Total revenue generating investments | 253,154 | 69,153 | 67,234 | 68,733 | 759 | (8 | ) | 459,025 | ||||||||||||||||||||
Investments | ||||||||||||||||||||||||||||
Available-for-sale |
72,271 | 19,717 | 11,286 | 2,826 | 19 | - | 106,119 | |||||||||||||||||||||
Loans |
8,910 | 22,193 | 5 | 552 | - | - | 31,660 | |||||||||||||||||||||
Financial assets at fair value through profit or loss |
70,482 | 25,331 | 54,925 | 6,053 | 740 | (8 | ) | 157,523 | ||||||||||||||||||||
Investments in real estate |
766 | 860 | 1,008 | 1 | - | - | 2,635 | |||||||||||||||||||||
Total investments on balance sheet | 152,429 | 68,101 | 67,224 | 9,432 | 759 | (8 | ) | 297,937 | ||||||||||||||||||||
Investments in joint ventures |
- | 854 | - | 713 | - | - | 1,567 | |||||||||||||||||||||
Investments in associates |
90 | 21 | 8 | 648 | 4 | - | 771 | |||||||||||||||||||||
Other assets |
24,802 | 27,729 | 5,138 | 3,260 | 35,387 | (33,528 | ) | 62,788 | ||||||||||||||||||||
Consolidated total assets |
177,321 | 96,705 | 72,370 | 14,053 | 36,150 | (33,536 | ) | 363,063 |
6 Premium income and premiums to reinsurers
Gross | Reinsurance | |||||||
2013 | ||||||||
Life |
17,112 | 2,756 | ||||||
Non-Life |
2,827 | 351 | ||||||
Total | 19,939 | 3,108 | ||||||
2012 | ||||||||
Life |
16,200 | 3,298 | ||||||
Non-Life |
2,849 | 404 | ||||||
Total | 19,049 | 3,702 | ||||||
2011 | ||||||||
Life |
16,853 | 3,042 | ||||||
Non-Life |
2,668 | 365 | ||||||
Total |
19,521 | 3,407 |
214 | Notes to the consolidated financial statements of Aegon N.V. Note 7 |
2013 | 2012 | 2011 | ||||||||||
Interest income |
6,842 | 7,322 | 7,256 | |||||||||
Dividend income |
957 | 978 | 745 | |||||||||
Rental income |
110 | 113 | 166 | |||||||||
Total investment income |
7,909 | 8,413 | 8,167 | |||||||||
Investment income related to general account |
5,632 | 5,905 | 5,823 | |||||||||
Investment income for account of policyholders |
2,277 | 2,508 | 2,344 | |||||||||
Total |
7,909 | 8,413 | 8,167 | |||||||||
Included in interest income is EUR 238 million (2012: EUR 197 million; 2011: EUR 118 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 5,437 million (2012: EUR 5,633 million; 2011: EUR: 5,540 million).
|
| |||||||||||
Investment income from: | 2013 | 2012 | 2011 | |||||||||
Shares |
957 | 978 | 745 | |||||||||
Debt securities and money market instruments |
5,248 | 5,676 | 5,716 | |||||||||
Loans |
1,605 | 1,561 | 1,429 | |||||||||
Real estate |
110 | 113 | 166 | |||||||||
Other |
(11 | ) | 85 | 111 | ||||||||
Total |
7,909 | 8,413 | 8,167 | |||||||||
Investment income from financial assets held for general account: | 2013 | 2012 | 2011 | |||||||||
Available-for-sale |
3,917 | 4,127 | 4,119 | |||||||||
Loans |
1,605 | 1,561 | 1,429 | |||||||||
Held-to-maturity |
- | - | 7 | |||||||||
Financial assets designated at fair value through profit or loss |
123 | 139 | 125 | |||||||||
Real estate |
52 | 48 | 93 | |||||||||
Derivatives |
(26 | ) | 28 | 26 | ||||||||
Other |
(39 | ) | 2 | 24 | ||||||||
Total |
5,632 | 5,905 | 5,823 | |||||||||
|
||||||||||||
2013 | 2012 | 2011 | ||||||||||
Fee income from asset management |
1,188 | 1,063 | 700 | |||||||||
Sales commissions |
356 | 394 | 381 | |||||||||
Commissions from intermediary activities |
192 | 195 | 208 | |||||||||
Other |
214 | 204 | 176 | |||||||||
Total fee and commission income |
1,950 | 1,856 | 1,465 | |||||||||
Included in fee and commission income is EUR 40 million of fees on trust and fiduciary activities (2012: EUR 34 million; 2011: EUR 76 million). |
|
|
Supplemental Annual Report 2013 |
215
9 Income from reinsurance ceded
216 | Notes to the consolidated financial statements of Aegon N.V. Note 11 |
Net fair value change of derivatives comprise: | 2013 | 2012 | 2011 | |||||||||
Net fair value change on free standing derivatives |
(1,231 | ) | 458 | 2,334 | ||||||||
Net fair value change on embedded derivatives |
143 | (62 | ) | (1,065 | ) | |||||||
Ineffective portion of hedge transactions to which hedge accounting is applied |
12 | 9 | 13 | |||||||||
Fair value changes on economic hedges for which no hedge accounting is applied |
65 | (130 | ) | (117 | ) | |||||||
Total | (1,011 | ) | 275 | 1,165 | ||||||||
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: |
2013 | 2012 | 2011 | |||||||||
Fair value change on hedging instruments in a fair value hedge |
52 | (14 | ) | (99 | ) | |||||||
Fair value change on hedged items in fair value hedge |
(39 | ) | 28 | 111 | ||||||||
Ineffectiveness fair value hedge |
13 | 14 | 12 | |||||||||
Ineffectiveness cash flow hedges |
(1 | ) | (5 | ) | 1 | |||||||
Total | 12 | 9 | 13 | |||||||||
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: |
2013 | 2012 | 2011 | |||||||||
Shares |
3,660 | 2,348 | (2,030 | ) | ||||||||
Debt securities and money market investments |
(1,090 | ) | 1,636 | 946 | ||||||||
Deposits with financial institutions |
- | - | 4 | |||||||||
Separate accounts and unconsolidated investment funds |
13,002 | 7,867 | (1,053 | ) | ||||||||
Total | 15,571 | 11,851 | (2,133 | ) | ||||||||
Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by Claims and benefits paid to policyholders reported in Policyholder claims and benefits (note 12).
|
| |||||||||||
2013 | 2012 | 2011 | ||||||||||
Other income |
393 | 149 | 39 | |||||||||
Other income in 2013 mainly reflects two reinsurance recapture transactions totaling EUR 200 million and book gains totaling EUR 176 million related to the sale of joint ventures with Unnim and CAM. The book gain of Unnim of EUR 102 million included an amount of EUR 26 million which is recycled from equity through profit and loss. The net gain of EUR 74 million related to the sale of CAM included a negative amount of EUR 44 million which is recycled from equity through profit and loss.
Other income in 2012 mainly included the gain on the sale of Aegons interest in Prisma Capital Partners LP (Prisma) of EUR 100 million and the gain following the ending of the life, health and pension partnership with Banca Cívica of EUR 35 million. For more details on these two transactions refer to note 25 and 26 respectively. In 2011 other income primarily included a benefit related to the settlement of legal claims of EUR 37 million.
Other income is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4). |
|
|
Supplemental Annual Report 2013 |
217
12 Policyholder claims and benefits
2013 | 2012 | 2011 | ||||||||||
Claims and benefits paid to policyholders |
20,204 | 20,559 | 16,814 | |||||||||
Gains / (losses) on separate accounts |
10,178 | 6,240 | (598 | ) | ||||||||
Change in valuation of liabilities for insurance and investment contracts |
7,306 | 7,676 | 3,891 | |||||||||
Total | 37,688 | 34,475 | 20,107 | |||||||||
Policyholder claims and benefits, includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. Claims and benefits fluctuates mainly as a result of changes in technical provisions resulting from fair value changes on for account of policyholder financial assets included in Results from financial transactions (note 10).
The change in valuation of liabilities for insurance and investment contracts include a loss of EUR 176 million (2012: loss of EUR 129 million, 2011: loss of EUR 562 million) regarding fair value movements of guarantees and EUR 3 million of net losses (2012: net losses of EUR 230 million, 2011: net gains of EUR 38 million) related to policyholder tax and other income / charges that are classified for segment reporting purposes as non underlying earnings.
In 2012, Aegon decided to bring forward the measures, as Aegon committed to the best of class principles of the Dutch Ministry of Finance, to reduce future costs for its customers with unit-linked insurance policies in the Netherlands. This decision has led to an increase in the technical provisions (which is included in the Change in valuation of liabilities for insurance and investment contracts line in the table above) by EUR 265 million. Refer to note 51 Commitments and contingencies for more details.
|
| |||||||||||
2013 | 2012 | 2011 | ||||||||||
Surplus interest bonuses |
4 | 6 | 7 | |||||||||
Profit appropriated to policyholders |
24 | 27 | 48 | |||||||||
Total | 28 | 33 | 55 | |||||||||
|
||||||||||||
2013 | 2012 | 2011 | ||||||||||
Commissions |
2,741 | 2,744 | 2,666 | |||||||||
Employee expenses |
2,060 | 2,002 | 2,047 | |||||||||
Administration expenses |
1,158 | 1,052 | 1,315 | |||||||||
Deferred expenses |
(1,311 | ) | (1,338 | ) | (1,206 | ) | ||||||
Amortization of deferred expenses |
899 | 983 | 1,147 | |||||||||
Amortization of VOBA and future servicing rights |
108 | 167 | 207 | |||||||||
Total | 5,656 | 5,610 | 6,176 | |||||||||
Included in administration expenses is an amount of EUR 82 million of depreciation that relates to equipment, software and real estate held for own use (2012: EUR 87 million; 2011: EUR 78 million). Minimum lease payments recognized as expense amounted to EUR 12 million (2012: EUR 15 million; 2011: EUR 7 million).
Within employee and administration expenses is an amount of EUR 107 million relating to restructuring charges that is classified as non-underlying earnings for segment reporting purposes (2012: EUR 27 million; 2011: EUR 209 million).
Amortization of deferred expenses included a charge of EUR 35 million (2012: EUR 105 million, 2011: EUR 240 million), which is classified as non-underlying earnings for segment reporting purposes. This is offset against realized gains and losses and impairments on financial investments. |
|
218 | Notes to the consolidated financial statements of Aegon N.V. Note 14 |
Amortization of VOBA and future servicing rights include an amount of EUR 13 million (2012: charge EUR 14 million, 2011: charge EUR 19 million) that is classified as non-underlying earnings for segment reporting purposes.
Employee expenses | 2013 | 2012 | 2011 | |||||||||
Salaries |
1,286 | 1,276 | 1,283 | |||||||||
Post-employment benefit costs |
292 | 266 | 215 | |||||||||
Social security charges |
133 | 134 | 135 | |||||||||
Other personnel costs |
309 | 294 | 396 | |||||||||
Shares, share appreciation rights, share options and LTIP |
41 | 32 | 18 | |||||||||
Total | 2,060 | 2,002 | 2,047 |
An amount of EUR 39 million is included in employee expenses relating to defined contributions (2012: EUR 30 million; 2011: EUR 27 million).
Long Term Incentive Plans
In 2010, Aegon implemented a Long Term Incentive Plan which replaced the option plan, share appreciation plans, share plans or similar plans relating to Aegon shares. Members of the Executive Board and the Management Board, as well as other senior managers within Aegon, were granted the right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted in May 2010 at the average share price on the NYSE Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The performance indicators apply over a vesting period of three years (2010 2012) and consisted of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Shares are allocated based on actual performance. After the vesting period, the shares were transferred to the individual employees on May 2, 2013. Members of the Executive Board and the Management Board at the time of the conditional grant are not entitled to execute any transactions regarding the shares for a period of two years following vesting.
As per 2011 the structure of Long Term Incentives scheme changed. Senior managers within Aegon, not classified as Identified Staff, have been granted the conditional right to receive Aegon shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were conditionally granted at the beginning of the year at the average share price on the NYSE Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The performance indicators apply over a performance period of one year and consist of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Following the performance year shares are allocated based on actual performance. A vesting period of two years applies after which the shares are transferred to the individual employees. Ex post assessment is not applicable to this group of employees.
Variable compensation Identified Staff
Members of the Executive Board and the Management Board as well as other selected jobholders have been defined as Identified Staff in accordance with new rules, guidelines and interpretations. Of these, the Capital Requirements Directive III (CRD III) remuneration principles, the 2010 Guidelines on Remuneration Policies and Practices by the Committee of European Banking Supervisors (CEBS) and the 2011 Decree on Sound Remuneration Policy by De Nederlandsche Bank (Regeling beheerst beloningsbeleid WFt 2011 - Rbb) are prominent examples. The rules have been adopted in Aegons Global Remuneration Framework for Identified Staff. After the performance period, and based on the framework, variable compensation is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the average share price on the NYSE Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and / or Reporting Unit targets (both financial and non-financial) set by the Supervisory Board or the local remuneration committees and personal/strategic targets. For Members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting the variable compensation is transferred to the individual employees. Additional holding periods may apply for vested shares. Members of the Executive Board and the members of the Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares sold to meet income tax obligations).
In compliance with regulations under Dutch law, no transactions regarding the shares can be exercised in blackout periods.
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Supplemental Annual Report 2013 |
219
In 2010, 4,266,107 shares were conditionally granted to participants in the 2010 Long Term Incentive Plan. The shares were granted using the share price of EUR 4.851. Following the performance period 5,408,521 shares were allocated. These shares vested on May 2, 2013 on the basis of realized performance and became unconditional. Holding periods of two years apply for vested shares awarded to Members of the Executive Board and Management Board at the time of the conditional grant.
Following the 2011 performance year 6,441,488 shares were allocated to participants in the 2011 Long Term Incentive Plan and the 2011 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4.727. As per December 31, 2013 392,880 shares had vested. Additional holding periods of up to 3 years may apply. 6,032,524 shares are unvested and will vest in future years.
Following the 2012 performance year 13,343,782 shares were allocated to participants in the 2012 Long Term Incentive Plan and the 2012 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 3.126. As per December 31, 2013 659,232 shares had vested. Additional holding periods of up to 3 years may apply. 12,676,414 shares are unvested and will vest in future years.
In 2013, 5,735,046 shares were conditionally granted (at target performance level) to participants in the 2013 Long Term Incentive Plan and the 2013 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4,917.
Share appreciation rights and share options
Senior executives of Aegon companies, as well as other Aegon employees, have been offered both share appreciation rights and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 - 2008 vest after three years and can only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, whilst stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
After 2008 no share option or share appreciation rights were granted.
In compliance with regulations under Dutch law, share appreciation rights and share options cannot be exercised in blackout periods.
Share appreciation rights
The following tables present the movements in number of share appreciation rights outstanding (SARs), as well as the breakdown by the year in which they were granted.
Number of SARs |
Weighted average exercise price in EUR |
Weighted average remaining contractual term in years |
Aggregate intrinsic in EUR million |
|||||||||||||
Outstanding at January 1, 2012 |
2,836,449 | 11.09 | 0.60 | - | ||||||||||||
Forfeited |
(228,800 | ) | 11.21 | |||||||||||||
Expired |
(2,171,649 | ) | 10.86 | |||||||||||||
Outstanding at December 31, 2012 | 436,000 | 12.19 | 1.31 | - | ||||||||||||
Forfeited |
(126,800 | ) | 13.78 | |||||||||||||
Expired |
(21,300 | ) | 14.00 | |||||||||||||
Outstanding at December 31, 2013 | 287,900 | 11.35 | 0.81 | - | ||||||||||||
Exercisable at December 31, 2013 | 287,900 | 11.35 | 0.81 | - |
220 | Notes to the consolidated financial statements of Aegon N.V. Note 14 |
SARs | Original number granted | Outstanding January 1, 2013 |
Outstanding December 31, 2013 |
Exercise price in EUR |
Exercise period | |||||||||||||||
2006 |
244,300 | 135,200 | - | 14.00 | until March 14, 2013 | |||||||||||||||
2007 |
309,500 | 121,500 | 115,200 | 14.98 | until March 13, 2014 | |||||||||||||||
2008 |
300,300 | 179,300 | 172,700 | 8.93 | until March 11, 2015 | |||||||||||||||
Total | 854,100 | 436,000 | 287,900 |
Refer to note 3 for a further description of the method used to estimate the fair value and a description of the significant assumptions. The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model.
The liability related to share appreciation rights is valued at fair value at each balance sheet date. There were no costs related to the share appreciation rights in 2013 (2012: nil; 2011: nil).
Share options
The following tables present the movements in number of share options, as well as the breakdown by the year in which they were granted.
Number of share options |
Weighted average exercise price in EUR |
Weighted average remaining contractual term in years |
Aggregate intrinsic in EUR million |
|||||||||||||
Outstanding at January 1, 2012 |
18,778,361 | 11.91 | 1.98 | - | ||||||||||||
Forfeited/Cancelled |
(4,855,384 | ) | 11.44 | |||||||||||||
Outstanding at December 31, 2012 | 13,922,977 | 12.09 | 1.31 | - | ||||||||||||
Forfeited/Cancelled |
(1,034,306 | ) | 11.66 | |||||||||||||
Expired |
(4,392,903 | ) | 14.00 | |||||||||||||
Outstanding at December 31, 2013 | 8,495,768 | 11.15 | 0.84 | - | ||||||||||||
Exercisable at December 31, 2013 | 8,495,768 | 11.15 | 0.84 | - |
Share options | Original number granted | Outstanding January 1, 2013 |
Outstanding December 31, 2013 |
Exercise price in EUR |
Exercise period | |||||||||||||||
2006 |
9,149,500 | 4,520,403 | - | 14.00 | until March 14, 2013 | |||||||||||||||
2007 |
9,522,200 | 3,478,732 | 3,118,054 | 14.98 | until March 13, 2014 | |||||||||||||||
2008 |
10,269,900 | 5,923,842 | 5,377,714 | 8.93 | until March 11, 2015 | |||||||||||||||
Total | 28,941,600 | 13,922,977 | 8,495,768 |
The costs related to the share options amount to EUR (1) million (2012: EUR (2) million and 2011: EUR (1) million) and are recognized in the income statement as part of Commissions and expenses.
Share appreciation rights and share options
No SARs and share options were granted after 2008. With regard to the SARs and options granted before 2009, no share options were exercised and no SARs were paid during 2011, 2012 and 2013. Similarly, no cash is received from exercise of share options during 2011, 2012 and 2013.
The exposure from the issued SARs and share options is economically hedged by part of the position in treasury shares. There have been no modifications to the plans during the financial year.
Refer to note 56 for detailed information on conditional shares and share options granted to the Executive Board.
|
Supplemental Annual Report 2013 |
221
15 Impairment charges / (reversals)
Other charges of EUR 134 million in 2013 mainly include EUR 71 million related to an increase in reserves in connection with the companys use of the Social Security Administrations death master-file in the United States. Additionally, it includes a loss of EUR 22 million related to the sale of national independent financial advisor Positive Solutions in the United Kingdom.
222 | Notes to the consolidated financial statements of Aegon N.V. Note 18 |
Other charges in 2012 mainly include a charge of EUR 26 million related to a settlement following the termination of a Bank-Owned Life Insurance contract in the United States and a charge of EUR 16 million related to the annual bank tax by the Hungarian Government (2011: EUR 17 million).
Other charges in 2011 mainly include EUR 37 million related to increased reserves in connection with the companys use of the Social Security administrations death master file in the United States and a loss of EUR 7 million on the sale of the Guardian life and pension business in the United Kingdom.
Other charges is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4).
Note | 2013 | 2012 | 2011 | |||||
Current tax | ||||||||
Current year |
374 | 221 | (158) | |||||
Adjustments to prior year |
(479) | 79 | (22) | |||||
(105) | 300 | (180) | ||||||
Deferred tax |
45 | |||||||
Origination / (reversal) of temporary differences |
(187) | 174 | 258 | |||||
Changes in tax rates / bases |
(54) | (47) | (30) | |||||
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences |
1 | (3) | (31) | |||||
Non-recognition of deferred tax assets |
65 | 51 | 78 | |||||
Adjustments to prior year |
479 | (103) | (4) | |||||
304 | 72 | 271 | ||||||
Income tax for the period (income) / charge | 200 | 372 | 91 | |||||
The prior year adjustments include shifts between current and deferred tax. In 2013 the shift between current and deferred tax is mainly caused by an agreement with tax authorities, resulting in an increased current tax receivable and a decreased deferred tax asset.
| ||||||||
Reconciliation between standard and effective income tax: | 2013 | 2012 | 2011 | |||||
Income before tax |
1,189 | 2,005 | 1,027 | |||||
Income tax calculated using weighted average applicable statutory rates |
360 | 616 | 306 | |||||
Difference due to the effects of: |
||||||||
Non-taxable income |
(129) | (85) | (68) | |||||
Non-tax deductible expenses |
33 | 13 | 46 | |||||
Changes in tax rate/base |
(54) | (47) | (31) | |||||
Different tax rates on overseas earnings |
(14) | (39) | (39) | |||||
Tax credits |
(56) | (69) | (67) | |||||
Other taxes |
20 | 18 | (3) | |||||
Adjustments to prior years |
- | (24) | (26) | |||||
Origination and change in contingencies |
- | 3 | (62) | |||||
Changes in deferred tax assets as a result of recognition/write off of previously not recognized/ recognized tax losses, tax credits and deductible temporary differences |
1 | (3) | (31) | |||||
Non-recognition of deferred tax assets |
65 | 51 | 78 | |||||
Tax effect of (profit) / losses from joint ventures and associates |
(5) | (7) | - | |||||
Other |
(21) | (55) | (12) | |||||
(160) | (244) | (215) | ||||||
Income tax for the period (income) / charge | 200 | 372 | 91 |
The weighted average applicable statutory tax rate for 2013 is 30.3% (2012: 30.7%; 2011: 29.8%). The marginal decrease in weighted average applicable statutory tax rate compared to 2012 is caused by a decrease of profits in the higher taxed countries.
|
Supplemental Annual Report 2013 |
223
In the UK, the corporate income tax rate decreased from 24% in 2012 to 23% as from April 1, 2013. The rate will further decrease to 21% as from April 1, 2014 and to 20% as from April 1, 2015. The beneficial impact of these changes is reflected in the Change in tax rate/base.
In 2013, Other consists of tax effects of the UK Life company that have no direct correlation to the IFRS result and also consists of the effect of the various tax rates, other than the statutory tax rate, that are applicable to income of the UK Life company.
The following table presents income tax related to components of other comprehensive income.
2013 | 2012 | 2011 | ||||||||||
Items that will not be reclassified to profit and loss: | ||||||||||||
Changes in revaluation reserve real estate held for own use |
1 | 1 | (1 | ) | ||||||||
Remeasurements of defined benefit plans |
(202 | ) | 37 | 180 | ||||||||
(201 | ) | 38 | 179 | |||||||||
Items that may be reclassified subsequently to profit and loss: | ||||||||||||
Gains / losses on revaluation of available-for-sale investments |
1,013 | (1,199 | ) | (936 | ) | |||||||
Gains / losses transferred to the income statement on disposal and impairment of available-for-sale investments |
69 | 117 | 147 | |||||||||
Changes in cash flow hedging reserve |
192 | 27 | (361 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserve |
21 | 3 | (12 | ) | ||||||||
Other |
- | (6 | ) | - | ||||||||
1,295 | (1,058 | ) | (1,162 | ) | ||||||||
Total income tax related to components of other comprehensive income | 1,094 | (1,020 | ) | (983 | ) |
Basic earnings per share
Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared, coupons on perpetual securities and non-cumulative subordinated notes, and coupons and premium on convertible core capital securities by the weighted average number of common shares, excluding common shares purchased by the company and held as treasury shares (refer to note 32.1 and 32.3 respectively).
2013 | 2012 | 2011 | ||||||||||
Net income / (loss) attributable to equity holders |
986 | 1,632 | 933 | |||||||||
Dividends on preferred shares |
(83 | ) | (59 | ) | (59 | ) | ||||||
Coupons on perpetual securities |
(146 | ) | (172 | ) | (177 | ) | ||||||
Coupons and premium on convertible core capital securities |
- | - | (750 | ) | ||||||||
Coupons on non-cumulative subordinated notes |
(21 | ) | (23 | ) | - | |||||||
Net income / (loss) attributable to equity holders for basic earnings per share calculation | 736 | 1,378 | (53 | ) | ||||||||
Net income / (loss) attributable to common shareholders |
733 | 1,378 | (53 | ) | ||||||||
Net income / (loss) attributable to common shareholders B |
3 | - | - | |||||||||
Weighted average number of common shares outstanding (in million) |
2,035 | 1,907 | 1,852 | |||||||||
Weighted average number of common shares B outstanding (in million) |
366 | - | - | |||||||||
Basic earnings per common share (EUR per share) |
0.36 | 0.72 | (0.03 | ) | ||||||||
Basic earnings per common share B (EUR per share) |
0.01 | - | - |
Diluted earnings per share
Diluted earnings per share is calculated by adjusting the average number of shares outstanding for share options. For the purpose of calculating diluted earnings per share, Aegon assumed that all dilutive share options have been exercised at the exercise price, or adjusted exercise price if necessary. The proceeds are regarded as having been received from the issue of common shares at the average market price of the Aegon N.V. share during the year. The difference between the number of dilutive options issued and the number of common shares that would have been issued at the average market price has been treated as an issue of common shares for no consideration.
224 | Notes to the consolidated financial statements of Aegon N.V. Note 20 |
The number of share options that has not been included in the weighted average number of common shares used in the calculation of diluted earnings per share amounted to 8,495,768 (2012: 13,922,977; 2011: 18,778,361). In 2013, 2012 and 2011, the average share price did not exceed the exercise price. At December 31, 2013, the exercise prices of these share options range from EUR 8.93 to EUR 14.98. Aegon has no share options on common shares B.
The diluted earnings per share equaled the basic earnings per share for the year 2013 since there were no share options exercised as mentioned above.
It will be proposed to the annual General Meeting of Shareholders on May 21, 2014, absent unforeseen circumstances, to pay a dividend for the year 2013 of EUR 0.22 per common share and of EUR 0.0055 per common share B. After taking into account the interim dividend 2013 of EUR 0.11 per common share and of EUR 0.00275 per common share B, this results in a final dividend of EUR 0.11 per common share and of EUR 0.00275 per common share B.
The interim dividend 2013 on common shares was paid in cash or stock at the election of the shareholder. Stock dividend amounts to one new Aegon common share for every 50 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 13, 2013. The interim dividend 2013 for common shares B was fully paid in cash.
Approximately 55% of holders of common shares have elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2013 interim dividend paid in shares. Between September 17, 2013, and October 14, 2013, 19,047,358 common shares were repurchased under the share buyback program, at an average price of EUR 5.6233 per share.
The Annual General Meeting of Shareholders on May 15, 2013, approved a final dividend of EUR 0.21 per common share over 2012, payable in either cash or stock. Related to the second half of 2012, paid in the first half of 2013, a cash dividend amounted EUR 0.11 per common share, and the stock dividend amounts to one new Aegon common share for every 47 common shares held. The stock dividend and cash dividend are approximately equal in value. Aegon did not have common shares B during 2012.
The dividend per common share paid in 2011 (final dividend 2010 and interim dividend 2011) was nil. As part of the European Commissions approval granted in August 2010 regarding the State support received in December 2008, Aegon committed itself not to pay any dividend to the common shareholder until the convertible core capital securities had been fully repurchased. The repurchase of the convertible core capital securities was completed in 2011, refer to note 33 for additional information on this repurchase. Aegon did not have common shares B during 2011.
|
Supplemental Annual Report 2013 |
225
Net book value | Goodwill | VOBA | Future servicing rights |
Software | Other | Total | ||||||||||||||||||
At January 1, 2012 |
259 | 2,024 | 397 | 26 | 13 | 2,719 | ||||||||||||||||||
At December 31, 2012 |
266 | 1,798 | 383 | 50 | 9 | 2,506 | ||||||||||||||||||
At December 31, 2013 | 211 | 1,768 | 239 | 50 | 4 | 2,272 | ||||||||||||||||||
Cost | ||||||||||||||||||||||||
At January 1, 2013 |
393 | 7,085 | 621 | 266 | 80 | 8,445 | ||||||||||||||||||
Additions |
- | 4 | - | 20 | - | 24 | ||||||||||||||||||
Acquisitions through business combinations |
12 | 3 | - | - | - | 15 | ||||||||||||||||||
Capitalized subsequent expenditure |
- | - | - | 2 | - | 2 | ||||||||||||||||||
Disposals |
- | - | (1 | ) | (2 | ) | - | (3 | ) | |||||||||||||||
Disposal of a business |
- | - | - | (1 | ) | (8 | ) | (9 | ) | |||||||||||||||
Net exchange differences |
(17 | ) | (334 | ) | (23 | ) | (9 | ) | (3 | ) | (385 | ) | ||||||||||||
Other movements |
- | - | - | 1 | - | 2 | ||||||||||||||||||
At December 31, 2013 | 388 | 6,758 | 596 | 278 | 69 | 8,090 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | ||||||||||||||||||||||||
At January 1, 2013 |
127 | 5,287 | 238 | 216 | 71 | 5,939 | ||||||||||||||||||
Amortization / depreciation through income statement |
- | 103 | 19 | 15 | 1 | 139 | ||||||||||||||||||
Shadow accounting adjustments |
- | (152 | ) | - | - | - | (152 | ) | ||||||||||||||||
Disposals |
- | - | - | (2 | ) | - | (2 | ) | ||||||||||||||||
Disposal of a business |
- | - | - | (1 | ) | (4 | ) | (5 | ) | |||||||||||||||
Impairment losses |
53 | - | 110 | 4 | 1 | 168 | ||||||||||||||||||
Net exchange differences |
(4 | ) | (248 | ) | (9 | ) | (6 | ) | (3 | ) | (270 | ) | ||||||||||||
Other movements |
- | - | - | 2 | - | 1 | ||||||||||||||||||
At December 31, 2013 | 177 | 4,991 | 358 | 228 | 66 | 5,819 | ||||||||||||||||||
Cost | ||||||||||||||||||||||||
At January 1, 2012 |
388 | 7,149 | 616 | 232 | 80 | 8,465 | ||||||||||||||||||
Additions |
- | - | - | 31 | 1 | 32 | ||||||||||||||||||
Acquisitions through business combinations |
1 | 5 | - | - | - | 6 | ||||||||||||||||||
Capitalized subsequent expenditure |
- | - | - | 4 | - | 4 | ||||||||||||||||||
Disposals |
- | - | - | (8 | ) | - | (8 | ) | ||||||||||||||||
Net exchange differences |
4 | (60 | ) | 5 | 8 | (1 | ) | (44 | ) | |||||||||||||||
Other movements |
- | (9 | ) | - | (1 | ) | - | (10 | ) | |||||||||||||||
At December 31, 2012 | 393 | 7,085 | 621 | 266 | 80 | 8,445 | ||||||||||||||||||
Accumulated amortization, depreciation and impairment losses | ||||||||||||||||||||||||
At January 1, 2012 |
129 | 5,125 | 219 | 206 | 67 | 5,746 | ||||||||||||||||||
Amortization / depreciation through income statement |
- | 144 | 20 | 11 | 4 | 179 | ||||||||||||||||||
Shadow accounting adjustments |
- | 85 | - | - | - | 85 | ||||||||||||||||||
Disposals |
- | - | - | (7 | ) | - | (7 | ) | ||||||||||||||||
Net exchange differences |
(2 | ) | (58 | ) | (1 | ) | 7 | - | (54 | ) | ||||||||||||||
Other movements |
- | (9 | ) | - | (1 | ) | - | (10 | ) | |||||||||||||||
At December 31, 2012 | 127 | 5,287 | 238 | 216 | 71 | 5,939 |
226 | Notes to the consolidated financial statements of Aegon N.V. Note 21 |
The Polish government enacted into legislation its pension reform proposal. The outcome adversely impacts Aegons Polish pension business growth and profitability from current in-force business. As a result, Aegon impaired intangibles related to this business: goodwill (EUR 53 million); future servicing rights (EUR 110 million); and DPAC write offs (EUR 29 million). The DPAC write offs are included in the deferred expenses (note 29).
Amortization and depreciation through income statement is included in Commissions and expenses. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities.
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 11 years (2012: 12 years). Future servicing rights are amortized over an average period up to 30 years, of which 9 remains at December 31, 2013 (2012: 14 years). Software is generally depreciated over an average period of 5 years. At December 31, 2013, the remaining average depreciation period was 4 years (2012: 4 years).
Goodwill
The goodwill balance has been allocated across the cash-generating units which are expected to benefit from the synergies inherent in the goodwill. Goodwill is tested for impairment both annually and when there are specific indicators of a potential impairment. The recoverable amount is the higher of the value in use and fair value less costs to sell for a cash-generating unit. The operating assumptions used in all the calculations are best estimate assumptions and based on historical data where available.
The economic assumptions used in all the calculations are based on observable market data and projections of future trends. All the cash-generating units tested showed that the recoverable amounts were higher than their carrying values, including goodwill. A reasonably possible change in any key assumption is not expected to cause the carrying value of the cash-generating units to exceed its recoverable amount.
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows:
2013 | 2012 | |||||||
Americas |
||||||||
- USA |
107 | 112 | ||||||
New Markets |
||||||||
- Central & Eastern Europe |
48 | 101 | ||||||
- Other New Markets |
27 | 29 | ||||||
Other |
29 | 25 | ||||||
At December 31 | 211 | 266 |
Goodwill in Aegon USA is allocated to its divisions. Value in use calculations of Aegon USA have been actuarially determined based on business plans covering a period of typically five years and pre-tax risk adjusted discount rates. The value in use test in the USA for the Individual Savings & Retirement cash generating unit (EUR 106 million; 2012: EUR 111 million) assumes business plans covering a period of five years further extrapolated to ten years where the new business levels for years 6-10 assumed a 5% growth rate (2012: 5%) and pre-tax risk adjusted discount rate of 17% (2012: 17%).
To determine the recoverable amounts of the cash generating units of Aegon CEE, value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically three years further extrapolated to twenty years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 10%-20%. Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 9.2%-15.9% (2012: 10.9%-16.4%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
|
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227
VOBA
The movement in VOBA over 2013 can be summarized and compared to 2012 as follows:
2013 | 2012 | |||||||||||||||
At January 1 |
1,798 | 2,024 | ||||||||||||||
Additions |
7 | 5 | ||||||||||||||
Amortization / depreciation through income statement |
(103) | (144 | ) | |||||||||||||
Shadow accounting adjustments |
152 | (85 | ) | |||||||||||||
Net exchange differences |
(85) | (2 | ) | |||||||||||||
At December 31 | 1,768 | 1,798 | ||||||||||||||
A geographical summary of the lines of business to which the VOBA is allocated is as follows:
|
| |||||||||||||||
Americas | The Netherlands |
United Kingdom |
New Markets |
Total | ||||||||||||
2013 | ||||||||||||||||
Life |
1,131 | 1 | - | 12 | 1,144 | |||||||||||
Individual savings and retirement products |
157 | - | - | - | 157 | |||||||||||
Pensions |
11 | 36 | 366 | - | 414 | |||||||||||
Distribution |
- | 21 | - | - | 21 | |||||||||||
Run-off businesses |
32 | - | - | - | 32 | |||||||||||
Total VOBA | 1,332 | 58 | 366 | 12 | 1,768 | |||||||||||
2012 | ||||||||||||||||
Life |
1,141 | 1 | - | 11 | 1,153 | |||||||||||
Individual savings and retirement products |
159 | - | - | - | 159 | |||||||||||
Pensions |
14 | 41 | 393 | - | 448 | |||||||||||
Distribution |
- | 24 | - | - | 24 | |||||||||||
Run-off businesses |
14 | - | - | - | 14 | |||||||||||
Total VOBA |
1,328 | 66 | 393 | 11 | 1,798 | |||||||||||
Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate.
|
| |||||||||||||||
Note | 2013 | 2012 | ||||||||||||||
Available-for-sale (AFS) |
95,635 | 106,119 | ||||||||||||||
Loans |
33,533 | 31,660 | ||||||||||||||
Financial assets at fair value through profit or loss (FVTPL) 1) |
4,833 | 5,563 | ||||||||||||||
Total financial assets, excluding derivatives | 22.1 | 134,001 | 143,342 | |||||||||||||
Investments in real estate |
22.2 | 1,532 | 1,627 | |||||||||||||
Total investments for general account | 135,533 | 144,969 |
1 | Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss. |
228 | Notes to the consolidated financial statements of Aegon N.V. Note 22 |
22.1 Financial assets, excluding derivatives
AFS | FVTPL | Loans | Total | Fair value | ||||||||||||||||
2013 | ||||||||||||||||||||
Shares |
787 | 1,250 | - | 2,036 | 2,036 | |||||||||||||||
Debt securities |
88,162 | 1,350 | - | 89,511 | 89,511 | |||||||||||||||
Money market and other short-term investments |
5,524 | 449 | - | 5,974 | 5,974 | |||||||||||||||
Mortgage loans |
- | - | 29,369 | 29,369 | 32,869 | |||||||||||||||
Private loans |
- | - | 1,783 | 1,783 | 1,888 | |||||||||||||||
Deposits with financial institutions |
- | - | 292 | 292 | 292 | |||||||||||||||
Policy loans |
- | - | 1,955 | 1,955 | 1,955 | |||||||||||||||
Other |
1,163 | 1,784 | 135 | 3,082 | 3,082 | |||||||||||||||
At December 31, 2013 | 95,635 | 4,833 | 33,533 | 134,001 | 137,607 | |||||||||||||||
2012 |
||||||||||||||||||||
Shares |
824 | 1,043 | - | 1,867 | 1,867 | |||||||||||||||
Debt securities |
95,394 | 1,431 | - | 96,825 | 96,825 | |||||||||||||||
Money market and other short-term investments |
8,687 | 1,084 | - | 9,771 | 9,771 | |||||||||||||||
Mortgage loans |
- | - | 28,298 | 28,298 | 32,982 | |||||||||||||||
Private loans |
- | - | 1,012 | 1,012 | 1,143 | |||||||||||||||
Deposits with financial institutions |
- | - | 96 | 96 | 96 | |||||||||||||||
Policy loans |
- | - | 2,103 | 2,103 | 2,104 | |||||||||||||||
Other |
1,214 | 2,005 | 151 | 3,370 | 3,370 | |||||||||||||||
At December 31, 2012 | 106,119 | 5,563 | 31,660 | 143,342 | 148,158 |
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 10,892 million is current (2012: EUR 17,428 million).
Refer to note 3 for information on fair value measurement.
Other
Movement on the loan allowance account during the year were as follows:
2013 | 2012 | |||||||
At January 1 |
(223 | ) | (198 | ) | ||||
Addition charged to income statement |
(67 | ) | (79 | ) | ||||
Reversal to income statement |
15 | 15 | ||||||
Amounts written off |
33 | 44 | ||||||
Net exchange differences |
3 | (5 | ) | |||||
At December 31 | (240 | ) | (223 | ) |
Refer to note 52 for a discussion of collateral received and paid.
|
Supplemental Annual Report 2013 |
229
22.2 Investments in real estate
2013 | 2012 | |||||||
At January 1 |
1,627 | 1,687 | ||||||
Additions |
9 | 5 | ||||||
Subsequent expenditure capitalized |
12 | 17 | ||||||
Transfers from other headings |
79 | 87 | ||||||
Disposals |
(105 | ) | (208 | ) | ||||
Fair value gains/(losses) |
(49 | ) | (9 | ) | ||||
Other |
(8 | ) | 60 | |||||
Net exchange differences |
(33 | ) | (12 | ) | ||||
At December 31 | 1,532 | 1,627 |
In 2013, 77% of the value of Aegons properties, both for general account and for account of policyholders, were appraised (2012: 89%), of which 99% was performed by independent external appraisers (2012: 99%).
Aegon USA has entered into commercial property portfolio, consisting of office, retail and industrial buildings. These non-cancellable leases have remaining lease terms of between 9 months and 20 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions.
Aegon the Netherlands has entered into long-term residential property leases that can be terminated subject to a short-term notice. Under Dutch law, the maximum annual rent increase on residential property rented in the affordable housing segment is specified by the Dutch national government and equals the annual inflation rate plus a small margin.
Refer to note 51 for description of non-cancellable lease rights.
Rental income of EUR 52 million (2012: EUR 48 million; 2011: EUR 93 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 80 million (2012: EUR 74 million; 2011: EUR 78 million). In 2013, none of direct operating expenses is related to investment properties that did not generate rental income during the period (2012: EUR 6 million; 2011: EUR 7 million).
Transfers from other headings mainly reflect the properties that were foreclosed during the year. The associated mortgage loans were previously reported as part of investments.
There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 51 for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
230 | Notes to the consolidated financial statements of Aegon N.V. Note 23 |
23 Investments for account of policyholders
Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, and investments in real estate.
Note | 2013 | 2012 | ||||||||||||||
Shares |
25,423 | 24,874 | ||||||||||||||
Debt securities |
33,531 | 34,682 | ||||||||||||||
Money market and other short-term investments |
850 | 1,480 | ||||||||||||||
Deposits with financial institutions |
3,006 | 2,087 | ||||||||||||||
Unconsolidated investment funds |
100,822 | 88,400 | ||||||||||||||
Other |
404 | 437 | ||||||||||||||
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 1) | 164,037 | 151,960 | ||||||||||||||
Investments in real estate |
23.1 | 996 | 1,008 | |||||||||||||
Total investments for account of policyholders | 165,032 | 152,968 | ||||||||||||||
1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss. | ||||||||||||||||
23.1 Investments in real estate for account of policyholders
|
||||||||||||||||
2013 | 2012 | |||||||||||||||
At January 1 |
1,008 | 1,132 | ||||||||||||||
Additions |
178 | 14 | ||||||||||||||
Subsequent expenditure capitalized |
27 | 26 | ||||||||||||||
Disposals |
(180 | ) | (152 | ) | ||||||||||||
Fair value gains/(losses) |
(12 | ) | (46 | ) | ||||||||||||
Net exchange differences |
(25 | ) | 34 | |||||||||||||
At December 31 | 996 | 1,008 | ||||||||||||||
The investment property is leased out under operating leases.
Rental income of EUR 59 million (2012: EUR 65 million; 2011: EUR 73 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 8 million in 2013 (2012: EUR 7 million, 2011: EUR 14 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Refer to note 51 for a summary of contractual obligations to purchase investment property or for repairs, maintenance or enhancements.
|
| |||||||||||||||
Derivative asset | Derivative liability | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Derivatives for general account | ||||||||||||||||
Derivatives not designated in a hedge |
12,488 | 19,040 | 11,170 | 17,107 | ||||||||||||
Derivatives designated as fair value hedges |
247 | 421 | 56 | 311 | ||||||||||||
Derivatives designated as cash flow hedges |
421 | 1,164 | 310 | 370 | ||||||||||||
Net foreign investment hedges |
137 | 200 | 146 | 197 | ||||||||||||
13,293 | 20,824 | 11,682 | 17,985 | |||||||||||||
Derivatives for account of policyholders | ||||||||||||||||
Derivatives not designated in a hedge |
238 | 310 | 155 | 67 | ||||||||||||
|
238
|
|
|
310
|
|
|
155
|
|
|
67
|
| |||||
Total derivatives 1) | 13,531 | 21,134 | 11,838 | 18,052 | ||||||||||||
1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss. |
|
Supplemental Annual Report 2013 |
231
Of these derivatives EUR 540 million net asset is current (2012: EUR 606 million net asset).
In 2012, Aegon the Netherlands entered into a derivative to partially hedge its longevity risk. The derivative, with a notional amount of EUR 12 billion, becomes in the money if - in 2032 - realized mortality rates are more than 7.5% lower than pre-defined mortality tables. To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the US, Aegon bought an additional longevity index derivative in 2013. This derivative will pay out in twenty-two years if some combination of higher than expected mortality rates in the United States and/or lower than expected mortality rates in the Netherlands persists over the next twenty years and, at that time, is expected to continue to do so. The derivatives are measured at fair value through profit or loss in accordance with IAS 39. The value of the longevity derivatives are calculated using an internal model as there is no active market for this type of derivatives. For more details refer to the paragraph on derivatives included in note 3 and the paragraph on underwriting risk included in note 4.
The fair value of derivatives on both the asset and liability side of the consolidated statement of financial position decreased during 2013. This decrease is mainly caused by increases in market interest rates and other market developments. See note 3 for details on measurement of derivatives.
Use of derivatives
Derivatives not designated in a hedge
Derivative asset | Derivative liability | |||||||||||||||
Derivatives not designated in a hedge general account | 2013 | 2012 | 2013 | 2012 | ||||||||||||
Derivatives held as an economic hedge |
12,261 | 18,894 | 9,692 | 14,705 | ||||||||||||
Bifurcated embedded derivatives |
92 | 13 | 1,464 | 2,305 | ||||||||||||
Other |
134 | 133 | 14 | 97 | ||||||||||||
Total | 12,488 | 19,040 | 11,170 | 17,107 |
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk. In all cases, these are in accordance with internal risk guidelines and are closely monitored for continuing compliance.
Embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the statement of financial position. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit-linked insurance contracts in the form of guarantees for minimum benefits. Please refer to note 48 for more disclosures about these guarantees.
CDOs and CDSs
Aegon has entered into free-standing credit derivative transactions (Single Tranche Synthetic CDOs and Single Name Credit Default Swaps - CDSs). The positions outstanding at the end of the year were:
2013 | 2012 | |||||||||||||||
CDOs and CDSs | Notional | Fair value | Notional | Fair value | ||||||||||||
Synthetic CDOs |
20 | 20 | 58 | 19 | ||||||||||||
CDSs |
2,876 | 50 | 2,174 | 12 | ||||||||||||
Total | 2,896 | 70 | 2,232 | 31 |
232 | Notes to the consolidated financial statements of Aegon N.V. Note 24 |
2013 | 2012 | |||||||||||||||
Credit derivative disclosure by quality | Notional | Fair value | Notional | Fair value | ||||||||||||
AAA |
33 | 1 | 93 | 1 | ||||||||||||
AA |
373 | 5 | 269 | 2 | ||||||||||||
A |
1,049 | 32 | 763 | 19 | ||||||||||||
BBB |
1,360 | 30 | 966 | (2 | ) | |||||||||||
BB |
61 | - | 126 | 10 | ||||||||||||
B or lower |
12 | 1 | 10 | 1 | ||||||||||||
Not rated |
9 | - | 5 | - | ||||||||||||
Total | 2,896 | 70 | 2,232 | 31 |
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps and tranches of synthetic collateralized debt obligations. Another strategy used is to synthetically replicate corporate and sovereign credit exposures with credit derivatives. This involves the purchase of high quality low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
Derivatives designated as fair value hedges
Aegons fair value hedges consist mainly of interest rate swaps that are used to protect against changes in the fair value of fixed-rate instruments due to movements in market interest rates. Gains and losses on derivatives designated under fair value hedge accounting are recognized in the income statement. The effective portion of the fair value change on the hedged item is also recognized in the income statement. As a result, only the net accounting ineffectiveness has an impact on the net result.
Aegon has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis (generally to six months or less LIBOR). These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. These agreements involve the payment or receipt of fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Some of the arrangements use forward starting swaps to better match the duration of assets and liabilities.
Aegon has entered into cross-currency interest rate swap agreements that effectively convert certain foreign currency fixed-rate and floating-rate assets and liabilities to US dollar floating-rate assets and liabilities. These agreements involve the exchange of the underlying principal amounts.
For the years ended December 31, 2013, 2012, and 2011, Aegon recognized gains and (losses) related to the ineffectiveness portion of designated fair value hedges of EUR 10 million, EUR 16 million and EUR 12 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
Derivatives designated as cash flow hedges
Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegons portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon is hedging its exposure to the variability of future cash flows from the interest rate movements for terms up to 30 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
Aegon uses forward starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction. Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon is hedging its exposure to the variability of future cash flows from interest rate movements for terms up to 30 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 39 years. For the year ended December 31, 2013, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 181 million (2012: EUR 225 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. For the same year, none of Aegons cash flow hedges were discontinued, as it was probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship.
|
Supplemental Annual Report 2013 |
233
In addition, Aegon also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 13 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2013, Aegon recognized a loss of EUR 1 million of hedge ineffectiveness on cash flow hedges. In 2012 and 2011, gains and losses of EUR (5) million and EUR 1 million respectively of hedge ineffectiveness were recorded in the income statement. In 2013, EUR 26 million was released from equity into investment income (2012: EUR (62) million, 2011: EUR (18) million). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 25 million.
The periods when the cash flows are expected to occur are as follows:
< 1 year | 1 5 years | 5 10 years | > 10 years | 2013 Total | ||||||||||||||||
Cash inflows |
650 | 2,597 | 1,719 | 2,815 | 7,781 | |||||||||||||||
Cash outflows |
- | 1 | 1 | 4 | 6 | |||||||||||||||
Net cash flows | 650 | 2,596 | 1,718 | 2,811 | 7,775 | |||||||||||||||
< 1 year |
1 5 years | 5 10 years | > 10 years | 2012 Total | ||||||||||||||||
Cash inflows |
519 | 2,081 | 1,599 | 1,582 | 5,781 | |||||||||||||||
Cash outflows |
- | 1 | 1 | 4 | 6 | |||||||||||||||
Net cash flows | 519 | 2,080 | 1,598 | 1,578 | 5,775 |
Net foreign investment hedges
Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the eurozone, the United States, the United Kingdom and Canada are funded in euros. When the debt funding of investments is not in the functional currency of the investment, Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
25 Investments in joint ventures
2013 | 2012 | |||||||
At January 1 |
1,567 | 1,775 | ||||||
Additions |
359 | 105 | ||||||
Disposals |
(453 | ) | (212) | |||||
Share in net income |
- | (13) | ||||||
Share in changes in joint ventures equity (note 32.6) |
22 | 27 | ||||||
Dividend |
(62 | ) | (71) | |||||
Net exchange difference |
(9 | ) | (6) | |||||
Other |
2 | (38) | ||||||
At December 31 | 1,426 | 1,567 |
All joint ventures are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in joint ventures include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in joint ventures. The financial statements of all joint ventures have the same reporting date as the Group. Refer to note 55 for a listing of the investments in joint ventures and the Groups percentage holding. In 2012 the category Other reflects a decrease of an earn out provision relating to Caja Cantabria.
234 | Notes to the consolidated financial statements of Aegon N.V. Note 25 |
Unnim
On May 7, 2013, Aegon has finalized exiting its life, health and pension joint venture with Unnim and sold its 50% stake to Unnim. The consideration amounted a total of EUR 353 million and the sale resulted in a book gain of EUR 102 million before tax. Additionally a revaluation reserve of EUR 26 million was released, which was recycled from equity through profit and loss account. Furthermore there was a release of an earn out provision of EUR 176 million. Consequently the sale resulted in a total disposal amount of EUR 453 million. Aegons share in underlying earnings before tax of the joint venture totalled EUR 6 million for 2013 (full year 2012: EUR 17 million).
Strategic partnership with Santander
On June 3, 2013, Aegon completed an exclusive 25-year strategic partnership with Banco Santander, Spains largest financial group, first announced in December 2012. Under the terms of the agreement, Aegon acquired a 51% stake in both a life insurance company as well as in a non-life insurance company for a cash consideration of EUR 220 million. In addition, there is also a contingent consideration which will be paid depending on future performance of the joint ventures. The joint ventures will distribute life and general insurance products through Banco Santanders extensive branch network. Aegon Spain will provide the back-office services to the joint venture companies.
Banca Cívica
Following the announced merger between Banca Cívica and CaixaBank in Spain, Aegon reached an agreement, on August 3, 2012, with CaixaBank to end the life, health and pension partnership with Banca Cívica and sell its 50% interest in the joint ventures to CaixaBank for a total consideration of EUR 190 million. The transaction was closed on October 11, 2012, after obtaining regulatory approval. The sale resulted in a book gain of EUR 35 million before tax and was recorded in the fourth quarter of 2012. Aegons share in underlying earnings before tax of the joint venture totalled EUR 13 million for 2012.
|
Supplemental Annual Report 2013 |
235
Summarized financial information of material joint ventures
Aegon considers its investment in AMVEST Vastgoed B.V. (AMVEST) a material joint venture. The summarized financial information presented below are the amounts included in the IFRS financial statements of AMVEST on 100% basis.
AMVEST | ||||||||
2013 | 2012 | |||||||
Summarized statement of financial position | ||||||||
Cash and cash equivalents |
52 | 67 | ||||||
Other current assets |
178 | 53 | ||||||
Total current assets | 230 | 120 | ||||||
Non-current assets |
1,990 | 2,222 | ||||||
Total assets | 2,219 | 2,342 | ||||||
Current financial liabilities excluding trade payables and other provisions |
- | 10 | ||||||
Other current liabilities |
67 | 96 | ||||||
Total current liabilities | 67 | 106 | ||||||
Non-current financial liabilities excluding trade payables and other provisions |
504 | 510 | ||||||
Other non-current liabilities |
11 | 17 | ||||||
Total non-current financial liabilities | 514 | 527 | ||||||
Total liabilities | 582 | 633 | ||||||
Net assets | 1,637 | 1,709 | ||||||
Summarized Statement of Comprehensive Income | ||||||||
Revenue |
79 | 79 | ||||||
Results from financial transactions |
(70 | ) | (87 | ) | ||||
Depreciation and amortisation |
(1 | ) | (1 | ) | ||||
Interest expense |
(12 | ) | (13 | ) | ||||
Profit or loss |
(15 | ) | (44 | ) | ||||
Income tax (expense) or income |
- | 6 | ||||||
Post-tax profit or loss | (15 | ) | (38 | ) | ||||
Other comprehensive income |
6 | (13 | ) | |||||
Total comprehensive income | (9 | ) | (51 | ) | ||||
Dividends received |
45 | 52 |
A reconciliation of the summarized financial information to the carrying amount of AMVEST is as follows:
AMVEST | ||||||||
2013 | 2012 | |||||||
Net assets of joint venture as presented above |
1,637 | 1,709 | ||||||
Group share of net assets of joint venture |
819 | 854 | ||||||
Carrying amount | 819 | 854 |
236 | Notes to the consolidated financial statements of Aegon N.V. Note 26 |
Summarized financial information of other joint ventures
December 31, 2013 |
December 31, 2012 |
|||||||
Post-tax profit or loss |
7 | 6 | ||||||
Other comprehensive income |
20 | 31 | ||||||
Total comprehensive income | 28 | 37 | ||||||
Carrying amount |
607 | 713 |
The summarized financial information of other joint ventures presented above is based on the Groups relative holding.
2013 | 2012 | |||||||
At January 1 |
771 | 713 | ||||||
Additions |
19 | 5 | ||||||
Disposals |
(328 | ) | (2 | ) | ||||
Share in net income |
21 | 28 | ||||||
Share in changes in associates equity (note 32.6) |
10 | 22 | ||||||
Impairment losses |
(1 | ) | (1 | ) | ||||
Dividend |
(2 | ) | (2 | ) | ||||
Net exchange difference |
(14 | ) | (7 | ) | ||||
Other |
(6 | ) | 15 | |||||
At December 31 | 470 | 771 |
All associates are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in associates include stakes in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in associates. The financial statements of all associates have the same reporting date as the Group. Refer to note 55 for a listing of the investments in associates and the Groups percentage holding.
CAM
On July 19, 2013, the sale of Aegons 50% stake in its life insurance partnership originally established with Caja de Ahorros del Mediterráneo (CAM) was closed. The consideration amounted to EUR 449.5 million and resulted in a book gain of EUR 74 million. The disposal amounting to EUR 327 million included a release of a negative revaluation reserve EUR 44 million, which is recycled from equity through profit and loss account. Related sales expenses amounted to EUR 5 million.
Prisma
On October 1, 2012, Aegon closed the sale of its interest in Prisma Capital Partners LP (Prisma). Prisma, which was accounted for as an associate, served as an investment manager for certain of Aegons hedge fund investments as well as for other third parties. The final proceeds are subject to certain contingent arrangements which may lead to further payments in 2014 and 2017. The book gain amounted to EUR 100 million. The carrying value of Prisma at the transaction date was EUR 2 million. Aegons share in Prisma earnings from January 1, 2012, till October 1, 2012, amounted to EUR 10 million.
Summarized financial information of material associates
Aegon considers its investment in La Mondiale Participations S.A. (La Mondiale) a material associate. The summarized financial information presented below are the amounts included in the IFRS financial statements of La Mondiale on 100% basis, including fair value adjustments made at the time of acquisition.
|
Supplemental Annual Report 2013 |
237
La Mondiale | ||||||||
2013 | 2012 | |||||||
Summarized statement of financial position | ||||||||
Current assets |
37,510 | 34,055 | ||||||
Non-current assets |
530 | 485 | ||||||
Total assets | 38,040 | 34,540 | ||||||
Current liabilities |
36,626 | 33,265 | ||||||
Non-current liabilities |
500 | 450 | ||||||
Total liabilities | 37,126 | 33,715 | ||||||
Net assets | 915 | 825 | ||||||
Summarized Statement of Comprehensive Income | ||||||||
Revenue |
4,929 | 4,324 | ||||||
Profit or loss |
105 | 101 | ||||||
Income tax expense or income |
(44 | ) | (42 | ) | ||||
Post-tax profit or loss | 61 | 59 | ||||||
Other comprehensive income |
28 | 7 | ||||||
Total comprehensive income | 89 | 66 | ||||||
Dividends received |
- | - | ||||||
A reconciliation of the summarized financial information to the carrying amount of La Mondiale is as follows:
|
| |||||||
La Mondiale | ||||||||
2013 | 2012 | |||||||
Net assets of associate as presented above |
915 | 825 | ||||||
Net assets of associate excluding fair value adjustments |
874 | 785 | ||||||
Group share of net assets of associate, excluding fair value adjustments |
306 | 275 | ||||||
Fair value adjustments |
40 | 40 | ||||||
Carrying amount | 346 | 315 | ||||||
Summarized financial information of other associates
|
||||||||
December 31, 2013 |
December 31, 2012 |
|||||||
Post-tax profit or loss |
- | 8 | ||||||
Other comprehensive income |
(2 | ) | 19 | |||||
Total comprehensive income | (2 | ) | 27 | |||||
Carrying amount |
124 | 456 |
The summarized financial information of other associates presented above is based on the Groups relative holding.
27 Investments in unconsolidated structured entities
For unconsolidated structured entities in which Aegon has an interest at reporting date, the following table presents total income received from those interests. The Investments column reflect the carrying values recognized in the statement of financial position of Aegons interests in unconsolidated structured entities. These general account investments are recognized in the line item Investments of the statement of financial position. Aegon did not recognize other interests in unconsolidated structured entities such as commitments, guarantees, provisions, derivative instruments or other liabilities.
238 | Notes to the consolidated financial statements of Aegon N.V. Note 28 |
|
Total income for the year ended December 31, 2013 |
|
|
December 31, 2013 |
| |||||||||||
Interest income |
Total gains and losses (un)realized |
Total | Investments | |||||||||||||
Residential mortgage backed securities |
269 | 328 | 597 | 5,634 | ||||||||||||
Commercial mortgage backed securities |
236 | (165 | ) | 71 | 5,337 | |||||||||||
Asset backed securities |
35 | 3 | 38 | 1,941 | ||||||||||||
ABSs - Other |
175 | 21 | 195 | 4,041 | ||||||||||||
Total | 715 | 186 | 902 | 16,953 |
Aegon did not provide financial or other support to unconsolidated structured entities. Nor does Aegon have intentions to provide financial or other support to unconsolidated structured entities in which Aegon has an interest or previously had an interest.
Assets arising from reinsurance contracts related to: | 2013 | 2012 | ||||||
Life insurance general account |
8,859 | 10,244 | ||||||
Life insurance for account of policyholders |
90 | 96 | ||||||
Non-life insurance |
1,093 | 1,158 | ||||||
Investment contracts |
301 | 468 | ||||||
At December 31 | 10,344 | 11,966 |
Amounts due from reinsurers in respect of claims already paid by the Group on the contracts that are reinsured are included in other assets and receivables (refer to note 30).
EUR 7 million of the reinsurance assets are current (2012: EUR 8 million).
Movements during the year in reinsurance assets relating to life insurance: |
|
Life insurance general account |
|
|
Life insurance for account of policyholders |
|
|
Total life insurance |
| |||
At January 1, 2013 |
10,244 | 96 | 10,340 | |||||||||
Gross premium and deposits existing and new business |
2,260 | 61 | 2,321 | |||||||||
Unwind of discount / interest credited |
455 | 4 | 459 | |||||||||
Insurance liabilities released |
(3,567 | ) | (68 | ) | (3,635 | ) | ||||||
Fund charges released |
2 | - | 2 | |||||||||
Changes to valuation of expected future benefits |
(8 | ) | - | (8 | ) | |||||||
Policy transfers |
(24 | ) | - | (24 | ) | |||||||
Net exchange differences |
(462 | ) | (3 | ) | (464 | ) | ||||||
Other movements |
(42 | ) | - | (42 | ) | |||||||
At December 31, 2013 | 8,859 | 90 | 8,949 | |||||||||
At January 1, 2012 |
9,844 | 78 | 9,922 | |||||||||
Gross premium and deposits existing and new business |
2,749 | 66 | 2,815 | |||||||||
Unwind of discount / interest credited |
520 | 5 | 525 | |||||||||
Insurance liabilities released |
(3,861 | ) | (49 | ) | (3,910 | ) | ||||||
Fund charges released |
(4 | ) | - | (4 | ) | |||||||
Changes to valuation of expected future benefits |
(25 | ) | - | (25 | ) | |||||||
Policy transfers |
- | (6 | ) | (6 | ) | |||||||
Quota share reinsurance transactions |
1,175 | - | 1,175 | |||||||||
Net exchange differences |
(123 | ) | 2 | (121 | ) | |||||||
Other movements |
(31 | ) | - | (31 | ) | |||||||
At December 31, 2012 | 10,244 | 96 | 10,340 |
|
Supplemental Annual Report 2013 |
239
In 2012, Aegon USA reinsured approximately EUR 1.2 billion of fixed annuities on a quota share basis which was ceded to Commonwealth Annuity and Life Insurance Company.
The reinsured policies consist of fixed annuity contracts issued by Transamerica Life Insurance Company in the U.S. between 2004 and early 2009 that were previously reinsured to Transamerica International Reinsurance Ireland (TIRI) on a 90% quota share basis. Over half of the business was sold in 2008 and primarily included products with 3 and 5 year surrender charge periods. Most of the business has an initial credited rate guarantee matching the surrender charge period followed by annual renewals after the initial period.
Investment assets and cash were transferred as part of these transactions with any related gain/(loss) being recognized. In order to secure the obligations of the reinsurer, Aegon has required the establishment of trust accounts to hold collateral supporting ceded policy reserves. A deferred cost of reinsurance was established and is amortized based on gross profits of the underlying contracts. The deferred cost of reinsurance is disclosed in note 29.
Movements during the year in reinsurance assets relating to non-life insurance: | 2013 | 2012 | ||||||||||
At January 1 |
1,158 | 1,114 | ||||||||||
Gross premium and deposits existing and new business |
136 | 253 | ||||||||||
Loss recognized as a result of liability adequacy |
- | 127 | ||||||||||
Unwind of discount / interest credited |
55 | 50 | ||||||||||
Insurance liabilities released |
(91 | ) | (140 | ) | ||||||||
Changes to valuation of expected future benefits |
- | 5 | ||||||||||
Changes in unearned premiums |
(82 | ) | (142 | ) | ||||||||
Changes in unexpired risks |
(2 | ) | (3 | ) | ||||||||
Incurred related to current year |
39 | 72 | ||||||||||
Incurred related to prior years |
11 | 42 | ||||||||||
Release for claims settled current year |
(3 | ) | (13 | ) | ||||||||
Release for claims settled prior years |
(61 | ) | (90 | ) | ||||||||
Change in IBNR |
2 | (6 | ) | |||||||||
Shadow accounting adjustment |
(10 | ) | (93 | ) | ||||||||
Net exchange differences |
(49 | ) | (18 | ) | ||||||||
Other movements |
(9 | ) | - | |||||||||
At December 31 | 1,093 | 1,158 | ||||||||||
|
||||||||||||
2013 | 2012 | |||||||||||
DPAC for insurance contracts and investment contracts with discretionary participation features |
|
9,650 | 9,222 | |||||||||
Deferred transaction costs for investment management services |
|
356 | 405 | |||||||||
At December 31 | 10,006 | 9,627 | ||||||||||
Current |
|
1,031 | 1,432 | |||||||||
Non-current |
|
8,975 | 8,195 | |||||||||
DPAC |
|
Deferred costs of reinsurance |
|
|
Deferred transaction costs |
| ||||||
At January 1, 2013 |
8,747 | 475 | 405 | |||||||||
Costs deferred during the year |
1,275 | - | 36 | |||||||||
Disposal of group assets |
- | - | (2 | ) | ||||||||
Amortization through income statement |
(797 | ) | (34 | ) | (33 | ) | ||||||
Shadow accounting adjustments |
417 | - | - | |||||||||
Impairments |
- | - | (29 | ) | ||||||||
Net exchange differences |
(416 | ) | (19 | ) | (15 | ) | ||||||
Other |
3 | - | (7 | ) | ||||||||
At December 31, 2013 | 9,229 | 421 | 356 |
240 | Notes to the consolidated financial statements of Aegon N.V. Note 30 |
|
Supplemental Annual Report 2013 |
241
30.1 Real estate held for own use and equipment
Net book value |
|
General account real estate held for own use |
|
Equipment | Total | |||||||
At January 1, 2012 |
319 | 239 | 558 | |||||||||
At December 31, 2012 |
307 | 214 | 521 | |||||||||
At December 31, 2013 | 288 | 199 | 487 | |||||||||
Cost |
||||||||||||
At January 1, 2013 |
383 | 475 | 858 | |||||||||
Additions |
- | 65 | 65 | |||||||||
Capitalized subsequent expenditure |
3 | - | 3 | |||||||||
Disposals |
(1 | ) | (62 | ) | (62 | ) | ||||||
Unrealized gains/(losses) through equity |
(5 | ) | - | (5 | ) | |||||||
Net exchange differences |
(9 | ) | (11 | ) | (20 | ) | ||||||
At December 31, 2013 | 370 | 468 | 838 | |||||||||
Accumulated depreciation and impairment losses |
||||||||||||
At January 1, 2013 |
76 | 261 | 337 | |||||||||
Depreciation through income statement |
8 | 58 | 66 | |||||||||
Disposals |
- | (46 | ) | (46 | ) | |||||||
Impairment losses |
- | 1 | 1 | |||||||||
Net exchange differences |
(2 | ) | (5 | ) | (7 | ) | ||||||
At December 31, 2013 | 82 | 269 | 351 | |||||||||
Cost | ||||||||||||
At January 1, 2012 |
390 | 488 | 878 | |||||||||
Additions |
2 | 59 | 61 | |||||||||
Capitalized subsequent expenditure |
2 | - | 2 | |||||||||
Disposals |
(4 | ) | (71 | ) | (75 | ) | ||||||
Unrealized gains/(losses) through equity |
(5 | ) | - | (5 | ) | |||||||
Net exchange differences |
(2 | ) | (1 | ) | (3 | ) | ||||||
At December 31, 2012 | 383 | 475 | 858 | |||||||||
Accumulated depreciation and impairment losses |
||||||||||||
At January 1, 2012 |
71 | 249 | 320 | |||||||||
Depreciation through income statement |
8 | 67 | 75 | |||||||||
Disposals |
(2 | ) | (63 | ) | (65 | ) | ||||||
Impairment losses |
- | 7 | 7 | |||||||||
Net exchange differences |
(1 | ) | 1 | - | ||||||||
At December 31, 2012 | 76 | 261 | 337 |
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounts to EUR 310 million (2012: EUR 321 million).
37% of the value of the general account real estate held for own use was last revalued in 2013 (2012: 45%), based on market value appraisals by qualified internal and external appraisers. 97% of the appraisals in 2013 were performed by independent external appraisers (2012: 97%).
General account real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses are recorded in Commissions and expenses in the income statement. The useful lives of buildings range between 40 and 50 years.
None of the equipment is held for lease (2012: EUR 0 million). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement. Equipment is generally depreciated over a period of three to five years.
242 | Notes to the consolidated financial statements of Aegon N.V. Note 31 |
30.2 Receivables
2013 | 2012 | |||||||
Loans to joint ventures |
- | 2 | ||||||
Loans to associates |
2 | 16 | ||||||
Finance lease assets |
6 | 8 | ||||||
Receivables from policyholders |
1,111 | 1,337 | ||||||
Receivables from brokers and agents |
169 | 156 | ||||||
Receivables from reinsurers |
241 | 286 | ||||||
Cash outstanding from assets sold |
38 | 45 | ||||||
Trade receivables |
487 | 501 | ||||||
Cash collateral |
1,167 | 1,265 | ||||||
Reverse repurchase agreements |
981 | 1,186 | ||||||
Income tax receivable |
402 | 34 | ||||||
Other |
767 | 797 | ||||||
Provision for doubtful debts |
(111 | ) | (132 | ) | ||||
At December 31 | 5,261 | 5,501 | ||||||
Current |
4,964 | 5,233 | ||||||
Non-current |
297 | 268 | ||||||
The movements in the provision for doubtful debts during the year were as follows:
|
||||||||
2013 | 2012 | |||||||
At January 1 |
(132 | ) | (138 | ) | ||||
Additions charged to earnings |
(7 | ) | (16 | ) | ||||
Unused amounts reversed through the income statement |
12 | 1 | ||||||
Used during the year |
14 | 21 | ||||||
Net exchange differences |
2 | - | ||||||
At December 31 | (111 | ) | (132 | ) |
30.3 Accrued income
2013 | 2012 | |||||||
Accrued interest |
1,596 | 1,589 | ||||||
Other |
13 | 12 | ||||||
At December 31 | 1,609 | 1,601 |
EUR 1,599 million of accrued income is current (2012: EUR 1,592 million).
2013 | 2012 | |||||||
Cash at bank and in hand |
1,215 | 995 | ||||||
Short-term deposits |
2,893 | 5,430 | ||||||
Money market investments |
1,468 | 2,907 | ||||||
Short-term collateral |
116 | 258 | ||||||
At December 31 | 5,691 | 9,590 |
The carrying amounts disclosed reasonably approximate the fair values as at the year end.
EUR 10.7 billion (2012: EUR 12.3 billion) of cash collateral is received of which EUR 116 million (2012: EUR 258 million) is included in cash and cash equivalents. This collateral relates to securities lending and repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 46). Refer to note 52 for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness,
|
Supplemental Annual Report 2013 |
243
duration, approved investment categories and borrower limits. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 8 million (2012: EUR 11 million; 2011: EUR 12 million).
The weighted effective interest rate on short-term deposits was 0.28 % (2012: 0.07%) and these deposits have an average maturity of 15.38 days (2012: 13.12 days).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following:
Note | 2013 | 2012 | ||||||||||
Cash and cash equivalents |
5,691 | 9,590 | ||||||||||
Bank overdrafts |
41 | (39 | ) | (93 | ) | |||||||
Net cash and cash equivalents | 5,652 | 9,497 | ||||||||||
Cash and cash equivalents include cash and demand balances held at the Dutch Central Bank. The Dutch Central Bank requires Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed twelve times per year, based on an updated valuation of total assets. The interest rate is approximately 0.25% (2012: 0.75%). The average minimum required balance on deposit by the Dutch Central Bank was EUR 35 million (2012: EUR 44 million). These deposits are therefore not freely available.
|
| |||||||||||
Summary IFRS cash flow statement | 2013 | 2012 | 2011 | |||||||||
Net cash flows from operating activities |
(1,730 | ) | (997 | ) | 2,266 | |||||||
Net cash flows from investing activities |
516 | 237 | 653 | |||||||||
Net cash flows from financing activities |
(2,552 | ) | 2,511 | (374 | ) | |||||||
Net increase in cash and cash equivalents | (3,766 | ) | 1,751 | 2,545 |
Net cash and cash equivalents at December 31, 2013 are negatively impacted by effects of changes in exchange rates of EUR 79 million (2012: EUR 29 million; 2011: EUR 107 million).
Analysis of IFRS cash flows
2013 compared to 2012
Net cash flows from operating activities
Total net cash flows from operating activities decreased by EUR 733 million to a EUR 1,730 million outflow (2012: EUR 997 million outflow). The decrease is mainly driven by lower results from financial transactions, higher net purchases of investments and increasing net collateral payments. These cash outflows are partly offset by divestments of money market investments.
Net cash flows from investing activities
Net cash flows from investing activities increased by EUR 279 million to a EUR 516 million inflow (2012: EUR 237 million inflow). The improved inflow in 2013 is primarily a result of the cash received from divestments of Unnim and CAM, partly offset by the acquisition of the joint venture with Santander. In 2012 the inflow was mainly attributable to the proceeds of EUR 102 million on the sale of Aegons interest in Prisma and the proceeds of EUR 190 million received from the exit from the partnership with Banca Civica, partly offset by the acquisition of Liberbank and purchases of software.
Net cash flows from financing activities
Net cash flows from financing activities decreased by EUR 5,063 million to a EUR 2,552 million outflow (2012: EUR 2,511 million inflow). The decrease is mainly a result of repayments of borrowings and repayment of share premium of EUR 401 million during 2013. During 2012, new borrowing and the 8.00% non-cumulative subordinated borrowings of USD 525 million were issued.
2012 compared to 2011
Net cash flows from operating activities
Total net cash flows from operating activities decreased by EUR 3,263 million to a EUR 997 million outflow (2011: EUR 2,266 million inflow). The change from inflow in 2011 to outflow in 2012 is driven by lower net general account investments, lower disposals of derivatives and lower net change in cash collateral. These reductions are partly offset by higher net investments for account of policyholders and income before tax.
244 | Notes to the consolidated financial statements of Aegon N.V. Note 32 |
Net cash flows from investing activities
Net cash flows from investing activities reduced by EUR 416 million to a EUR 237 million inflow (2011: EUR 653 million inflow). The inflow in 2012 is mainly a result of the proceeds of EUR 102 million on the sale of Aegons interest in Prisma and the proceeds of EUR 190 million received from the exit from the partnership with Banca Civica, partly ofset by the aquisition of Liberbank and purchases of software. In 2011, the inflow was a result of cash received from the divestment of Transamerica Reinsurance and the sale of Guardian life in the United Kingdom.
Net cash flows from financing activities
Net cash flows from financing activities improved by EUR 2,885 million to EUR 2,511 million inflow (2011: EUR 374 million outflow). The improvement is mainly a result of additional borrowings and the issuance of 8.00% non-cumulative subordinated borrowings which provided USD 525 million.
Issued share capital and reserves attributable to shareholders of Aegon N.V.
Note | 2013 | 2012 | 2011 | |||||||||||||
Share capital par value |
32.1 | 325 | 319 | 310 | ||||||||||||
Share premium |
32.2 | 8,375 | 8,780 | 8,787 | ||||||||||||
Total share capital | 8,701 | 9,099 | 9,097 | |||||||||||||
Retained earnings |
8,746 | 8,253 | 7,183 | |||||||||||||
Treasury shares |
32.3 | (292 | ) | (243 | ) | (252 | ) | |||||||||
Total retained earnings | 8,455 | 8,010 | 6,931 | |||||||||||||
Revaluation reserves |
32.4 | 3,023 | 6,116 | 3,499 | ||||||||||||
Remeasurement of defined benefit plans |
32.5 | (706 | ) | (1,085 | ) | (979 | ) | |||||||||
Other reserves |
32.6 | (1,778 | ) | (1,103 | ) | (1,003 | ) | |||||||||
Total shareholders equity | 17,694 | 21,037 | 17,545 |
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013. For details refer to the major shareholders section included in the other information to the financial statements of Aegon N.V.
The simplified capital structure entailed, but was not limited to, the amendment of the articles of association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares a and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,694 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
The simplified capital structure also included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
In 2013, Aegon issued 19,668,540 and 19,047,386 common shares with a par value of EUR 0.12 in respect of the final dividend for 2012 which was paid in June 2013 and the interim dividend paid in September 2013, respectively.
In July 2013, Vereniging Aegon exercised its option right to purchase 13 million common shares B for EUR 0.1275 to mitigate the dilution caused by the issuance of shares issuance of shares on May 1, 2013 and May 16, 2013 in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
In 2012, Aegon issued 33,203,150 and 29,172,394 common shares with a par value of EUR 0.12 in respect of the final dividend for 2011 which was paid in May 2012 and the interim dividend paid in September 2012, respectively.
|
Supplemental Annual Report 2013 |
245
In 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B preferred shares at par value to mitigate the dilution caused by the issuance of shares as a result of distribution of dividend in the form of stock.
On March 1, 2011, Aegon completed the issue of 173,604,912 common shares of Aegon N.V. with a par value of EUR 0.12.
The shares were issued at a price of EUR 5.20 per share. The proceeds of EUR 903 million were used to fund part of the repurchase of the convertible core capital securities described in note 33.
On March 15, 2011, Vereniging Aegon exercised its option rights to purchase 41,042,000 class B preferred shares at par value of EUR 0.25 (total proceeds of EUR 10 million) in order to mitigate dilution of its voting rights following the issuance of 10% new common shares completed on March 1, 2011.
32.1 Share capital par value
2013 | 2012 | 2011 | ||||||||||||||
Common shares |
256 | 236 | 229 | |||||||||||||
Common shares B |
69 | - | - | |||||||||||||
Preferred shares A |
- | 53 | 53 | |||||||||||||
Preferred shares B |
- | 30 | 28 | |||||||||||||
At December 31 | 325 | 319 | 310 | |||||||||||||
Common shares | 2013 | 2012 | 2011 | |||||||||||||
Authorized share capital |
720 | 360 | 360 | |||||||||||||
Number of authorized shares (in million) |
6,000 | 3,000 | 3,000 | |||||||||||||
Par value in cents per share |
12 | 12 | 12 | |||||||||||||
Common shares B | 2013 | 2012 | 2011 | |||||||||||||
Authorized share capital |
360 | - | - | |||||||||||||
Number of authorized shares (in million) |
3,000 | - | - | |||||||||||||
Par value in cents per share |
12 | - | - | |||||||||||||
Common shares | Common shares B | |||||||||||||||
|
Number of
shares |
|
Total amount | |
Number of
shares |
|
Total amount | |||||||||
At January 1, 2011 | 1,736,049 | 208 | - | - | ||||||||||||
Share issued |
173,605 | 21 | - | - | ||||||||||||
At December 31, 2011 | 1,909,654 | 229 | - | - | ||||||||||||
Shares issued |
- | - | - | - | ||||||||||||
Dividend |
62,376 | 7 | ||||||||||||||
At December 31, 2012 | 1,972,030 | 236 | - | - | ||||||||||||
Shares issued |
120,713 | 14 | 579,005 | 69 | ||||||||||||
Dividend |
38,716 | 5 | - | - | ||||||||||||
At December 31, 2013 | 2,131,459 | 256 | 579,005 | 69 | ||||||||||||
|
Weighted average number of common shares (thousands) |
|
|
Weighted average number of common shares B (thousands) |
| |||||||||||
2011 | 1,881,116 | - | ||||||||||||||
2012 | 1,936,315 | - | ||||||||||||||
2013 | 2,035,240 | 366,439 |
246 | Notes to the consolidated financial statements of Aegon N.V. Note 32 |
Preferred shares
2013 | 2012 | 2011 | ||||||||||||
Authorized share capital |
- | 250 | 250 | |||||||||||
Par value in cents per share |
- | 25 | 25 | |||||||||||
Preferred shares A | Preferred shares B | |||||||||||||
Number of shares (thousands) |
Total amount | Number of shares (thousands) |
Total amount | |||||||||||
At January 1, 2011 | 211,680 | 53 | 69,030 | 17 | ||||||||||
Shares issued |
- | - | 41,042 | 11 | ||||||||||
At December 31, 2011 | 211,680 | 53 | 110,072 | 28 | ||||||||||
Shares issued |
- | - | 8,021 | 2 | ||||||||||
At December 31, 2012 | 211,680 | 53 | 118,093 | 30 | ||||||||||
Shares issued |
- | - | - | - | ||||||||||
Conversion |
(211,680 | ) | (53 | ) | (118,093 | ) | (30) | |||||||
At December 31, 2013 | - | - | - | - | ||||||||||
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to Other information for further information on dividend rights.
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued common shares B.
In the years 2003 through 2010, 69,030,000 class B preferred shares were issued under these option rights. In March 2011, Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value. It did this to correct dilution caused by Aegons issuance of shares conducted under Aegons US Shelf Registration, which comprised the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011. In August 2012 and October 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B Preferred Shares at par value. It did this to correct dilution caused by Aegons issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value. It did this to prevent dilution caused by Aegons issuance of shares on May 1, 2013, May 16, 2013, in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
With regard to granted share appreciation rights and option rights and their valuation refer to note 14.
32.2 Share premium
| ||||||||||||||
2013 | 2012 | 2011 | ||||||||||||
At January 1 |
8,780 | 8,787 | 7,906 | |||||||||||
Additions |
- | - | 881 | |||||||||||
Repayment |
(400 | ) | - | - | ||||||||||
Share dividend |
(5 | ) | (7 | ) | - | |||||||||
At December 31 | 8,375 | 8,780 | 8,787 | |||||||||||
Share premium relating to: |
||||||||||||||
- Common shares |
8,375 | 6,728 | 6,735 | |||||||||||
- Preferred shares |
- | 2,052 | 2,052 | |||||||||||
Total share premium | 8,375 | 8,780 | 8,787 |
|
Supplemental Annual Report 2013 |
247
The share premium account reflects the balance of paid-in amounts above par value at issuance of new shares less the amounts charged for share dividends and the repayment of share premium to preferred shareholders. Upon the conversion of the preferred shares, share premium on preferred shares have been allocated to share premium relating to common shares.
32.3 Treasury shares
On the balance sheet date Aegon N.V. and its subsidiaries held 41,307,910 (2012: 28,713,730) of its own common shares with a par value of EUR 0.12 each.
Movements in the number of treasury shares of Aegon N.V. were as follows:
2013 | 2012 | 2011 | ||||||||||
Number of shares (thousands) |
Number of shares (thousands) |
Number of shares (thousands) |
||||||||||
At January 1 |
26,981 | 27,503 | 27,520 | |||||||||
Transactions in 2013: | ||||||||||||
Sale: 1 transaction, price EUR 5.02 |
(5,408 | ) | - | - | ||||||||
Sale: 1 transaction, price EUR 4.99 |
(783 | ) | - | - | ||||||||
Purchase: transactions, average price EUR 5.62 |
19,047 | |||||||||||
Transactions in 2012: | ||||||||||||
Sale: 1 transaction, price EUR 3.52 |
- | (9 | ) | - | ||||||||
Sale: 1 transaction, price EUR 3.36 |
- | (513 | ) | - | ||||||||
Transactions in 2011: | ||||||||||||
Sale: 1 transaction, price EUR 5.39 |
- | - | (17 | ) | ||||||||
At December 31 | 39,837 | 26,981 | 27,503 |
As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are (de)recognized at the consideration paid or received.
2013 | 2012 | 2011 | ||||||||||||||||||||||
Number of shares (thousands) |
Total amount |
Number of shares (thousands) |
Total amount | Number of shares (thousands) |
Total amount | |||||||||||||||||||
Held by Aegon N.V. |
39,837 | 278 | 26,981 | 228 | 27,503 | 235 | ||||||||||||||||||
Held by subsidiaries |
1,471 | 14 | 1,733 | 15 | 1,863 | 17 | ||||||||||||||||||
At December 31 | 41,308 | 292 | 28,714 | 243 | 29,366 | 252 |
Aegon does not hold common shares B as treasury shares.
Weighted average number of treasury shares, including |
||||
2011 | 29,303 | |||
2012 | 28,933 | |||
2013 | 29,497 |
248 | Notes to the consolidated financial statements of Aegon N.V. Note 32 |
32.4 Revaluation reserves
Available- for-sale investments |
Real estate held for own use |
Cash flow hedging reserve |
Total | |||||||||||
At January 1, 2013 |
5,013 | 39 | 1,065 | 6,116 | ||||||||||
Gross revaluation |
(3,263 | ) | (4 | ) | (496 | ) | (3,763) | |||||||
Net (gains) / losses transferred to income statement |
(435 | ) | - | (26 | ) | (461) | ||||||||
Foreign currency translation differences |
(114 | ) | (1 | ) | (33 | ) | (149) | |||||||
Tax effect |
1,082 | 1 | 192 | 1,275 | ||||||||||
Other |
3 | - | - | 3 | ||||||||||
At December 31, 2013 | 2,287 | 35 | 702 | 3,023 | ||||||||||
At January 1, 2012 1) |
2,349 | 43 | 1,124 | 3,516 | ||||||||||
Gross revaluation |
4,216 | (5 | ) | 6 | 4,217 | |||||||||
Net (gains) / losses transferred to income statement |
(465 | ) | - | (63 | ) | (528) | ||||||||
Foreign currency translation differences |
(25 | ) | - | (29 | ) | (54) | ||||||||
Tax effect |
(1,082 | ) | 1 | 27 | (1,054) | |||||||||
Other |
19 | - | - | 19 | ||||||||||
At December 31, 2012 | 5,012 | 39 | 1,065 | 6,116 | ||||||||||
At January 1, 2011 |
533 | 41 | 424 | 998 | ||||||||||
Gross revaluation |
3,003 | 2 | 1,016 | 4,021 | ||||||||||
Net (gains) / losses transferred to income statement |
(513 | ) | - | (18 | ) | (531) | ||||||||
Foreign currency translation differences |
101 | 1 | 60 | 162 | ||||||||||
Tax effect |
(790 | ) | (1 | ) | (360 | ) | (1,151) | |||||||
At December 31, 2011 1) | 2,334 | 43 | 1,122 | 3,499 | ||||||||||
1 Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes.
The revaluation accounts for both available-for-sale investments and for real estate held for own use include unrealized gains and losses on these investments, net of tax. Upon sale, the amounts realized are recognized in the income statement (for available-for-sale investments) or transferred to retained earnings (for real estate held for own use). Upon impairment, unrealized losses are recognized in the income statement.
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments:
| ||||||||||||||
2013 | 2012 | 2011 | ||||||||||||
Shares |
247 | 192 | 122 | |||||||||||
Debt securities |
2,004 | 4,781 | 2,221 | |||||||||||
Other |
36 | 39 | (9) | |||||||||||
Revaluation reserve for available-for-sale investments | 2,287 | 5,012 | 2,334 | |||||||||||
The cash flow hedging reserve includes (un)realized gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the hedged cash flow. No amounts have been released from equity to be included in the initial measurement of non-financial assets or liabilities.
32.5 Remeasurement of defined benefit plans
| ||||||||||||||
2013 | 2012 | 2011 | ||||||||||||
At January 1 |
(1,085 | ) | (979 | ) | (547) | |||||||||
Remeasurements of defined benefit plans |
562 | (149 | ) | (583) | ||||||||||
Tax effect |
(202 | ) | 37 | 180 | ||||||||||
Net exchange differences |
19 | 6 | (29) | |||||||||||
Total remeasurement of defined benefit plans | (706 | ) | (1,085 | ) | (979) |
|
Supplemental Annual Report 2013 |
249
32.6 Other reserves
Foreign currency translation reserve |
Net foreign investment hedging reserve |
Equity movements of joint ventures and associates |
Total | |||||||||||||
At January 1, 2013 |
(806 | ) | (274 | ) | (23 | ) | (1,103 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(826 | ) | 79 | - | (746 | ) | ||||||||||
Tax effect |
40 | (20 | ) | - | 21 | |||||||||||
Recycling of revaluation reserve on disposal of joint ventures and associates |
18 | 18 | ||||||||||||||
Equity movements of joint ventures |
- | - | 22 | 22 | ||||||||||||
Equity movements of associates |
- | - | 10 | 10 | ||||||||||||
At December 31, 2013 | (1,592 | ) | (214 | ) | 28 | (1,778 | ) | |||||||||
At January 1, 2012 1) |
(705 | ) | (243 | ) | (72 | ) | (1,020 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
(93 | ) | (41 | ) | (1 | ) | (135 | ) | ||||||||
Tax effect |
(8 | ) | 10 | 1 | 3 | |||||||||||
Equity movements of joint ventures |
- | - | 27 | 27 | ||||||||||||
Equity movements of associates |
- | - | 22 | 22 | ||||||||||||
At December 31, 2012 | (806 | ) | (274 | ) | (23 | ) | (1,103 | ) | ||||||||
At January 1, 2011 |
(1,030 | ) | (277 | ) | (36 | ) | (1,343 | ) | ||||||||
Movement in foreign currency translation and net foreign investment hedging reserves |
325 | 45 | - | 370 | ||||||||||||
Tax effect |
(1 | ) | (11 | ) | - | (12 | ) | |||||||||
Equity movements of associates |
- | - | (18 | ) | (18 | ) | ||||||||||
At December 31, 2011 1) | (706 | ) | (243 | ) | (54 | ) | (1,003 | ) |
1 | Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to notes 2.1.1 and 2.1.2 for details about these changes. |
The foreign currency translation reserve includes the currency results from investments in non-euro denominated subsidiaries. The amounts are released to the income statement upon the sale of the subsidiary.
The net foreign investment hedging reserve is made up of gains and losses on the effective portions of hedging instruments, net of tax. The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the net foreign investment.
The equity movements of joint ventures and associates reflect Aegons share of changes recognized directly in the joint ventures and associates equity.
33 Convertible core capital securities
In 2011, Aegon repurchased 375 million convertible core capital securities. The total payment to the Dutch State amounted to EUR 2,250 million of which EUR 1,500 million related to the repurchase of the convertible core capital securities and EUR 750 million related to the premium attached to this repurchase. With these transactions Aegon completed the repurchase of all EUR 3 billion convertible core capital securities issued to the Dutch State in 2008.
250 | Notes to the consolidated financial statements of Aegon N.V. Note 34 |
Junior perpetual capital securities |
Perpetual cumulative subordinated bonds |
Share options and incentive plans 1) |
Non-cumulative subordinated notes |
Total | ||||||||||||||||
At January 1, 2013 |
4,192 | 453 | 102 | 271 | 5,018 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 54 | - | 54 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (57 | ) | - | (57 | ) | |||||||||||||
At December 31, 2013 | 4,192 | 454 | 99 | 271 | 5,015 | |||||||||||||||
At January 1, 2012 |
4,192 | 453 | 75 | - | 4,720 | |||||||||||||||
Issuance of non-cumulative subordinated notes |
- | - | - | 271 | 271 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 32 | - | 32 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (5 | ) | - | (5 | ) | |||||||||||||
At December 31, 2012 | 4,192 | 453 | 102 | 271 | 5,018 | |||||||||||||||
At January 1, 2011 |
4,192 | 453 | 59 | - | 4,704 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 20 | - | 20 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (4 | ) | - | (4 | ) | |||||||||||||
At December 31, 2011 | 4,192 | 453 | 75 | - | 4,720 |
1 | Share options and incentive plans include the shares and options granted to personnel which are not yet vested |
Junior perpetual capital securities |
Coupon rate | Coupon date, as of |
Year
of |
2013 | 2012 | 2011 | ||||||||||||||||||
USD 500 million |
6.50% | Quarterly, December 15 | 2014 | 424 | 424 | 424 | ||||||||||||||||||
USD 250 million |
floating LIBOR rate 1) | Quarterly, December 15 | 2014 | 212 | 212 | 212 | ||||||||||||||||||
USD 550 million |
6.875% | Quarterly, September 15 | 2014 | 438 | 438 | 438 | ||||||||||||||||||
EUR 200 million |
6.0% | Annually, July 21 | 2014 | 200 | 200 | 200 | ||||||||||||||||||
USD 1,050 million |
7.25% | Quarterly, December 15 | 2014 | 745 | 745 | 745 | ||||||||||||||||||
EUR 950 million |
floating DSL rate 2) | Quarterly, July 15 | 2014 | 950 | 950 | 950 | ||||||||||||||||||
USD 500 million |
floating CMS rate 3) | Quarterly, July 15 | 2014 | 402 | 402 | 402 | ||||||||||||||||||
USD 1 billion |
6.375% | Quarterly, June 15 | 2015 | 821 | 821 | 821 | ||||||||||||||||||
At December 31 | 4,192 | 4,192 | 4,192 |
1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
2 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
3 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
The securities have been issued at par. The securities have subordination provisions and rank junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
On February 10, 2014, Aegon called for the redemption of the USD 550 million in junior perpetual capital securities with a coupon of 6.875% issued in 2006. The redemption is effective March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.
|
Supplemental Annual Report 2013 |
251
Perpetual cumulative subordinated bonds |
Coupon rate | Coupon date | Year of next call | 2013 | 2012 | 2011 | ||||||||||||||||||
EUR 114 million |
4.156% 1), 4) | Annual, June 8 | 2015 | 114 | 114 | 114 | ||||||||||||||||||
EUR 136 million |
5.185% 2), 4) | Annual, October 14 | 2018 | 136 | 136 | 136 | ||||||||||||||||||
EUR 203 million |
4.260% 3), 4) | Annual, March 4 | 2021 | 203 | 203 | 203 | ||||||||||||||||||
At December 31 | 454 | 453 | 453 |
1 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015. |
2 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018. |
3 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points. |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds contain provisions for interest deferral and for the availability of principal amounts to meet losses.
Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the year of next call.
Non-cumulative subordinated notes |
Coupon rate | Coupon date | Year of next call | 2013 | 2012 | 2011 | ||||||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 271 | 271 | - | ||||||||||||||||||
At December 31 | 271 | 271 | - |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the U.S. Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payments will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2013 the equity component amount to EUR 271 million, subordinated borrowings amounts to EUR 44 million and a deferred tax liability amounting to EUR 84 million.
Refer to note 36 for details of the component classified as subordinated borrowings.
35 Trust pass-through securities
Coupon rate | Coupon rate | Year of issue | Year of maturity | Year of next call | 2013 | 2012 | ||||||||||||||||||||||
USD 18 million 1) |
Floating | Quarterly, July 23 | 2004 | 2034 | 2014 | 14 | 15 | |||||||||||||||||||||
USD 225 million 2) |
7.65% | Semi-annually, December 1 | 1996 | 2026 | n.a. | 85 | 102 | |||||||||||||||||||||
USD 190 million 2) |
7.625% | Semi-annually, November 15 | 1997 | 2037 | n.a. | 36 | 38 | |||||||||||||||||||||
At December 31 | 135 | 155 |
1 | Issued by a subsidiary of Aegon N.V. |
2 | Issued by a subsidiary of, and guaranteed by Aegon N.V. |
Trust pass-through securities are securities through which the holder participates in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by Transamerica Corporation and Clark Consulting Inc. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of ten consecutive semi-annual periods. The trust pass-through securities are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period.
252 | Notes to the consolidated financial statements of Aegon N.V. Note 36 |
The fair value of these loans amount to EUR 122 million (2012: EUR 129 million).
Subordinated borrowings are subordinated to all other unsubordinated borrowings and liabilities. There have been no defaults or breaches of conditions during the period.
Subordinated borrowings include a liability of EUR 44 million (2012: EUR 42 million) relating to the non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and its subordination refer to note 34.
2013 | 2012 | |||||||
Life insurance |
91,930 | 94,900 | ||||||
Non-life insurance |
||||||||
- Unearned premiums and unexpired risks |
3,886 | 4,093 | ||||||
- Outstanding claims |
1,990 | 1,978 | ||||||
- Incurred but not reported claims |
680 | 675 | ||||||
Incoming reinsurance |
3,284 | 3,596 | ||||||
At December 31 | 101,769 | 105,242 | ||||||
2013 | 2012 | |||||||
Non-life insurance: |
||||||||
- Accident and health insurance |
5,917 | 6,097 | ||||||
- General insurance |
638 | 649 | ||||||
Total non-life insurance | 6,555 | 6,746 | ||||||
Movements during the year in life insurance: | 2013 | 2012 | ||||||
At January 1 |
94,900 | 94,884 | ||||||
Acquisitions though business combinations |
9 | - | ||||||
Disposals |
- | (8 | ) | |||||
Portfolio transfers and acquisitions |
1,262 | 54 | ||||||
Gross premium and deposits existing and new business |
7,234 | 6,369 | ||||||
Unwind of discount / interest credited |
4,556 | 4,054 | ||||||
Insurance liabilities released |
(10,940 | ) | (11,041 | ) | ||||
Changes in valuation of expected future benefits |
(1,321 | ) | 347 | |||||
Loss recognized as a result of liability adequacy testing |
3 | 1 | ||||||
Shadow accounting adjustments |
(692 | ) | 389 | |||||
Net exchange differences |
(3,080 | ) | (518 | ) | ||||
Transfer (to) / from insurance contracts for account of policyholders |
(16 | ) | 277 | |||||
Other |
14 | 92 | ||||||
At December 31 | 91,930 | 94,900 |
|
Supplemental Annual Report 2013 |
253
254 | Notes to the consolidated financial statements of Aegon N.V. Note 39 |
2013 | 2012 | |||||||||||
Investment contracts |
14,545 | 17,767 | ||||||||||
Without discretionary participation features |
With discretionary participation features |
Total | ||||||||||
At January 1, 2013 |
17,095 | 672 | 17,767 | |||||||||
Portfolio transfers and acquisitions |
(80 | ) | - | (80 | ) | |||||||
Deposits |
2,088 | - | 2,088 | |||||||||
Withdrawals |
(4,661 | ) | - | (4,661 | ) | |||||||
Investment contracts liabilities released |
- | (185 | ) | (185 | ) | |||||||
Interest credited |
345 | - | 345 | |||||||||
Fund charges released |
(6 | ) | - | (6 | ) | |||||||
Movements related to fair value hedges |
(127 | ) | - | (127 | ) | |||||||
Net exchange differences |
(457 | ) | (21 | ) | (478 | ) | ||||||
Other |
(118 | ) | - | (118 | ) | |||||||
At December 31, 2013 | 14,079 | 466 | 14,545 | |||||||||
At January 1, 2012 |
20,127 | 719 | 20,846 | |||||||||
Portfolio transfers and acquisitions |
(17 | ) | - | (17 | ) | |||||||
Deposits |
2,298 | - | 2,298 | |||||||||
Withdrawals |
(5,618 | ) | - | (5,618 | ) | |||||||
Investment contracts liabilities released |
- | (68 | ) | (68 | ) | |||||||
Interest credited |
443 | - | 443 | |||||||||
Fund charges released |
(9 | ) | - | (9 | ) | |||||||
Movements related to fair value hedges |
(72 | ) | - | (72 | ) | |||||||
Net exchange differences |
(165 | ) | 21 | (144 | ) | |||||||
Other |
108 | - | 108 | |||||||||
At December 31, 2012 | 17,095 | 672 | 17,767 | |||||||||
Investment contracts consist of the following: | 2013 | 2012 | ||||||||||
Institutional guaranteed products |
3,814 | 6,073 | ||||||||||
Fixed annuities |
5,562 | 5,979 | ||||||||||
Savings accounts |
4,283 | 4,385 | ||||||||||
Investment contracts with discretionary participation features |
466 | 672 | ||||||||||
Other |
420 | 658 | ||||||||||
At December 31 | 14,545 | 17,767 |
|
Supplemental Annual Report 2013 |
255
40 Investment contracts for account of policyholders
Debentures and other loans
During 2013, residential mortgage backed securities (RMBSs) were issued under the Dutch SAECURE program for a total amount of EUR 750 million, while an amount of EUR 1,168 million was repaid. In addition, Aegon redeemed USD 750 million senior notes which matured.
During 2012, RMBSs were issued under the Dutch SAECURE program for a total amount of EUR 2,050 million. Also, EUR 1,500 million was borrowed from the European Central Bank (ECB), under its Long Term Refinancing Operation (LTRO) program. The net proceeds of these borrowings were used to finance a part of the Dutch mortgage portfolio of Aegon the Netherlands.
Bank overdrafts are largely part of cash pool agreements with banks and matched by cash balances. IFRS does not permit net presentation of these cash balances and bank overdrafts under the current agreements with these banks.
256 | Notes to the consolidated financial statements of Aegon N.V. Note 41 |
A detailed composition of the debentures and other loans is included in the following table:
Debentures and other loans
(sorted at maturity) | Coupon rate | Coupon date | Issue / Maturity | 2013 | 2012 | |||||||||||||||
USD 750 million Senior Notes 15) |
4.75% | Semi-annually | 2003 / 13 | - | 569 | |||||||||||||||
EUR 2,068 mln SAECURE 6 RMBS note 2), 3) |
Floating | Quarterly | 2006 / 13 | - | 1,229 | |||||||||||||||
Revolving Loan Facility Warehouse Mortgage Loans 2) |
Floating | Monthly | - / 2014-16 | 510 | 249 | |||||||||||||||
EUR 500 million Medium-Term Notes 12), 15) |
4.125% | December 8 | 2004 / 14 | 517 | 532 | |||||||||||||||
USD 500 million Senior Unsecured Notes 15) |
4.625% | Semi-annually | 2009 / 15 | 362 | 378 | |||||||||||||||
EUR 1,018 million SAECURE 7 RMBS Note 2), 4) |
Floating | Quarterly | 2010 / 15 | 825 | 914 | |||||||||||||||
GBP 35 million Note issue agreement 2), 5), 6) |
Floating | Quarterly | 2010 / 15 | 15 | 25 | |||||||||||||||
EUR 212 / USD 600 SAECURE 11 RMBS Note 2), 7) |
Floating | Quarterly | 2012 / 15 | 600 | 649 | |||||||||||||||
EUR 1,500 million ECB LTRO 2) |
Floating | At Maturity | 2012 / 15 | 1,500 | 1,500 | |||||||||||||||
EUR 1,500 million SAECURE 10 RMBS Note 2), 8) |
Floating | Quarterly | 2011 / 16 | 1,269 | 1,378 | |||||||||||||||
EUR 842 million SAECURE 9 RMBS Note 2), 9) |
Floating | Quarterly | 2010 / 16 | 670 | 735 | |||||||||||||||
EUR 1,365 million SAECURE 12 RMBS Note 2), 10) |
Floating | Quarterly | 2012 / 17 | 1,297 | 1,365 | |||||||||||||||
EUR 500 million Unsecured Notes 15) |
3% | July 18 | 2012 / 17 | 498 | 498 | |||||||||||||||
EUR 750 million SAECURE 13 RMBS Note 2), 11) |
Floating | Quarterly | 2013 / 18 | 738 | - | |||||||||||||||
EUR 75 million Medium-Term Notes 1), 12), 15) |
4.625% | December 9 | 2004 / 19 | 85 | 82 | |||||||||||||||
USD 500 million Senior Notes 1), 12), 15) |
5.75% | Semi-annually | 2005 / 20 | 416 | 436 | |||||||||||||||
USD 305 million Note issue agreement 2) |
5.54% / 8.88% | Quarterly | 2002 / 22 | 58 | 78 | |||||||||||||||
GBP 250 million Note issue agreement 2), 5), 6) |
Floating | April 21 | 2008 / 23 | 17 | 92 | |||||||||||||||
USD 292 million Senior Secured Note2) |
Floating | Quarterly | 2012 / 23 | 207 | 216 | |||||||||||||||
GBP 250 million Medium-Term Notes 15) |
6.125% | December 15 | 1999 / 31 | 298 | 305 | |||||||||||||||
USD 1.54 billion Variable Funding Surplus Note 5), 13) |
Floating | Quarterly | 2006 / 36 | 1,089 | 1,091 | |||||||||||||||
USD 550 million Floating Rate Guaranteed Note 5), 14) |
Floating | Quarterly | 2007 / 37 | 345 | 360 | |||||||||||||||
GBP 400 million Senior Unsecured Notes 15) |
6.625% | Semi-annually | 2009 / 39 | 474 | 486 | |||||||||||||||
Other |
40 | 52 | ||||||||||||||||||
At December 31 | 11,830 | 13,219 |
1 | Issued by subsidiaries of, and guaranteed by Aegon N.V. |
2 | Issued by a subsidiary of Aegon N.V. |
3 | The first optional redemption date was August 2013; the legal maturity date was August 2098. Notes were fully collateralized by mortgage loans which are part of Aegons general account investments. |
4 | The first optional redemption date is August 2015; the legal maturity date is August 2093. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
5 | Outstanding amounts can vary up to the maximum stated nominal amount. |
6 | Private Value-in-Force (ViF) securitization by Aegon UK to monetize a portion of future profits associated with an existing book of unit-linked business. |
7 | The first optional redemption date is July 2015; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
8 | The first optional redemption date is February 2016; the legal maturity date is February 2094. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
9 | The first optional redemption date is March 2016; the legal maturity date is September 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
10 | The first optional redemption date is October 2017; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
11 | The first optional redemption date is February 2018; the legal maturity date is November 2093. Notes are fully collateralized by mortgage loans which are part of Aegons general account investments. |
12 | Measured at fair value. |
13 | This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by Aegon N.V. - refer to note 51 (commitments and contingencies). |
14 | This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. |
15 | These loans are considered senior debt in calculating financial leverage in the capital and solvency note as disclosed in note 49. |
Included in debentures and other loans is EUR 1,017 million (2012: EUR 1,050 million) relating to borrowings measured at fair value. For the year 2013, Aegons credit spread had a negative impact of EUR 44 million on income before tax (2012: negative impact of EUR 48 million) and a negative impact of EUR 30 million on shareholders equity (2012: negative impact of EUR 34 million). The cumulative negative impact of Aegons credit spread, based on observable market data, on income before tax amounted to EUR 20 million (2012: EUR 24 million positive impact).
|
Supplemental Annual Report 2013 |
257
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amount to EUR 55 million (2012: EUR 67 million).
Undrawn committed borrowing facilities: | 2013 | 2012 | ||||
Floating-rate |
||||||
- Expiring within one year |
1,433 | 1,248 | ||||
- Expiring beyond one year |
2,018 | 2,020 | ||||
At December 31 | 3,451 | 3,268 | ||||
There were no defaults or breaches of conditions during the period.
|
||||||
2013 | 2012 | |||||
At January 1 |
330 | 444 | ||||
Additional provisions |
60 | 97 | ||||
Disposals |
(122 | ) | (38) | |||
Unused amounts reversed through the income statement |
(6 | ) | (22) | |||
Unwinding of discount and change in discount rate |
2 | 7 | ||||
Used during the year |
(81 | ) | (116) | |||
Net exchange differences |
(1 | ) | 2 | |||
Other |
(2 | ) | (44) | |||
At December 31 | 182 | 330 | ||||
Current |
99 | 129 | ||||
Non-current |
82 | 201 | ||||
The provisions mainly consist of provisions for contingent consideration relating to joint ventures (earn out) of EUR 57 million (2012: EUR 187 million), restructuring provisions of EUR 39 million (2012: EUR 56 million), provisions for unearned commission of EUR 33 million (2012: EUR 33 million) and litigation provisions of EUR 23 million (2012: EUR 10 million).
The contingent consideration relating to joint ventures reflects earn out payments, which will be payable if specific targets, as set out in the purchase agreements, are met in the future. The expected timing of resulting outflows vary between 2014 and 2017.
In 2013, Disposals contain a release of an earn out provision in Spain of EUR 120 million as Aegon has finalized exiting its joint venture with Unnim. In 2012 Disposals contain a release of an earn out provision in Spain of EUR 38 million relating to the disposal of the Banca Civica joint venture.
In 2012, Other reflects the release of earn out provisions relating to Caja Cantabria. Refer to note 25 for more details.
| ||||||
2013 | 2012 | |||||
Retirement benefit plans |
2,790 | 3,282 | ||||
Other post-employment benefit plans |
236 | 246 | ||||
Total defined benefit plans | 3,026 | 3,528 | ||||
Retirement benefit plans in surplus |
34 | 22 | ||||
Other post-employment benefit plans in surplus |
- | - | ||||
Total defined benefit assets | 34 | 22 | ||||
Retirement benefit plans in deficit |
2,824 | 3,304 | ||||
Other post-employment benefit plans in deficit |
236 | 246 | ||||
Total defined benefit liabilities | 3,060 | 3,550 |
258 | Notes to the consolidated financial statements of Aegon N.V. Note 43 |
2013 | 2012 | |||||||||||||||||||||
Movements during the year in defined benefit plans |
Retirement benefit plans |
Other post- |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | ||||||||||||||||
At January 1 |
3,282 | 246 | 3,528 | 3,038 | 274 | 3,312 | ||||||||||||||||
Defined benefit expenses |
214 | 19 | 233 | 242 | (13 | ) | 229 | |||||||||||||||
Remeasurements of defined benefit plans |
(558 | ) | (4 | ) | (562 | ) | 146 | 3 | 149 | |||||||||||||
Contributions paid |
(23 | ) | - | (23 | ) | (37 | ) | - | (37) | |||||||||||||
Benefits paid |
(96 | ) | (16 | ) | (112 | ) | (99 | ) | (16 | ) | (115) | |||||||||||
Net exchange differences |
(27 | ) | (9 | ) | (36 | ) | (6 | ) | (3 | ) | (9) | |||||||||||
Other |
(1 | ) | - | (1 | ) | (2 | ) | 1 | (1) | |||||||||||||
At December 31 | 2,790 | 236 | 3,026 | 3,282 | 246 | 3,528 | ||||||||||||||||
The amounts recognized in the statement of financial position are determined as follows:
|
|
|||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Retirement benefit plans |
Other post- |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | |||||||||||||||||
Present value of wholly or partly funded obligations |
3,376 | - | 3,376 | 3,617 | - | 3,617 | ||||||||||||||||
Fair value of plan assets |
(2,909 | ) | - | (2,909 | ) | (2,747 | ) | - | (2,747) | |||||||||||||
467 | - | 467 | 870 | - | 870 | |||||||||||||||||
Present value of wholly unfunded obligations 1) |
2,323 | 236 | 2,559 | 2,412 | 246 | 2,658 | ||||||||||||||||
At December 31 | 2,790 | 236 | 3,026 | 3,282 | 246 | 3,528 | ||||||||||||||||
1 Assets held by Aegon the Netherlands backing retirement benefits of EUR 2,194 million (2012: EUR 2,280 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegons own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 2013 and 2012.
| ||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||
Defined benefit expenses | Retirement benefit plans |
Other post- |
Total | Retirement benefit plans |
Other post- employment benefit plans |
Total | ||||||||||||||||
Current year service cost |
88 | 10 | 98 | 97 | 9 | 106 | ||||||||||||||||
Net interest on the net defined benefit liability (asset) |
124 | 9 | 134 | 141 | 11 | 152 | ||||||||||||||||
Past service cost |
1 | - | 1 | 4 | (33 | ) | (29) | |||||||||||||||
Total defined benefit expenses | 214 | 19 | 233 | 242 | (13 | ) | 229 | |||||||||||||||
2011 | ||||||||||||||||||||||
Retirement benefit plans |
Other
post- |
Total | ||||||||||||||||||||
Current year service cost |
92 | 8 | 100 | |||||||||||||||||||
Net interest on the net defined benefit liability (asset) |
125 | 12 | 137 | |||||||||||||||||||
Past service cost |
(66 | ) | 1 | (65) | ||||||||||||||||||
Total defined benefit expenses | 151 | 21 | 172 |
Defined benefit expenses are included in Commissions and expenses in the income statement.
|
Supplemental Annual Report 2013 |
259
Movements during the year of the present value of the defined benefit obligations | 2013 | 2012 | ||||||||||||||
At January 1 restated |
6,276 | 5,855 | ||||||||||||||
Current year service cost |
98 | 106 | ||||||||||||||
Interest expense |
243 | 267 | ||||||||||||||
Remeasurements of the defined benefit obligations: |
||||||||||||||||
- Actuarial gains and losses arising from changes in demographic assumptions |
5 | 31 | ||||||||||||||
- Actuarial gains and losses arising from changes in financial assumptions |
(286 | ) | 312 | |||||||||||||
Past service cost |
1 | (29 | ) | |||||||||||||
Contributions by plan participants |
11 | 11 | ||||||||||||||
Benefits paid |
(266 | ) | (263 | ) | ||||||||||||
Net exchange differences |
(146 | ) | (14 | ) | ||||||||||||
At December 31 | 5,935 | 6,276 | ||||||||||||||
Movements during the year in plan assets for retirement benefit plans | 2013 | 2012 | ||||||||||||||
At January 1 |
2,747 | 2,543 | ||||||||||||||
Interest income (based on discount rate) |
109 | 115 | ||||||||||||||
Remeasurements of the net defined liability (asset) |
281 | 194 | ||||||||||||||
Contributions by employer |
34 | 48 | ||||||||||||||
Contributions by plan participants |
- | - | ||||||||||||||
Benefits paid |
(154 | ) | (149 | ) | ||||||||||||
Net exchange differences |
(108 | ) | (4 | ) | ||||||||||||
At December 31 | 2,909 | 2,747 | ||||||||||||||
2013 | 2012 | |||||||||||||||
Breakdown of plan assets for retirement benefit plans | Quoted | Unquoted | Quoted | Unquoted | ||||||||||||
Equity instruments |
331 | 6 | 261 | 4 | ||||||||||||
Debt instrument |
322 | 471 | 343 | 514 | ||||||||||||
Derivatives |
- | 25 | - | 7 | ||||||||||||
Investment funds |
29 | 1,485 | 23 | 1,364 | ||||||||||||
Structured securities |
- | 6 | - | 6 | ||||||||||||
Other |
9 | 225 | 16 | 209 | ||||||||||||
At December 31 | 690 | 2,219 | 643 | 2,104 |
Defined benefit plans are mainly operated by Aegon USA, Aegon the Netherlands and Aegon UK. The following sections contain a general description of the plans in each of these subsidiaries and a summary of the principal actuarial assumptions applied in determining the value of defined benefit plans.
Aegon USA
Aegon USA has defined benefit plans covering substantially all its employees that are qualified under the Internal Revenue Service Code, including all requirements for minimum funding levels. The defined benefit plans are governed by the Board of Managers of Aegon USA. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employees eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans were unfunded by EUR 207 million at December 31, 2013 (2012: EUR 611 million unfunded).
Investment strategies are established based on asset/liability studies by actuaries which are updated as they consider appropriate. These studies, along with the investment policy, assist to develop the appropriate investment criteria for the plan, including asset allocation mix, return objectives, investment risk and time horizon, benchmarks and performance standards and restrictions and prohibitions. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated
260 | Notes to the consolidated financial statements of Aegon N.V. Note 43 |
future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. Aegon believes that the asset allocation is an important factor in determining the long-term performance of the plan. The plan uses multiple asset classes as well as sub-classes to meet the asset allocation and other requirements of the investment policy, which minimizes investment risk. From time to time the actual asset allocation may deviate from the desired asset allocation ranges due to different market performance among the various asset categories. If it is determined that rebalancing is required, future additions and withdrawals will be used to bring the allocation to the desired level.
Aegon USA maintains minimum required funding levels as set forth by the Internal Revenue Code. If contributions are required, the funding would be provided from the Companys general account assets. Pension plan contributions were not required for Aegon USA in 2013 or 2012.
Aegon USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal retirement benefits. The plans are unfunded and are not qualified under the Internal Revenue Code. The supplemental retirement plans are governed by either Aegon USA, LLC, or the Compensation Committee of the Board of Directors of Aegon US Holding Corporation. Aegon USA, LLC, or the Compensation Committee of the Board of Directors has the full power and discretion to apply all of the plans provisions, including such responsibilities as, but not limited to, interpret the plan provisions, to make factual determinations under the plan, to determine plan benefits, and to comply with any statutory reporting and disclosure requirements. The benefits are based on years of service and the employees eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The Company funds the benefit payments of the supplemental retirement plans from its general account assets. The unfunded amount related to these plans, for which a liability has been recorded, was EUR 192 million (2012: EUR 208 million).
Aegon USA provides health care benefits to retired employees, which are unfunded plans. The post-retirement health care plans are administered by Aegon USA, LLC, which has delegated the claims administration to third party administrators. Aegon USA, LLC (Company) maintains two plans which provide retiree medical benefits. For each plan, the Company has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. Under the Employee Retirement Income Security Act (ERISA), the Company has the fiduciary responsibility to monitor the third party claims administrator to ensure it is doing its job properly and to remove the third party administrator if it is not properly doing its job. In addition, the Company has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, the Company reviews the terms of the plans and make changes to the plans if and when appropriate. The Company funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 191 million (2012: EUR 198 million).
The weighted average duration of the defined benefit obligation is 12.7 years (2012: 14.2 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2013 | 2012 | ||||||
Demographic actuarial assumptions |
2014 static | 2013 static | ||||||
Mortality |
mortality table 1) | mortality table 1) | ||||||
Financial actuarial assumptions |
||||||||
Discount rate |
4.75% | 4.00% | ||||||
Salary increase rate |
3.91% | 3.91% | ||||||
Health care trend rate |
8.50% | 7.25% |
1 | Table in accordance with IRS regulation 1.430(h)(3)-1. |
|
Supplemental Annual Report 2013 |
261
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in The table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
2013 |
Estimated approximate effects on the defined benefit obligation | |
Demographic actuarial assumptions |
||
10% increase in mortality rates |
(49) | |
10% decrease in mortality rates |
49 | |
Financial actuarial assumptions |
||
100 basis points increase in discount rate |
(283) | |
100 basis points decrease in discount rate |
350 | |
100 basis points increase in salary increase rate |
29 | |
100 basis points decrease in salary increase rate |
(25) | |
100 basis points increase in health care trend rate |
15 | |
100 basis points decrease in health care trend rate |
(13) | |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
| ||
2013 |
Target allocation of plan assets for retirement benefit plans for the next annual period is: | |
Equity instruments |
15 - 55% | |
Debt instruments |
30 - 50% | |
Other |
12 - 30% |
Aegon the Netherlands
Aegon the Netherlands has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are governed by the Management Board of Aegon the Netherlands. The Management Board has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as plan assets as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. Aegon the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions.
Investment strategies are established based on asset and liability studies. The overall goal is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk. These studies use for example return objectives and various investment instruments. Investment restrictions are updated regularly and they result in asset allocation mix and hedges.
The contributions to the retirement benefit plan of Aegon the Netherlands are paid by both the employees and the employer, with the employer contribution being variable. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average salary system. Employees earning more than EUR 45,978 per year (as at January 1, 2013) have an option to contribute to a defined contribution plan for the excess salary. However, the cost for the company remains the same. The defined benefit plans were unfunded by EUR 2,119 million at December 31, 2013 (2012: EUR 2,191 million). As the assets held by Aegon the Netherlands for retirement benefits do not meet the definition of plan assets, they were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets do not form part of the calculation of defined benefit expenses.
262 | Notes to the consolidated financial statements of Aegon N.V. Note 43 |
Aegon the Netherlands also has a post-retirement medical plan that contributes to the health care coverage of employees and beneficiaries after retirement. For this plan, the Aegon the Netherlands has the responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. In addition, Aegon the Netherlands has the obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, Aegon the Netherlands reviews the terms of the plans and makes changes to the plans if and when appropriate. The liability related to this plan amounted to EUR 42 million at December 31, 2013 (2012: EUR 44 million).
The weighted average duration of the defined benefit obligation is 15.9 years (2012: 17.5 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2013 | 2012 | ||
Demographic actuarial assumptions |
Aegon table | Aegon table | ||
Mortality |
20131) | 20121) | ||
Financial actuarial assumptions |
||||
Discount rate |
3.70% | 3.60% | ||
Salary increase rate |
2.25% | 2.25% | ||
Price inflation |
2.00% | 2.00% | ||
1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
| ||||
2013 |
Estimated approximate effects on the defined benefit obligation | |||
Demographic actuarial assumptions |
||||
10% increase in mortality rates |
(23) | |||
10% decrease in mortality rates |
79 | |||
Financial actuarial assumptions |
||||
100 basis points increase in discount rate |
(331) | |||
100 basis points decrease in discount rate |
359 | |||
100 basis points increase in salary increase rate |
16 | |||
100 basis points decrease in salary increase rate |
(16) | |||
100 basis points increase in price inflation |
(2) | |||
100 basis points decrease in price inflation |
1 |
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit obligation recognized within the statement of financial position.
Aegon UK
Aegon UK operated a defined benefit pension scheme providing benefits for staff based on final pensionable salary and years of service. The scheme closed to new entrants a number of years ago and closed to future accrual on March 31, 2013. Aegon UK now offers a defined contribution pension scheme to all employees.
The pension scheme is administered separately from Aegon UK and is governed by Trustees, who are required to act in the best interests of the pension scheme members.
The pension scheme Trustees are required to carry out triennial valuations on the schemes funding position, with the latest valuation being as at March 31, 2013. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit.
|
Supplemental Annual Report 2013 |
263
The investment strategy for the scheme is determined by the Trustees in consultation with Aegon UK. Currently 40% of assets are invested in growth assets (i.e. primarily equities) and 60% are Liability Driven Investments where the investments are a portfolio of fixed interest and inflation linked bonds and related derivatives, selected to broadly match the interest rate and inflation profile of liabilities.
Under the scheme rules pensions in payment increase in line with the UK Retail Price Index, and deferred benefits increase in line with the UK Consumer Price Index. The pension scheme is therefore exposed to UK inflation changes as well as interest rate risks, investment returns and changes in the life expectancy of pensioners.
The weighted average duration of the defined benefit obligation is 24.4 years (2012: 25.0 years).
The principal actuarial assumptions that apply for the year ended December 31 are as follows:
Actuarial assumptions used to determine defined benefit obligations at year-end | 2013 | 2012 | ||
Demographic actuarial assumptions |
UK mortality | UK mortality | ||
Mortality |
table 1) | table 2) | ||
Financial actuarial assumptions |
||||
Discount rate |
4.60% | 4.60% | ||
Price inflation |
3.40% | 3.00% | ||
1 SAPS S1NA light -2 years CMI 2012 1.25% p.a. 2 SAPS S1NA light -2 years CMI 2011 1.25% p.a.
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in the table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end:
| ||||
2013 | Estimated approximate effects on the defined benefit obligation | |||
Demographic actuarial assumptions |
||||
10% increase in mortality rates |
(24) | |||
10% decrease in mortality rates |
26 | |||
Financial actuarial assumptions |
||||
100 basis points increase in discount rate |
(250) | |||
100 basis points decrease in discount rate |
344 | |||
100 basis points increase in price inflation |
132 | |||
100 basis points decrease in price inflation |
(204) | |||
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
| ||||
2013 |
Target allocation of plan assets for retirement benefit plans for The next annual period is: | |||
Equity instruments |
40% | |||
Debt instruments |
60% |
New Markets
New Markets mostly operate defined contribution plans.
264 | Notes to the consolidated financial statements of Aegon N.V. Note 44 |
|
Supplemental Annual Report 2013 |
265
Real estate |
Financial assets |
Insurance contracts |
Deferred expenses, VOBA and other intangible assets |
Defined Benefit plans |
Losses | Other | Total | |||||||||||||||||||||||||
At January 1, 2013 |
376 | 3,608 | (2,966 | ) | 2,747 | (627 | ) | (587 | ) | (370 | ) | 2,181 | ||||||||||||||||||||
Acquisitions through business combinations |
- | - | - | 1 | - | - | - | 1 | ||||||||||||||||||||||||
Disposal of a business |
- | - | - | - | - | 1 | 1 | 2 | ||||||||||||||||||||||||
Charged to income statement |
(4 | ) | (581 | ) | 758 | 343 | 33 | (157 | ) | (86 | ) | 305 | ||||||||||||||||||||
Charged to equity |
(1 | ) | (1,116 | ) | - | - | 191 | (1 | ) | (21 | ) | (948 | ) | |||||||||||||||||||
Net exchange differences |
(1 | ) | (81 | ) | 78 | (141 | ) | 17 | 27 | 18 | (83 | ) | ||||||||||||||||||||
Other |
3 | (19 | ) | - | (9 | ) | - | (3 | ) | 66 | 38 | |||||||||||||||||||||
At December 31, 2013 | 371 | 1,812 | (2,129 | ) | 2,940 | (386 | ) | (720 | ) | (394 | ) | 1,493 | ||||||||||||||||||||
At January 1, 2012 |
261 | 2,017 | (2,654 | ) | 2,710 | (622 | ) | (623 | ) | (275 | ) | 814 | ||||||||||||||||||||
Charged to income statement |
(16 | ) | 490 | (361 | ) | 48 | (26 | ) | 26 | (87 | ) | 74 | ||||||||||||||||||||
Charged to equity |
(1 | ) | 928 | - | - | (42 | ) | 4 | 23 | 912 | ||||||||||||||||||||||
Net exchange differences |
(1 | ) | (52 | ) | 22 | (5 | ) | 4 | 4 | - | (28 | ) | ||||||||||||||||||||
Other |
133 | 225 | 27 | (6 | ) | 59 | 2 | (31 | ) | 409 | ||||||||||||||||||||||
At December 31, 2012 | 376 | 3,608 | (2,966 | ) | 2,747 | (627 | ) | (587 | ) | (370 | ) | 2,181 |
The decrease of deferred corporate income tax liabilities primarily relates to a decrease of unrealized profits in 2013 in respect of financial assets due to an increase in market interest rates partially offset by tightening of credit spreads. Prior year adjustments (refer to note 18) led to an increase of deferred corporate income tax liabilities, with the main impact on financial assets, insurance contracts and defined benefit plans. In 2012, Other in real estate results from a restructuring of the real estate portfolio.
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 358 million; tax EUR 71 million (2012: gross EUR 88 million; tax EUR 16 million) the realization of the deferred tax asset is dependent on the projection of future taxable profits from existing business in excess of the profits arising from the reversal of existing taxable temporary differences.
For the following amounts, arranged by loss carry forward periods, the deferred corporate income tax asset is not recognized:
Gross amounts | Not recognized deferred tax assets | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
< 5 years |
105 | 145 | 29 | 37 | ||||||||||
³ 5 10 years |
38 | 21 | 9 | 5 | ||||||||||
³ 10 15 years |
151 | - | 52 | - | ||||||||||
³ 15 20 years |
10 | 17 | 3 | 5 | ||||||||||
Indefinitely |
720 | 920 | 185 | 209 | ||||||||||
At December 31 | 1,024 | 1,103 | 278 | 257 | ||||||||||
Deferred corporate income tax assets in respect of deductible temporary differences are recognized to the extent that the realization of the related tax benefit through future taxable profits is probable. For the following amounts relating to available-for-sale financial assets, defined benefit plans and other items the recognition of the deferred corporate income tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differences:
| ||||||||||||||
Gross amounts | Deferred tax assets | |||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||
Deferred corporate income tax asset dependent on retaining bonds and similar investments until the earlier of market recovery or maturity |
1,201 | 890 | 420 | 311 | ||||||||||
Deferred corporate income tax asset dependent on the realization of capital profits |
470 | 683 | 164 | 239 | ||||||||||
Other |
30 | 3 | 9 | 1 | ||||||||||
At December 31 | 1,701 | 1,576 | 593 | 551 |
266 | Notes to the consolidated financial statements of Aegon N.V. Note 46 |
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Other items for the amount of gross EUR 39 million; tax EUR 8 million (2012: gross EUR 37 million; tax EUR 9 million).
Deferred corporate income tax liabilities have not been recognized for withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries, branches, associates and joint ventures. The unremitted earnings totaled gross EUR 1,753 million; tax EUR 438 million (2012: gross EUR 1,754 million; tax EUR 438 million).
All deferred taxes are non-current by nature.
2013 | 2012 | |||||||
Payables due to policyholders |
1,131 | 1,681 | ||||||
Payables due to brokers and agents |
812 | 1,058 | ||||||
Payables out of reinsurance |
1,442 | 1,609 | ||||||
Social security and taxes payable |
115 | 68 | ||||||
Income tax payable |
6 | 118 | ||||||
Investment creditors |
202 | 1,305 | ||||||
Cash collateral |
8,426 | 10,106 | ||||||
Repurchase agreements |
2,252 | 2,217 | ||||||
Other creditors |
2,237 | 2,432 | ||||||
At December 31 | 16,625 | 20,594 | ||||||
Current |
14,643 | 17,567 | ||||||
Non-current |
1,981 | 3,027 | ||||||
The carrying amounts disclosed reasonably approximate the fair values at year end, given the predominantly current nature of the other liabilities.
|
| |||||||
2013 | 2012 | |||||||
Accrued interest |
142 | 181 | ||||||
Accrued expenses |
117 | 148 | ||||||
At December 31 | 259 | 329 |
The carrying amounts disclosed reasonably approximate the fair values as at the year end.
48 Guarantees in insurance contracts
For financial reporting purposes Aegon distinguishes between the following types of minimum guarantees:
¿ | Financial guarantees: these guarantees are treated as bifurcated embedded derivatives, valued at fair value and presented as derivatives (refer to note 2.9 and note 3); |
¿ | Total return annuities: these guarantees are not bifurcated from their host contracts because they are presented and valued at fair value together with the underlying insurance contracts (refer to note 2.19); |
¿ | Life contingent guarantees in the United States: these guarantees are not bifurcated from their host contracts, presented and valued in accordance with insurance accounting (ASC 944, Financial Services - Insurance) together with the underlying insurance contracts (refer to note 2.19); and |
¿ | Minimum investment return guarantees in the Netherlands: these guarantees are not bifurcated from their host contracts, valued at fair value and presented together with the underlying insurance contracts (refer to note 2.19 and note 3). |
In addition to the guarantees mentioned above, Aegon has traditional life insurance contracts that include minimum guarantees that are not valued explicitly; however, the adequacy of all insurance liabilities, net of VOBA and DPAC, and including all guarantees, are assessed periodically (refer to note 2.19).
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a. Financial guarantees
In the United States and New Markets (VAs sold in United Kingdom), a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products Aegon issues and is also assumed from a ceding company. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance. Variable annuities allow a customer to select payout options designed to help meet the customers need for income upon maturity, including lump sum payment or income for life or for a period of time. This benefit guarantees that a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or during the life of the policyholder.
In Canada, variable products sold are known as Segregated Funds. Segregated funds are similar to variable annuities, except that they include a capital protection guarantee for mortality and maturity benefits (guaranteed minimum accumulation benefits). The initial guarantee period is ten years. The ten-year period may be reset at the contractholders option for certain products to lock-in market gains. The reset feature cannot be exercised in the final decade of the contract and for many products can only be exercised a limited number of times per year. The management expense ratio charged to the funds is not guaranteed and can be increased by management decision. In addition, Aegon Canada sells a contract with a minimum guaranteed withdrawal benefit. The contract provides capital protection for longevity risk in the form of a guaranteed minimum annuity payment.
In the Netherlands, individual variable unit-linked products have a minimum benefit guarantee if premiums are invested in certain funds. The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return (in the range of 3% to 4%) if the premium has been paid for a consecutive period of at least ten years and is invested in a mixed fund and/or fixed-income funds. No guarantees are given for equity investments only.
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees:
2013 | 2012 | |||||||||||||||||||||||||||||||||||||||
United States 1) |
Canada 1) | The Netherlands 2) |
New Markets |
Total 3) | United States 1) |
Canada 1) | The Netherlands 2) |
New Markets |
Total 3) | |||||||||||||||||||||||||||||||
At January 1 |
692 | 63 | 1,324 | 29 | 2,108 | 645 | 89 | 1,306 | 42 | 2,082 | ||||||||||||||||||||||||||||||
Incurred guarantee benefits 4) |
(762 | ) | (53 | ) | (142 | ) | - | (958 | ) | 58 | (22 | ) | 18 | - | 54 | |||||||||||||||||||||||||
Paid guarantee benefits |
- | (1 | ) | - | (33 | ) | (34 | ) | - | (5 | ) | - | (13 | ) | (18 | ) | ||||||||||||||||||||||||
Net exchange differences |
(2 | ) | (3 | ) | - | - | (5 | ) | (11 | ) | 1 | - | - | (10 | ) | |||||||||||||||||||||||||
At December 31 |
(72 | ) | 6 | 1,181 | (4 | ) | 1,112 | 692 | 63 | 1,324 | 29 | 2,108 | ||||||||||||||||||||||||||||
Account value 5) |
19,745 | 1,423 | 10,326 | 503 | 31,997 | 14,608 | 1,678 | 8,187 | 431 | 24,904 | ||||||||||||||||||||||||||||||
Net amount at risk 6) |
264 | 24 | 1,225 | (4 | ) | 1,509 | 412 | 49 | 1,405 | 29 | 1,895 |
1 | Guaranteed minimum accumulation and withdrawal benefits. |
2 | Fund plan and unit-linked guarantees. |
3 | Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 24. |
4 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year. |
5 | Account value reflects the actual fund value for the policyholders. |
6 | The net amount at risk represents the sum of the positive differences between the discounted maximum amount payable under the guarantees and the account value. |
The decrease of incurred guarantee benefits mainly relates to fair value movements due to increasing interest rates and equity markets, partly offset by tightening own credit spread. Financial guarantees in the United States and New Markets became an asset during 2013, mainly due to net presentation of expected discounted cash outflow to customers and the expected discounted cash inflow from premiums. Due to increasing returns on investments, driven by favorable capital markets, the expected pay out on financial guarantees for minimum benefits decreased.
Aegon Americas reinsures the elective guaranteed minimum withdrawal benefit rider issued with a ceding companys variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least fourteen years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals. Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At December 31, 2013, the reinsured account value was EUR 2.7 billion (2012: EUR 3.0 billion) and the guaranteed remaining balance was EUR 1.8 billion (2012: EUR 2.4 billion).
268 | Notes to the consolidated financial statements of Aegon N.V. Note 48 |
The reinsurance contract is accounted for as a derivative and is carried in Aegons statement of financial position at fair value. At December 31, 2013, the contract had a value of EUR 22 million (2012: EUR 90 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts (S&P 500, Nasdaq, FTSE100 and NKY225 in accordance with Aegons exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
b. Total return annuities
Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists in both the fixed annuity and life reinsurance lines of business and in both cases represents closed blocks. The product excluding the guarantees is fully reinsured in the form of modified coinsurance, so only the liability for the minimum guarantee is recorded on Aegons books.
Product balances as of December 31, 2013 were EUR 372 million in fixed annuities (2012: EUR 432 million) and EUR 104 million in life reinsurance (2012: EUR 112 million).
c. Life contingent guarantees in the United States
Certain variable insurance contracts in the United States also provide guaranteed minimum death benefits (GMDB) and guaranteed minimum income benefits (GMIB). Under a GMDB, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The net amount at risk for GMDB contracts is defined as the current GMDB in excess of the capital account balance at the balance sheet date.
The GMIB feature provides for minimum payments if the contractholder elects to convert to an immediate pay-out annuity. The guaranteed amount is calculated using the total deposits made by the contractholder, less any withdrawals and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
The additional liability for guaranteed minimum benefits that are not bifurcated are determined (based on ASC 944) each period by estimating the expected value of benefits in excess of the projected account balance and recognizing the excess over the accumulation period based on total expected assessments. The estimates are reviewed regularly and any resulting adjustment to the additional liability is recognized in the income statement. The benefits used in calculating the liabilities are based on the average benefits payable over a range of stochastic scenarios. Where applicable, the calculation of the liability incorporates a percentage of the potential annuitizations that may be elected by the contract holder. In the table below, no significant movements are shown at incurred guarantee benefits due to differences in measurement compared to financial guarantees and life contingent guarantees in the Netherlands.
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The following table provides information on the liabilities for guarantees for minimum benefits that are included in the valuation of the host contracts:
2013 | 2012 | |||||||||||||||||||||||
GMDB 1) |
GMIB 2) | Total 4) | GMDB 1) | GMIB 2) | Total 4) | |||||||||||||||||||
At January 1 |
386 | 702 | 1,088 | 376 | 872 | 1,248 | ||||||||||||||||||
Incurred guarantee benefits 5) |
9 | 4 | 13 | 90 | (75 | ) | 15 | |||||||||||||||||
Paid guarantee benefits |
(57 | ) | (32 | ) | (90 | ) | (74 | ) | (86 | ) | (160 | ) | ||||||||||||
Net exchange differences |
(15 | ) | (29 | ) | (44 | ) | (6 | ) | (9 | ) | (15 | ) | ||||||||||||
At December 31 |
323 | 644 | 967 | 386 | 702 | 1,088 | ||||||||||||||||||
GMDB 1),3) | GMIB 2),3) | GMDB 1),3) | GMIB 2),3) | |||||||||||||||||||||
Account value 6) |
38,379 | 6,142 | 32,882 | 5,987 | ||||||||||||||||||||
Net amount at risk 7) |
1,577 | 386 | 2,667 | 636 | ||||||||||||||||||||
Average attained age of contractholders |
68 | 68 | 67 | 67 |
1 | Guaranteed minimum death benefit in the United States. |
2 | Guaranteed minimum income benefit in the United States. |
3 | Note that the variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive. |
4 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 37. |
5 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and value changes as a consequence of interest movements during the reporting year. |
6 | Account value reflects the actual fund value for the policyholders. |
7 | The net amount at risk is defined as the present value of the minimum guaranteed annuity payments available to the contract holder determined in accordance with the terms of the contract in excess of the current account balance. |
d. Minimum investment return guarantees in the Netherlands
The traditional life and pension products offered by Aegon in the Netherlands include various products that accumulate a cash value. Premiums are paid by customers at inception or over the term of the contract. The accumulation products pay benefits on the policy maturity date, subject to survival of the insured. In addition, most policies also pay death benefits if the insured dies during the term of the contract. The death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product. Minimum interest guarantees exist for all generations of traditional accumulation products written. Older generations contain a 4% guarantee; in recent years the guarantee has decreased to 3%.
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward to be offset against any future surpluses within the contract period. In general, a guarantee is given for the life of the underlying employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
These guarantees are valued at fair value and are included as part of insurance liabilities with the underlying host insurance contracts in note 37.
270 | Notes to the consolidated financial statements of Aegon N.V. Note 48 |
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees:
2013 | 2012 | |||||||
GMI 1), 2) |
GMI 1), 2) |
|||||||
At January 1 |
|
3,684 |
|
|
3,254 |
| ||
Incurred guarantee benefits 3) |
(1,222 | ) | 430 | |||||
At December 31 |
2,462 | 3,684 | ||||||
Account value 4) |
14,557 | 15,702 | ||||||
Net amount at risk 5) |
2,756 | 3,841 |
1 | Guaranteed minimum investment return in the Netherlands. |
2 | Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 37. |
3 | Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year. |
4 | Account value reflects the liability value of the insurance contracts as a whole. |
5 | The net amount at risk represents the sum of the differences between the guaranteed and actual amount that is credited to the policyholders. For Individual policies only positive differences are included, for Group pensions contracts carry forwards of negative differences are recognized. |
Fair value measurement of guarantees in insurance contracts
The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 3.
For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 23.9% at December 31, 2013 and 24.4% at December 31, 2012. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Had Aegon used a long-term equity implied volatility assumption that was five volatility points higher or lower, the impact on income before tax would have been a decrease of EUR 117 million or an increase of EUR 115 million, respectively, in 2013 IFRS income before tax (2012: EUR 118 million decrease and EUR 104 million increase).
These assumptions are reviewed at each valuation date, and updated based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions.
Aegon utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees. Guarantees valued at fair value contributed a net loss before tax of EUR 188 million (2012: gain of EUR 289 million) to earnings. The main drivers of this loss before tax are positive results related to increases in risk free rates of EUR 2,014 million (2012: EUR 714 million loss), EUR 514 million related to an increase in equity markets (2012: EUR 491 million loss), EUR 67 million related to decreases in equity volatilities (2012: EUR 124 million loss) offset by EUR 302 million related to decreasing own credit spread (2012: EUR 465 million loss). Hedges related to these guarantee reserves contributed fair value losses of EUR 2,525 million to income before tax (2012: EUR 407 million gains) and DPAC offset and other contributed a gain of EUR 44 million (2012: EUR 446 million gain).
Guarantee reserves decreased EUR 2,341 million in 2013 (2012: increase of EUR 381 million).
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Aegons total capitalization reflects the capital employed in insurance activities and consists of shareholders capital and total gross financial leverage. Aegon aims to bring total gross financial leverage below 30% of total capitalization as measured by the gross financial leverage ratio. The gross financial leverage ratio is calculated by dividing the total gross financial leverage by the total capitalization. At December 31, 2013 the gross financial leverage ratio was 33.1%.
Additionally, Aegon manages capital adequacy at the level of its country units and their operating companies. The goal is to ensure that Aegon companies maintain their financial strength. Aegon maintains its companies capital adequacy levels at which ever is the higher of local regulatory requirements and the relevant local Standard & Poors requirements for very strong capitalization, and any additionally self-imposed economic requirements.
The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio:
Note | 2013 | 2012 | ||||||||||
Total shareholders equity |
32 | 17,694 | 21,037 | |||||||||
Non-controlling interests and share options not yet exercised |
34, SOFP 2) | 109 | 115 | |||||||||
Revaluation reserves |
32 | (3,023 | ) | (6,116 | ) | |||||||
Remeasurement of defined benefit plans |
32 | 706 | 1,085 | |||||||||
Shareholders capital | 15,486 | 16,121 | ||||||||||
Junior perpetual capital securities |
34 | 4,192 | 4,192 | |||||||||
Perpetual cumulative subordinated bonds |
34 | 454 | 453 | |||||||||
Non-Cumulative Subordinate Note |
34 | 271 | 271 | |||||||||
Trust pass-through securities |
35 | 135 | 155 | |||||||||
Subordinated borrowings |
36 | 44 | 42 | |||||||||
Currency revaluation other equity instruments 1) |
(261 | ) | (123 | ) | ||||||||
Hybrid leverage | 4,834 | 4,990 | ||||||||||
Senior debt |
413) | 2,683 | 3,304 | |||||||||
Commercial paper and other short term debt |
41 | 151 | 430 | |||||||||
Senior leverage | 2,834 | 3,734 | ||||||||||
Total financial leverage | 7,668 | 8,724 | ||||||||||
Total capitalization | 23,153 | 24,845 | ||||||||||
Gross financial leverage ratio | 33.1 | 35.1 |
1 | Other equity instruments that are denominated in foreign currencies are, for purpose of calculating the capital base, revalued to the period-end exchange rate. |
2 | Non-controlling interests are disclosed in the statement of financial position. |
3 | Senior debt for financial leverage calculation also contains swaps and other senior debt for an amount of EUR 33 million (2012: EUR 18 million). |
Aegon N.V. is subject to certain financial covenants in some of its financial agreements (such as issued debentures, credit facilities and ISDA agreements). Under these financial covenants, an event of default may occur if and when any financial indebtedness of any member of the Group is not paid when due, or not paid within any applicable grace period. The financial agreements may also include a cross default provision which may be triggered if and when any financial indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default.
All financial agreements are closely monitored periodically to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. On the basis of this assessment, a breach of any such covenant has not occurred.
Insurance, reinsurance, investment management and banking companies are required to maintain a minimum solvency margin based on applicable local regulations. For managing Aegons capital, the life insurance and life reinsurance regulations in the EU and the United States are of main importance. Aegons Insurance Group Directive ratio (IGD ratio) was 212% at the end of 2013 (2012: 228%). The calculation of the IGD ratio is based on Solvency I capital requirements for entities within the EU (Pillar 1 for Aegon UK), and local regulatory solvency measurements for non-EU entities. Specifically, required capital for the life insurance companies in the US is calculated as two times the upper end of the Company Action Level range (200%) as applied by the National Association of Insurance Commissioners in the US. The calculation of the IGD ratio excludes the available and required capital of the UK With Profits fund.
272 | Notes to the consolidated financial statements of Aegon N.V. Note 49 |
In the United States, regulation of the insurance business is principally at the state level. State insurance regulators and the National Association of Insurance Commissioners have adopted risk-based capital (RBC) requirements for insurance companies. Risk-based capital calculations measure the ratio of a companys statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The risk-based capital formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula applies a covariance calculation to determine the appropriate risk-based capital. Life reinsurance is treated as life insurance. The most pertinent risk-based capital measure is the company action level (CAL) risk-based capital. This is the highest regulatory intervention level and is the level at which a company has to submit a plan to its state regulators. The CAL is 200% of the authorized control level (ACL), the level at which regulators are permitted to seize control of the company. At the end of 2013 the combined risk-based capital ratio of Aegons life insurance subsidiaries in the United States was approximately 440% of the CAL risk-based capital.
For the insurance and reinsurance undertakings of Aegon in the EU, the European Solvency I directives are applicable, as implemented in the relevant member states. Solvency I allows member states to require solvency standards, exceeding the minimum requirements set by the Solvency I directives. For life insurance companies the Solvency I capital requirement is by and large the sum of 4% of insurance and investment liabilities for general account and 1% of insurance and investment liabilities for account policyholders if no guaranteed investment returns are given. At the end of 2013, Aegon the Netherlands consolidated solvency capital ratio based on IFRS was approximately 240% excluding Aegon bank.
The Prudential Regulation Authority (PRA) regulates insurance companies in the United Kingdom under the Financial Services and Markets Act 2000 and sets minimum solvency standards. Companies must manage their solvency positions according to the most stringent of the published Solvency I measure (Pillar 1) and a privately submitted economic capital measure (Pillar 2). For Aegon UK, the published measure continues to be the most stringent requirement. The Pillar I ratio in the United Kingdom, including the With Profits fund, was approximately 150% at the end of the fourth quarter of 2013 (With Profits fund included at unaudited June 30, 2013 values). The local regulator (PRA) requires the total capital number of the With-Profits funds to be equal to the available capital.
Aegon N.V. is subject to legal restrictions on the amount of dividends it can pay to its shareholders. Under Dutch law the amount that is available to pay dividends consists of total shareholders equity less the issued and outstanding capital and less the reserves required by law. The revaluation account and legal reserves, foreign currency translation reserve and other, cannot be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable reserves under Dutch law amount to EUR 8,377 million at December 31, 2013 (2012: EUR 8,820 million).
The ability of Aegons subsidiaries, principly insurance companies, to pay dividends to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance regulatory authorities. Based on the capitalization level of the local subsidiary, local insurance regulators are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the need for these subsidiaries to have sufficient shareholders equity as determined by law. The capitalization level and shareholders equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of subsidiaries to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations.
The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the subsidiaries to pay dividends to the holding company. In order to ensure the holding companys ability to fulfill its cash obligations, it is the companys policy that, the holding company holds liquid assets in reserve to fund at least 1.5 years of holding company operating and funding expenses, without having to rely on the receipt of dividends from its subsidiaries.
Optas N.V., an indirect subsidiary of Aegon N.V., holds statutory reserves of EUR 997 million (2012: EUR 981 million) which are restricted. Included in Aegon N.V.s legal reserves is an amount of EUR 458 million related to Optas N.V. which represents the increase in statutory reserves since the acquisition of Optas N.V. by Aegon (2012: EUR 441 million). The statutory reserves of Optas N.V. are linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
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50 Summary of total financial assets and financial liabilities at fair value through profit or loss
The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss.
2013 | 2012 | |||||||||||||||
Trading | Designated | Trading | Designated | |||||||||||||
Investments for general account |
121 | 4,712 | 754 | 4,809 | ||||||||||||
Investments for account of policyholders |
- | 164,037 | - | 151,960 | ||||||||||||
Derivatives with positive values not designated as hedges |
12,725 | - | 19,349 | - | ||||||||||||
Total financial assets at fair value through profit or loss |
12,846 | 168,749 | 20,103 | 156,769 | ||||||||||||
Investment contracts for account of policyholders |
- | 32,628 | - | 29,188 | ||||||||||||
Derivatives with negative values not designated as hedges |
11,326 | - | 17,183 | - | ||||||||||||
Borrowings |
- | 1,017 | - | 1,050 | ||||||||||||
Total financial liabilities at fair value through profit or loss |
11,326 | 33,645 | 17,183 | 30,238 |
Investments for general account
The Group manages certain portfolios on a total return basis which have been designated at fair value through profit or loss. This includes portfolios of investments in limited partnerships and limited liability companies (primarily hedge funds) for which the performance is assessed internally on a total return basis. In addition, some investments that include an embedded derivative that would otherwise have required bifurcation, such as convertible instruments, preferred shares and credit linked notes, have been designated at fair value through profit or loss.
Investments for general account backing insurance and investment liabilities, that are carried at fair value with changes in the fair value recognized in the income statement, are designated at fair value through profit or loss. The Group elected to designate these investments at fair value through profit or loss, as a classification of financial assets as available-for-sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilst changes to the liability would be reflected in net income (accounting mismatch).
Investments for account of policyholders
Investments held for account of policyholders comprise assets that are linked to various insurance and investment contracts for which the financial risks are borne by the customer. Under the Groups accounting policies these insurance and investment liabilities are measured at the fair value of the linked assets with changes in the fair value recognized in the income statement. To avoid an accounting mismatch the linked assets have been designated as at fair value through profit or loss.
In addition, the investment for account of policyholders include with profit assets, where an insurer manages these assets together with related liabilities on a fair value basis in accordance with a documented policy of asset and liability management. In accordance with Groups accounting policies, these assets have been designated as at fair value through profit or loss.
Investment contracts for account of policyholders
With the exception of the financial liabilities with discretionary participating features that are not subject to the classification and measurement requirements for financial instruments, all investment contracts for account of policyholders that are carried at fair value or at the fair value of the linked assets are included in the table above.
Derivatives
With the exception of derivatives designated as a hedging instrument, all derivatives held for general account and held for account of policyholders are included in the table above.
274 | Notes to the consolidated financial statements of Aegon N.V. Note 51 |
Borrowings
Borrowings designated as at fair value through profit or loss includes financial instruments that are managed on a fair value basis together with related financial assets and financial derivatives (Refer to note 41).
Gains and losses recognized in the income statement on financial assets and financial liabilities classified as at fair value through profit or loss can be summarized as follows:
Guarantees include those given on account of asset management commitments and guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.
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Contractual obligations
An Aegon N.V. indirect US life subsidiary has a net worth maintenance agreement with its subsidiary Transamerica Life (Bermuda) Ltd, pursuant to which Transamerica Life Insurance Company, a US life insurance subsidiary, will provide capital sufficient to maintain a S&P AA financial strength rating and capital sufficient to comply with the requirements of the countries in which its branches are located.
Aegon USA, LLC, a wholly owned subsidiary of Aegon N.V., has provided a parental guarantee to TLIC Riverwood Reinsurance, Inc. (TRRI), an affiliated captive reinsurer, for the cash payments required fulfilling reinsurance payments to Transamerica Life Insurance Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As at December 31, 2013, this amounted to EUR 1,333 million (2012 EUR: 1,267 million).
Aegon N.V. has guaranteed and is severally liable for the following:
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation, Aegon USA, LLC and Commonwealth General Corporation. At December 31, 2013, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 2,392 million (2012: EUR 3,260 million); as at that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements amount to EUR 158 million (2012: EUR 346 million); as at that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by captive insurance companies that are subsidiaries of Transamerica Corporation. At December 31, 2013, the letter of credit agreements amount to EUR 2,633 million (2012: 2,642 million); as at that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due in relation to debt that was issued by a captive insurance company that is a subsidiary of Transamerica Corporation. As at December 31, 2013, this debt amounted to EUR 1,089 million and is included in the debentures and other loans table in note 41 (Borrowings) of the consolidated financial statements of the Group in the line USD 1.54 billion Variable Funding Surplus Note. |
¿ | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC, Commonwealth General Corporation and Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amount to EUR 485 million (2012: EUR 507 million); |
¿ | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as at December 31, 2013. |
Legal and arbitration proceedings, regulatory investigations and actions
Aegon is involved in litigation in the ordinary course of business, including litigation where compensatory or punitive damages and mass or class relief are sought. Current and former customers, both institutional as well as individual, and groups representing customers, initiate litigation. Also, certain groups encourage others to bring lawsuits in respect of products. Aegon has established litigation policies to deal with claims, defending when the claim is without merit and seeking to settle in certain circumstances. There can be no assurances that Aegon will be able to resolve existing litigation in the manner it expects or that existing or future litigation will not result in unexpected liability.
Certain of the products we sell are complex and involve significant investment risks that may be assumed by Aegons customers. Aegon has, from time to time, received claims from certain current and former customers, and groups representing customers, in respect of certain products. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if we believed it was appropriate to do so.
In addition, the insurance industry has routinely been the subject of litigation, investigations, regulatory activity and challenges by various governmental and enforcement authorities and policyholder advocate groups concerning certain practices. In this context, Aegon refers to the unclaimed property examinations that unclaimed property administrators and state insurance regulators performed of the life insurance industry in the United States, including certain of Aegons subsidiaries. Among these were multi-state examinations that included the collective action of many states. Additionally, some states conducted separate examinations or instituted separate enforcement actions in regard to unclaimed property laws and related claims settlement practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas originally established reserves related to this matter of approximately EUR 117 million since 2011. Like various other major insurers in the United States, Aegon subsidiaries in the United States entered into settlements with insurance regulators regarding claims settlement practices. Certain examinations are still ongoing. While Aegon
276 | Notes to the consolidated financial statements of Aegon N.V. Note 51 |
believes the reserves it has established for these unclaimed property-related matters are adequate to cover expected obligations, there can be no assurances that actual exposures may not exceed reserve amounts or that additional sources of liability related to those examinations or other unclaimed property-related matters will not arise in the future.
Aegon subsidiaries have received inquiries from local authorities and policyholder advocate groups in various jurisdictions including the United States, the United Kingdom and the Netherlands. In the normal course of business, reviews of processes and procedures are undertaken to ensure that customers have been treated fairly, and to respond to matters raised by policyholders and their representatives. There is a risk that the Group is not able to resolve some or all such matters in the manner that it expects. In certain instances, Aegon subsidiaries modified business practices in response to such inquiries or the findings thereof. Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in the Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the best of class principles of the Dutch Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply its principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition, Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. This is expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening (The Netherlands financial services industry ombudsman) supported the arrangements, it is uncertain whether public debate over the adequacy generally of the arrangements reached with customer interest groups, as well as ongoing discussion in the Dutch Parliament, will not continue in the future and lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of any further debate, including what actions, if any, Aegon may take in response thereto, or the impact that any such actions may have on Aegons business, results of operations and financial position. In addition to the above, certain Aegon subsidiaries have been informed that relevant local regulators may seek fines or other monetary penalties or changes in the way Aegon conducts its business.
Proceedings in which Aegon is involved
In June, 2013, the Dutch Supreme Court denied Aegons appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the Koersplan-product. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in the product, sold during the period 1989-1998. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to Koersplan-customers. As a result of the Dutch Supreme Courts denial of appeal, Aegon will compensate the approximately 35,000 holders of KoersPlan-products who were plaintiffs in the litigation and took a charge of EUR 25 million in Q2 2013. It is possible that holders of KoersPlan-products that were not plaintiffs in the litigation also expect or demand a form of compensation. It is not yet possible to determine what actions, if any, Aegon may take in connection with any such expectations or demands due to commercial necessity or future rulings, or the impact that any such actions may have on Aegons business, results of operations and financial position.
Generally speaking, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the fees and charges included in products, as well as transparency aspects. Aegon expects this to remain an industry issue for the foreseeable future. Recently, a group of policyholders filed a claim against Aegon in Poland over the fees payable by a customer in case of early surrender of the policy contract. In September 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in the Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID filed by customers over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decision would not have a material adverse effect on Aegons results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
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Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. Matters like these are being defended vigorously; however, at this time, due to its nature and the type of claims, it is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any. There can be no assurance that such claims may not have a material adverse effect on Aegons results of operations or financial position.
Future lease payments
2013 | 2012 | |||||||||||||||||||
Future lease payments | Not later than 1 year |
1-5 years | Later than 5 years |
Not later than 1 year |
1-5 years | Later than 5 years |
||||||||||||||
Operating lease obligations |
66 | 164 | 253 | 83 | 204 | 300 | ||||||||||||||
Operating lease rights |
58 | 149 | 49 | 65 | 160 | 56 |
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancellable subleases is EUR 7 million (2012: EUR 9 million).
The operating lease rights relate to non-cancellable commercial property leases.
52 Transfers of financial assets
Transfers of financial assets occur when Aegon transfers contractual rights to receive cash flows of financial assets or when Aegon retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement.
In the normal course of business Aegon is involved in the following transactions:
¿ | Transferred financial assets that are not derecognized in their entirety: |
¿ | securities lending; whereby Aegon legally (but not economically) transfers assets and receives cash and non-cash collateral. The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. |
The non-cash collateral is not recognized on the balance sheet;
¿ | repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability. |
¿ | Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale). |
¿ | Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement: |
¿ | securitizations whereby mortgage loans are transferred to a securitization vehicle which is not part of the Group and where Aegon has a continuing involvement in the transferred assets. |
¿ | Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions. |
¿ | Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions. |
The following disclosures provide details for transferred financial assets that are not derecognized in their entirety, transferred financial asset that are derecognized in their entirety, but where Aegon has a continuing involvement and assets accepted and pledged as collateral.
278 | Notes to the consolidated financial statements of Aegon N.V. Note 52 |
52.1 Transferred financial assets that have not been derecognized in their entirety
The following table reflects the carrying amount of financial assets that have been transferred to another party in such a way that part or all of the transferred financial assets do not qualify for derecognition. Furthermore, it reflects the carrying amounts of the associated liabilities.
2013 | ||||||||||||||||
Available-for-sale financial assets |
Financial assets at fair value through profit or loss |
|||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of |
|||||||||||||
Carrying amount of transferred assets |
264 | 7,994 | 31 | 436 | ||||||||||||
Carrying amount of associated liabilities |
281 | 8,051 | 32 | 447 | ||||||||||||
2012 |
||||||||||||||||
Available-for-sale financial assets |
Financial assets at fair value through profit or loss |
|||||||||||||||
Shares | Debt securities | Debt securities | Investments for account of policyholders |
|||||||||||||
Carrying amount of transferred assets |
272 | 8,038 | 26 | 795 | ||||||||||||
Carrying amount of associated liabilities |
297 | 8,075 | 27 | 814 |
Securities lending and repurchase activities
The table above includes financial assets that have been transferred to another party under securities lending and repurchase activities.
Aegon retains substantially all risks and rewards of those transferred assets, this includes credit risk, settlement risk, country risk and market risk. The assets are transferred in return for cash collateral or other financial assets. Non-cash collateral is not recognized in the statement of financial position. Cash collateral is recorded on the statement of financial position as an asset and an offsetting liability is established for the same amount as Aegon is obligated to return this amount upon termination of the lending arrangement. Cash collateral is usually invested in pre-designated high quality investments. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned. Refer to 52.3 and 52.4 for an analysis of collateral accepted and pledged in relation to securities lending and repurchase agreements.
52.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement
Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirely as per year-end 2012 and 2013.
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52.3 Assets accepted
Aegon receives collateral related to securities lending and reverse repurchase activities. Non-cash collateral is not recognized in the statement of financial position. To the extent that cash is paid for reverse repurchase agreements, a receivable is recognized for the corresponding amount.
The following table analyses the fair value of the assets received in relation to securities lending and reverse repurchase activities:
Securities lending | 2013 | 2012 | ||||||
Carrying amount of transferred financial assets |
6,347 | 6,780 | ||||||
Fair value of cash collateral received |
4,165 | 3,562 | ||||||
Fair value of non-cash collateral received |
2,286 | 3,296 | ||||||
Net exposure | (104 | ) | (78 | ) | ||||
Non-cash collateral that can be sold or repledged in the absence of default |
1,517 | 1,802 | ||||||
Non-cash collateral that has been sold or transferred |
- | - |
Reverse repurchase agreements | 2013 | 2012 | ||||||
Cash paid for reverse repurchase agreements |
2,752 | 4,411 | ||||||
Fair value of non-cash collateral received |
2,782 | 4,428 | ||||||
Net exposure | (31 | ) | (17 | ) | ||||
Non-cash collateral that can be sold or repledged in the absence of default |
1,704 | 3,710 | ||||||
Non-cash collateral that has been sold or transferred |
- | - |
The above items are conducted under terms that are usual and customary to standard securities lending activities, as well as requirements determined by exchanges where the bank acts as intermediary.
In addition, Aegon can receive collateral related to derivative transactions that it enters into. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. Refer to the credit risk section in note 4 for details on collateral received for derivative transactions.
280 | Notes to the consolidated financial statements of Aegon N.V. Note 52 |
52.4 Assets pledged
Aegon pledges assets that are on its statement of financial position in securities borrowing transactions, in repurchase transactions, and against long-term borrowings. In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral.
These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary.
Non-cash financial assets that are borrowed or purchased under agreement to resell are not recognized in the statement of financial position.
To the extent that cash collateral is paid, a receivable is recognized for the corresponding amount. If other non-cash financial assets are given as collateral, these are not derecognized.
The following tables analyse the carrying amount of collateral pledged and the corresponding amounts.
Assets pledged for general account and contingent liabilities | 2013 | 2012 | ||||||
General account (contingent) liabilities |
3,154 | 3,885 | ||||||
Collateral pledged |
4,016 | 6,270 | ||||||
Net exposure | (863 | ) | (2,385 | ) | ||||
Non-cash collateral that can be sold or repledged by the counterparty |
- | - | ||||||
Assets pledged for repurchase agreements | 2013 | 2012 | ||||||
Cash received on repurchase agreements |
2,252 | 2,216 | ||||||
Collateral pledged (transferred financial assets) |
2,377 | 2,351 | ||||||
Net exposure | (125 | ) | (135 | ) |
As part of Aegons mortgage loan funding program in the Netherlands, EUR 5.4 billion (2012: EUR 6.3 billion) have been pledged as security for notes issued (refer to note 41). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions is EUR 1,852 million (2012: EUR 1,641 million).
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53 Offsetting, enforceable master netting arrangements and similar agreements
The following table provides details relating to the effect or potential effect of netting arrangements, including rights of set-off associated with the entitys recognized financial assets and recognized financial liabilities.
Related amounts not set off in position |
||||||||||||||||||||||||
Financial assets subject to offsetting, enforceable master netting arrangements and similar agreements |
|
Gross amounts of recognized financial assets |
|
|
Gross amounts of recognized financial liabilities set off in the statement of financial position |
|
|
Net amounts of financial assets presented in the statement of financial position |
|
|
Financial instruments |
|
|
Cash collateral received (excluding surplus collateral) |
|
|
Net amount |
| ||||||
2013 | ||||||||||||||||||||||||
Derivatives |
13,217 | 30 | 13,187 | 9,728 | 2,964 | 496 | ||||||||||||||||||
At December 31 | 13,217 | 30 | 13,187 | 9,728 | 2,964 | 496 | ||||||||||||||||||
2012 | ||||||||||||||||||||||||
Derivatives |
20,685 | 40 | 20,645 | 15,267 | 4,900 | 478 | ||||||||||||||||||
At December 31 | 20,685 | 40 | 20,645 | 15,267 | 4,900 | 478 | ||||||||||||||||||
Related amounts not set off in the statements of financial position |
||||||||||||||||||||||||
Financial liabilities subject to offsetting, enforceable master netting arrangements and similar agreements |
Gross amounts of recognized financial liabilities |
Gross amounts of recognized financial assets set off in the statement of financial position |
Net amounts of financial liabilities presented in the statement of financial position |
Financial instruments |
Cash collateral pledged (excluding surplus collateral) |
Net amount |
||||||||||||||||||
2013 | ||||||||||||||||||||||||
Derivatives |
10,419 | 30 | 10,389 | 9,885 | 86 | 418 | ||||||||||||||||||
At December 31 | 10,419 | 30 | 10,389 | 9,885 | 86 | 418 | ||||||||||||||||||
2012 | ||||||||||||||||||||||||
Derivatives |
15,335 | 40 | 15,295 | 14,818 | 136 | 341 | ||||||||||||||||||
At December 31 | 15,335 | 40 | 15,295 | 14,818 | 136 | 341 |
Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis, or to realize the asset and settle the liability simultaneously.
Aegon mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in ISDA master netting agreements for each of the Aegons legal entities to facilitate Aegons right to offset credit risk exposure. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary.
282 | Notes to the consolidated financial statements of Aegon N.V. Note 54 |
Acquisitions
2013
On February 8, 2013, Aegon closed the acquisition of 100% of Fidem Life, a life insurance company in Ukraine. Fidem Life is rebranded Aegon Ukraine and is integrated into the governance and management structure of Aegon CEE.
2012
There were no acquisitions during 2012.
2011
There were no acquisitions during 2011.
Divestments / Disposals
2013
On June 12, 2013, Aegon UK announced the sale of national independent financial advisor (IFA) Positive Solutions to Intrinsic Financial Services. The loss on the sale amounted to EUR 22 million. The sale is completed in the third quarter of 2013.
On December 30, 2013, Aegon Czech Republic has completed the sale of its local pension business. The consideration amounted to EUR 6 million and resulted in a book loss of EUR 7 million.
2012
There were no divestments/disposals during 2012.
2011
On November 24, 2011, Aegon completed the sale of its UK-based Guardian life and pension business for a total cash consideration of GBP 275 million to Cinven, a European private equity group. The sale of the Guardian life and pension business in the United Kingdom resulted in a loss of EUR 7 million, mainly originated from the disentaglement costs associated with the sale.
Underlying earnings before tax for Guardian life and pension totaled GBP 23 million in 2010. Gross written premiums for 2010 was GBP 129 million and net income for 2010 was GBP 26 million.
On August 9, 2011, Aegon completed the divestment of its life reinsurance business, Transamerica Reinsurance (TARe), to SCOR. The divestment resulted in a total after-tax consideration of USD 1.4 billion, consisting of cash proceeds of USD 0.9 billion and a capital release of USD 0.5 billion. Aegon has retained certain blocks of business consisting primarily of variable annuity guarantee products with a book value of USD 0.4 billion. The divestment of TARe consists of a series of reinsurance agreements between various statutory insurance entities and SCOR for the US domestic business. In addition, SCOR has acquired Transamerica International Reinsurance Ireland (TIRI), a company that includes reinsurance contracts that are assumed by Aegon US domestic companies which have been retroceded to TIRI, and has taken over the operational assets and systems of TARe.
The business residing in Transamerica International Reinsurance, Bermuda (TIRe) has been retroceded to SCOR. TIRe will continue to provide reserve credit security for redundant reserves to Aegon USAs ceding companies. Aegon will maintain approximately half of the collateral requirements needed for reinsurance reserve financing. This obligation provides reserve credit security and will run off over approximately 15 years. Refer to note 28 and 29 for details on the reinsurance treatment of this divestment.
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Subsidiaries
The principle subsidiaries of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, asset management or services related to these activities. The voting power in these subsidiaries held by Aegon is equal to the shareholdings.
Americas
¿ | Aegon USA, LLC, Cedar Rapids, Iowa (United States) |
¿ | Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States) |
¿ | Transamerica Advisors Life Insurance Company of New York, New York, New York (United States) |
¿ | Monumental Life Insurance Company, Cedar Rapids, Iowa (United States) |
¿ | Stonebridge Casualty Insurance Company, Columbus, Ohio (United States) |
¿ | Stonebridge Life Insurance Company, Rutland, Vermont (United States) |
¿ | Transamerica Financial Life Insurance Company, Inc., Albany, New York (United States) |
¿ | Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States) |
¿ | Western Reserve Life Assurance Co. of Ohio, Columbus, Ohio (United States) |
¿ | Transamerica Life Canada, Toronto, Ontario (Canada) |
The Netherlands
¿ | Aegon Bank N.V., Utrecht |
¿ | Aegon Levensverzekering N.V., The Hague |
¿ | Aegon Schadeverzekering N.V., The Hague |
¿ | Optas Pensioenen N.V., Rotterdam |
¿ | Aegon Spaarkas N.V., The Hague |
¿ | Unirobe Meeùs Groep B.V., The Hague |
¿ | TKP Pensioen B.V., Groningen |
¿ | Aegon Hypotheken B.V., The Hague |
United Kingdom
¿ | Scottish Equitable plc, Edinburgh |
¿ | Origen Financial Services Ltd., London |
New Markets
¿ | Aegon España S.A., Madrid (Spain) (99.98%) |
¿ | Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Hungary) |
¿ | Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Poland) |
¿ | Aegon Life Ukraine PJSC, Kiev (Ukraine) |
¿ | Aegon PENSII - Societate de Administrare a Fondurilor de Pensii Private S.A., Clui (Romania) |
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague. Aegon N.V. has issued a statement of liability as meant in article 403 of Book 2 of the Dutch Civil Code for its subsidiary company Aegon Derivatives N.V.
284 | Notes to the consolidated financial statements of Aegon N.V. Note 55 |
Joint ventures
The principal joint ventures are listed by geographical segment.
The Netherlands
¿ | AMVEST Vastgoed B.V., Utrecht (50%), property management and development |
New Markets
¿ | Aegon-CNOOC Life Insurance Company Ltd, Shanghai (China), life insurance company (50%) |
¿ | Aegon Sony Life Insurance Cy, Tokyo (Japan), life insurance company (50%) |
¿ | Caja Badajoz Vida y Pensiones, SA de Seguros, Badajoz (Spain), life insurance and pension company (50%) |
¿ | Cantabria Vida y Pensiones, SA de Seguros y Reaseguros, Santander (Spain), life insurance and pension company (50%) |
¿ | Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain), life insurance and pension company (50%) |
¿ | Aegon Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), non-life insurance company (51%) |
¿ | Aegon Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), life insurance company (51%) |
¿ | Aegon Industrial Fund Management Co., Ltd, Shanghai (China), investment management company (49%) |
Refer to note 25 for further details on joint ventures.
Investments in associates
The principal investments in associates are listed by geographical segment.
The Netherlands
¿ | N.V. Levensverzekering-Maatschappij De Hoop, The Hague, life reinsurance company (33.3%) |
United Kingdom
¿ | Tenet Group Limited, Leeds, independent financial advisers (22%) |
¿ | 7IM, London, investment management company (25,1%) |
New Markets
¿ | La Mondiale Participations S.A., Lille (France), life insurance and pension company (35%) |
¿ | Seguros Argos, S.A. de C.V., Mexico City (Mexico), life insurance company (49%) |
¿ | Aegon Religare Life Insurance Company, Mumbai (India), life insurance company (26%) |
¿ | Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), life insurance company (50%) |
Refer to note 26 for further details on investments in associates.
|
Supplemental Annual Report 2013 |
285
Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon.
On July 5, 2013, and with effect of June 14, 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at fair value of a common share B (being 1/40th of the Market value of a common share in the capital of the company at the time of issuance) to mitigate dilution caused by Aegons issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend.
On May 29, 2013, the Articles of Association of Aegon N.V. were amended, which included the conversion of all outstanding 329,773,000 preferred shares a and B with a nominal value of EUR 0.25 each, all owned by Vereniging Aegon, into 120,713,389 common shares and 566,313,694 common shares B with a nominal value of EUR 0.12 each. The financial rights attached to a common share B was determined at 1/40th of the financial rights attached to a common share. (see also the section Major Shareholders).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into an amendment of the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option on common shares B to keep or restore its total stake at 32.6% irrespective of the circumstances which caused the total shareholding to be or become lower than 32.6% (see also the section Major Shareholders).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into a Voting Rights Agreement, which ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in absence of a Special Cause, Vereniging Aegon may cast 1 vote for every common share it holds and only 1 vote for every 40 common shares B it holds. (see also the section Major Shareholders).
On February 15, 2013, Aegon N.V. and Vereniging Aegon reached an agreement to simplify the capital structure of Aegon N.V. and to exchange all of Aegons preferred shares for cash and common shares, subject to approval by the Annual General Meeting of Shareholders, which was given on May 15, 2013.
On October 15, 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 3,907,000 class B preferred shares at par value to mitigate dilution caused by Aegons issuance of shares on September 15, 2012, being the interim-dividend 2012 in the form of stock-dividend.
On August 15, 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 4,114,000 class B preferred shares at par value to mitigate dilution caused by Aegons issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock-dividend.
On June 15, 2011, Aegon repurchased 187.5 million of the convertible core capital securities. The total payment to the Dutch government on June 15, 2011 amounted to EUR 1.125 billion and included a premium of EUR 375 million. Including this repurchase Aegon had repurchased the full EUR 3 billion convertible core capital securities from the Dutch State. The total amount Aegon has paid to the Dutch State amounts to EUR 4.1 billion. Of this amount, EUR 3 billion covered the original issue of core capital securities, while an additional EUR 1.1 billion was paid in premium and interest.
On March 15, 2011, Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value to mitigate dilution caused by Aegons issuance of shares conducted under Aegons US Shelf Registration through the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011.
On March 15, 2011, Aegon repurchased 187.5 million of the convertible core capital securities. The total payment to the Dutch government on March 15, 2011 amounted to EUR 1.125 billion and included a premium of EUR 375 million.
286 | Notes to the consolidated financial statements of Aegon N.V. Note 56 |
The Management Board, which assists the Executive Board in pursuing Aegons strategic goals, is formed by members of the Executive Board, the CEOs of Aegon USA, Aegon the Netherlands, Aegon UK and Aegon Central & Eastern Europe and Aegons Chief Risk Officer. The total remuneration for the members of the Management Board over 2013 was EUR 15.2 million (2012: EUR 13.8 million), consisting of EUR 5.0 million (2012: EUR 4.1 million) fixed compensation, EUR 6.3 million variable compensation awards (2012: EUR 6.2 million), EUR 1.3 million (2012: EUR 0.6 million) other benefits, EUR 1.6 million (2012: EUR 2.3 million) pension premiums and EUR 1.0 million (2012: EUR 0.6 million) reflecting 16% crisis tax which was accrued for members of the Management Board employed in the Netherlands. Expenses as recognized under IFRS in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19. IFRS expenses related to variable compensation amounted to EUR 6.3 million (2012: EUR 5.5 million) and for pensions EUR 1.7 million (2012: EUR 1.4 million).
Additional information on the remuneration and share-based compensation of members of the Executive Board and the remuneration of the Supervisory Board is disclosed in the sections below (all amounts in EUR 000, except where indicated otherwise).
Remuneration of active members of the Executive Board
The information below reflect the compensation and various related expenses for members of the Executive Board. Under the current remuneration structure, introduced in 2011, rewards are paid out over a number years, or in the case of shares, vest over a number of years. This remuneration-structure has made it more relevant to present rewards earned during a certain performance year instead of what was received in a certain year.
Fixed compensation
2013 | 2012 | |||||||
Alexander R. Wynaendts |
1,049 | 1,049 | ||||||
Darryl D. Button 1) |
475 | - | ||||||
Jan J. Nooitgedagt 2) |
434 | 744 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts fixed compensation is reflective of his time with Aegon till retirement as per August 1, 2013. |
Conditional variable compensation awards
2013 | 2012 | |||||||
Alexander R. Wynaendts |
1,032 | 1,018 | ||||||
Darryl D. Button 1) |
468 | - | ||||||
Jan J. Nooitgedagt 2) |
434 | 699 |
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Conditional variable compensation is disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts conditional variable compensation is reflective of his time with Aegon till retirement as per August 1, 2013. |
The amounts in the table represent the conditional variable compensation awards earned during the related performance year. Expenses recognized under IFRS accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2013 and previous performance years, expenses under IFRS for Mr. Wynaendts amount to EUR 1,026 (2012: EUR 1.093).
For Mr. Button, the expenses under IFRS with regard to conditionally awarded cash and shares recognized in the income statement during the performance year 2013 for his role as CFO and member of Aegons Executive Board amount to EUR 288. In performance year 2013 and previous performance years Mr. Button has been awarded with variable compensation in his role as CFO of Americas and Head of Corporate Financial Center. The related expenses under IFRS for those awards recognized in 2013 for the period that Mr. Button has been part of the Executive Board amount to EUR 500.
Expenses recognized in the income statement for Mr. Nooitgedagt amount to EUR 836 (2012: 736). Under IFRS, expenses related to conditional variable compensation awards are recognized in full at retirement date. Therefore, expenses under IFRS in 2013 for Mr. Nooitgedagt relate to the conditional variable compensation awards for the performance year 2013 as well as for previous performance years. The vesting conditions and applicable holding periods for the awards of Mr. Nooitgedagt remain nevertheless unchanged.
|
Supplemental Annual Report 2013 |
287 |
2013
During the performance year 2013 Mr. Wynaendts was awarded EUR 1,032 in total conditional variable compensation. Mr. Button was awarded EUR 468 for the period he served as member of the Executive Board.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013 40% is payable in 2014. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 206 and EUR 94 respectively. The number of shares to be made available in 2014 related to performance year 2013 is 41,961 and 19,146 for Mr. Wynaendts and Mr. Button respectively. The vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2013 (60%), for Mr. Wynaendts EUR 309 and 62,943 shares and for Mr. Button EUR 140 and 28,716 shares, is to be paid out in equal portions in 2015, 2016 and 2017, subject to ex-post assessments, that may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a further three years, before they are at the disposal of the Executive Board members.
Mr. Nooitgedagt was awarded EUR 434 variable compensation for the period he served as a member of the Executive Board in 2013. Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013 40% is payable in 2014. Accordingly, Mr. Nooitgedagt will receive a cash payment of EUR 87. The number of shares to be made available in 2014 related to performance year 2013 is 17,650. The remaining part of 60%, EUR 130 and 26,478 shares is to be paid out in future years, subject to ex-post assessments, that may result in downward adjustments. In each of the years 2015, 2016 and 2017, equal portions of the deferred variable compensation over 2013 may be made available. Any pay-out will be split 50/50 in cash payment and an allocation of shares vesting. The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt.
2012
Over the performance year 2012 Mr. Wynaendts was awarded EUR 1,018 in total conditional variable compensation. Mr. Nooitgedagt was awarded EUR 699.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2012 40% was payable in 2013. Accordingly, Mr. Wynaendts and Mr. Nooitgedagt received a cash payment of EUR 204 and EUR 140 respectively. The number of shares that was made available in 2013 related to performance year 2012 was 65,111 and 44,741 for Mr. Wynaendts and Mr. Nooitgedagt respectively. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a future three years, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2012 (60%), for Mr. Wynaendts EUR 305 and 97,665 shares and for Mr. Nooitgedagt EUR 210 and 67,110 shares, is to be paid out in future years, subject to ex-post assessments, that may result in downward adjustments and may be subject to additional conditions being met. In each of the years 2014, 2015 and 2016, 20% of the total variable compensation over 2012 may be made available. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
288 | Notes to the consolidated financial statements of Aegon N.V. Note 56 |
The table below illustrates all the conditionally awarded cash and shares of the members of the Executive Board during 2013, and the years in which each component will be paid out and/or vest, subject to the conditions as mentioned:
Conditional granted performance related remuneration |
Timing of vesting, subject to targets and conditions | |||||||||||||||||||||||||||
Shares by reference period | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||||||||
Alexander R. Wynaendts |
||||||||||||||||||||||||||||
2007 |
|
18,506 4) |
|
|
9,253 |
|
|
- |
|
|
- |
|
|
- |
|
|
9,253 |
|
|
- |
| |||||||
2009-2011 |
|
147,296 5) |
|
|
147,296 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| |||||||
2010-2012 |
|
112,0406) |
|
|
- |
|
|
112,0406) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| |||||||
2011 1) |
|
86,519 |
|
|
34,607 |
|
|
17,304 |
|
|
17,304 |
|
|
17,304 |
|
|
- |
|
|
- |
| |||||||
20122) |
|
162,776 |
|
|
- |
|
|
65,111 |
|
|
32,555 |
|
|
32,555 |
|
|
32,555 |
|
|
- |
| |||||||
20133) |
|
104,904 |
|
|
- |
|
|
- |
|
|
41,961 |
|
|
20,981 |
|
|
20,981 |
|
|
20,981 |
| |||||||
Total number of shares | 632,041 | 191,156 | 194,455 | 91,820 | 70,840 | 62,789 | 20,981 | |||||||||||||||||||||
Darryl D. Button |
||||||||||||||||||||||||||||
20133) |
|
47,862 |
|
|
- |
|
|
- |
|
|
19,146 |
|
|
9,572 |
|
|
9,572 |
|
|
9,572 |
| |||||||
Total number of shares | 47,862 | - | - | 19,146 | 9,572 | 9,572 | 9,572 | |||||||||||||||||||||
Jan. J. Nooitgedagt |
||||||||||||||||||||||||||||
2009-2011 |
|
96,663 5) |
|
|
96,663 |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| |||||||
2010-2012 |
|
82,4276) |
|
|
- |
|
|
82,4276) |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
| |||||||
2011 1) |
|
56,251 |
|
|
22,501 |
|
|
11,250 |
|
|
11,250 |
|
|
11,250 |
|
|
- |
|
|
- |
| |||||||
20122) |
|
111,851 |
|
|
- |
|
|
44,741 |
|
|
22,370 |
|
|
22,370 |
|
|
22,370 |
|
|
- |
| |||||||
20133) |
|
44,128 |
|
|
- |
|
|
- |
|
|
17,650 |
|
|
8,826 |
|
|
8,826 |
|
|
8,826 |
| |||||||
Total number of shares | 347,192 | 119,164 | 138,418 | 51,270 | 42,446 | 31,196 | 8,826 | |||||||||||||||||||||
Cash (in EUR) |
||||||||||||||||||||||||||||
Alexander R. Wynaendts |
||||||||||||||||||||||||||||
2011 |
|
245,385 7) |
|
|
- 7) |
|
|
81,795 |
|
|
81,795 |
|
|
81,795 |
|
|
- |
|
|
- |
| |||||||
20122) |
|
508,840 |
|
|
- |
|
|
203,536 |
|
|
101,768 |
|
|
101,768 |
|
|
101,768 |
|
|
- |
| |||||||
20133) |
|
515,817 |
|
|
- |
|
|
- |
|
|
206,327 |
|
|
103,163 |
|
|
103,163 |
|
|
103,163 |
| |||||||
Total cash | 1,270,042 | - | 285,331 | 389,890 | 286,726 | 204,931 | 103,163 | |||||||||||||||||||||
Darryl D. Button |
||||||||||||||||||||||||||||
20133) |
|
233,833 |
|
|
- |
|
|
- |
|
|
93,533 |
|
|
46,767 |
|
|
46,767 |
|
|
46,767 |
| |||||||
Total cash | 233,833 | - | - | 93,533 | 46,767 | 46,767 | 46,767 | |||||||||||||||||||||
Jan J. Nooitgedagt |
||||||||||||||||||||||||||||
2011 |
|
159,540 8) |
|
|
- 8) |
|
|
53,180 |
|
|
53,180 |
|
|
53,180 |
|
|
- |
|
|
- |
| |||||||
20122) |
|
349,646 |
|
|
- |
|
|
139,859 |
|
|
69,929 |
|
|
69,929 |
|
|
69,929 |
|
|
- |
| |||||||
20133) |
|
216,980 |
|
|
- |
|
|
86,792 |
|
|
43,396 |
|
|
43,396 |
|
|
43,396 |
| ||||||||||
Total cash | 726,166 | - | 193,039 | 209,901 | 166,505 | 113,325 | 43,396 |
1 | The number of shares is based on the share price at grant of EUR 4.727. |
2 | The number of shares is based on the share price at grant of EUR 3.126. |
3 | The number of shares is based on the share price at grant of EUR 4.917. |
4 | During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% will vest in 2016. |
5 | These shares vested in 2012 and are subject to an additional two year holding period. |
6 | These shares vested in 2013 on basis of actual realized performance and are subject to an additional two year holding period. |
7 | The performance related cash remuneration granted over 2011, payable in 2012, of EUR 163,591 was waived by Mr. Wynaendts. |
8 | The performance related cash remuneration granted over 2011, payable in 2012, of EUR 106,359 was waived by Mr. Nooitgedagt. |
|
Supplemental Annual Report 2013 |
289
Other benefits
2013 | 2012 | |||||||
Alexander R. Wynaendts |
132 | 111 | ||||||
Darryl D. Button 1) |
|
508 |
|
|
- |
| ||
Jan J. Nooitgedagt 2) |
|
40 |
|
|
78 |
|
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Other benefits are disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts other benefits are reflective of his time with Aegon till retirement as per August 1, 2013. |
Other benefits concern non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group. For Mr. Button these benefits also include all expenses related to his expatriation from the United States to the Netherlands, borne by the Group.
Pension contributions
2013 | 2012 | |||||||
Alexander R. Wynaendts |
652 | 1,228 | ||||||
Darryl D. Button 1) |
|
114 |
|
|
- |
| ||
Jan J. Nooitgedagt 2) |
|
106 |
|
|
458 |
|
1 | Mr. Button was appointed as CFO and member of Aegons Executive Board per May 15, 2013. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board. |
2 | Mr. Nooitgedagts pension contributions are reflective of his time with Aegon till retirement as per August 1, 2013. |
The amounts as presented in the table are the pension contributions in the related book year. Under IFRS the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amount to EUR 736 (2012: EUR 580). Service cost for Mr. Button amount to EUR 114, and for Mr. Nooitgedagt EUR 44 (2012: EUR 175).
Total
The Dutch Government introduced a special tax-levy for Dutch employers: the crisis tax (16% payable on salary expenses above EUR 150). This caused an increase of Aegons total remuneration expenses for Alexander R. Wynaendts of EUR 417 (2012: EUR 311) for Darryl D. Button EUR 54 and Jan J. Nooitgedagt EUR 190 (2012: EUR 173). For Darryl D. Button crisis tax is disclosed for the period that Mr. Button has been part of the Executive Board. The resulting total amount of remuneration for Alexander R. Wynaendts related to 2013 is EUR 3,282 (2012: EUR 3,717), for Darryl D. Button EUR 1,619 and for Jan J. Nooitgedagt EUR 1,203 (2012: EUR 2,152).
Share options and interests in Aegon N.V. held by active members of the executive board
Year | Number of rights/options per January 1, 2013 |
Number of rights/options vested in 2013 |
Number of rights/options exercised in 2013 |
Number of rights/options expired/ forfeited in 2013 |
Number of rights/options |
Number of exercisable rights/options |
Exercise price EUR |
|||||||||||||||||||||||||
Alexander R. Wynaendts |
2006 | 50,842 | - | - | 50,842 | - | - | 14,55 |
Shares held in Aegon at December 31, 2013 by Alexander R. Wynaendts and Darryl D. Button amount to respectively 56,582 and 72,872. For each of the members of the Executive Board, the shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the balance sheet date.
At the balance sheet date, Mr. Wynaendts had mortgage loans with Aegon totaling to EUR 735,292 with interest rates of 4.0%, 4.2% and 4.4%. In 2013 Mr. Wynaendts made repayments totaling to EUR 750,000 relating to his mortgage loans.
290 | Notes to the consolidated financial statements of Aegon N.V. Note 56 |
Remuneration of active and retired members of the Supervisory Board
in EUR | 2013 | 2012 | ||||||
Robert J. Routs |
169,400 | 109,250 | ||||||
Irving W. Bailey. II |
|
151,250 |
|
|
98,000 |
| ||
Antony Burgmans |
|
105,270 |
|
|
87,000 |
| ||
Shemaya Levy |
|
135,520 |
|
|
104,500 |
| ||
Kornelis J. Storm |
|
110,110 |
|
|
83,000 |
| ||
Ben van der Veer |
|
127,050 |
|
|
101,250 |
| ||
Dirk P.M. Verbeek |
|
127,050 |
|
|
101,250 |
| ||
Leo M. van Wijk |
|
117,370 |
|
|
86,250 |
| ||
Dona D. Young (as of May 15, 2013) |
|
93,321 |
|
|
- |
| ||
Total for active members | 1,136,341 | 770,500 | ||||||
Karla M.H. Peijs (up to September 30, 2013) |
86,515 | 78,250 | ||||||
Total | 1,222,856 | 848,750 |
Aegons Supervisory Board members are entitled to the following:
¿ | A base fee for membership of the Supervisory Board itself. No attendance fees are paid to members for the attendance of the regular Supervisory Board meetings (2013: 7 meetings, 2012: 7 meetings); |
¿ | An attendance fee of EUR 3,000 for each Supervisory Board meeting, attended in person or by video- or telephone conference, other than one of the regular Supervisory Board meetings; |
¿ | A committee fee for members on each of the Supervisory Boards Committees; |
¿ | An attendance fee for each Committee meeting attended in person or through video- and telephone conferencing facilities. |
Not included in the table above is a premium for state health insurance paid on behalf of Dutch Supervisory Board members. The remuneration for Supervisory Board members is as of 2013 Dutch VAT liability compliant. The amounts 2013 include the VAT paid by Aegon.
Common shares held by Supervisory Board members
Shares held in Aegon at December 31 | 2013 | 2012 | ||||||
Irving W. Bailey, II |
31,389 | 29,759 | ||||||
Karla M.H. Peijs |
|
1,400 |
|
|
1,400 |
| ||
Kornelis J. Storm |
|
243,979 |
|
|
238,897 |
| ||
Ben van der Veer |
|
1,450 |
|
|
1,450 |
| ||
Dirk P.M. Verbeek |
|
1,011 |
|
|
1,011 |
| ||
Dona D. Young |
|
13,260 |
|
|
- |
| ||
Total | 292,489 | 272,517 |
Shares held by Supervisory Board members are only disclosed for the period they have been part of the Supervisory Board.
|
Supplemental Annual Report 2013 |
291
57 Events after the balance sheet date
There were no events after the balance sheet date with a significant impact on the financial position of the company per December 31, 2013.
The Hague, the Netherlands, March 19, 2014
Supervisory Board | Executive Board |
|||||
Robert J. Routs | Alexander R. Wynaendts |
|||||
Irving W. Bailey, II |
Darryl D. Button |
|||||
Antony Burgmans |
||||||
Shemaya Levy |
||||||
Kornelis J. Storm |
||||||
Ben van der Veer |
||||||
Dirk P.M. Verbeek |
||||||
Leo M. van Wijk |
||||||
Dona D. Young |
292 | Notes to the financial statements of Aegon N.V. Note |
This page has been intentionally left blank.
|
Supplemental Annual Report 2013 |
Financial statements of Aegon N.V. | 293 |
294 |
Income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2013 | 2012 | ||||||
Net income / (loss) group companies |
965 | 1,563 | ||||||
Other income / (loss) |
|
21 |
|
|
69 |
| ||
Net income / (loss) | 986 | 1,632 |
|
Supplemental Annual Report 2013 |
Financial statements of Aegon N.V. | 295 |
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | Note | 2013 | 2012 | |||||||||
Investments | ||||||||||||
Shares in group companies |
|
3 |
|
|
19,342 |
|
|
21,989 |
| |||
Loans to group companies |
|
4 |
|
|
4,320 |
|
|
4,379 |
| |||
Other investments |
|
5 |
|
|
95 |
|
|
240 |
| |||
23,757 | 26,608 | |||||||||||
Receivables | 6 | |||||||||||
Receivables from group companies |
|
2,660 |
|
|
2,634 |
| ||||||
Other receivables |
|
324 |
|
|
72 |
| ||||||
2,984 | 2,706 | |||||||||||
Other assets | ||||||||||||
Cash and cash equivalents |
|
625 |
|
|
1,583 |
| ||||||
Deferred tax asset |
|
- |
|
|
19 |
| ||||||
Other |
|
7 |
|
|
306 |
|
|
333 |
| |||
931 | 1,935 | |||||||||||
Prepayments and accrued income | ||||||||||||
Accrued interest and rent |
|
31 |
|
|
55 |
| ||||||
Total assets | 27,703 | 31,304 | ||||||||||
Shareholders equity | ||||||||||||
Share capital |
|
8 |
|
|
325 |
|
|
319 |
| |||
Paid-in surplus |
|
9 |
|
|
8,376 |
|
|
8,780 |
| |||
Revaluation account |
|
9 |
|
|
3,276 |
|
|
6,478 |
| |||
Remeasurement of defined benefit plans of group companies |
|
9 |
|
|
(706 |
) |
|
(1,085 |
) | |||
Legal reserves foreign currency translation reserve |
|
9 |
|
|
(1,806 |
) |
|
(1,080 |
) | |||
Legal reserves in respect of group companies |
|
9 |
|
|
2,345 |
|
|
2,540 |
| |||
Retained earnings, including treasury shares |
|
9 |
|
|
4,898 |
|
|
3,453 |
| |||
Net income / (loss) |
|
9 |
|
|
986 |
|
|
1,632 |
| |||
17,694 | 21,037 | |||||||||||
Other equity instruments |
|
10 |
|
|
5,015 |
|
|
5,018 |
| |||
Total equity | 22,709 | 26,055 | ||||||||||
Subordinated borrowings | 11 | 44 | 42 | |||||||||
Long-term borrowings | 12 | 2,233 | 2,850 | |||||||||
Short-term borrowings | 13 | 151 | 431 | |||||||||
Other liabilities | 14 | |||||||||||
Loans from group companies |
|
559 |
|
|
282 |
| ||||||
Payables to group companies |
|
1,675 |
|
|
1,082 |
| ||||||
Deferred tax liability |
|
18 |
|
|
- |
| ||||||
Other |
|
302 |
|
|
483 |
| ||||||
2,554 | 1,847 | |||||||||||
Accruals and deferred income |
|
12 |
|
|
79 |
| ||||||
Total equity and liabilities | 27,703 | 31,304 |
296 | Notes to the financial statements of Aegon N.V. Note 1 |
Notes to the financial statements
Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.
Aegon N.V. (or the company) and its subsidiaries (Aegon or the Group) have life insurance and pensions operations in over twenty countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs nearly 27,000 people worldwide (2012: 26,500).
2 Summary of significant accounting policies
2.1 Basis of preparation
The financial statements have been prepared in accordance with accounting principles in the Netherlands as embodied in Part 9 of Book 2 of the Netherlands Civil Code. Based on article 2:362.8 of the Netherlands Civil Code, the valuation principles applied are based on International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS), as used for the preparation of the consolidated financial statements of the Group.
With regard to the income statement of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
2.2 Foreign exchange translation
Aegon N.V.s financial statements are prepared in euros, which is also Aegon N.V.s functional currency. The euro is also the currency of the primary economic environment in which Aegon N.V. operates. Each company in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction.
At the balance sheet date monetary assets, monetary liabilities and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date. Non-monetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in equity or the income statement, consistently with other gains and losses on these items.
2.3 Offsetting of assets and liabilities
Financial assets and liabilities are offset in the statement of financial position when Aegon N.V. has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously.
2.4 Investments
The group companies are stated at their net asset value, determined on the basis of IFRS as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements.
Other investments are financial assets recognized on the trade date when the Group becomes a party to the contractual provisions of the instrument and are classified for accounting purposes depending on the characteristics of the instruments and the purpose for which they were purchased. They are initially recognized at fair value excluding interest accrued to date plus, in the case of a financial asset not at fair value through profit or loss, any directly attributable incremental transaction costs.
Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in equity.
|
Supplemental Annual Report 2013 |
297
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arms length transaction. For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include non-market observable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
Financial assets that are lent to a third party or that are transferred subject to a repurchase agreement at a fixed price are not derecognized as the Group retains substantially all the risks and rewards of the asset. A liability is recognized for cash collateral received, on which interest is accrued.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash collateral paid by Aegon. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure is foreclosed. When cash collateral is recognized, a liability is recorded for the same amount.
2.5 Derivatives
All derivatives are recognized on the statement of financial position at fair value. All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net foreign investment. Derivatives with positive fair values are reported as other assets and derivatives with negative values are reported as other liabilities.
2.6 Cash and cash equivalents
Cash comprises cash at banks and in-hand. Cash equivalents are short-term highly liquid investments with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
2.7 Other assets and receivables
Other assets include fixed assets, derivatives with positive fair values, other receivables and prepaid expenses. Other receivables are recognized at fair value and are subsequently measured at amortized cost.
2.8 Impairment of assets
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually. For assets denominated in a foreign currency, a decline in the foreign exchange rates is considered an indication of impairment.
2.9 Equity
Financial instruments that are issued by the company are classified as equity if they represent a residual interest in the assets of the company after deducting all of its liabilities and the company has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares and preferred shares, the company has issued perpetual securities. Perpetual securities have no final maturity date, repayment is at the discretion of Aegon and for junior perpetual capital securities Aegon has the option to defer coupon payments at its discretion. The perpetual capital securities are classified as equity rather than debt, are measured at par and those that are denominated in US dollars are translated into euro using historical exchange rates.
298 | Notes to the financial statements of Aegon N.V. Note 2 |
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The repayment of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the repayment in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and subsequently carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Groups obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Incremental external costs that are directly attributable to the issuing or buying back of own equity instruments are recognized in equity, net of tax. For compound instruments incremental external costs that are directly attributable to the issuing or buying back of the compound instruments are recognized proportionate to the equity component and liability component, net of tax.
Dividends and other distributions to holders of equity instruments are recognized directly in equity, net of tax. A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Revaluation account includes unrealized gains and losses on available-for-sales assets and the positive changes in value that have been recognized in net income / (loss) relating to investments (including real estate) and which do not have a frequent market listing.
Legal reserves in respect of group companies include net increases in net asset value of subsidiaries and associates since their first inclusion, less any amounts that can be distributed without legal restrictions.
Treasury shares are own equity instruments reacquired by the Group. They are deducted from shareholders equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
2.10 Borrowings
A financial instrument issued by the company is classified as a liability if the contractual obligation must be settled in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for the company.
Borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the companys obligation under the contract expires or is discharged or cancelled.
Borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on accounting policy of the non-cumulative subordinated notes refer to note 2.9.
2.11 Contingent assets and liabilities
Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote.
|
Supplemental Annual Report 2013 |
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2.12 Events after the balance sheet date
The financial statements are adjusted to reflect events that occurred between the balance sheet date and the date when the financial statements are authorized for issue, provided they give evidence of conditions that existed at the balance sheet date.
Events that are indicative of conditions that arose after the balance sheet date are disclosed, but do not result in an adjustment of the financial statements themselves.
2013 | 2012 | |||||||
At January 1 |
21,989 | 17,775 | ||||||
Capital contributions and acquisitions |
|
5,924 |
|
|
4,363 |
| ||
Divestments and capital repayments |
|
(5,392 |
) |
|
(361 |
) | ||
Dividend received |
|
(847 |
) |
|
(3,767 |
) | ||
Net income / (loss) for the financial year |
|
965 |
|
|
1,563 |
| ||
Revaluations |
|
(3,297 |
) |
|
2,416 |
| ||
At December 31 | 19,342 | 21,989 |
For a list of names and locations of the most important group companies, refer to note 55 of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the Commercial Register of The Hague.
2013 | 2012 | |||||||
Loans to group companies long-term | ||||||||
At January 1 |
|
3,206 |
|
|
4,110 |
| ||
Additions / (repayments) |
|
773 |
|
|
(894 |
) | ||
Other changes |
|
(164 |
) |
|
(10 |
) | ||
At December 31 | 3,815 | 3,206 | ||||||
Loans to group companies short-term | ||||||||
At January 1 |
|
1,173 |
|
|
1,347 |
| ||
Additions / (repayments) |
|
(664 |
) |
|
(182 |
) | ||
Other changes |
|
(4 |
) |
|
8 |
| ||
At December 31 | 505 | 1,173 | ||||||
Total | 4,320 | 4,379 |
Shares AFS | Money market and other short-term investments FVTPL1) |
Total | ||||||||||
At January 1, 2013 |
- | 240 | 240 | |||||||||
Additions |
|
- |
|
|
435 |
|
|
435 |
| |||
Disposals |
|
- |
|
|
(580 |
) |
|
(580 |
) | |||
Revaluations |
|
- |
|
|
- |
|
|
- |
| |||
At December 31, 2013 | - | 95 | 95 | |||||||||
At January 1, 2012 |
11 | 270 | 281 | |||||||||
Additions |
|
7 |
|
|
140 |
|
|
147 |
| |||
Disposals |
|
(16 |
) |
|
(170 |
) |
|
(186 |
) | |||
Revaluations |
|
(2 |
) |
|
- |
|
|
(2 |
) | |||
At December 31, 2012 | - | 240 | 240 |
1 | Fair value through profit or loss. |
The money market and other short-term investments fully consist of investments in money market funds.
300 | Notes to the financial statements of Aegon N.V. Note 6 |
Receivables from group companies and other receivables have a maturity of less than one year. Other receivables include an income tax receivable of EUR 15 million (2012: EUR 59 million).
Aegon N.V., together with certain of its subsidiaries, is part of a tax grouping for Dutch corporate income tax purposes. The members of the fiscal entity are jointly and severally liable for any taxes receivable or payable by the Dutch tax grouping.
Other assets include derivatives with positive fair values of EUR 306 million (2012: EUR 330 million).
Issued and outstanding | 2013 | 2012 | ||||||
Common shares |
256 | 236 | ||||||
Common shares B |
|
69 |
|
|
- |
| ||
Preferred shares A |
|
- |
|
|
53 |
| ||
Preferred shares B |
|
- |
|
|
30 |
| ||
Total share capital | 325 | 319 | ||||||
Authorized | 2013 | 2012 | ||||||
Common shares |
720 | 360 | ||||||
Common shares B |
|
360 |
|
|
- |
| ||
Preferred shares A |
|
- |
|
|
125 |
| ||
Preferred shares B |
|
- |
|
|
125 |
| ||
At December 31 | 1,080 | 610 | ||||||
Par value in cents per share | 2013 | 2012 | ||||||
Common shares |
12 | 12 | ||||||
Common shares B |
|
12 |
|
|
- |
| ||
Preferred shares A |
|
- |
|
|
25 |
| ||
Preferred shares B |
|
- |
|
|
25 |
|
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013. For details refer to the Major Shareholders section.
All issued common shares and common shares B each have a nominal value of EUR 0.12 and are fully paid up. Repayment of capital can only be initiated by the Executive Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to Other information for further information on dividend rights.
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued common shares B.
In the years 2003 through 2010, 69,030,000 class B preferred shares were issued under these option rights. In March 2011, Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value. It did this to correct dilution caused by Aegons issuance of shares conducted under Aegons US Shelf Registration, which comprised the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011. In August 2012 and October 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B Preferred Shares at par value. It did this to correct dilution caused by Aegons issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value.
|
Supplemental Annual Report 2013 |
301
It did this to prevent dilution caused by Aegons issuance of shares on May 1, 2013, May 16, 2013, in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
The following table shows the movement during the year in the number of common shares:
Number of common shares | 2013 | 2012 | ||||||
At January 1 |
1,972,029,595 | 1,909,654,051 | ||||||
Shares issued |
120,713,389 | - | ||||||
Share dividend |
38,715,879 | 62,375,544 | ||||||
At December 31 | 2,131,458,863 | 1,972,029,595 | ||||||
The following table shows the movement during the year in the number of common shares B:
|
||||||||
Number of common shares B | 2013 | 2012 | ||||||
At January 1 |
- | - | ||||||
Shares issued |
579,005,440 | - | ||||||
Share dividend |
- | - | ||||||
At December 31 | 579,005,440 | - |
The weighted average number of EUR 0.12 common shares for 2013 was 2,035,239,751 (2012: 1,907,382,542).
The weighted average number of EUR 0.12 common shares B for 2013 was 366,439,040 (2012: nil).
The shares repurchased by Aegon, although included in the issued and outstanding number of shares, are excluded from the calculation of the weighted average number of shares. The number has been adjusted for share dividend.
Long Term Incentive Plan, share appreciation rights and share options
For detailed information on the long term incentive plan, share appreciation rights and share options granted to senior executives and other Aegon employees, refer to note 14 to the consolidated financial statements of the Group.
Board remuneration
Detailed information on remuneration of active and retired members of the Executive Board including their share and share option rights, remuneration of active and retired members of the Supervisory Board along with information about shares held in Aegon by the members of the Boards is included in note 56 to the consolidated financial statements of the Group.
302 | Notes to the financial statements of Aegon N.V. Note 9 |
Share capital |
Paid- in surplus |
Revaluation account |
Remeasurement of defined benefit plans of group companies |
Legal reserves FCTR |
Legal reserves group companies |
Retained earnings |
Treasury shares |
Net income/ (loss) |
Total | |||||||||||||||||||||||||||||||
At January 1, 2013 |
319 | 8,780 | 6,478 | (1,085 | ) | (1,080 | ) | 2,540 | 3,696 | (243 | ) | 1,632 | 21,037 | |||||||||||||||||||||||||||
Net income 2012 retained |
- | - | - | - | - | 1,632 | - | (1,632 | ) | - | ||||||||||||||||||||||||||||||
Net income 2013 |
- | - | - | - | - | - | - | 986 | 986 | |||||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | 1,632 | - | (646 | ) | 986 | ||||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves |
- | - | - | - | (726 | ) | - | - | - | - | (726) | |||||||||||||||||||||||||||||
Changes in revaluation subsidiaries |
- | - | (3,096 | ) | - | - | - | - | - | - | (3,096) | |||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies |
- | - | - | 379 | - | - | - | - | - | 379 | ||||||||||||||||||||||||||||||
Transfer to legal reserve |
- | - | (109 | ) | - | - | (195 | ) | 355 | - | - | 51 | ||||||||||||||||||||||||||||
Other |
- | - | 3 | - | - | - | (4 | ) | - | - | (1) | |||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | (3,202 | ) | 379 | (726 | ) | (195 | ) | 351 | - | - | (3,393) | |||||||||||||||||||||||||||
Shares issued |
2 | - | - | - | - | - | - | - | - | 2 | ||||||||||||||||||||||||||||||
Repurchased and sold own shares |
- | (400 | ) | - | - | - | - | (1 | ) | - | - | (401) | ||||||||||||||||||||||||||||
Dividend common shares |
4 | (4 | ) | - | - | - | - | (240 | ) | - | - | (240) | ||||||||||||||||||||||||||||
Dividend preferred shares |
- | - | - | - | - | - | (83 | ) | - | - | (83) | |||||||||||||||||||||||||||||
Treasury shares |
- | - | - | - | - | - | (30 | ) | (47 | ) | - | (77) | ||||||||||||||||||||||||||||
Dividend withholding tax reduction |
- | - | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax |
- | - | - | - | - | - | (167 | ) | - | - | (167) | |||||||||||||||||||||||||||||
Other |
- | - | - | - | - | - | 30 | - | - | 30 | ||||||||||||||||||||||||||||||
At December 31, 2013 | 325 | 8,376 | 3,276 | (706 | ) | (1,806 | ) | 2,345 | 5,188 | (290 | ) | 986 | 17,694 |
|
Supplemental Annual Report 2013 |
303
Share capital |
Paid- in surplus |
Revaluation account |
Remeasurement of defined benefit plans of group companies |
Legal reserves FCTR |
Legal reserves group companies |
Retained earnings |
Treasury shares |
Net income/ (loss) |
Total | |||||||||||||||||||||||||||||||
At January 1, 2012 | 310 | 8,787 | 3,634 | - | (910) | 3,285 | 5,277 | (252) | 869 | 21,000 | ||||||||||||||||||||||||||||||
Changes in accounting policies relating to IFRS 10 and 11 1) |
- | - | 17 | - | - | - | (139 | ) | - | - | (122 | ) | ||||||||||||||||||||||||||||
Changes in accounting policies relating to IAS 19 1) |
- | - | - | (979 | ) | - | - | - | - | 15 | (964 | ) | ||||||||||||||||||||||||||||
Changes in accounting policies relating to DAC and longevity 2) |
- | - | 34 | - | (38 | ) | - | (2,536 | ) | - | 49 | (2,491 | ) | |||||||||||||||||||||||||||
At January 1, 2012 (restated) |
310 | 8,787 | 3,685 | (979) | (948) | 3,285 | 2,602 | (252) | 933 | 17,423 | ||||||||||||||||||||||||||||||
Net income 2011 retained |
- | - | - | - | - | 933 | - | (933 | ) | - | ||||||||||||||||||||||||||||||
Net income 2012 |
- | - | - | - | - | - | - | 1,632 | 1,632 | |||||||||||||||||||||||||||||||
Total net income / (loss) | - | - | - | - | - | 933 | - | 699 | 1,632 | |||||||||||||||||||||||||||||||
Foreign currency translation differences and movement in foreign investment hedging reserves |
- | - | - | - | (132 | ) | - | - | - | - | (132 | ) | ||||||||||||||||||||||||||||
Changes in revaluation subsidiaries |
- | - | 2,581 | - | - | - | - | - | - | 2,581 | ||||||||||||||||||||||||||||||
Remeasurement of defined benefit plans of group companies |
- | - | - | (106 | ) | - | - | - | - | - | (106 | ) | ||||||||||||||||||||||||||||
Transfer to legal reserve |
- | - | 193 | - | - | (745 | ) | 601 | - | - | 49 | |||||||||||||||||||||||||||||
Other |
- | - | 19 | - | - | - | (25 | ) | - | - | (6 | ) | ||||||||||||||||||||||||||||
Other comprehensive income / (loss) | - | - | 2,793 | (106 | ) | (132 | ) | (745 | ) | 576 | - | - | 2,386 | |||||||||||||||||||||||||||
Shares issued |
2 | - | - | - | - | - | - | - | 2 | |||||||||||||||||||||||||||||||
Dividend common shares |
7 | (7 | ) | - | - | - | (148 | ) | - | - | (148 | ) | ||||||||||||||||||||||||||||
Dividend preferred shares |
- | - | - | - | - | (59 | ) | - | - | (59 | ) | |||||||||||||||||||||||||||||
Treasury shares |
- | - | - | - | - | (6 | ) | 9 | - | 3 | ||||||||||||||||||||||||||||||
Dividend withholding tax reduction |
- | - | - | - | - | 3 | - | - | 3 | |||||||||||||||||||||||||||||||
Coupons and premium on convertible core capital securities and coupon on perpetual securities, net of tax |
- | - | - | - | - | (195 | ) | - | - | (195 | ) | |||||||||||||||||||||||||||||
Other |
- | - | - | - | - | (10 | ) | - | - | (10 | ) | |||||||||||||||||||||||||||||
At December 31, 2012 | 319 | 8,780 | 6,478 | (1,085 | ) | (1,080 | ) | 2,540 | 3,696 | (243 | ) | 1,632 | 21,037 |
1 | Amounts have been restated for the changes in accounting policies as describes in notes 2.1.1 and 2.1.2 of the consolidated financial statements. |
2 | Amounts have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving. Refer to note 2.1.3 of the consolidated financial statements for details about these changes. |
304 | Notes to the financial statements of Aegon N.V. Note 9 |
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consists for EUR 6,553 million (2012: EUR 9,396 million) of items with positive revaluation and for EUR 978 million of items with negative revaluation (2012: EUR 927 million negative revaluation).
The revaluation account and legal reserves, foreign currency translation reserve and other, can not be freely distributed. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
Certain of Aegons subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. There can be no assurance that these restrictions will not limit or restrict Aegon in its ability to pay dividends in the future.
Optas N.V., an indirect subsidiary of Aegon N.V., holds statutory reserves of EUR 997 million (2012: EUR 981 million) which are restricted. Included in Aegon N.V.s legal reserves is an amount of EUR 458 million related to Optas N.V. which represents the increase in statutory reserves since the acquisition of Optas N.V. by Aegon (2012: EUR 441 million). The statutory reserves of Optas N.V. are linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
On the balance sheet date Aegon N.V. and its subsidiaries held 41,307,910 of its own common shares with a face value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Movements in the number of repurchased own shares held by Aegon N.V. were as follows:
2013 | 2012 | |||||||||||||||
At January 1 |
|
26,981,154 | 27,503,300 | |||||||||||||
Transactions in 2013: |
|
|||||||||||||||
Sale: 1 transaction, price EUR 5.02 |
|
(5,408,521 | ) | - | ||||||||||||
Sale: 1 transaction, price EUR 4.99 |
|
(783,458 | ) | - | ||||||||||||
Purchase: transactions, average price EUR 5.62 |
|
19,047,358 | - | |||||||||||||
Transactions in 2012: |
|
|||||||||||||||
Sale: 1 transaction, price EUR 3.52 |
|
- | (9,533 | ) | ||||||||||||
Sale: 1 transaction, price EUR 3.36 |
|
- | (512,613 | ) | ||||||||||||
At December 31 |
|
39,836,533 | 26,981,154 | |||||||||||||
As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are included at their consideration paid or received.
|
| |||||||||||||||
2013 | 2012 | |||||||||||||||
Number of |
Consideration | Number of shares |
Consideration | |||||||||||||
Held by Aegon N.V. |
39,836,533 | 278 | 26,981,154 | 228 | ||||||||||||
Held by subsidiaries |
1,471,377 | 14 | 1,732,576 | 15 | ||||||||||||
Total at December 31 |
41,307,910 | 292 | 28,713,730 | 243 |
The consideration for the related shares is deducted from or added to the retained earnings.
|
Supplemental Annual Report 2013 |
305
Junior perpetual capital securities |
Perpetual cumulative subordinated bonds |
Share options and incentive plans 1) |
Non-cumulative subordinated notes |
Total | ||||||||||||||||
At January 1, 2013 |
4,192 | 453 | 102 | 271 | 5,018 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 54 | - | 54 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (57 | ) | - | (57 | ) | |||||||||||||
At December 31, 2013 |
4,192 | 454 | 99 | 271 | 5,015 | |||||||||||||||
At January 1, 2012 |
4,192 | 453 | 75 | - | 4,720 | |||||||||||||||
Issuance of non-cumulative subordinated notes |
- | - | - | 271 | 271 | |||||||||||||||
Shares granted / Share options cost incurred |
- | - | 32 | - | 32 | |||||||||||||||
Shares vested / Share options forfeited |
- | - | (5 | ) | - | (5 | ) | |||||||||||||
At December 31, 2012 |
4,192 | 453 | 102 | 271 | 5,018 |
Junior perpetual capital securities |
Coupon rate | Coupon date, as of | Year of next call | 2013 | 2012 | |||||||||||||||
USD 500 million |
6.50% | Quarterly, December 15 | 2014 | 424 | 424 | |||||||||||||||
USD 250 million |
floating LIBOR rate 1) | Quarterly, December 15 | 2014 | 212 | 212 | |||||||||||||||
USD 550 million |
6.875% | Quarterly, September 15 | 2014 | 438 | 438 | |||||||||||||||
EUR 200 million |
6.00% | Annually, July 21 | 2014 | 200 | 200 | |||||||||||||||
USD 1,050 million |
7.25% | Quarterly, December 15 | 2014 | 745 | 745 | |||||||||||||||
EUR 950 million |
floating DSL rate 2) | Quarterly, July 15 | 2014 | 950 | 950 | |||||||||||||||
USD 500 million |
floating CMS rate 3) | Quarterly, July 15 | 2014 | 402 | 402 | |||||||||||||||
USD 1 billion |
6.375% | Quarterly, June 15 | 2015 | 821 | 821 | |||||||||||||||
At December 31 |
4,192 | 4,192 |
1 | The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. |
2 | The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. |
3 | The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. |
The interest rate exposure on some of these securities has been swapped to a three-month LIBOR and/or EURIBOR based yield.
The securities have been issued at par. The securities have subordination provisions and rank junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
On February 10, 2014 Aegon called for the redemption of the USD 550 million in junior perpetual capital securities with a coupon of
6.875% issued in 2006. The redemption is effective March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.
Perpetual cumulative subordinated bonds |
Coupon rate | Coupon date, as of | Year of next call | 2013 | 2012 | |||||||||||||||
EUR 114 million |
4.156% 1), 4) | Annual, June 8 | 2015 | 114 | 114 | |||||||||||||||
EUR 136 million |
5.185% 2), 4) | Annual, October 14 | 2018 | 136 | 136 | |||||||||||||||
EUR 203 million |
4.260% 3), 4) | Annual, March 4 | 2021 | 203 | 203 | |||||||||||||||
At December 31 |
454 | 453 |
1 | The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015. |
2 | The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until October 14, 2018. |
3 | The coupon of the EUR 203 million bonds was originally set at 7.125% until March 4, 2011. Subsequently, the coupon has been reset at 4.26% until March 4, 2021. |
4 | If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points. |
306 | Notes to the financial statements of Aegon N.V. Note 11 |
The bonds have the same subordination provisions as dated subordinated debt. In addition, the conditions of the bonds provide for interest deferral and for the availability of principal amounts to meet losses. Although the bonds have no stated maturity, Aegon has the right to call the bonds for redemption at par for the first time on the coupon date in the years as specified.
Non-cumulative subordinated notes | Coupon rate | Coupon date, as of | Year of next call | 2013 | 2012 | |||||||||||||||
USD 525 million |
8% | Quarterly, February 15 | 2017 | 271 | 271 | |||||||||||||||
At December 31 |
271 | 271 |
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the U.S. Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and have been priced at 100% of their principal amount. Any cancelled interest payment will not be cumulative.
The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a maturity of 30 years, however Aegon has the right to call the securities for redemption at par for the first time on the coupon date in 2017, or on any coupon payment date thereafter.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and liability component. At December 31, 2013 the equity component amounts to EUR 271 million, subordinated borrowings amounts to EUR 44 million and a deferred tax liability amounting to EUR 84 million.
The proceeds from the issuance of the subordinated notes are used for general corporate purposes.
Refer to note 11 for details of the component classified as subordinated borrowings.
Subordinated borrowings include the liability component of the non-cumulative subordinated notes. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes refer to note 10.
2013 | 2012 | |||||||
Remaining terms less than 1 year |
517 | 569 | ||||||
Remaining terms 1 - 5 years |
860 | 1,408 | ||||||
Remaining terms 5 - 10 years |
85 | 82 | ||||||
Remaining terms over 10 years |
771 | 791 | ||||||
At December 31 |
2,233 | 2,850 |
The repayment periods of borrowings vary from within one year up to a maximum of 27 years. The interest rates vary from 3.000% to 6.625% per annum. The market value of the long-term borrowings amounts to EUR 2,518 million (2012: EUR 3,126 million).
2013 | 2012 | |||||||
Amounts owed to credit institutions |
- | 1 | ||||||
Short term deposits |
151 | 430 | ||||||
At December 31 |
151 | 431 |
All short-term borrowings have a maturity of less than one year.
|
Supplemental Annual Report 2013 |
307
Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 272 million (2012: EUR 350 million).
Commitments and contingencies
Aegon N.V. entered into a contingent capital letter for an amount of JPY 7.5 billion (EUR 52 million) to support its joint venture Aegon Sony Life Insurance Company meeting local statutory requirements.
Aegon N.V. has guaranteed and is severally liable for the following:
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation, Aegon USA, LLC and Commonwealth General Corporation. At December 31, 2013, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 2,392 million (2012: EUR 3,260 million); as at that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements amount to EUR 158 million (2012: EUR 346 million); as at that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due under letter of credit agreements applied for by captive insurance companies that are subsidiaries of Transamerica Corporation. At December 31, 2013, the letter of credit agreements amount to EUR 2,633 million (2012: 2,642 million); as at that date no amounts had been drawn, or were due under these facilities; |
¿ | Due and punctual payment of payables due in relation to debt that was issued by a captive insurance company that is a subsidiary of Transamerica Corporation. As at December 31, 2013, this debt amounted to EUR 1,089 million and is included in the debentures and other loans table in note 41 (Borrowings) of the consolidated financial statements of the Group in the line USD 1.54 billion Variable Funding Surplus Note. |
¿ | Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC, Commonwealth General Corporation and Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amount to EUR 485 million (2012: EUR 507 million); |
¿ | Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as at December 31, 2013. |
Other than the Executive Board members, there were no employees employed by Aegon N.V. in either 2013 or 2012.
Total remuneration |
Of which Ernst & Young |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Audit |
19 | 19 | 6 | 5 | ||||||||||||
Other audit |
2 | 7 | 1 | 6 | ||||||||||||
Tax |
- | - | - | - | ||||||||||||
Other services |
1 | - | - | - | ||||||||||||
Total |
22 | 26 | 7 | 11 |
308 | Notes to the financial statements of Aegon N.V. Note 17 |
17 Events after the balance sheet date
There were no events after the balance sheet date with a significant impact on the financial position of the company per December 31, 2013.
The Hague, March 19, 2014
Supervisory Board | Executive Board | |||||||
Robert J. Routs | Alexander R. Wynaendts | |||||||
Irving W. Bailey, II | Darryl D. Button | |||||||
Antony Burgmans | ||||||||
Shemaya Levy | ||||||||
Kornelis J. Storm | ||||||||
Ben van der Veer | ||||||||
Dirk P.M. Verbeek | ||||||||
Leo M. van Wijk | ||||||||
Dona D. Young |
|
Supplemental Annual Report 2013 |
309
This page has been intentionally left blank.
310 | Other information Proposal for profit appropriation |
Proposal for profit appropriation
Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V. The relevant provisions read as follows:
1. | The General Meeting of Shareholders shall adopt the annual accounts. |
2. | If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves. |
3. | The profits remaining after application of 2 above shall be put at the disposal of the General Meeting of Shareholders. |
The Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the General Meeting of Shareholders. |
4. | The Executive Board may, subject to the approval of the Supervisory Board, make one or more interim distributions to the holders of common shares and common shares B. |
5. | Distributions are made in accordance with the principle as laid down in article 4 of the Articles of Association of Aegon N.V. that the financial rights attaching to a Common Share B are one-fortieth (1/40th) of the financial rights attaching to a Common Share. |
6. | The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices. |
7. | The companys policy on reserves and dividends shall be determined and can be amended by the Supervisory Board, upon the proposal of the Executive Board. The adoption and thereafter each amendment of the policy on reserves and dividends shall be discussed and accounted for at the General Meeting of Shareholders under a separate agenda item. |
At the Annual General Meeting of shareholders on May 21, 2014, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2013 of EUR 0.11 per Common Share and EUR 0.00275 per 40 Common Shares B. The final dividend will be paid in cash or stocks at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 23, 2014. The record date for the dividend will be May 27, 2014. Shareholders can elect to receive a dividend in cash or in shares during the dividend election period, which will run from May 30, 2014 up to and including June 13, 2014. The dividend will be payable as of June 20, 2014.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 will be determined on June 13, 2014 after 5.30 pm, based on the average share price on NYSE Euronext Amsterdam in the five trading days from June 9, 2014 up to and including June 13, 2014.
2013 | 2012 | |||||||
Dividend on preferred shares |
- | 59 | ||||||
Final dividend on common shares |
232 | 214 | ||||||
Earnings to be retained |
754 | 1,359 | ||||||
Net income attributable to equity holders of Aegon N.V. |
986 | 1,632 |
General
As of December 31, 2013, Aegons total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,131,458,863 common shares and 579,005,440 common shares B issued. Of the issued common shares, 39,836,533 common shares were held by Aegon as treasury shares and 1,471,377 treasury shares were held by its subsidiaries.
All of Aegons common shares and common shares B are fully paid and not subject to calls for additional payments of any kind. All of Aegons common shares are registered shares. Holders of shares of New York registry hold their common shares in the registered form issued by Aegons New York transfer agent on Aegons behalf. Shares of New York registry and shares of Netherlands registry are exchangeable on a one-to-one basis and are entitled to the same rights, except that cash dividends are paid in US dollars on shares of New York registry.
|
Supplemental Annual Report 2013 |
Other information Major shareholders | 311 |
As of December 31, 2013, 225 million common shares were held in the form of New York Registry shares. As of December 31, 2013, there were approximately 20,800 record holders of Aegons New York Registry shares resident in the United States.
Vereniging Aegon
Vereniging Aegon is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983, AGO Holding N.V. and Ennia N.V. merged into Aegon N.V. Vereniging AGO initially received approximately 49% of the common shares (reduced gradually to less than 40%) and all of the preferred shares in Aegon N.V., giving it voting majority in Aegon N.V. At that time Vereniging AGO changed its name to Vereniging Aegon.
The objective of Vereniging Aegon is the balanced representation of the interests of Aegon N.V. and all of its stakeholders, including shareholders, Aegon Group companies, insured parties, employees and other relations of the companies.
In accordance with the 1983 Merger Agreement, Vereniging Aegon had certain option rights on preferred shares to prevent dilution of voting power as a result of share issuances by Aegon N.V. This enabled Vereniging Aegon to maintain voting control at the General Meeting of Shareholders of Aegon N.V. In September 2002, Aegon N.V. effected a capital restructuring whereby Vereniging Aegon, among others, sold 206,400,000 common shares to Aegon N.V. for the amount of EUR 2,064,000,000; Vereniging Aegon contributed these as additional paid-in capital on the then existing Aegon N.V. preferred shares. As a result of this capital restructuring, Vereniging Aegons beneficial ownership interest in Aegon N.V.s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in Aegon N.V.s voting shares decreased from approximately 52% to approximately 33%.
On May 9, 2003, Aegons shareholders approved certain changes to Aegons corporate governance structure. Preferred shares with a nominal value of EUR 0.12 were converted into 211,680,000 new class A preferred shares with a nominal value of EUR 0.25, and class B preferred shares were created with a nominal value of EUR 0.25 each. No class B preferred shares were issued at that time. The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in May 2003, Aegon N.V. and Vereniging Aegon entered into a Preferred Shares Voting Agreement, pursuant to which Vereniging Aegon agreed to exercise one vote only per preferred share, except in the event of a Special Cause, as defined hereunder.
In May 2003, Aegon N.V. and Vereniging Aegon amended the option arrangements under the 1983 Merger Agreement so that, in the event of an issuance of shares by Aegon N.V., Vereniging Aegon could purchase as many class B preferred shares as would enable Vereniging Aegon to prevent or correct dilution to below its actual percentage of voting shares, to a maximum of 33%.
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of Shareholders on May 15, 2013.
The simplified capital structure entailed, but was not limited to, the amendment of the articles of association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,695 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
The simplified capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon, known as the Preferred Shares Voting Agreement before May 2013. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months.
312 |
The simplified capital structure also included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
In the years 2003 through 2010, 69,030,000 class B preferred shares were issued under these option rights. In March 2011, Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value. It did this to correct dilution caused by Aegons issuance of shares conducted under Aegons US Shelf Registration, which comprised the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011. In August 2012 and October 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B Preferred Shares at par value. It did this to correct dilution caused by Aegons issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock dividend, and its issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend. In July 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 Common Shares B at market value. It did this to correct dilution caused by Aegons issuance of shares on May 1, 2013 and May 16, 2013 in connection with the Long Term Incentive Plans for senior management, the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
Development of shareholding in Aegon N.V.
Number of shares | Common | Common B | Preferred A | Preferred B | ||||||||||
At January 1, 2013 |
171,974,055 | - | 211,680,000 | 118,093,000 | ||||||||||
Exchange of Preferred A and B shares |
120,713,389 | 566,313,695 | (211,680,000 | ) | (118,093,000 | ) | ||||||||
Exercise option right common shares B |
- | 12,691,745 | - | - | ||||||||||
At December 31, 2013 |
292,687,444 | 579,005,440 | - | - |
Accordingly, at December 31, 2013, the voting power of Vereniging Aegon under normal circumstances amounts to approximately 14.58%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegons voting rights will increase, currently to 32.6%, for up to six months.
At December 31, 2013, the General Meeting of Members of Vereniging Aegon consisted of 17 members. The majority of the voting rights is with the 15 members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The two other members are elected by the General Meeting of Members of Vereniging Aegon from the Executive Board of Aegon N.V.
Vereniging Aegon has an Executive Committee consisting of 7 members, 5 of whom are not, nor have ever been, related to Aegon, including the chairman and the vice chairman. The other two members are also members of the Executive Board of Aegon N.V. Resolutions of the Executive Committee, other than regarding the amendment of the Articles of Association of Vereniging Aegon, are made with an absolute majority of the votes. When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote. Regarding the amendment of the Articles of Association of Vereniging Aegon, a special procedure requires a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of Aegon N.V. at the Executive Committee. Following the amendment of the Articles of Association put into effect on September 13, 2005, this requirement does not apply in the event of a hostile change of control at the General Meeting of Shareholders of Aegon N.V., in which event Vereniging Aegon may amend its Articles of Association without the cooperation of Aegon N.V. Furthermore, the two members of the Executive Board of Aegon N.V. who are also members of the Executive Committee have no voting rights on several decisions that relate to Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
Other major shareholders
To Aegons knowledge based on the filings made with the Netherlands Authority for Financial Markets, the AFM, the US-based investment management firm Dodge & Cox and the US-based investment management firm FMR LLC each hold a capital and voting interest in Aegon N.V in excess of 3%.
|
Supplemental Annual Report 2013 |
Other financial information Schedules to the financial statements | 313 |
Schedules to the financial statements
Summary of investments other than investments in related parties
As at December 31, 2013 |
||||||||||
Amounts in million EUR |
Cost1) | Fair value | Book value | |||||||
Shares: |
||||||||||
Available-for-sale |
488 | 787 | 787 | |||||||
Fair value through profit or loss |
1,553 | 1,250 | 1,250 | |||||||
Bonds: |
||||||||||
Available-for-sale and held-to-maturity: |
||||||||||
US government |
5,538 | 5,522 | 5,522 | |||||||
Dutch government |
3,705 | 3,824 | 3,824 | |||||||
Other government |
12,766 | 13,272 | 13,272 | |||||||
Mortgage backed |
9,433 | 9,800 | 9,800 | |||||||
Asset backed |
6,780 | 7,019 | 7,019 | |||||||
Corporate |
45,851 | 48,725 | 48,725 | |||||||
Money market investments |
5,524 | 5,524 | 5,524 | |||||||
Other |
1,042 | 1,163 | 1,163 | |||||||
Subtotal |
90,638 | 94,849 | 94,849 | |||||||
Bonds: |
||||||||||
Fair value through profit or loss |
1,348 | 1,350 | 1,350 | |||||||
Other investments at fair value through profit or loss |
2,113 | 2,234 | 2,234 | |||||||
Mortgages |
29,369 | 29,369 | ||||||||
Private loans |
1,783 | 1,783 | ||||||||
Deposits with financial institutions |
292 | 292 | ||||||||
Policy loans |
1,955 | 1,955 | ||||||||
Receivables out of share lease agreements |
4 | 4 | ||||||||
Other |
131 | 131 | ||||||||
Subtotal |
33,533 | 33,533 | ||||||||
Real estate: |
||||||||||
Investments in real estate |
1,532 | 1,532 | ||||||||
Total |
131,205 | 135,533 |
1 | Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds |
314 | Notes to the financial statements of Aegon N.V. Note 17 |
Condensed financial information of registrant
Statement of financial position of Aegon N.V.
As at December 31
Before profit appropriation, amounts in EUR million | 2013 | 2012 | ||||||
Investments |
||||||||
Shares in group companies |
19,342 | 21,989 | ||||||
Loans to group companies |
4,320 | 4,379 | ||||||
Other investments |
95 | 240 | ||||||
23,757 | 26,608 | |||||||
Receivables |
||||||||
Receivables from group companies |
2,660 | 2,634 | ||||||
Other receivables |
324 | 72 | ||||||
2,984 | 2,706 | |||||||
Other assets |
||||||||
Cash and cash equivalents |
625 | 1,583 | ||||||
Deferred tax asset |
- | 19 | ||||||
Other |
306 | 333 | ||||||
931 | 1,935 | |||||||
Prepayments and accrued income |
||||||||
Accrued interest and rent |
31 | 55 | ||||||
Total assets |
27,703 | 31,304 | ||||||
Shareholders equity |
||||||||
Share capital |
325 | 319 | ||||||
Paid-in surplus |
8,376 | 8,780 | ||||||
Revaluation account |
3,276 | 6,478 | ||||||
Remeasurement of defined benefit plan of group companies |
(706 | ) | (1,085 | ) | ||||
Legal reserves foreign currency translation reserve |
(1,806 | ) | (1,080 | ) | ||||
Legal reserves in respect of group companies |
2,345 | 2,540 | ||||||
Retained earnings, including treasury shares |
4,898 | 3,453 | ||||||
Net income / (loss) |
986 | 1,632 | ||||||
17,694 | 21,037 | |||||||
Other equity instruments |
5,015 | 5,018 | ||||||
Total equity |
22,709 | 26,055 | ||||||
Subordinated borrowings |
44 | 42 | ||||||
Long-term borrowings |
2,233 | 2,850 | ||||||
Short-term borrowings |
151 | 431 | ||||||
Other liabilities |
||||||||
Loans from group companies |
559 | 282 | ||||||
Payables to group companies |
1,675 | 1,082 | ||||||
Deferred tax liability |
18 | - | ||||||
Other |
302 | 483 | ||||||
2,554 | 1,847 | |||||||
Accruals and deferred income |
12 | 79 | ||||||
Total equity and liabilities |
27,703 | 31,304 |
|
Supplemental Annual Report 2013 |
Other financial information Schedules to the financial statements | 315 |
Income statement of Aegon N.V.
For the year ended December 31
Amounts in EUR million | 2013 | 2012 | 2011 | |||||||||
Net income / (loss) group companies |
965 | 1,563 | 1,020 | |||||||||
Other income / (loss) |
21 | 69 | (87 | ) | ||||||||
Net income |
986 | 1,632 | 933 | |||||||||
Condensed cash flow statement of Aegon N.V. |
|
|||||||||||
For the year ended December 31
|
||||||||||||
Amounts in EUR million | 2013 | 2012 | 2011 | |||||||||
Income / (loss) before tax |
1,000 | 1,608 | 901 | |||||||||
Adjustments |
(396 | ) | (1,340 | ) | (974 | ) | ||||||
Net cash flows from operating activities |
604 | 268 | (73 | ) | ||||||||
Purchase and disposal of individual intangible assets |
- | - | - | |||||||||
Net cash flows from investing activities |
- | - | - | |||||||||
Issuance and repurchase of share capital |
(493 | ) | 2 | 913 | ||||||||
Dividends paid |
(323 | ) | (207 | ) | (59 | ) | ||||||
Issuance, repurchase and coupons of convertible core capital securities |
- | - | (2,250 | ) | ||||||||
Issuance, repurchase and coupons of perpetual securities |
(194 | ) | (230 | ) | (237 | ) | ||||||
Issuance, repurchase and coupons of non-cumulative subordinated notes |
(28 | ) | 241 | - | ||||||||
Issuance and repurchase of borrowings |
(524 | ) | 431 | 1,492 | ||||||||
Net cash flows from financing activities
|
(1,562 | ) | 237 | (141 | ) | |||||||
Net increase / (decrease) in cash and cash equivalents |
(958 | ) | 505 | (214 | ) |
316 | Notes to the financial statements of Aegon N.V. Note 17 |
Supplementary insurance information
Column A | Column B | Column C | Column D | Column E | Column F | |||||||||||||||
Segment Amounts in million EUR |
Deferred policy acquisition costs |
Future policy benefits |
Unearned premiums | Other policy claims and benefits |
Premium revenue | |||||||||||||||
2013 |
||||||||||||||||||||
Americas |
6,718 | 142,382 | 3,704 | 1,318 | 7,826 | |||||||||||||||
The Netherlands |
141 | 52,627 | 121 | 1,247 | 4,245 | |||||||||||||||
United Kingdom |
2,256 | 68,611 | - | - | 6,537 | |||||||||||||||
New markets |
532 | 8,772 | 62 | 103 | 1,319 | |||||||||||||||
Holding and other activities |
3 | 3 | - | 1 | 12 | |||||||||||||||
Total |
9,650 | 272,396 | 3,886 | 2,669 | 19,939 | |||||||||||||||
2012 |
||||||||||||||||||||
Americas |
6,194 | 141,107 | 3,900 | 1,378 | 8,208 | |||||||||||||||
The Netherlands |
174 | 50,165 | 138 | 1,158 | 3,699 | |||||||||||||||
United Kingdom |
2,375 | 67,079 | - | - | 6,047 | |||||||||||||||
New markets |
479 | 8,114 | 55 | 116 | 1,095 | |||||||||||||||
Holding and other activities |
- | - | - | 1 | - | |||||||||||||||
Total |
9,222 | 266,465 | 4,093 | 2,653 | 19,049 | |||||||||||||||
2011 |
||||||||||||||||||||
Americas |
6,037 | 140,968 | 3,480 | 1,317 | 7,502 | |||||||||||||||
The Netherlands |
225 | 47,358 | 156 | 1,078 | 3,881 | |||||||||||||||
United Kingdom |
2,318 | 62,361 | - | - | 6,474 | |||||||||||||||
New markets |
484 | 9,956 | 51 | 125 | 1,664 | |||||||||||||||
Holding and other activities |
- | - | - | - | - | |||||||||||||||
Total |
9,064 | 260,643 | 3,687 | 2,520 | 19,521 | |||||||||||||||
Column G |
Column H | Column I | Column J | Column K | ||||||||||||||||
Amounts in million EUR | Net investment income |
Benefits, claims and losses |
Amortization of |
Other operating expenses |
Premiums written | |||||||||||||||
2013 |
||||||||||||||||||||
Americas |
3,365 | 7,777 | 440 | 2,779 | 5,102 | |||||||||||||||
The Netherlands |
2,309 | 3,815 | 46 | 957 | 4,225 | |||||||||||||||
United Kingdom |
2,053 | 7,945 | 207 | 548 | 6,135 | |||||||||||||||
New markets |
178 | 666 | 103 | 518 | 1,353 | |||||||||||||||
Holding and other activities |
4 | 1 | - | 57 | 16 | |||||||||||||||
Total |
7,909 | 20,204 | 797 | 4,859 | 16,831 | |||||||||||||||
2012 |
||||||||||||||||||||
Americas |
3,643 | 8,672 | 506 | 2,750 | 4,907 | |||||||||||||||
The Netherlands |
2,231 | 4,338 | 65 | 968 | 3,682 | |||||||||||||||
United Kingdom |
2,337 | 6,898 | 215 | 538 | 5,631 | |||||||||||||||
New markets |
195 | 651 | 97 | 405 | 1,125 | |||||||||||||||
Holding and other activities |
7 | - | - | 66 | 1 | |||||||||||||||
Total |
8,413 | 20,559 | 883 | 4,727 | 15,346 | |||||||||||||||
2011 |
||||||||||||||||||||
Americas |
3,551 | 5,643 | 752 | 2,682 | 4,451 | |||||||||||||||
The Netherlands |
2,189 | 3,812 | 64 | 1,061 | 3,852 | |||||||||||||||
United Kingdom |
2,152 | 6,342 | 172 | 701 | 6,138 | |||||||||||||||
New markets |
258 | 1,017 | 98 | 474 | 1,673 | |||||||||||||||
Holding and other activities |
17 | - | - | 168 | - | |||||||||||||||
Total |
8,167 | 16,814 | 1,086 | 5,086 | 16,114 |
|
Supplemental Annual Report 2013 |
Other financial information Schedules to the financial statements | 317 |
Reinsurance
Amounts in million EUR | Gross amount | Ceded to other companies |
Assumed from other companies |
Net amount | % of amount assumed to net |
|||||||||||||||
For the year ended December 31, 2013 |
||||||||||||||||||||
Life insurance in force |
898,135 | 896,012 | 583,733 | 585,856 | 100% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
15,650 | 2,756 | 1,462 | 14,356 | 10% | |||||||||||||||
Non-Life insurance |
2,827 | 352 | - | 2,475 | 0% | |||||||||||||||
Total premiums |
18,477 | 3,108 | 1,462 | 16,831 | 9% | |||||||||||||||
For the year ended December 31, 2012 |
||||||||||||||||||||
Life insurance in force |
927,075 | 1,057,502 | 684,275 | 553,848 | 124% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
14,383 | 3,298 | 1,818 | 12,903 | 14% | |||||||||||||||
Non-Life insurance |
2,849 | 404 | - | 2,445 | 0% | |||||||||||||||
Total premiums |
17,232 | 3,702 | 1,818 | 15,348 | 12% | |||||||||||||||
For the year ended December 31, 2011 |
||||||||||||||||||||
Life insurance in force |
953,819 | 1,073,026 | 755,821 | 636,614 | 119% | |||||||||||||||
Premiums |
||||||||||||||||||||
Life insurance |
15,100 | 3,042 | 1,753 | 13,811 | 13% | |||||||||||||||
Non-Life insurance |
2,668 | 365 | - | 2,303 | 0% | |||||||||||||||
Total premiums |
17,768 | 3,407 | 1,753 | 16,114 | 11% |
318 | Notes to the financial statements of Aegon N.V. Note 17 |
Valuation and qualifying accounts
Amounts in million EUR | 2013 | 2012 | 2011 | |||||||||
Balance at January 1 |
355 | 337 | 332 | |||||||||
Addition charged to earnings |
47 | 79 | 93 | |||||||||
Amounts written off and other changes |
(46 | ) | (65 | ) | (81 | ) | ||||||
Currency translation |
(4 | ) | 5 | (7 | ) | |||||||
Balance at December 31 |
351 | 356 | 337 | |||||||||
The provisions can be analyzed as follows: |
||||||||||||
Mortgages |
163 | 167 | 156 | |||||||||
Other loans |
77 | 57 | 43 | |||||||||
Receivables |
111 | 132 | 138 | |||||||||
Total |
351 | 356 | 337 |
|
Supplemental Annual Report 2013 |
Other financial information Auditors report on the Supplemental Annual Report | 319 |
Auditors report on the Supplemental Annual Report
To: The Supervisory Board, the Executive Board and Shareholders of Aegon N.V.
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated statements of financial position of Aegon N.V., as of December 31, 2013 and 2012, and the related consolidated income statement and statements of comprehensive income, changes in equity, and cash flow for each of the three years in the period ended December 31, 2013. Our audits also include the other financial information included on pages 313 to 318. These financial statements and schedules are the responsibility of the companys management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in The Netherlands and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aegon N.V. at December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standard Board. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for consolidation, joint arrangements and employee benefits effective January 1, 2013. As discussed in Note 2.1.3 to the consolidated financial statements, the company has elected to change its method of accounting for the deferral of policy acquisition costs and longevity reserving effective January 1, 2014.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Aegon N.V.s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) and our report dated March 19, 2014 expressed an unqualified opinion thereon.
The Hague, the Netherlands, March 19, 2014,
except for Note 2, as to which the date is April 15, 2014
/s/ Ernst & Young Accountants LLP
320 | Notes to the financial statements of Aegon N.V. Note 17 |
This page has intentionally been left blank.
|
Supplemental Annual Report 2013 |
Additional information | 321 |
322 | Additional information |
Individual companies in the Aegon Group are each subject to solvency supervision in their respective home countries. Based on European Union legislation (EU Directive 98/79/EC, the Insurance Group Directive) adopted in 1998, EU supervisors, such as De Nederlandsche Bank (DNB or Dutch Central Bank) are required to carry out supplementary supervision on EU insurance companies in an insurance group. The supplementary supervision of insurance companies in an insurance group enables EU supervisors to make a detailed assessment of the financial position of the EU insurance companies that are part of that group. The Directive requires DNB to take into account the relevant financial affiliations between the insurance companies and other entities in the group. In this respect, Aegon is required to submit reports to its supervisors twice a year setting out supplemental capital adequacy calculations of the insurance companies, risk concentrations and significant transactions and positions between insurance and non-insurance companies in the Aegon Group.
Since the beginning of October 2009, Aegon has been subject to supplemental group supervision by the Dutch Central Bank in accordance with the requirements of the European Unions 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.
Both the insurance and banking companies in the Aegon Group are required to maintain a minimum solvency margin based on local requirements. The required solvency margin is the sum of the margins of each of Aegons insurance and banking subsidiaries, based on the local requirements. Available liability capital includes shareholders equity, convertible core capital securities, perpetual capital securities, and dated subordinated debt and senior debt.
Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. Aegons most significant risk is to changes in financial markets, related particularly to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the companys operations, its earnings, its share price, the value of its investments, or the sale of certain products and services. The next two sections describe risks relating to Aegons businesses and risks relating to Aegons common shares.
I - Risks relating to Aegons businesses
The following covers some key risk factors that may affect Aegons businesses and operations, as well as other risk factors that are particularly relevant to Aegon in the ongoing period of significant economic uncertainty. Additional risks to which Aegon is subject to include, but are not limited to, the factors mentioned under Forward-looking statements (refer to pages 359-360), and the risks of Aegons businesses described elsewhere in this Supplemental Annual Report.
Factors additional to those discussed below or elsewhere in this Supplemental Annual Report may also affect Aegons businesses and operations adversely. The following risk factors should not be considered a complete list of potential risks that may affect Aegon and its subsidiaries.
|
Supplemental Annual Report 2013 |
323
Risks related to the global financial markets and general economic conditions
Disruptions in global financial markets and general economic conditions have affected, continue to affect and may have a materially adverse effect on Aegons businesses, results of operations, cash flows and financial condition.
Aegons results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which we operate. Global financial markets have experienced extreme and unprecedented volatility and disruption in recent years and uncertainty remains today. These developments have created an unfavorable environment for banking activity generally. Bank lending has been lower than pre-financial crisis levels for some time, and housing markets in Europe and North America remain under pressure.
In addition to the risks described in this section, these conditions may result in reduced demand for Aegons products as well as impairments and reductions in the value of the assets in Aegons general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and lapses or surrenders of policies. Aegons policyholders may choose to defer or stop paying insurance premiums, which may impact Aegons businesses, results of operations, cash flows and financial condition, and Aegon cannot predict definitively whether or when such actions may occur.
In Europe, countries such as Greece, Ireland, Italy, Portugal, Spain and Cyprus have been particularly affected by financial and economic conditions, creating a heightened perceived risk of default on the sovereign debt of those countries. Recovery has taken place but downside risk remains. There has also been concern about its effect on other European Union economies, the euro currency and the European Monetary Union. Aegon also cannot predict with certainty the effect a sovereign default may have on Aegons businesses, results of operations, cash flows and financial condition, although the effect of such events may be material and adverse.
Governmental action in the Netherlands, the United Kingdom, the United States, the European Union and elsewhere to address any of the above may impact Aegons businesses. Aegon cannot predict with certainty the effect that these or other government actions and actions by the ECB or the Federal Reserve may have on the financial markets or on Aegons businesses, results of operations, cash flows and financial condition.
Credit risk
Defaults in Aegons debt securities, private placements and mortgage loan portfolios held in Aegons general account, or the failure of certain counterparties, may adversely affect Aegons profitability and shareholders equity.
Credit risk is the risk of loss resulting from the default by, or failure to meet contractual obligations of issuers and counterparties. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter (OTC) derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not perform their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default.
Aegons investment portfolio among other investments contains Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. There continues to be uncertainty regarding the ability of certain European nations (in particular Greece, Ireland, Italy, Portugal and Spain) to satisfy their financial obligations. Due to the weak economic environment, Aegon may incur significant investment impairments due to defaults and overall declines in the capital markets. Further excessive defaults or other reductions in the value of these securities and loans may have a materially adverse effect on Aegons businesses, results of operations, cash flows and financial condition.
Equity market risk
A decline in equity markets may adversely affect Aegons profitability and shareholders equity, sales of savings and investment products, and the amount of assets under management.
Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for account of policyholders where funds are invested in equities (such as variable annuities, unit-linked products and mutual funds). Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
324 | Additional information |
Some of Aegons insurance and investment contract businesses have minimum return or accumulation guarantees, which requires Aegon to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. Aegons reported results under International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS), are also at risk if returns are not sufficient to allow amortization of deferred policyholder acquisition costs (DPAC), which may impact the reported net income as well as shareholders equity. Volatile or poor market conditions may also significantly reduce the demand for some of Aegons savings and investment products, which may lead to lower sales and net income. Deteriorating general economic conditions may again result in significant decreases in the value of Aegons equity investments. The equity market conditions experienced through 2013 led to a recognized impairment loss on equity securities held in general account of EUR 3 million (2012: EUR 8 million, 2011: EUR 10 million).
Interest rate risk
Interest rate volatility or sustained low interest rate levels may adversely affect Aegons profitability and shareholders equity.
In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are affected adversely by the increase in market interest rates. This may result in realized investment losses. These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
During periods of sustained low interest rates, as experienced in recent years, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. A prolonged low interest rate environment may result in a lengthening of maturities of the policyholder liabilities from initial estimates, primarily due to lower policy lapses.
Life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in force year-to-year. The majority of assets backing the insurance liabilities are invested in fixed income securities. Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, as interest rates remain at low levels, Aegon may have to reinvest the cash it receives as interest or proceeds from investments that mature or are sold at lower yields. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of our products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in our investment portfolio in order to borrow at lower rates. Aegon can lower crediting rates on certain products to offset the decrease in spread. However, its ability to lower these rates may be limited by contractually guaranteed minimum rates or competition.
In general, if interest rates rise, there will be unrealized losses on assets carried at fair value that will be recorded in other comprehensive income (available-for-sale investments) or as negative income (investments at fair value through profit or loss) under IFRS. This is inconsistent with the IFRS accounting on much of Aegons liabilities, where corresponding economic gains from higher interest rates do not affect shareholders equity or income in the shorter term. Over time, the short-term reduction in shareholder equity and income due to rising interest rates would be offset in later years, all else being equal.
Base interest rates set by central banks and government treasuries remained at the historically low levels initiated in response to the worldwide recession and attempts to stimulate growth.
The profitability of Aegons spread-based businesses depends in large part upon the ability to manage interest rate spreads, credit spread risk and other risks inherent in the investment portfolio. Aegon may not be able to successfully manage interest rate spreads, credit spread risk and other risks in the investment portfolio or the potential negative impact of those risks. Investment income from general account fixed income investments for the years 2011, 2012 and 2013 was EUR 5.6 billion, EUR 5.7 billion and EUR 5.6 billion, respectively. The value of the related general account fixed income investment portfolio at the end of the years 2011, 2012 and 2013 was EUR 139 billion, EUR 142 billion and EUR 132 billion, respectively.
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The sensitivity of Aegons net income and shareholders equity to a change in interest rates is provided in Note 4 to the consolidated financial statements on page 179.
Currency exchange rate risk
Fluctuations in currency exchange rates may affect Aegons reported results of operations.
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegons functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders equity is required to satisfy regulatory and Aegons self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegons consolidated shareholders equity as a result of translation of the equity of Aegons subsidiaries into euro, Aegons reporting currency. Aegon holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of Aegons business units. This balancing is intended to mitigate currency translation impacts on equity and leverage ratios. Aegon may also hedge the expected dividends from its principal business units that maintain their equity in currencies other than the euro.
To the extent these expected dividends are not hedged or actual dividends vary from expected, Aegons net income and shareholders equity may fluctuate. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders equity because of these fluctuations.
The exchange rates between Aegons primary operating currencies (US dollar, euro and UK pound) continued to fluctuate during 2013. In 2013, the US dollar ranged by 7% against the euro, finishing around 4% down from 2012. The UK pound fluctuated by around 9% against the euro ending the year with a 3% reduction from 2012.
For the Americas, which primarily conducts its business in US dollars, total revenues and net income in 2013 amounted to EUR 12.6 billion and EUR 407 million, respectively. For the UK, which primarily conducts its business in UK pounds, total revenues and net income in 2013 amounted to EUR 8.7 billion and EUR 76 million, respectively. On a consolidated basis, these represented 71% of the total revenues and 49% of the net income for the year 2013. Additionally, Aegon borrows in various currencies to hedge the currency exposure arising from its operations. As of December 31, 2013, Aegon has borrowed or swapped amounts in proportion to the currency mix of capital in units, which was denominated approximately 53% in US dollars, 28% in euro, 14% in UK pounds and 5% in Canadian dollars.
The possible abandonment of the euro currency by one or more members of the European Monetary Union may affect Aegons results of operations in the future.
It is possible that the euro may be abandoned as a currency in the future by countries that have already adopted its use. This may lead to the re-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European Monetary Union. It is not possible to predict with certainty the effect on the European and global economies of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the European Monetary Union. Any such event may have a materially adverse effect on Aegons future financial condition and results of operations.
Liquidity risk
Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
Liquidity risk is inherent in much of Aegons businesses. Each asset purchased and liability sold has unique liquidity characteristics. Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. Aegon continued to maintain its reserves of cash and liquid assets in 2013. In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
Any security Aegon issues in significant volume may be issued at higher financing costs if funding conditions are impaired, as they have been from time to time in recent years. The requirement to issue securities can be driven by a variety of factors, for instance Aegon may
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need liquidity for operating expenses, debt servicing and the maintenance of capital levels of insurance subsidiaries. Although Aegon manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended period of time, Aegon may need to sell assets substantially below prices at which they are currently recorded to meet its insurance obligations.
In 2013, approximately 40% of Aegons general account investments were not highly liquid.
Underwriting risk
Differences between actual claims experience and underwriting and reserve assumptions may require liabilities to be increased.
Aegons earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegons products and establishing the technical liabilities for expected claims. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegons income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to increase liabilities for other related products, which may reduce Aegons income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs may be accelerated and may require write-offs due to an expectation of unrecoverability. This may have a materially adverse effect on Aegons results of operations and financial condition.
Sources of underwriting risk include policy lapses, policy claims (such as mortality and morbidity) and expenses. In general, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recover up-front sales expenses despite the presence of commission recoveries or surrender charges and fees. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses), which may result in losses to Aegons businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies, such as annuity products, that are at risk if mortality decreases (longevity risk). For example, certain current products as well as products sold in previous years based on standard longevity assumptions have become less profitable or unprofitable as longevity assumptions increase, which may result in Aegon incurring losses. If the trend toward increased longevity persists, Aegons annuity products may continue to experience adverse effects because the period of time over which benefit payments are made becomes longer as life expectancies increase. Aegon is also at risk if expenses are higher than assumed.
Modelling risk
Inaccuracies in (financial) models could have a significant adverse effect on Aegons business, results of operations and financial condition.
Reliance on various (financial) models to establish key results and assumptions is critical to Aegons operations. If these models prove to be inaccurate, the same may apply to assumptions that are based thereon. Aegons earnings depends significantly on models and assumptions used. Whereas the assumptions used to set the price for Aegons products, the inaccuracy of our financial models could have a significant adverse effect on Aegons business.
Other risks
Valuation of Aegons investments, allowances and impairments is subjective, and discrepant valuations may adversely affect Aegons results of operations and financial condition.
The valuation of many of Aegons financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations and may result in changes to investment valuations that may have a materially adverse effect on Aegons results of operations and financial condition. In addition, the determination of the amount of allowances and impairments taken on Aegons investments is subjective and may materially impact Aegons results of operations or financial position.
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Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegons returns on these products unless Aegon increases its prices.
The European Commissions Solvency II directive, effective date pending, is expected to impose, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegons businesses and at Group level, as well as supervisory and disclosure requirements, and may impact the structure, business strategies, and profitability of Aegons insurance subsidiaries and of the Group. Some of Aegons competitors who are headquartered outside the European Economic Area may not be subject to Solvency II requirements and may thereby be better able to compete against Aegon, particularly in Aegons businesses in the United States and Asia.
The National Association of Insurance Commissioners (NAIC) Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline 38, The Application of the Valuation of Life Insurance Policies Regulation, commonly known as Regulation AXXX, or AG38, requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of Aegons newly issued term and universal life insurance products in the United States are now affected by Regulations XXX and AXXX, respectively.
In response to the NAIC regulations, Aegon has implemented reinsurance and capital management actions to mitigate their impact. However, for a variety of reasons, Aegon may not be able to implement actions to mitigate the impact of Regulation XXX and AXXX on future sales of term or universal life insurance products, potentially resulting in an adverse impact on these products and Aegons market position in the life insurance market. In addition, the NAIC is reviewing internal captive reinsurance, the vehicle used in many capital management actions.
For some of Aegons products, market performance impacts the level of statutory reserves and statutory capital Aegon is required to hold, which may have an adverse effect on returns on capital associated with these products. Capacity for reserve funding available in the marketplace is currently limited as a result of market conditions generally. Aegons ability to efficiently manage capital and economic reserve levels may be impacted, thereby affecting profitability and return on capital.
Aegon may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance companies and insurance holding companies. Failure to comply with or to obtain appropriate exemptions under any applicable laws may result in restrictions on Aegons ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegons businesses, financial position or results of operations.
There may be heightened oversight of insurers by regulatory authorities in the jurisdictions in which Aegons subsidiaries are domiciled and operate. Aegon cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, may have on its businesses, results of operations, or financial condition. The European Union is adopting Solvency II as discussed above, the NAIC or state regulators may adopt revisions to applicable risk based capital formulas, local regulators in other jurisdictions in which Aegons subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegons insurance subsidiaries.
Since 2012, further to a decision by the European Court of Justice, our European units may no longer use gender-related factors to determine premiums and benefits under insurance policies. We have not observed any negative financial or business impact through 2013 but there remains a risk of future adverse impact.
Aegon utilizes affiliated captives to manage risks related to universal life with secondary guarantees and level term life insurance policies. Through these structures, Aegon finances certain regulatory required reserves at a lower cost. To the extent that state insurance departments restrict Aegons use of captives and regulatory reserve requirements remain unchanged this could increase its cost, limit its ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC continues to consider changes to corporate governance and insurers use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
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A downgrade in Aegons ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors, and negatively affect Aegons results.
Claims-paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or the potential for such a downgrade) of Aegon or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies. These withdrawals may require the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. These cash payments to policyholders would result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also cause Aegon to accelerate amortization of DPAC, reducing net income.
Aegon has experienced downgrades and negative changes to its outlook in the past, and may experience downgrades and negative changes in the future. For example, during 2012, Fitch put a negative outlook on its long-term issuer default rating for Aegon N.V. and its insurer financial strength ratings for Aegon USA. Since 2012, Standard and Poors put a negative outlook on its insurer financial strength rating for Scottish Equitable (Aegon UK). A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegons products and services, which may negatively impact new sales and adversely affect Aegons ability to compete. This would have a materially adverse effect on Aegons businesses, results of operations and financial condition.
Aegon cannot predict what actions rating agencies may take, or what actions Aegon may take in response to the actions of rating agencies, which may adversely affect Aegons businesses. As with other companies in the financial services industry, Aegons ratings may be downgraded at any time and without notice by any rating agency.
Changes in government regulations in the countries in which Aegon operates may affect profitability.
Aegons regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision. The primary purpose of such regulation is to protect clients (i.e. policyholders), not holders of Aegon securities. Changes in existing laws and regulations may affect the way in which Aegon conducts business and the products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than current requirements. The recent financial markets dislocation has resulted in, and may continue to result in further, extensive changes to existing laws, regulations and regulatory frameworks applicable to Aegons businesses in the countries in which it operates.
For example, in July 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing government agencies and newly created government agencies and bodies (for example the Financial Stability Oversight, Federal Reserve Board, Commodity Futures Trading Commission and Securities and Exchange Commission) authority to promulgate new financial regulations applicable to systemically important non-bank financial institutions. The regulatory changes include or may include differing standards of capital for companies deemed systemically important financial institutions SIFIs and other companies, as well as initiatives of U.S. State and international financial services regulators to develop international capital, accounting and solvency regulatory standards for internationally active companies. The primary impact to Aegon USA of the Dodd-Frank Act and similar financial services reform legislation by other countries in which Aegon operates will be the Derivatives Reform part of the Dodd-Frank Act, which aims to increase transparency of derivatives and reduce systemic risk. Aegon USA entities will be considered Category 2 under the regulations and will be required to begin clearing derivative transactions as they are phased in over time, beginning with the four categories of interest rate swaps and two categories of indexed credit default swaps on June 10, 2013. In addition, Aegon USA will have new reporting, initial margins and variation margins obligations under the Dodd-Frank Act and its regulations. However, Aegon cannot predict how the regulations will affect the financial markets generally or how the regulations will affect Aegons operations or financial condition.
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld by the US Supreme Court in 2012. PPACA significantly changes the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USAs supplemental health insurance products business.
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For information relating to the European Commissions Solvency II directive, see page 11. Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegons returns on these products unless Aegon increases its prices. Other initiatives, such as by the International Association of Insurance Supervisors, may create regulations that would increase capital and other requirements that would not be applicable to all carriers and create an uneven competitive playing field.
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegons ability to sell new policies or claims exposure on existing policies. For example, in Hungary, the mandatory pension business has been nationalized and therefore Aegon in Hungary has liquidated its mandatory pension business. Similarly, in December 2013 the Polish parliament approved legislation to overhaul the existing state pension system, which is a reason for Aegon to write down its intangible assets.
In general, changes in laws and regulations may materially increase Aegons direct and indirect compliance and other expenses of doing business and have a materially adverse effect on Aegons businesses, results of operations or financial condition.
The possibility of Scotland becoming independent from the remainder of the United Kingdom may affect Aegon UKs results of operations in the future.
It is possible that following a referendum in September 2014, Scotland may vote to become independent from the remainder of the United Kingdom. Any actual changes would not take effect until after independence day, which based on Scottish Government indications would not be until March 2016 at the earliest. The details of any changes are impossible to predict with certainty at present, and will depend on post-referendum negotiations and agreements between the Scottish Government and other organizations at UK and EU level. Independence could result in inter alia changes in the monetary system, currency, taxation, regulatory and legal framework, and membership of the EU. Some possible outcomes of independence could have an adverse effect on Aegon UKs business, financial condition and results of operations in the future.
Legal and arbitration proceedings and regulatory investigations and actions may adversely affect Aegons businesses, results of operations and financial position.
Aegon faces significant risks of litigation and regulatory investigations and actions in connection with Aegons activities as an insurer, securities issuer, employer, investment adviser, investor and taxpayer, among others.
Insurance companies are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving wide-ranging subjects such as transparency issues and the charges included in products, employment or third party relationships, adequacy of operational processes, environmental matters, anti-competition, privacy, information security and intellectual property infringement. In this context, Aegon refers to the unclaimed property examinations that unclaimed property administrators and state insurance regulators performed of the life insurance industry in the United States, including certain of Aegons subsidiaries. Among these were multi-state examinations that included the collective action of many of the states. Additionally, some states conducted separate examinations or instituted separate enforcement actions in regard to unclaimed property laws and related claims practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas originally established reserves related to this matter of approximately EUR 117 million. Like various other major insurers in the United States, Aegon subsidiaries in the United States entered into settlements with insurance regulators regarding claims settlement practices. Certain examinations are still ongoing. While Aegon believes the reserves it has established for these unclaimed property-related matters are adequate to cover expected obligations, there can be no assurances that actual exposures may not exceed reserve amounts or that additional sources of liability related to these examinations or other unclaimed property-related matters will not arise in the future.
In addition, insurance companies are generally the subject of litigation, investigations and regulatory activity concerning common industry practices such as the disclosure of costs, both costs incurred upon inception of the policy as well as over the duration thereof, commissions, premiums and other issues relating to the transparency concerning certain products and services. In particular when these costs and charges apply for or take effect over a longer duration, as is the case for many of Aegons products. In addition, many of Aegons products offer returns that are affected by, among other things, fluctuations in equity markets as well as interest rate movements. As a result, such returns may prove to be volatile and occasionally disappointing. From time to time this results in disputes that lead to litigation and complaints to regulatory bodies. Complaints like these may lead to inquiries or investigations, regardless of their merit.
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Aegon cannot predict at this time the effect that litigation, investigations, and actions will have on the insurance industry or Aegons business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, and may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any.
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. In the Netherlands, certain current and former customers, and groups representing customers have initiated litigation, and certain groups are encouraging others to bring lawsuits against Aegon and other insurers, in respect of certain products including securities leasing products and unit-linked products (so called beleggingsverzekeringen, including the KoersPlan product).
Aegon has defended and Aegon intends to continue defending itself vigorously when Aegon believes claims are without merit. Aegon has also sought and will continue to seek to settle certain claims, including via policy modifications in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with two major customer interest groups in the Netherlands, Stichting Verliespolis and Stichting Woekerpolis Claim. In 2012, Aegon accelerated certain product improvements that reduce future costs and increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to an appeal by the Dutch Ministry of Finance to apply best of class principles to certain existing unit-linked products. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax. In addition, Aegon decided to reduce future policy costs from 2013 onward for the large majority of its unit-linked portfolio. This is expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as Ombudsman Financiële Dienstverlening (the Netherlands financial services industry ombudsman) supported the arrangements, it is uncertain whether public debate over the general adequacy of the arrangements reached with customer interest groups, as well as ongoing discussions in the Dutch Parliament, will not continue in the future and lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of any further debate, including what actions, if any, Aegon may take in response thereto, or the impact that any such actions may have on Aegons business, results of operations and financial position. Any such actions, whether triggered by legal requirements or commercial necessity, any substantial legal liability or a significant regulatory action, may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
In June, 2013, the Dutch Supreme Court denied Aegons appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the Koersplan-product. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in the product, sold during the period 1989-1998. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to Koersplan-customers. As a result of the Dutch Supreme Courts denial of appeal, Aegon will compensate the approximately 35,000 holders of KoersPlan-products who were plaintiffs in the litigation and took a charge of EUR 25 million in Q2 2013. It is possible that holders of KoersPlan-products that were not plaintiffs in the litigation also expect or demand a form of compensation. It is not yet possible to determine what actions, if any, Aegon may take in connection with any such expectations or demands due to commercial necessity or future rulings, or the impact that any such actions may have on Aegons business, results of operations and financial position.
Furthermore, recently a group of policyholders filed a claim against Aegon in Poland over the fees payable by a customer in case of early surrender of the policy contract. In September 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in The Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID that were filed over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decisions would not have a material adverse effect on Aegons results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
Certain of the products Aegon sells are complex and involve significant investment risks that may be assumed by Aegons customers. Aegon has, from time to time, received claims from certain current and former customers, and groups representing customers, in respect of certain products. Certain claims remain under review and may lead to disputes in the future. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if Aegon believed it was
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appropriate to do so. While Aegon intends to defend itself vigorously against any claims that Aegon does not believe have merit, there can be no assurance that any claims brought against Aegon by its customers will not have a materially adverse effect on Aegons businesses, results of operations and financial position.
Aegon may be unable to manage Aegons risks successfully through derivatives.
Aegon is exposed to currency fluctuations, changes in the fair value of Aegons investments, the impact of interest rate, equity markets and credit spread changes and changes in mortality and longevity. Aegon uses common financial derivative instruments, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. This is a more pronounced risk to Aegon in view of the stresses suffered by financial institutions and the volatility of credit and equity markets. Aegon may not be able to manage the risks associated with these activities successfully through the use of derivatives. In addition, a counterparty may fail to honor the terms of its derivatives contracts with Aegon. Aegons inability to manage risks successfully through derivatives, a counterpartys failure to honor Aegons obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegons businesses, results of operations and financial condition.
Aegons ability to manage risks through derivatives may be negatively affected by the Dodd-Frank Act and legislative initiatives of the European Commission, which provide for a new framework of regulation of OTC derivatives markets. These new regulations, including the regulation of OTC transactions, central counterparties and trade repositories (EMIR) that was published by the Official Journal of the European Union on July 27, 2012, as well as the new regulation on markets in financial instruments (MIFIR) proposed by the European Commission on October 20, 2011, expected to be adopted in 2014, may require Aegon to mandatorily trade certain types of OTC derivative transactions on regulated trading venues and clear certain types of transactions currently traded in the OTC derivative markets through a central clearing organization. This may limit Aegons ability to customize derivative transactions for its needs. As a result, Aegon may experience additional collateral requirements and costs associated with derivative transactions.
State statutes and regulators may limit or prohibit the aggregate amount of dividends payable by Aegons subsidiaries and Aegon N.V., thereby limiting Aegons ability to make payments on debt obligations.
Aegons ability to make payments on debt obligations and pay some operating expenses is dependent upon the receipt of dividends from subsidiaries. Some of these subsidiaries have regulatory restrictions that can limit the payment of dividends. In addition, local regulators, acting to represent the interests of local policyholders, are taking an increasingly restrictive stance with respect to permitting dividend payments, which may affect Aegons ability to satisfy its debt obligations or pay its operating expenses.
Changes in accounting policies may affect Aegons reported results and shareholders equity.
Since 2005, Aegons financial statements have been prepared and presented in accordance with IFRS. Any future changes in these accounting principles may have a significant impact on Aegons reported results, financial condition and shareholders equity. This includes the level and volatility of reported results and shareholders equity. One of the standards that will be revised in the near future is IFRS 4 Insurance Contracts. The IASB is currently deliberating on the comment letters received by its constituents with regard to the Exposure Draft that was published by the IASB in June 2013. The proposed changes in the accounting for insurance contracts will have a significant impact on Aegons financial position, however, it is not yet clear when the final standard will be issued.
Another standard that will be revised in the near future is IFRS 9 Financial Instruments. The changes proposed by the IASB will have a significant impact on Aegons financial position. Recently the IASB has tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after January 1, 2018. Details on IFRS 9 are provided in note 2.1.3 of the financial statements.
Tax law changes may adversely affect Aegons profitability, as well as the sale and ownership of Aegons products.
Aegon is subject to the substance and interpretation of tax laws in all countries in which Aegon operates or invests. Tax risk is the risk associated with changes in tax laws, or the interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws. This tax risk also includes the risk of changes in tax rates and the risk of consequences arising from failure to comply with procedures required by tax authorities. Failure to manage tax risks may lead to increased tax charges, including financial or operating penalties. This tax risk may have a direct materially adverse effect on Aegons profits and financial condition.
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Further, insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits. Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
The US Congress has, from time to time, considered possible legislation that may make Aegons products less attractive to consumers, including legislation that would reduce or eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This may have an impact on insurance products and sales in the United States.
The US Government, as well as state and local governments, also considers from time to time tax law changes that may increase the amount of taxes that Aegon pays. For example, the US Treasury Department and the Internal Revenue Service may propose new regulations regarding the methodology to determine the dividends received deduction (DRD) related to variable life insurance and variable annuity contracts. The DRD reduces the amount of dividend income subject to tax and is a significant component of the difference between Aegons effective tax rate and the federal statutory tax rate of 35%. A change in the DRD, including the possible elimination of this deduction, may reduce Aegons consolidated net income.
Any changes in tax laws, interpretation of tax laws, later jurisprudence or case law, or the introduction of new taxes or tax laws in all countries in which Aegon operates or invests, which affects Aegons products, may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
Competitive factors may adversely affect Aegons market share.
Competition in Aegons business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. Aegon faces intense competition from a large number of other insurers, as well as non-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and investment products. Consolidation in the global financial services industry can enhance the competitive position of some of Aegons competitors by broadening the range of their products and services, and increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. Traditional distribution channels are also challenged by the ban on sales-based commissions in some countries. These competitive pressures may result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm Aegons ability to maintain or increase profitability.
The adverse market and economic conditions that began in the second half of 2007 and significantly worsened in 2008 and into 2009, with recovery beginning in late 2009 and in 2010, followed in 2011, 2012 and 2013 by further periods of volatility and weakness, particularly in the Eurozone, can be expected to result in changes in the competitive landscape. For example, the financial distress experienced by some financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegons ability or that of Aegons competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegons competitors in product offerings and product pricing that may affect Aegon and Aegons relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be further affected by government-sponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the European sovereign debt crisis.
The default of a major market participant may disrupt the markets.
The failure of a sufficiently large and influential financial institution may disrupt securities markets or clearance and settlement systems in Aegons markets. This may cause market declines or volatility. Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegons contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry.
Aegon may be unable to attract and retain personnel who are key to the business.
As a global financial services enterprise with a decentralized management structure, Aegon relies, to a considerable extent, on the quality of local management in the various countries in which Aegon operates. The success of Aegons operations is dependent, among
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other things, on Aegons ability to attract and retain highly qualified professional personnel. Competition for key personnel in most countries in which Aegon operates is intense. Aegons ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance-related remuneration and limiting severance payments. With differences in interpretation of these regulations by local regulators on how the guidelines need to be applied, as well as to the question of whether they apply to insurance industries at all, these restrictions create an uncertain playing field and may adversely affect Aegons ability to compete for qualified employees, as well as Aegons ability to exchange employees between regions.
Reinsurers to whom Aegon has ceded risk may fail to meet their obligations.
Aegons insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage. Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegons insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of Aegons reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegons financial position and results of operations. Refer to Schedule IV of this Supplemental Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2011, 2012 and 2013.
In accordance with industry practices, Aegon reinsures a portion of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. In 2013, approximately 60% of Aegons total direct and assumed (for which Aegon acts as a reinsurer for others) life insurance in force was ceded to other insurers. The major reinsurers of Aegon USA and Aegon Canada are SCOR SE (SCOR), Munich Re, RGA and Swiss Re. The major reinsurers of Aegon UK are Swiss Re, Munich Re, Pacific Re and XL Re. The non-life reinsurance for Aegon The Netherlands is diversified across several providers including Lloyds market syndicates. The major reinsurers of Aegon Hungary for non-life are Swiss Re, Munich Re and Hannover Re and for life insurance Munich Re and RGA. Aegon Spains major reinsurers are General Re, RGA, National Re and SCOR. Aegon Chinas major reinsurers are Hannover Re, Munich Re, China Re and Aegon Indias major reinsurer is RGA.
Reinsurance may not be available, affordable or adequate to protect Aegon against losses.
As part of Aegons overall risk and capacity management strategy, Aegon purchases reinsurance for certain risks underwritten by Aegons various business segments. Market conditions beyond Aegons control determine the availability and cost of the reinsurance protection Aegon purchases. Accordingly, Aegon may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which may adversely affect Aegons ability to write future business.
Aegon may have difficulty managing its expanding operations, and Aegon may not be successful in acquiring new businesses or divesting existing operations.
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegons operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation; and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Aegons acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert managements attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect Aegons businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and voting percentages of existing shareholders. There can be no assurance that Aegon will successfully identify suitable acquisition candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
334 | Additional information |
Catastrophic events, which are often unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegons business activities.
Aegons operating results and financial position may be adversely affected by volatile natural and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, pandemic disease and other catastrophes. Over the past several years, changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, Aegon seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation, and purchasing reinsurance. However, such events may lead to considerable financial losses to Aegons businesses. Furthermore, natural disasters, terrorism and fires may disrupt Aegons operations and result in significant loss of property, key personnel and information about Aegon and its clients. If its business continuity plans have not included effective contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
Aegon regularly develops new financial products to remain competitive in its markets and to meet the expectations of its clients. If clients do not achieve expected returns on those products, Aegon may be confronted with legal claims, advocate groups and negative publicity.
Aegon may face claims from customers, both individual claimants as well as policyholder advocate groups, and negative publicity if Aegons products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegons products. New products that are less well understood and that have less of a historical performance track record may be more likely to be the subject of such claims. Any such claims may have a materially adverse effect on Aegons results of operations, corporate reputation and financial condition.
Aegon may not be able to protect its intellectual property and may be subject to infringement claims.
Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegons intellectual property. Third parties may infringe on or misappropriate Aegons intellectual property, and it is possible that third parties may claim that Aegon has infringed on or misappropriated their intellectual property rights. Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property, or defend itself against a claim of infringement of a third partys intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegons businesses, results of operation, financial condition and Aegons ability to compete. As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third partys intellectual property, Aegon may be required to pay damages and provide injunctive relief, which may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
Inadequate or failed processes or systems, human factors or external events may adversely affect Aegons profitability, reputation or operational effectiveness.
Operational risk is inherent in Aegons businesses and may manifest itself in many ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modeling errors, and/or internal and external fraud. These events may result in financial loss, harm Aegons reputation, or hinder Aegons operational effectiveness. Aegons management maintains a well-controlled environment and sound policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, operational risk is part of the business environment in which Aegon operates, and is inherent in Aegons size and complexity, as well as Aegons geographic diversity, and the scope of the businesses Aegon operates. Aegons risk management activities cannot anticipate every economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third party service providers are terminated, including contractual arrangements with providers of information technology, administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur losses from time to time due to these types of risks.
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Supplemental Annual Report 2013 |
Additional information | 335 |
Aegons operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of Aegons information technology or communications systems may result in a materially adverse effect on Aegons results of operations and corporate reputation.
While systems and processes are designed to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure may lead to a materially adverse effect on Aegons results of operations and corporate reputation. In addition, Aegon must commit significant resources to maintain and enhance its existing systems in order to keep pace with industry standards and customer preferences. If Aegon fails to keep up-to-date information systems, Aegon may not be able to rely on information for product pricing, risk management and underwriting decisions. In addition, even though backup and recovery systems and contingency plans are in place, Aegon cannot assure investors that interruptions, failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events may have a materially adverse effect on Aegons businesses, results of operations and financial condition.
A computer system failure or security breach may disrupt Aegons businesses, damage Aegons reputation and adversely affect Aegons results of operations, financial condition and cash flows.
Aegon uses computer systems to store, retrieve, evaluate and utilize customer and company data and information. Aegons businesses are highly dependent on its ability to access these systems to perform necessary business functions such as providing customer support, administering variable products, making changes to existing policies, filing and paying claims, managing Aegons investment portfolios and producing financial statements. While Aegon has policies, procedures, automation and backup plans designed to prevent or limit the effect of failure, Aegons computer systems may be vulnerable to disruptions or breaches as a result of natural disasters, man-made disasters, criminal activity, pandemics or other events beyond Aegons control. The failure of Aegons computer systems for any reason may disrupt Aegons operations, result in the loss of customers and may adversely affect Aegons businesses, results of operations and financial condition.
Aegon retains confidential information on its computer systems, including customer information and proprietary business information. Any compromise to the security of Aegons computer systems that results in the disclosure of personally identifiable customer information may damage Argons reputation, expose Aegon to litigation, increase regulatory scrutiny, and require Aegon to incur significant technical, legal and other expenses.
Judgments of US courts may not be enforceable against Aegon in Dutch courts.
There is no treaty between the United States and the Netherlands providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts. Therefore, Aegons investors that obtain a judgment against Aegon in the United States may not be able to require Aegon to pay the amount of the judgment unless a competent court in the Netherlands gives binding effect to the judgment. It may, however, be possible for a US investor to bring an original action in a Dutch court to enforce liabilities against Aegon, Aegons affiliates, directors, officers or any expert named therein who resides outside the United States, based upon the US federal securities laws.
II - Risks relating to Aegons common shares
Aegons share price may be volatile and may drop unexpectedly, making it difficult for investors to resell Aegons common shares at or above the price paid.
The price at which Aegons common shares trade is influenced by many factors, some of which are specific to Aegon and Aegons operations, and some of which are related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of Aegons common shares:
¿ | Investor perception of Aegon as a company; |
¿ | Actual or anticipated fluctuations in Aegons revenues or operating results; |
¿ | Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; |
¿ | Changes in Aegons dividend policy, which may result from changes in Aegons cash flow and capital position; |
¿ | Sales of blocks of Aegons shares by significant shareholders, including Vereniging Aegon; |
¿ | A downgrade or rumored downgrade of Aegons credit or financial strength ratings, including placement on credit watch; |
336 | Additional information |
¿ | Potential litigation involving Aegon or the insurance industry in general; |
¿ | Changes in financial estimates and recommendations by securities research analysts; |
¿ | Fluctuations in capital markets including foreign exchange rates, interest rates and equity markets; |
¿ | The performance of other companies in the insurance sector; |
¿ | Regulatory developments in the Netherlands, the United States, the United Kingdom, and other countries in which Aegon operates; |
¿ | International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; |
¿ | News or analyst reports related to markets or industries in which Aegon operates; |
¿ | General insurance market conditions. |
The high and low prices of Aegons common shares on NYSE Euronext Amsterdam were EUR 4.89 and EUR 3.05 respectively in 2012 and EUR 6.86 and EUR 4.42 respectively in 2013. The high and low sales prices of Aegons common shares on NYSE New York were USD 6.47 and USD 3.92 respectively in 2012 and USD 9.48 and USD 5.76 respectively in 2013. All share prices are closing prices.
Aegon and Aegons significant shareholders may offer additional common shares in the future, and these and other sales may adversely affect the market price of the outstanding common shares.
Aegon may decide to offer additional common shares in the future, for example, to strengthen Aegons capital position in response to regulatory changes or to effect an acquisition.
In connection with its refinancing in September 2002, Vereniging Aegon entered into an equity repurchase facility and a back-up credit facility. On February 9, 2010, both facilities were replaced by a three year term and revolving facilities agreement with a consortium of banks. In 2013, Vereniging Aegon entered into a new three year term and revolving facilities agreement with the same consortium of banks, replacing the three year term and revolving facilities agreement entered into in 2010. Under this agreement, Aegons common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegons common shares held by them as collateral in order to satisfy amounts outstanding.
An additional offering of common shares by Aegon, the restructuring of Aegons share capital, the sales of common shares by significant shareholders or by lenders to Vereniging Aegon, or the public perception that an offering or such sales may occur, may have an adverse effect on the market price of Aegons common shares. As of December 31, 2013, there were 2,131,458,863 common shares and 579,005,440 common shares B issued. Of these Vereniging Aegon held 292,687,444 common shares and all issued common shares B. All of Aegons outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
Vereniging Aegon, Aegons major shareholder, holds a large percentage of the voting shares and therefore has significant influence over Aegons corporate actions.
Prior to September 2002, Vereniging Aegon beneficially owned approximately 52% of the voting shares and thus held voting control over Aegon. In September 2002, Vereniging Aegon reduced its beneficial ownership to approximately 33% of the voting shares (excluding issued common shares held in treasury by Aegon). In 2003, Aegon and Vereniging Aegon amended the 1983 Merger Agreement, resulting in a right for Vereniging Aegon, upon issuance of shares by Aegon, to purchase as many class B preferred shares existing at that time as would enable it to prevent or offset a dilution to below its actual voting power percentage of 33%. In 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegons preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was approved by the General Meeting of Shareholders of Aegon N.V. on May 15, 2013. For details on the simplification of the corporate structure, please see the section Major Shareholders at pages 310-312.
The simplified capital structure included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging Aegon. Following this 2013 amendment, Vereniging Aegons call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%.
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Additional information | 337 |
The simplification of the capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging Aegon. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds for a limited period of 6 months. A Special Cause includes the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. Accordingly, at December 31, 2013, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.58%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegons voting rights will increase to 32.64% for up to six months.
Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including:
¿ | Adopting amendments to the Articles of Association; |
¿ | Adopting the annual accounts; |
¿ | Approving a consolidation or liquidation; |
¿ | Approving a tender offer, merger, sale of all or substantially all of the assets, or other business combination; |
¿ | In particular, during the periods when Vereniging Aegon is entitled to exercise its increased voting rights, it will generally have sufficient voting power to veto certain decisions presented to the General Meeting of Shareholders, including any proposal relating to the following matters: |
¿ | Rejecting binding Supervisory Board nominations for membership to the Supervisory Board and Executive Board; |
¿ | Appointing an Executive Board or Supervisory Board member other than pursuant to Supervisory Board nomination; |
¿ | Suspending or removing an Executive Board or Supervisory Board member other than pursuant to a Supervisory Board proposal. |
Currency fluctuations may adversely affect the trading prices of Aegons common shares and the value of any cash distributions made.
Since Aegons common shares listed on NYSE Euronext Amsterdam are quoted in euros and Aegons common shares listed on NYSE Euronext New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of Aegons common shares. In addition, Aegon declares cash dividends in euros, but pays cash dividends, if any, on Aegons shares of New York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend. As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid.
Convertible securities (or other securities that permit or require Aegon to satisfy Aegons obligations by issuing common shares) that Aegon may issue may influence the market price for Aegons common shares.
Any market that develops for convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares that Aegon has issued or may issue in the future would be likely to influence, and be influenced by, the market for Aegons common shares.
For example, the price of Aegons common shares may become more volatile and may be depressed by investors anticipation of the potential resale in the market of substantial amounts of Aegons common shares received at maturity. Aegons common shares may also be depressed by the acceleration of any convertible securities (or other such securities) that Aegon has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in Aegons equity. Negative results may also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities (or other such securities) and Aegons common shares. Any such developments may negatively affect the value of Aegons common shares.
338 | Additional information |
Property, plants and equipment
In the United States, Aegon owns many of the buildings that the company uses in the normal course of its business, primarily as offices. Aegon owns 16 offices located throughout the United States with a total square footage of 2.0 million. Aegon also leases space for various offices located throughout the United States under long-term leases with a total square footage of 1.1 million. Aegons principal offices are located in Baltimore, Maryland; Cedar Rapids, Iowa; Los Angeles, California; St. Petersburg, Florida; Plano & Dallas, Texas; Harrison, New York; Little Rock, Arkansas; Atlanta, Georgia; and Exton, PA.
Other principal offices owned by Aegon are located in The Hague, the Netherlands; Budapest, Hungary; and Madrid, Spain. Aegon owns its headquarters and leases other offices in the Netherlands (Leeuwarden), the United Kingdom and Canada under long-term leases. Aegon believes that its properties are adequate to meet its current needs.
At the end of 2013, Aegon had 26,981 employees of which were 4,753 agent-employees. Approximately 46% are employed in the Americas, 17% in the Netherlands, 9% in the United Kingdom and 28% in New Markets.
All of Aegons employees in the Netherlands, other than senior management, are covered by collective labor agreements, which are generally renegotiated annually on an industry wide basis. Individual companies then enter into employment agreements with their employees based on the relevant collective agreement. Since its founding, Aegon has participated in collective negotiations in the insurance industry and has based its employment agreements with its employees on the relevant collective agreement. The collective agreements are generally for a duration of one year. Aegon has experienced no significant strike, work stoppage or labor dispute in recent years.
Under Dutch law, members of the Central Works Council responsible for Aegon in the Netherlands are elected by Aegon the Netherlands employees. The Central Works Council has certain defined powers at the level of the Dutch subsidiary company Aegon Nederland N.V., including the right to make non-binding recommendations for appointments to its Supervisory Board and the right to enter objections against proposals for appointments to that Supervisory Board. Moreover, the Central Works Council of Aegon the Netherlands is to be consulted as regards a nomination for appointment pertaining to one seat on the Supervisory Board of Aegon.
The number of employees per geographical area was:
2013 | 2012 | 2011 | ||||||||||
Americas |
12,256 | 11,967 | 12,242 | |||||||||
The Netherlands |
4,584 | 4,930 | 5,166 | |||||||||
United Kingdom |
2,400 | 2,793 | 3,203 | |||||||||
New Markets |
7,651 | 7,160 | 8,659 | |||||||||
26,891 | 26,850 | 29,270 | ||||||||||
Of which agent |
4,753 | 4,402 | 5,948 | |||||||||
Of which Aegons share of employees in joint ventures and associates |
1,462 | 1,546 | 1,073 |
See Note 14 of the notes to the consolidated financial statements of this Supplemental Annual Report for a description of share-based payments to employees.
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Under Dutch law and Aegons Articles of Association, holders of Aegons common shares are entitled to dividends paid out of the profits remaining, if any, after the creation of a reserve account. Aegons Executive Board may determine the dividend payment date and the dividend record date for the common shares, which may vary for the various kinds of registered shares. Aegons Executive Board, with the approval of Aegons Supervisory Board, may also determine the currency or currencies in which the dividends will be paid. Aegon may make one or more interim distributions to the holders of common shares.
Aegon aims to pay out a sustainable dividend to allow equity investors to share in Aegons performance, which can grow over time if Aegons performance so allows. After investment in new business to generate organic growth, capital generation in Aegons operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegons capital management and liquidity risk policies.
Aegon uses cash flows from its operating subsidiaries to pay holding expenses, including funding costs. The remaining cash flow is available to execute Aegons strategy and to fund dividends on its shares, subject to maintaining holding company targeted capital. Depending on circumstances, future prospects and other considerations, Aegons Executive Board may elect to deviate from this target. Aegons Executive Board will also take capital position, financial flexibility, leverage ratios and strategic considerations into account when declaring or proposing dividends on common shares.
Under normal circumstances, Aegon would expect to declare an interim dividend when announcing Aegons second quarter results and to propose a final dividend at the annual General Meeting of Shareholders for approval. Dividends would normally be paid in cash or stock at the election of the shareholder. The relative value of cash and stock dividends may vary. Stock dividends paid may, subject to capital management and other considerations, be repurchased in order to limit dilution.
When determining whether to declare or propose a dividend, Aegons Executive Board has to balance prudence versus offering an attractive return to shareholders, for example in adverse economic and/or financial market conditions. Also, Aegons operating subsidiaries are subject to local insurance regulations which could restrict dividends to be paid to us. There is no requirement or assurance that we will declare and pay any dividends.
Holders of common shares historically have been permitted to elect to receive dividends, if any, in cash or in common shares, except for the final dividend for 2002, as distributed in May 2003, which was made in common shares only. For dividends, which holders may elect to receive in either cash or common shares, the value of the stock alternative may differ slightly from the value of the cash option. We pay cash dividends on shares of New York registry in US dollars through Citibank, N.A., Aegons NYSE paying agent, based on the foreign exchange reference rate (as published each working day at 14:15 hours by the European Central Bank) on the business day following the announcement of the interim dividend or on the second business day following the shareholder meeting approving the relevant final dividend.
340 | Additional information |
The principal market for Aegons common shares is NYSE Euronext Amsterdam. Aegons common shares are also listed on the NYSE Euronext New York.
The table below sets forth, for the calendar periods indicated, the high and low sales prices of Aegons common shares on NYSE Euronext Amsterdam and the NYSE Euronext New York as reported by Bloomberg and is based on closing prices. Share prices have been adjusted for all stock splits and stock dividends through December 31, 2010.
NYSE Euronext Amsterdam (EUR) |
NYSE Euronext New York (USD) |
|||||||||||||||
High | Low | High | Low | |||||||||||||
2009 |
6.17 | 1.85 | 9.23 | 2.30 | ||||||||||||
2010 |
5.41 | 4.04 | 7.41 | 5.11 | ||||||||||||
2011 |
5.68 | 2.68 | 7.92 | 3.62 | ||||||||||||
2012 |
4.89 | 4.07 | 6.47 | 5.22 | ||||||||||||
2013 |
6.86 | 4.23 | 9.48 | 5.76 | ||||||||||||
2011 |
||||||||||||||||
First quarter |
5.68 | 4.58 | 7.92 | 6.13 | ||||||||||||
Second quarter |
5.58 | 4.36 | 8.03 | 6.23 | ||||||||||||
Third quarter |
4.80 | 2.68 | 6.99 | 3.62 | ||||||||||||
Fourth quarter |
3.73 | 2.79 | 5.41 | 3.66 | ||||||||||||
2012 |
||||||||||||||||
First quarter |
4.52 | 3.05 | 5.93 | 3.92 | ||||||||||||
Second quarter |
4.20 | 3.19 | 5.60 | 3.96 | ||||||||||||
Third quarter |
4.50 | 3.35 | 5.88 | 4.06 | ||||||||||||
Fourth quarter |
4.89 | 4.08 | 6.47 | 5.22 | ||||||||||||
2013 |
||||||||||||||||
First quarter |
5.17 | 4.46 | 6.85 | 5.81 | ||||||||||||
Second quarter |
5.38 | 4.23 | 7.08 | 5.76 | ||||||||||||
Third quarter |
6.00 | 5.31 | 7.96 | 6.90 | ||||||||||||
Fourth quarter |
6.86 | 5.57 | 9.48 | 7.53 | ||||||||||||
September 2013 |
5.82 | 5.47 | 7.88 | 7.21 | ||||||||||||
October 2013 |
5.98 | 5.57 | 8.20 | 7.53 | ||||||||||||
November 2013 |
6.58 | 5.75 | 8.89 | 7.72 | ||||||||||||
December 2013 |
6.86 | 6.20 | 9.48 | 8.52 | ||||||||||||
2014 |
||||||||||||||||
January 2014 |
6.96 | 6.46 | 9.46 | 8.67 | ||||||||||||
February 2014 |
6.18 | 6.30 | 9.33 | 8.39 | ||||||||||||
March 2014 (through March 11, 2014) |
6.55 | 6.23 | 9.03 | 8.62 |
On NYSE Euronext Amsterdam only Euronext registered shares may be traded and on the NYSE Euronext New York only New York Registry Shares may be traded.
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Additional company information
Memorandum and Articles of Association
Aegon is registered under number 27076669 in the Commercial Register of the Chamber of Commerce and Industries for Haaglanden, The Hague, the Netherlands.
Certain provisions of Aegons current Articles of Association are discussed below.
Objects and purposes
¿ | The objects of Aegon are to incorporate, acquire and alienate shares and interests in, to finance and grant security for commitments of, to enter into general business relationships with, and to manage and grant services to legal entities and other entities, in particular those involved in the insurance business, and to do all that is connected therewith or which may be conducive thereto, all to be interpreted in the broadest sense. |
¿ | In achieving the aforesaid objects due regard shall be taken, within the scope of sound business operations, to provide fair safeguards for the interests of all the parties directly or indirectly involved in Aegon. |
Provisions related to directors
For information with respect to provisions in the Articles of Association relating to members of the Supervisory Board and Executive Board, refer to the Governance section (pages 93-115).
Description of Aegons capital stock
Aegon has two types of shares: Common shares (par value EUR 0.12) and Common shares B (par value EUR 0.12).
Common characteristics of the common shares and common shares B
¿ | All shares are in registered form. |
¿ | All shares have dividend rights except for those shares (if any) held by Aegon as treasury stock. Dividends which have not been claimed within five years lapse to Aegon. |
¿ | Each currently outstanding share is entitled to one vote except for shares held by Aegon as treasury stock. There are no upward restrictions. |
¿ | However, under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months |
¿ | All shares have the right to participate in Aegons net profits. Net profits is the amount of profits after contributions, if any, to a reserve account. |
¿ | In the event of liquidation, all shares have the right to participate in any remaining balance after settlement of all debts. |
¿ | The General Meeting of Shareholders may, at the proposal of the Executive Board, as approved by the Supervisory Board, resolve to reduce the outstanding capital either by (i) repurchasing shares and subsequently canceling them, or (ii) by reducing their nominal share value. |
¿ | There are no sinking fund provisions. |
¿ | All issued shares are fully paid-up; so there is no liability for further capital calls. |
¿ | There are no provisions discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares. |
Differences between common shares and common shares B
¿ | The common shares are listed; the common shares B are not listed. |
¿ | The financial rights attaching to a Common Share B are one-fortieth (1/40th) of the financial rights attaching to a Common Share. |
¿ | A repayment on common shares B needs approval of the holders of common shares B. |
342 | Additional information |
Actions necessary to change the rights of shareholders
A change to the rights of shareholders would require an amendment to the Articles of Association. The General Meeting of Shareholders (annual General Meeting or extraordinary General Meeting) may only pass a resolution to amend the Articles of Association pursuant to a proposal of the Executive Board with the approval of the Supervisory Board. The resolution requires a majority of the votes cast at the meeting in order to pass. The actual changes to the text of the Articles of Association will be executed by a civil law notary.
Furthermore, a resolution of the General Meeting of Shareholders to amend the Articles of Association which has the effect of reducing the rights attributable to holders of a specific class shall be subject to the approval of the meeting of holders of such class.
Conditions under which meetings are held
Annual General Meetings and extraordinary General Meetings of Shareholders shall be convened by public notice. Notice must be given no later than forty-two days prior to the date of the meeting. The notice must contain a summary agenda and indicate the place where the complete agenda together with the documents pertaining to the agenda may be obtained. The agenda is also sent to shareholders registered with the Company Register. New York Registry shareholders or their brokers receive a proxy solicitation notice.
For admittance to and voting at the meeting, shareholders must produce evidence of their shareholding as of the record date. The Dutch law determines that the record date is twenty-eight days prior to the General Meeting of Shareholders. Shareholders must notify Aegon of their intention to attend the meeting.
Limitation on the right to own securities
There are no limitations, either under the laws of the Netherlands or in Aegons Articles of Association, on the rights of non-residents of the Netherlands to hold or vote Aegon common shares or common shares B.
Provisions that would have the effect of delaying a change of control
A resolution of the General Meeting of Shareholders to suspend or dismiss a member of the Executive Board or a member of the Supervisory Board, other than pursuant to a proposal by the Supervisory Board, shall require at least two-thirds of the votes cast representing more than one-half of the issued capital.
In the event a special cause occurs (such as the acquisition of 15% of Aegons voting shares, a tender offer for Aegons shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and Supervisory Board), Vereniging Aegon will be entitled to exercise its full voting rights of one vote per each common share B for up to six months per special cause, thus increasing its current voting rights to 32.64%.
Threshold above which shareholder ownership must be disclosed
There are no such provisions in the Articles of Association. Dutch law requires public disclosure to an Authority for Financial Markets with respect to the ownership of listed shares when the following thresholds are met: 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75% and 95%.
Material differences between Dutch law and US law with respect to the items above
Reference is made to the paragraph Differences in company law practices for domestic companies included in the Corporate Governance section.
Special conditions governing changes in the capital
There are no conditions more stringent than what is required by law.
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There are no material contracts.
There are no legislative or other legal provisions currently in force in the Netherlands or arising under Aegons Articles of Association restricting remittances to holders of Aegons securities that are not resident in the Netherlands. Cash dividends payable in euros on Aegons common shares may be officially transferred from the Netherlands and converted into any other convertible currency.
I Certain Netherlands tax consequences for holders of shares
The following section outlines certain material Netherlands tax consequences of the acquisition, holding, redemption and disposal of Aegon common shares, but does not purport to be a comprehensive description of all Netherlands tax considerations that may be relevant. This section is intended as general information only and each prospective investor should consult a professional tax adviser with respect to the tax consequences of an investment in Aegon common shares.
This section is based on tax legislation, published case law, treaties, regulations and published policy, in each case as in force as of the date hereof, and it does not take into account any developments or amendments thereof after that date whether or not such developments or amendments have retroactive effect.
This section does not address the Netherlands tax consequences for:
i. | Investment institutions (fiscale beleggingsinstellingen); |
ii. | pension funds, exempt investment institutions (vrijgestelde beleggingsinstellingen) or other entities that are exempt from Netherlands corporate income tax; |
iii. | corporate holders of Aegon common shares, the shareholding of which qualifies for the participation exemption (deelnemingsvrijstelling) of the Netherlands corporate income tax act 1969 (Wet op de vennootschapsbelasting 1969). Generally speaking, a shareholding is considered to qualify as a participation for the participation exemption if it represents an interest of 5% or more of the nominal paid-up share capital; |
iv. | holders of Aegon common shares holding a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or of 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit sharing rights in Aegon; |
v. | persons to whom the beneficial interest in Aegon common shares is attributed based on the separated private assets (afgezonderd particulier vermogen) provisions of the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001); |
vi. | entities which are a resident of Aruba, Curacao or Sint Maarten that have an enterprise which is carried on through a permanent establishment or a permanent representative on Bonaire, Sint Eustatius or Saba, to which permanent establishment or permanent representative the Aegon common shares are attributable; |
vii. | holders of Aegon common shares which are not considered the beneficial owner (uiteindelijk gerechtigde) of these shares or of the benefits derived from or realised in respect of the Aegon common shares; and |
viii. | individuals to whom Aegon common shares or the income therefrom are attributable to employment activities which are taxed as employment income in the Netherlands. |
Where this section refers to the Netherlands, such reference is restricted to the part of the Kingdom of the Netherlands that is situated in Europe and the legislation applicable in that part of the Kingdom.
344 | Additional information |
Dividend tax
Withholding requirement
Aegon is required to withhold 15% Netherlands dividend tax in respect of dividends paid on its common shares. In the Netherlands Dividend Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include:
i. | proceeds in cash or in kind including direct or indirect distributions of profit; |
ii. | liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the average paid-in capital recognised for Netherlands dividend tax purposes, unless a particular statutory exemption applies; |
iii. | the par value of new common shares issued to a holder of Aegon common shares or an increase of the par value of Aegon common shares, except when the (increase in the) par value of Aegon common shares is funded out of its paid-in capital as recognised for Netherlands dividend tax purposes; and |
iv. | partial repayments of paid-in capital recognised for Netherlands dividend tax purposes, if and to the extent there are qualifying profits (zuivere winst), unless Aegons general meeting of the shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the articles of association. |
Residents of the Netherlands
If a holder of Aegon common shares is a resident of the Netherlands, or deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, dividend tax which is withheld with respect to proceeds from Aegon common shares will generally be creditable for Netherlands corporate income tax or Netherlands income tax purposes.
Non-residents of the Netherlands
If a holder of Aegon common shares is a resident of a country other than the Netherlands and if a treaty for the avoidance of double taxation with respect to taxes on income is in effect between the Netherlands and that country, and such holder is a resident for the purposes of such treaty, such holder may, depending on the terms of that particular treaty, qualify for full or partial relief at source or for a refund in whole or in part of the Netherlands dividend tax. A refund of the Netherlands dividend tax is available to entities resident in another EU member state, Norway, Iceland, or Liechtenstein if (i) these entities are not subject to corporate income tax there and (ii) these entities would not be subject to Netherlands corporate income tax, if these entities would be tax resident in the Netherlands for corporate income tax purposes and (iii) these entities are not comparable to investment institutions (fiscale beleggingsinstellingen) or exempt investment institutions (vrijgestelde beleggingsinstellingen). Furthermore, a similar refund of Netherlands dividend tax may be available to entities resident in other countries, under the additional condition that (i) the Aegon common shares are considered portfolio investments and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
US-residents
Residents of the United States that qualify for, and comply with the procedures for claiming benefits under, the Convention between the Kingdom of the Netherlands and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 1992 (the US/NL Income Tax Treaty) may, under various specified conditions, be eligible for a reduction of Netherlands dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which holds directly at least 10% voting power in Aegon. The US/NL Income Tax Treaty provides, subject to certain conditions, for a complete exemption from, or refund of, Netherlands dividend withholding tax for dividends received by exempt pension trusts and exempt organizations, as defined therein.
Beneficial owner
A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely:
a. | that the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: - as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend tax; or - in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend tax; and |
b. | that such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profit-sharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated. |
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Netherlands withholding tax upon redistribution of foreign dividends
Aegon must transfer to the Dutch tax authorities all Netherlands dividend withholding tax it withholds on dividends it distributed with respect to the Aegon common shares. Provided certain conditions are met, Aegon may apply a reduction with respect to the withholding tax that it has to pay over to the Dutch tax authorities. This reduction can be applied if Aegon distributes dividends that stem from dividends Aegon itself has received from certain qualifying non-Netherlands subsidiaries, provided these dividends received by Aegon are exempt from Dutch corporate income tax and were subject to withholding tax of at least 5% upon distribution to Aegon. The reduction is applied to the Netherlands dividend tax that Aegon must pay to the Netherlands tax authorities and not to the amount of the Netherlands dividend tax that Aegon must withhold. The reduction is equal to the lesser of:
i. | 3% of the amount of the dividends distributed by Aegon that are subject to withholding tax; and |
ii. | 3% of the gross amount of the dividends received during a certain period from the qualifying non-Netherlands subsidiaries. |
Corporate and individual income tax
Residents of the Netherlands
If a holder of Aegon common shares is a resident or deemed to be a resident of the Netherlands for Netherlands corporate income tax purposes and is fully subject to Netherlands corporate income tax or is only subject to Netherlands corporate income tax in respect of an enterprise to which Aegon common shares are attributable, income derived from Aegon common shares and gains realised upon the redemption or disposal of Aegon common shares are generally taxable in the Netherlands (at up to a maximum rate of 25%) under the Netherlands corporate income tax act 1969 (Wet op de vennootschapsbelasting 1969).
If an individual is a resident or deemed to be a resident of the Netherlands for Netherlands individual income tax purposes (including an individual who has opted to be taxed as a resident of the Netherlands), income derived from Aegon common shares and gains realised upon the redemption or disposal of Aegon common shares are taxable at the progressive rates (at up to a maximum rate of 52%) under the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001) if:
i. | the individual is an entrepreneur (ondernemer) and has an enterprise to which Aegon common shares are attributable or the individual has, other than as a shareholder, a co-entitlement to the net worth of an enterprise (medegerechtigde), to which enterprise Aegon common shares are attributable; or |
ii. | such income or gains qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden), which include but are not limited to the performance of activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer). |
If neither condition (i) nor condition (ii) above applies to an individual that holds Aegon common shares, such individual must determine taxable income with regard to Aegon common shares on the basis of a deemed return on income from savings and investments (sparen en beleggen), rather than on the basis of income actually received or gains actually realised. This deemed return on income from savings and investments has been fixed at a rate of 4% of the individuals yield basis (rendementsgrondslag) at the beginning of the calendar year, insofar as the individuals yield basis exceeds a certain threshold. The individuals yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on 1 January. The fair market value of Aegon common shares will be included as an asset in the individuals yield basis. The 4% deemed return on income from savings and investments is taxed at a rate of 30%.
Non-residents of the Netherlands
If a person is neither a resident nor is deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes (nor has opted to be taxed as a resident of the Netherlands for individual income tax purposes), such person is not subject to Netherlands income tax in respect of income derived from Aegon common shares and gains realised upon the redemption or disposal of Aegon common shares, except if:
i. | the person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is (other than by way of securities) entitled to a share in the profits of an enterprise or a co-entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25%. |
ii. | the person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which includes activities |
346 | Additional information |
with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is (other than by way of securities) entitled to a share in the profits of an enterprise that is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 52%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under Residents of the Netherlands). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individuals Netherlands yield basis. |
Gift and inheritance tax
Residents of the Netherlands
Generally, gift tax (schenkbelasting) or inheritance tax (erfbelasting) will be due in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of Netherlands Gift and Inheritance Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be a resident of the Netherlands at that time.
A holder of Netherlands nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and dies or makes a gift within ten years after leaving the Netherlands. A holder of any other nationality is deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and makes a gift within a twelve months period after leaving the Netherlands. The same twelve-month rule may apply to entities that have transferred their seat of residence out of the Netherlands.
Non-residents of the Netherlands
No gift or inheritance tax will arise in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or as a result of, the death of, a holder that is neither a resident nor deemed to be a resident of the Netherlands for the purposes of Netherlands Gift and Inheritance Tax Act 1956, however, inheritance tax will be due in the case of a gift of Aegon common shares by, or on behalf of, a holder who at the date of the gift was neither a resident nor deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956, but such holder dies within 180 days after the date of the gift, and at the time of his or her death is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956. A gift made under a condition precedent is deemed to be made at the time the condition precedent is fulfilled.
The proposed financial transactions tax (FTT)
The European Commission has published a proposal for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States).
The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in Aegon common shares (including secondary market transactions) in certain circumstances.
Under the current proposals the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in Aegon common shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, established in a participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States and is subject to legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Aegon common shares are advised to seek their own professional advice in relation to the FTT.
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Value added tax
In general, no value added tax will arise in respect of payments in consideration for the issue of Aegon common shares or in respect of a cash payment made under Aegon common shares, or in respect of a transfer of Aegon common shares.
Other taxes and duties
No registration tax, customs duty, transfer tax, stamp duty, capital tax or any other similar documentary tax or duty will be payable in the Netherlands by a holder of Aegon common shares in respect of or in connection with the subscription, issue, placement, allotment, delivery or transfer of the Aegon common shares.
II Taxation in the United States
This section describes certain US Federal income tax consequences to beneficial holders of common shares that are held as capital assets. This section does not address all US Federal income tax matters that may be relevant to a particular holder. Each investor should consult their tax advisor with respect to the tax consequences of an investment in the common shares. This section does not address tax considerations for holders of common shares subject to special tax rules including, without limitation, the following:
¿ | Financial institutions; |
¿ | Insurance companies; |
¿ | Dealers or traders in securities or currencies; |
¿ | Tax-exempt entities; |
¿ | Regulated investment companies; |
¿ | Persons that will hold the common shares as part of a hedging or conversion transaction or as a position in a straddle or as part of a synthetic security or other integrated transaction for US Federal income tax purposes; |
¿ | Holders that own (or are deemed to own for US Federal income tax purposes) 10% or more of the voting shares of Aegon; |
¿ | Partnerships or pass-through entities or persons who hold common shares through partnerships or other pass-through entities; and |
¿ | Holders that have a functional currency other than the US dollar. |
Further, this section does not address alternative minimum tax consequences or the indirect effects on the holders of equity interests in a holder of common shares. This section also does not describe any tax consequences arising under the laws of any taxing jurisdiction other than the Federal income tax laws of the US Federal government.
This section is based on the US Internal Revenue Code of 1986, as amended, US Treasury regulations and judicial and administrative interpretations, in each case as in effect and available on the date of this Supplemental Annual Report. All of the foregoing is subject to change, which change could apply retroactively and could affect the tax consequences described below.
For the purposes of this section, a US holder is a beneficial owner of common shares that is, for US Federal income tax purposes:
¿ | a citizen or individual resident of the United States; |
¿ | a corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia); |
¿ | an estate, the income of which is subject to US Federal income taxation regardless of its source; or |
¿ | a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust. |
A non-US holder is a beneficial owner of common shares that is not a US holder.
Tax consequences to US Holders
Distributions
The gross amount of any distribution (including any amounts withheld in respect of Dutch withholding tax) actually or constructively received by a US holder with respect to common shares will be taxable to the US holder as a dividend to the extent of Aegons current and accumulated earnings and profits as determined under US Federal income tax principles. Such dividends will not qualify for the dividends received deduction otherwise allowable to corporations. Distributions in excess of current and accumulated earnings and profits are treated under US tax law as non-taxable return of capital to the extent of the US holders adjusted tax basis in the common shares. Distributions in excess of earnings and profits and such adjusted tax basis will generally be taxable to the US holder as capital gain from the sale or exchange of property. However, Aegon does not maintain calculations of its earnings and profits under US Federal income tax principles. Therefore, US holders of Aegon shares will generally be taxed on all distributions as dividends, even if some portion of the distributions might otherwise be treated as a non-taxable return of capital or as capital gain if the amount of US earnings and profits was known. The amount of any distribution of property other than cash will be the fair market value of that property on the date of distribution.
348 | Additional information |
Certain qualified dividend income received by individual US holders is taxed at a maximum income tax rate of 20% in 2013 and subsequent years. Only dividends received from US corporations or from a qualified foreign corporation and on shares held by an individual US holder for a minimum holding period (generally, 61 days during the 121-day period beginning 60 days before the ex-dividend date) can qualify for this reduced rate. Aegon is eligible for benefits under the comprehensive income tax treaty between the Netherlands and the US; therefore, Aegon should be considered a qualified foreign corporation for this purpose. Accordingly, dividends paid by Aegon to individual US holders on shares held for the minimum holding period may qualify for a reduced income tax rate. Each US holder should consult their tax advisor regarding the applicable tax rate.
Distributions paid in currency other than US dollars (a foreign currency), including the amount of any withholding tax thereon, must be included in the gross income of a US holder in an amount equal to the US dollar value of the foreign currency calculated by reference to the exchange rate in effect on the date of receipt. This is the case regardless of whether the foreign currency is converted into US dollars. If the foreign currency is converted into US dollars on the date of receipt, a US holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as ordinary income or loss.
Dividends received by a US holder with respect to common shares will be treated as foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Dutch income tax withheld on dividends may be deducted from taxable income or credited against a US holders Federal income tax liability. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to passive category income and general category income. Dividends distributed by Aegon generally will constitute passive category income, or, in the case of certain US holders, financial services income, which is treated as general category income. Each US holder should consult their tax advisor regarding the availability of the foreign tax credit under their particular circumstances.
The amount of the qualified dividend income paid by Aegon to a US holder that is subject to the reduced dividend income tax rate and that is taken into account for purposes of calculating the US holders US foreign tax credit limitation must be reduced by the rate differential portion of such dividend (which, assuming a US holder is in the highest income tax bracket, would generally require a reduction of the dividend amount by approximately 49.49% in 2013 and subsequent years). Each US holder should consult their tax advisor regarding the implications of the rules relating to qualified dividend income on the calculation of US foreign tax credits under their particular circumstances.
In general, upon making a distribution to shareholders, Aegon is required to remit all Dutch dividend withholding taxes to the Dutch tax authorities The full amount of the taxes so withheld should (subject to certain limitations and conditions) be eligible for the US holders foreign tax deduction or credit as described above. Investors are urged to consult their tax advisors regarding the general creditability or deductibility of Dutch withholding taxes.
Aegon generally affords shareholders an option to receive dividend distributions in cash or in stock. A distribution of additional common shares to US holders with respect to their common shares that is made pursuant to such an election will generally be taxable in the same manner as a cash dividend under the rules described above.
Sale or other disposition of shares
Upon the sale or exchange of common shares, a US holder will generally recognize gain or loss for US Federal income tax purposes on the difference between the US dollar value of the amount realized from such sale or exchange and the tax basis in those common shares. This gain or loss will be a capital gain or loss and will generally be treated as from sources within the United States. Investors should consult their tax advisors with respect to the treatment of capital gains (which may be taxed at lower rates than ordinary income for taxpayers who are individuals, trusts or estates that have held the common shares for more than one year) and capital losses (the deductibility of which is subject to limitations).
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If a US holder receives foreign currency upon a sale or exchange of common shares, gain or loss, if any, recognized on the subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. However, if such foreign currency is converted into US dollars on the date received by the US holder, the US holder generally should not be required to recognize any gain or loss on such conversion.
Passive foreign investment company considerations
Based on the nature of Aegons gross income, the average value of Aegons gross assets, and the active conduct of Aegons insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Company (PFIC). If Aegon were treated as a PFIC in any year during which a US holder owns common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations.
Tax consequences to non-US holders
A non-US holder generally will not be subject to US Federal income tax on dividends received on common shares or on any gain realized on the sale or exchange of common shares unless the gain is connected with a trade or business that the non-US holder conducts in the United States or unless the non-US holder is an individual, such holder was present in the United States for at least 183 days during the year in which such holder disposes of the common shares, and certain other conditions are satisfied. Non-US holders should consult their tax advisors with respect to the US Federal income tax consequences of dividends received on, and any gain realized from the sale or exchange of, the common shares.
Backup withholding and information reporting
Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holders taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or fails to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders are not subject to the backup withholding and information reporting requirements.
Non-US holders that provide the required tax certifications of exempt or foreign status will generally be exempt from US information reporting requirements and backup withholding. However, sales proceeds a non-US holder receives on a sale of common shares through a broker may be subject to information reporting and backup withholding if the non-US holder is not eligible for an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holders US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service. Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.
Individual US holders may be required to report to the IRS certain information with respect to their beneficial ownership of certain foreign financial assets, such as the common shares, if the aggregate value of such assets exceeds USD 50,000 and the assets are not held through a US financial institution. US holders who fail to report required information could be subject to substantial penalties. Prospective investors should consult their own tax advisors concerning the application of the information reporting rules to their particular circumstances.
Principal accountant fees and services
EY has served as Aegons independent public accountant for each of the fiscal years in the three-year period ended December 31, 2013, for which audited financial statements appear in this Supplemental Annual Report.
350 | Additional information |
The following table presents the aggregate fees for professional services and other services rendered by EY to Aegon in 2013, 2012 and 2011.
Fees EY
In million EUR | 2013 | 2012 | 2011 | |||||||||
Audit fees |
19 | 19 | 22 | |||||||||
Audit related fees |
2 | 7 | 6 | |||||||||
Tax fees |
- | - | - | |||||||||
All other fees |
1 | - | 1 | |||||||||
22 | 26 | 29 |
Audit fees consist of fees billed for the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on Aegons consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review. They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include statutory audits or financial audits for subsidiaries or affiliates of the company and services associated with SEC registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit-related fees consist of fees billed for audit-related services including assurance and related services that are reasonably related to the performance of the audit or review of Aegons financial statements or that are traditionally performed by the independent auditor. Audit-related services include, among others, assurance services to report on internal controls for third parties, due diligence services pertaining to potential business acquisitions/dispositions; accounting consultations related to accounting, financial reporting or disclosure matters not classified as Audit services; assistance with understanding and implementing new accounting and financial reporting guidance from rulemaking authorities; financial audits of employee benefit plans; agreed-upon or expanded audit procedures related to accounting and/or billing records required to respond to or comply with financial, accounting or regulatory reporting matters; and assistance with internal control reporting requirements.
Tax fees include fees billed for tax compliance.
All other fees include fees billed for permissible non-audit services that Aegon believes are routine and recurring services, would not impair the independence of the auditor and are consistent with the SECs rules on auditor independence.
Audit Committee Pre-approval Policies and procedures
Aegons Audit Committee is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Aegons independent auditors (the Pre-approval Policy).
Under the Pre-approval Policy, proposed services either
¿ | May be pre-approved by the Audit Committee without consideration of specific case-by-case services (general pre-approval); or |
¿ | Require the specific pre-approval of the Audit Committee (specific pre-approval). Appendices to the Pre-approval Policy (that are adopted each year) set out the audit, audit-related, tax and other services that have received general pre-approval of the Audit Committee. All other audit, audit-related, tax and other services must receive specific pre-approval from the Audit Committee. |
For the period 2011 to 2013, all services provided to Aegon by EY were pre-approved by the Audit Committee in accordance with the Pre-approval Policy.
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Changes in registrants certifying accountants
As announced at the Annual General Meeting of Shareholders in 2012, the audit of Aegons accounts from 2014 was put to tender in 2012. In February 2013, after a thorough process the Audit Committee and the Board decided to propose to shareholders to appoint PwC as the company´s independent auditor for the annual accounts of 2014 through 2016. These proposals were approved at the Annual General Meeting of Shareholders on May 15, 2013.
The reports of Ernst & Young Accountants LLP on the Companys financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Companys financial statements for each of the two fiscal years ended, there were no disagreements with Ernst & Young Accountants LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young Accountants LLP would have caused Ernst & Young Accountants LLP to make reference to the matter in their report. The Company has requested Ernst & Young Accountants LLP to furnish it a letter addressed to the Commission stating whether it agrees with the above statements.
A copy of that letter, dated April 15, 2014 is filed as Exhibit 15.1 to Aegons 2013 Supplemental Annual Report.
Purchases of equity securities by the issuer and affiliated purchasers
Period | Total number of shares purchased1) |
Average price paid per share in EUR |
Total number of shares purchased as part of publicly announced plans or programs2) |
Maximum number of shares that may yet be purchased under the plans or programs at end of month2) |
||||||||||||
January 1 - 31, 2013 |
6,215 | 5.27 | - | - | ||||||||||||
February 1 - 29, 2013 |
8,269 | 5.27 | - | - | ||||||||||||
March 1 - 31, 2013 |
5,210 | 5.27 | - | - | ||||||||||||
April 1 - 30, 2013 |
10,294 | 4.52 | - | - | ||||||||||||
May 1 - 31, 2013 |
6,837 | 5.27 | - | - | ||||||||||||
June 1 - 30, 2013 |
6,924 | 5.27 | - | - | ||||||||||||
July 1 - 31, 2013 |
7,301 | 5.27 | - | - | ||||||||||||
August 1 - 31, 2013 |
5,760 | 6.03 | - | - | ||||||||||||
September 1 - 30, 2013 |
10,997,091 | 5.60 | 10,990,305 | 8,057,053 | ||||||||||||
October 1 - 31, 2013 |
8,062,179 | 5.66 | 8,057,053 | - | ||||||||||||
November 1 - 30, 2013 |
4,078 | 6.78 | - | - | ||||||||||||
December 1 - 31, 2013 |
4,832 | 6.78 | - | - | ||||||||||||
Total |
19,124,990 | 19,047,358 |
1 | The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and agent related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index. |
2 | On September 17, 2013, a repurchase program to neutralize the dilutive effect of the 2013 interim dividend paid in shares was announced. As a consequence approximately 19 million shares have been repurchased between September 17 and October 14, 2013. |
352 | Additional information |
Aegon files annual reports with and furnishes other information to the Securities and Exchange Commission. You may read and copy any document filed with or furnished to the SEC by Aegon at the SECs public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Aegons SEC filings are also available to the public through the SECs website at www.sec.gov. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room in Washington D.C. and in other locations.
The SEC allows Aegon to incorporate by reference information into this Supplemental Annual Report, which means that:
¿ | Incorporated documents are considered part of this Supplemental Annual Report; and |
¿ | Aegon can disclose important information to you by referring you to those documents. |
Those documents contain important information about Aegon and its financial condition. You may obtain copies of those documents in the manner described above. You may also request a copy of those documents (excluding exhibits) at no cost by contacting us (refer to page 358).
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354 | Additional information |
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356 | Additional information |
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358 | Additional information |
Headquarters
Aegon N.V.
Aegonplein 50
2591 TV The Hague
The Netherlands
Telephone: +31 (0) 70 344 32 10
www.aegon.com
Media Relations
Telephone: +31 (0) 70 344 89 56
E-mail: gcc@aegon.com
Investor Relations
Telephone: +31 (0) 70 344 83 05
or toll free (US only): 877-548 96 68
E-mail: ir@aegon.com
Colophon | ||
Consultancy and design | DartGroup, Amsterdam (NL) | |
Editing and production | Aegon Corporate Communications (NL) | |
Typesetting | DartGroup, Amsterdam (NL) |
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Cautionary note regarding non-IFRS measures
This document includes the non-IFRS financial measures: underlying earnings before tax, income tax and income before tax. These non-IFRS measures are calculated by consolidating on a proportionate basis Aegons joint ventures and associated companies. The reconciliation of these measures to the most comparable IFRS measures is provided in note 5 Segment information of this report. Aegon believes that its non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegons business including insight into the financial measures that senior management uses in managing the business.
Functional currencies
This report contains certain information about Aegons results and financial condition in USD for the Americas and GBP for the United Kingdom because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of Aegons primary financial statements.
Forward-looking statements
The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:
¿ | Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom. |
¿ | Changes in the performance of financial markets, including emerging markets, such as with regard to: |
¿ | The frequency and severity of defaults by issuers in Aegons fixed income investment portfolios; |
¿ | The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and |
¿ | The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds. |
¿ | Changes in the performance of Aegons investment portfolio and decline in ratings of Aegons counterparties. |
¿ | Consequences of a potential (partial) break-up of the euro or the potential independence of Scotland from the United Kingdom. |
¿ | The frequency and severity of insured loss events. |
¿ | Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegons insurance products. |
¿ | Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations. |
¿ | Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels. |
¿ | Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates. |
¿ | Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness. |
¿ | Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets. |
¿ | Changes in laws and regulations, particularly those affecting Aegons operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers. |
¿ | Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates. |
¿ | Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations. |
¿ | Acts of God, acts of terrorism, acts of war and pandemics. |
¿ | Changes in the policies of central banks and/or governments. |
¿ | Lowering of one or more of Aegons debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegons ability to raise capital and on its liquidity and financial condition. |
¿ | Lowering of one or more of insurer financial strength ratings of Aegons insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries. |
360 | Additional information |
¿ | The effect of the European Unions Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain. |
¿ | Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business. |
¿ | As Aegons operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegons business, damage its reputation and adversely affect its results of operations, financial condition and cash flows. |
¿ | Customer responsiveness to both new products and distribution channels. |
¿ | Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegons products. |
¿ | Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntary or otherwise, may affect Aegons reported results and shareholders equity. |
¿ | The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegons ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions. |
¿ | Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegons business. |
¿ | Aegons failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving, excess capital and leverage ratio management initiatives. |
Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Supplemental Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegons expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
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Exhibits
Index to Exhibits
7 | Ratio of earnings to fixed charges. | |
15 | Consent of independent registered public accounting firm. | |
15.1 | Letter from Aegon N.V.s Independent Registered Accounting Firm for the audited fiscal years covered by this Supplemental Annual Report. |
The company agrees to furnish to the Securities and Exchange Commission upon request copies of instruments with respect to long-term debt of the company and its consolidated subsidiaries.