20-F 1 d693202d20f.htm 20-F 20-F
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

-

FORM 20-F

-

(Mark One)

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

SECURITIES EXCHANGE ACT OF 1934

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

OR

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

SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-10882

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Aegon N.V.

(Exact name of Registrant as specified in its charter)

-

Not Applicable

(Translation of Registrant’s name into English)

The Netherlands

(Jurisdiction of incorporation or organization)

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

(Address of principal executive offices)

J.H.P.M. van Rossum

Senior Vice President and Corporate Controller

Aegon N.V.

Aegonplein 50, 2501 CB The Hague, The Netherlands

+31-70-3448334

Jurgen_vanRossum@aegon.com

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

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

 

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

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

Not applicable

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Not applicable

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 1,909,654,051 common shares

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

x Yes  No ¨

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes  No x

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

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

x Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer

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

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

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

¨ Item 17  ¨Item 18

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


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I  

 

Cross reference table Form 20-F

 

 

 

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; 157-202; 319-334  

 

 

Item 4

 

 

Information on the Company

 

4A

  History and development of the company   12; 16-84; 279  

4B

  Business overview   16; 31-42; 47-52; 57-61; 68-84  

4C

  Organizational structure   12  

4D

 

Property, plants and equipment

 

  335  

 

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; 157-202; 263-267  

5B

  Liquidity and capital resources   88-91; 239-241; 268-269  

5C

  Research and development, patent and licenses etc.   n/a  

5D

  Trend information   8-10  

5E

  Off-balance sheet arrangements   271-275  

5F

  Tabular disclosure of contractual obligations   199-201; 271-277  

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; 215-217; 283-287  

6C

  Board practices   6-7; 93-100; 108-111  

6D

  Employees   335  

6E

  Share ownership   109-111; 282-287  

 

Item 7

 

 

Major Shareholders and Related Party Transactions

 

7A

  Major shareholders   307-309  

7B

  Related party transactions   282-287  

7C

  Interest of experts and counsel   n/a  

 

Item 8

 

 

Financial Information

 

8A

  Consolidated Statements and Other Financial Information   122-128; 310-315  

8B

  Significant Changes   n/a  

 

Item 9

 

 

The Offer and Listing

 

9A

  Offer and listing details   337  

9B

  Plan of distribution   n/a  

9C

  Markets   337  

9D

  Selling shareholders   n/a  

9E

  Dilution   n/a  

9F

  Expenses of the issue   n/a  

 

 

  Annual Report on Form 20-F 2013   LOGO  


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  II

 

 

Item 10

 

Additional Information

 

 

10A

 

Share capital

 

  n/a  

10B

 

Memorandum and articles of association

 

  338-339  

10C

 

Material contracts

 

  340  

10D

 

Exchange controls

 

  340  

10E

 

Taxation

 

  340-346  

10F

 

Dividends and paying agents

 

  n/a  

10G

 

Statement by experts

 

  n/a  

10H

 

Documents on display

 

  350  

10I

 

Subsidiary Information

 

  n/a  

 

Item 11

 

Quantitative and Qualitative Disclosures About Market Risk

 

  87; 174-202  

 

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

 

  346-347  

16D

 

Exemptions from the Listing Standards for Audit Committees

 

  n/a  

16E

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

  348  

16F

 

Change in Registrant’s Certifying Accountant

 

  348  

16G

 

Corporate Governance

 

  108-111  

16H

 

Mine Safety Disclosure

 

  n/a  

 

17  

Financial Statements

 

  n/a  

 

18  

Financial Statements

 

  122-288  

 

19  

Exhibits

 

  359  

 

 

  Annual Report on Form 20-F 2013   LOGO  


Table of Contents

1

 

Table of contents

 

Strategic information

  
Introduction      3   
Letter of the CEO      4   

Composition of the Executive Board and the Management Board

     6   
Aegon’s strategy      8   

 

Business overview

  
History and development of Aegon      12   
Selected financial data      13   
Business lines      16   
Results of operations      17   

¿    worldwide

     17   

¿    Americas

     25   

¿    The Netherlands

     43   

¿    United Kingdom

     53   

¿    New Markets

     62   
Risk management      85   
Capital and liquidity management      88   
In control statement      92   

 

Governance

  
Report of the Supervisory Board      93   
Members of the Supervisory Board      99   
Remuneration Report      101   
Corporate governance      108   
Differences between Dutch and US company laws      112   
Code of ethics      113   
Controls and procedures      114   

 

Consolidated financial statements

  
Exchange rates      120   
Consolidated income statement of Aegon N.V.      122   

Consolidated statement of comprehensive income of Aegon N.V.

     123   
Consolidated statement of financial position of Aegon N.V.      124   
Consolidated statement of changes in equity of Aegon N.V.      125   
Consolidated cash flow statement of Aegon N.V.      128   
Notes to the consolidated financial statements      129   
Remuneration      282   

Financial statements of Aegon N.V.

  
Income statement of Aegon N.V.      291   
Statement of financial position of Aegon N.V.      292   
Notes to the financial statements      293   

 

Other information

  
Proposal for profit appropriation      307   
Major shareholders      307   

 

Other financial information

  
Schedule I      310   
Schedule II      311   
Schedule III      313   
Schedule IV      314   
Schedule V      315   
Auditor’s report on the Annual Report on Form 20-F      316   

 

Additional information

  
Signatures      318   
Supervision      319   
Property, plants and equipment      335   
Employees and labor relations      335   
Dividend policy      336   
The offer and listing      337   
Additional company information      338   
Memorandum and Articles of Association      338   
Material contracts      340   
Exchange controls      340   
Taxation      340   
Principal accountant fees and services      346   

Purchases of equity securities by the issuer and affiliated purchasers

     348   
Quarterly results – unaudited      349   
Documents on display      350   
Glossary      351   
Disclaimer      357   
 

 

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Annual Report on Form 20-F 2013


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Introduction

 

Filing

This document contains Aegon’s Annual Report 2013 and will also be filed as Aegon’s Annual Report on Form 20-F with the United States Securities and Exchange Commission (SEC).

About this report

This report serves as Aegon’s Annual Report prepared in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board (IFRS), and with Part 9 of Book 2 of the Dutch Civil Code for the year ended December 31, 2013, for Aegon N.V. (the company) and its subsidiaries (collectively known as Aegon). This report presents the Consolidated Financial Statements of Aegon (pages 122-288) and the Parent Company Financial Statements of Aegon (pages 291-305).

Presentation of certain information

Aegon N.V. is referred to in this document as “Aegon”, or “the company”. Aegon N.V. together with its member companies are referred to as “Aegon Group”. For such purposes, “member companies” means, in relation to Aegon N.V., those companies that are required to be consolidated in accordance with the legislative requirements of the Netherlands relating to consolidated accounts.

References to the “NYSE” are to the New York Stock Exchange and references to the “SEC” are to the Securities and Exchange Commission. Aegon uses “EUR” and “euro” when referring to the lawful currency of the member states of the European Monetary Union; “USD”, and “US dollar” when referring to the lawful currency of the United States of America; “GBP”, “UK pound” and “pound sterling” when referring to the lawful currency of the United Kingdom; “CAD” and “Canadian dollar” when referring to the lawful currency of Canada; “PLN” when referring to the lawful currency of Poland; “CNY” when referring to the lawful currency of the People’s Republic of China; “RON” when referring to the lawful currency of Romania; “HUF” when referring to the lawful currency of Hungary; “TRY” when referring to the lawful currency of Turkey; “CZK” when referring to the lawful currency of Czech Republic and “UAH” when referring to the lawful currency of Ukraine.

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

Other than for SEC reporting, Aegon 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.

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

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

 

 

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4   Strategic information Letter of the CEO

 

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.

 

In each of our chosen markets, profound and lasting market changes are driving increased demand for reliable financial solutions. People are living longer than at any time in history; the post-war (“baby boomer”) generation is now entering retirement with an immense pool of accumulated and still-growing assets that will need to be managed for an increasingly longer retirement; governments are continuing to withdraw from traditional means of publicly-provided pension support; and companies have considerably decreased, or ended altogether, their contributions to employee retirement plans. In many developing markets, strong economic growth is creating a sizable and growing affluent middle class that will inevitably seek the same financial protection and long-term security solutions as those in more mature economies. All of these factors provide excellent growth opportunities for our business and confirm that our products and services have never been more needed. Moreover, they provide the basis for the broad range of actions we are taking to further transform our businesses and enhance our ability to interact better and more frequently with those who depend on us.

During 2013, we expanded our reach through promising new distribution agreements in our key markets. We continued to invest in our businesses in Central & Eastern Europe, Asia and Latin America, given the strong demand for protection and savings products in these developing economies. Meanwhile, we continued to review our products and services, broadening and deepening our capabilities in order to target opportunities, and ensuring that the products we offer deliver value for both our customers and Aegon, given our long-term risk-return criteria.

In the United States, we have brought nearly all of our businesses together under the well-recognized Transamerica brand, furthering the strategic integration of our operations which began three years ago. In what continues to be the largest market in the world for life insurance and retirement products and services, we have enhanced our leadership positions with new distribution partners, and developed new digital capabilities that will allow us to better serve our current and future customers’ diverse financial needs across their life-cycle.

At the center of our strategy is our focus on getting closer to our customers through an accelerated investment in technology. The nature of many of our products necessitates professional advice and, as such, we believe the financial advisor will continue to play an essential role in our business. New digital platforms have been introduced to provide intermediaries with the tools to operate more efficiently in a rapidly changing landscape. In the United Kingdom for instance, Aegon’s new pension platform, known as Aegon Retirement Choices, is demonstrating early success. We recognize that consumers increasingly research and wish to purchase financial services products online, as they do many other products and services. Consequently, we are committed to enabling our current and future customers to interact with us in the ways they choose. In the Netherlands, we launched new digital channels aimed at specific customer segments more likely to purchase life insurance and retirement solutions through digital rather than traditional channels.

In addition to enabling our businesses to connect and engage with customers better and with greater frequency, technology also delivers the tools to create a truly distinctive and relevant customer experience. We are committed to providing greater ease of interaction with our businesses, simplifying product explanations, and empowering customers with practical online tools that will both enable them to better understand their financial needs and provide greater clarity about the products and services available to address these needs. This approach, we believe, is essential to our focus on building customer loyalty and strengthening our competitive advantage in an increasingly crowded market.

Consistent with our strict risk-return discipline, we further strengthened Aegon’s risk profile by maintaining a solid balance sheet and further improving our capital position. The strong financial performance, combined with our actions to reduce costs across our organization during 2013, enabled us to continue the momentum of recent years. Clearly, our strategic priorities have delivered their intended benefits to our customers and businesses, and to our valued shareholders who have every reason to expect an attractive and growing return on their investment.

 

 

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Essential to our long-term success is creating an internal culture of customer-centricity, innovation and shared responsibility. Equipping our leaders with the resources they require to promote this culture is among our most important objectives. During the past year, we have introduced a number of training and development programs to enhance the professional skills and competencies of employees at all levels. Mindful of the pace of technological advances in today’s digital environment, we also recognize the need to attract talented individuals from outside our industry who are able to embrace and accelerate the changes we are implementing. Encouraging new ways of thinking and responding to the considerable opportunities we have identified is a pre-requisite of management, and key to our long-term success.

Beyond what we have done to fulfil our commitments to our customers over the past year – paying just over EUR 20 billion in claims and benefits – our businesses have also contributed financially and our employees given generously of their time and talents to make a difference in the communities in which they live and work. Aegon takes seriously its broader commitments to the communities where we operate and to society at large. In addition to maintaining sound corporate governance standards and practices, we believe this can have a positive impact on issues related to the environment, responsible investment, financial literacy, and other socially sustainable concerns. This, we believe, is as critical to our long-term business success as our disciplined risk and financial management.

My Management Board colleagues and I wish to express our gratitude to the dedicated men and women of Aegon who have contributed to our solid results and strategic progress over the past year. Through their focused and determined efforts, we have enhanced our ability to better serve our current and future customers by delivering consistently high quality products and services, while strengthening our prospects for sustainable, profitable growth going forward. We also wish to reaffirm our commitment to you, our valued shareholders, who have likewise made possible the achievements of recent years through your abiding confidence and support.

Thank you for your ongoing interest in Aegon and in all that we are doing to assist our current and future customers in planning and achieving a secure financial future. Ensuring that we continue to be in a strong position to deliver on our promises remains our most important priority.

Sincerely,

 

LOGO

Alex Wynaendts

Chairman of the Executive Board of Aegon N.V.

and Chief Executive Officer

 

 

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6   Strategic information Composition of the Executive Board and the Management Board

 

Composition of the Executive Board

and the Management Board

 

Alex Wynaendts (1960, Dutch)

Chief Executive Officer

Chairman of the Executive Board

Chairman of the Management Board

Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development. Since 2003, he has been a member of Aegon’s Executive Board, overseeing the company’s international growth strategy. In April 2007, Mr. Wynaendts was named Aegon’s Chief Operating Officer. A year later, he became CEO and Chairman of Aegon’s Executive and Management Boards.

 

 

Darryl Button (1969, Canadian)

Chief Financial Officer

Member of the Executive Board

Member of the Management Board

Darryl Button began his career by Mutual Life Insurance Co. of Canada and joined Aegon in 1999 as Director of Product Development and Risk Management of Aegon USA’s Institutional Markets operation unit. He was appointed Corporate Actuary of Aegon USA in 2002, followed by CFO of Aegon Americas in 2005. Between 2008-2011, Mr. Button took on the responsibilities of Chairman and executive management of Aegon’s Canadian operations, and in 2012 he joined Aegon’s Corporate Center as Executive Vice President and Head of the Corporate Financial Center. In 2013, Mr. Button was appointed as CFO and member of the Executive Board of Aegon. He is also a member of the Management Board.

 

 

Adrian Grace (1963, British)

Member of the Management Board

Chief Executive Officer of Aegon UK

Adrian Grace started his career with Leeds Permanent Building Society in 1979, before joining Mercantile Credit in 1984. In 2001, Mr. Grace joined Sage Group PLC as Managing Director of the Small Business Division. In 2004, Barclays Insurance asked him to join them as Chief Executive. Mr. Grace joined HBOS in 2007 as Managing Director of Commercial within the Corporate Division. In 2009, he joined Aegon UK as Group Business Development Director and on April 4, 2011, he became the Chief Executive Officer. Mr. Grace has been a member of Aegon’s Management Board since February 2012. He sits on the Board of the Association of British Insurers.

 

 

Tom Grondin (1969, Canadian)

Member of the Management Board

Chief Risk Officer of Aegon N.V.

Tom Grondin was appointed Chief Risk Officer of Aegon N.V. in August 2003 and a member of Aegon’s Management Board on January 1, 2013. His current responsibilities include managing the Risk and Compliance functions. In this role, Mr. Grondin is responsible for development and oversight of Aegon’s Enterprise Risk Management framework and Aegon’s internal Economic Framework. The Economic Framework has helped guide Aegon’s risk and business strategy over the years. He joined Aegon in 2000 in one of Aegon USA’s larger operations. Mr. Grondin had overall responsibility for pricing, profitability and risk management for the business. Prior to joining Aegon, he was employed as a consultant at Tillinghast–Towers Perrin and before that as asset liability manager at Manulife Financial.

 

 

 

 

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Annual Report on Form 20-F 2013


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Marco Keim (1962, Dutch)

Member of the Management Board

Chief Executive Officer of Aegon the Netherlands

Marco Keim began his career with accountants Coopers & Lybrand/Van Dien. Mr. Keim has also worked for aircraft manufacturer Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the Netherlands as a member of the Board. Three years later, Mr. Keim was appointed CEO. In June 2008, he became CEO of Aegon the Netherlands and a member of Aegon’s Management Board.

 

 

Gábor Kepecs (1954, Hungarian)

Member of the Management Board

Chief Executive Officer of Aegon Central & Eastern Europe

Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company Állami Biztosító. In 1990, he was appointed CEO, two years before Állami Biztosító was privatized and acquired by Aegon. Between 1992 and 2009, Mr. Kepecs was the CEO of Aegon Hungary. In that time, he has headed the expansion of Aegon’s businesses not only in Hungary but also across the Central & Eastern European region. Mr. Kepecs has been a member of Aegon’s Management Board since it was established in 2007.

 

 

Mark Mullin (1963, American)

Member of the Management Board

Chief Executive Officer of Aegon Americas

Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe. Mr. Mullin has served as President and CEO of one of Aegon’s US subsidiaries, Diversified, and as head of the company’s annuity and mutual fund businesses. In January 2009, he was named President of Aegon Americas and he became President and CEO of Aegon Americas and a member of the Management Board one year later.

 

 

 

 

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Table of Contents
8   Strategic information Aegon’s strategy

 

Aegon’s 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.

 

Aegon’s purpose is to help people take responsibility for their financial future. To achieve this, the company strives to provide easy-to-understand products that help customers make better financial decisions for themselves and their families. As a company, Aegon believes that everyone, regardless of their income, deserves to retire with dignity and peace of mind.

Aegon’s ambition is to become a leader in all of its chosen markets. This means being the most recommended provider of life insurance and pensions among customers, the preferred partner among intermediaries and distributors, and the employer of choice for both current and prospective employees.

Recognizing the increasing demand for asset protection, accumulation and long-term retirement security products and services, Aegon is investing in new approaches to better serve the full range of customers’ financial needs throughout their life cycle. This includes accelerating investment in technology to enable Aegon’s businesses to interact directly with customers.

Fostering a truly customer-centric culture throughout the organization is at the core of Aegon’s strategy. This entails ensuring that every employee understands how he or she can contribute to a distinctive and consistently positive customer experience. To support this essential cultural mindset, a new coordinated approach to performance management has been implemented across Aegon’s businesses, with a strong emphasis on talent development and customer centricity. Compensation and incentives have been aligned accordingly. Aegon encourages new thinking and innovative approaches as it continues to transform its businesses.

In recent years, Aegon has taken steps to reduce costs, lower risk and free up capital for reinvestment in its businesses. It has divested businesses no longer considered core, or which have failed to provide sufficient returns or prospects for long-term growth. These actions have enabled Aegon to achieve a solid capital position, deal effectively with economic and market volatility, and position its businesses for future growth. At the same time, Aegon has invested in key areas of growth, such as emerging markets in Central & Eastern Europe, Asia and the Americas, while also restructuring its businesses to achieve greater operational efficiency and deliver a higher level of customer service. Better leveraging the broad expertise that

exists within Aegon across various businesses and geographies continues to be a key strategic objective.

Aegon’s strategy is supported by its ambition: to be a leader in all of its chosen markets. To support this ambition, Aegon has implemented four strategic objectives:

¿   To optimize its portfolio by investing in businesses that offer attractive returns and strong prospects for growth and, if necessary, closing or divesting business that do not meet Aegon’s risk-return requirements, or contribute to its long-term ambitions;  
¿   To enhance customer loyalty by improving customer service, investing in new distribution capabilities, and expanding the company’s online presence to connect better and more frequently with its customers;  
¿   To deliver operational excellence by improving efficiency and reducing costs, innovating and making better use of its resources around the world;  
¿   To empower employees by providing the tools, training and internal culture necessary to better serve the developing needs of its customers, while also enabling employees to realize their full potential.  

In 2013, Aegon took clear steps toward each of these objectives, helping position the company’s businesses for the future, and meet the risks and opportunities presented by long-term industry trends.

Optimize portfolio

Aegon targeted opportunities in its core markets in the Americas, Europe and Asia by:

¿   Investing in the rapidly-expanding ‘at-retirement’ market of people in their fifties and sixties who are actively preparing for retirement in the United States, the United Kingdom and the Netherlands. In the United Kingdom, Aegon is seeking to increase its share of the workplace savings and non-advised markets;  
¿   Repositioning in Central & Eastern Europe – by channeling other resources into new products and services, ceasing new investment in mandatory private pensions due to government restrictions, selling off pension operations in the Czech Republic, and expanding the life and pensions business in Romania;  
 

 

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Annual Report on Form 20-F 2013


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  ¿   Expanding into new markets – through the acquisition of Fidem Life, one of Ukraine’s leading providers in the emerging life insurance market, and the opening of a new office in Germany in the second half of 2013 to market variable annuities;
  ¿   Re-pricing, redesigning and withdrawing products, improving Aegon’s overall product mix to reduce capital requirements and improve profitability;
  ¿   Restructuring in Spain – by securing a twenty-five year joint venture and distribution partnership with Banco Santander, the country’s largest bank, and exiting some former joint ventures;
  ¿   Entering new distribution partnerships with other key banks, including Barclays Bank in the United Kingdom.

Enhance customer loyalty

Aegon is expanding digital distribution capability and improving understanding of customers’ changing needs by:

  ¿   Launching new online products in Spain and Turkey. Aegon now retails online in nearly all its markets, and has also expanded its digital marketing and social media efforts;
  ¿   Investing in emerging new business models. In the Netherlands, Aegon launched Kroodle, a social media platform to sell general insurance, and in recent years has begun distribution through the drugstore chain Kruidvat;
  ¿   Expanding the company’s variable annuities business, and launching other related products, such as a new series of mutual funds in the United States, and new additional risk riders with products in Central & Eastern Europe;
  ¿   Implementing a common measurement for customer loyalty. Aegon has implemented the Net Promoter Score (NPS) across its businesses, and is using NPS methodology to drive long-term improvements in products and customer service. The company has also established a Customer Intelligence Council to improve analysis of customer data and statistics, and launched the not-for-profit Transamerica Center for Health Studies to research and contribute to important health issues in the United States.

Deliver operational excellence

Aegon improved efficiency, supported intermediaries and expanded distribution through traditional channels by:

  ¿   Continuing to reduce costs where possible to allow for increased investments. Cost saving initiatives included the creation of a shared service center in the Americas, further cost reduction in the Netherlands, and restructuring both in the United Kingdom and at Aegon’s Corporate Center;
  ¿   Pursuing value over volume through a strict pricing discipline, an approach aimed at securing profitable, sustainable growth – while making sure that, before any new product or service is introduced, customer benefits are fully assessed and taken into account through an updated Pricing & Product Development Policy;
¿   Investing in a new online platform in the United Kingdom, called Aegon Retirement Choices. The platform provides independent financial advisors with a clear overview of Aegon’s product range, and helps them to provide the right advice to Aegon’s customers;  
¿   Opening up access to Aegon’s Global Ethics Line to make it easier for outside parties to report suspected misconduct and violations of the company’s Code of Conduct;  
¿   Completing a second transaction to reduce the risk associated with longer life expectancy in the Netherlands and cover EUR 1.4 billion in longevity reserves.  

Empower employees

Aegon strengthened employee engagement, and improved the working environment by:

¿   Introducing limited paid time off for volunteer work. By the end of 2013, 91% of Aegon’s employees worldwide had access to this benefit;  
¿   Helping employees establish new affinity groups in the United States and the Netherlands in support of broader efforts to improve workforce diversity;  
¿   Deepening Aegon’s regular talent review, which maps employees’ skills against the company’s long-term requirements;  
¿   Supporting employees impacted by company restructuring with social plans and programs to find new employment within and outside the company;  
¿   Implementing local action plans based on the findings from the 2013 Global Employee Engagement Survey. Aegon identified three main priorities: do more to explain the company’s business strategy to employees; strengthen employees’ focus on customers; provide additional opportunities for career development;  
¿   Developing an Employer Value Proposition, which sets out the advantages of working for Aegon among prospective employees. The Employer Value Proposition will support wider efforts in new recruitment.  

Market conditions

The global economy continued to recover in 2013, but growth was low in many countries, and business confidence remained depressed. Overall, world output expanded by 2.9%, the lowest annual rate of growth since the end of the previous recession in 2009. Growth is forecast to accelerate in 2014, but the global economy still faces significant downside risks.

In the United States, economic growth improved. There was further improvement in the US housing market. Unemployment decreased – though much of the decline in reported rates was attributed to people withdrawing from the labor force rather than to job creation. Cuts in government spending subdued economic growth, however.

 

 

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Table of Contents
10   Strategic information Aegon’s strategy

 

 

In Europe, growth rates continued to lag behind those of the United States and other developed economies. High rates of unemployment persisted, particularly in those countries hit hardest by the recent eurozone crisis. The German and French economies showed modest growth, while those of Spain and Italy remained in recession. Meanwhile, the UK economy showed stronger growth. In the Netherlands, the economy contracted. Many European countries continued to struggle with structural, economic and financial sector reform.

Overall growth in emerging markets was relatively strong, though at a much lower rate than in previous years. In China, the world’s second largest economy, growth slowed to 7.6%, with export markets sluggish and the Chinese economy re-focusing on internal consumption. In Central & Eastern Europe, growth rates improved, due in part to a stronger performance from the region’s main trading partners in Western Europe.

Share prices in both the United States and Europe rose to new highs on signs of renewed economic growth. The Dow Jones Industrial Average ended the year up nearly 26%; over the same period, the FTSE-100 gained almost 15%. The long-term yield on US bonds also increased significantly on expectations of tapered debt purchases by the Federal Reserve. Short-term interest rates remained at historical lows of close to zero. In the United States, the Federal Reserve began to tighten monetary policy at the end of the year in response to further significant improvement in unemployment rates. Yields on 10-year German bonds improved, due in part to increased demand from eurozone banks.

Increased financial stability in the eurozone strengthened the euro. By the end of 2013, the euro had gained just over 3.6% against the US dollar, and more than 3% against sterling. Slower economic growth brought depreciation in many emerging market currencies, including the Brazilian real, the Indian rupee and the South African rand.

Economists are optimistic about further economic growth in 2014. Nevertheless, the global economy faces considerable risks, particularly from the future direction of Federal Reserve monetary policy and the management of the US government budget. Uncertainty also persists with regard to structural economic reform in Europe, and continued weak labor markets on both sides of the Atlantic. Emerging market growth remains relatively high, but may be impacted as the global economy adjusts to historically low GDP growth rates, especially in China and India.

Long-term industry trends

The life insurance and pensions industry is in a period of significant change for several reasons. These include shifts in the global economic balance, aging populations, changing demographics, new legislation, and the increasing trend of customers who research financial services products and then purchase online.

The world’s population is growing older. By the middle of the century, the United Nations estimates that worldwide almost 1.5 billion people will be over the age of 65. More than three quarters will live in less developed economies. Rising life expectancy will increase the length of retirement. At the same time, governments are no longer able to afford generous state pensions. This means greater demand for life insurance, pensions and other long-term savings and investment products as individuals seek ways to achieve a secure financial future.

There is change in the way insurance and pension products are sold and purchased. The regulatory environment has changed significantly in many of Aegon’s markets. In the United States, for example, there has been major healthcare and financial services reform. In the United Kingdom and the Netherlands, new legislation has effectively ended commissions for brokers and other intermediaries. As a result, financial services providers like Aegon, and financial advisors and intermediaries, are seeking to interact better and more regularly with their customers to serve their broader needs. Meanwhile, new technology is increasing the ability of customers to research and buy financial products online. Emerging competition from online-only providers has begun to challenge established business models.

The economic recovery remains uncertain. Despite improvement, economic growth remains uncertain. Financial volatility has increased, and interest rates are at historical lows, which may restrict profits for insurance companies and other financial service providers. Increased volatility means customers are more aware of financial risk.

Companies are held to higher standards of corporate behavior. There is increasing pressure on companies to be responsible employers, investors and purchasers of goods and services. Many companies increasingly recognize the connection between financial performance and responsible resources management.

 

 

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Annual Report on Form 20-F 2013


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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 Aegon´s 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.

 

 

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Table of Contents
12   Business overview History and development of Aegon

 

Business overview

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.

 

Aegon N.V., through its member companies that are collectively referred to as Aegon or the Aegon Group, is an international life insurance, pensions and asset management company. Aegon is headquartered in the Netherlands and employs, through its subsidiaries, nearly 27,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (NYSE Euronext) and New York (NYSE).

Aegon N.V. is a holding company. Aegon’s businesses focus on life insurance, pensions and asset management. Aegon is also active in accident, supplemental health, and general insurance, and has some limited banking activities. The company’s operations are conducted through its operating subsidiaries.

The main operating units of Aegon are separate legal entities organized under the laws of their respective countries. The shares of those legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe Holding B.V., the holding company for all European activities; Aegon International B.V., which serves as a holding company for the Aegon Group companies of all non-

European countries; and Aegon Asset Management Holding B.V., the holding company for some of its asset management entities.

Aegon operates in more than 25 countries in the Americas, Europe and Asia, and serves millions of customers. Its main markets are the United States, the Netherlands and the United Kingdom.

The company encourages product innovation and fosters an entrepreneurial spirit within its businesses. New products and services are developed by local business units with a continuous focus on helping people take responsibility for their financial future. Aegon uses a multi-brand, multichannel distribution approach to meet its customers’ needs.

Aegon has the following reportable operating segments: the Americas, which includes the United States, Canada, Brazil and Mexico; the Netherlands; the United Kingdom; and New Markets, which includes a number of countries in Central & Eastern Europe, and Asia, Spain, France, Variable Annuities Europe, and Aegon Asset Management.

 

 

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Annual Report on Form 20-F 2013


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13

 

Selected financial data

The financial results in this Annual Report are based on Aegon’s consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).

 

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 presentation of the financial statements and that require

complex estimates or significant judgment are described in the notes to the financial statements.

A summary of historical financial data is provided in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report.

 

 

Selected consolidated income statement information                       
In EUR million (except per share amount)      2013           2012 1)           2011 2)           2010 2)           2009 2)   
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 3)

     29,805           29,327           29,159           31,608           29,751   

Income/ (loss) before tax

     1,147           1,866           938           1,940           (410)   
Net income/ (loss)      980           1,543           887           1,777           239   
Earnings per common share                       

Basic

     0.36           0.68           (0.05)           0.77           (0.13)   

Diluted

     0.36           0.68           (0.05)           0.69           (0.13)   

Earnings per common share B

                      

Basic

     0.01           -           -           -           -   

Diluted

     0.01           -           -           -           -   

 

1    As described in Note 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.

2    The consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IAS 19.

3    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           2012 1)           2011 2)           2010 2)           2009 2)   
Amounts based upon IFRS                       

Total assets

     353,745           364,832           345,091           331,995           298,540   

Insurance and investment contracts

     282,107           276,358           270,679           270,693           248,903   

Borrowings and trust pass-through securities 3)

     12,159           13,846           10,040           8,604           7,314   

Shareholders’ equity

     20,059           23,449           20,036           16,806           11,812   
  1  As described in Note 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.
  2  The consolidated financial statements, comparative information related to previous periods was retrospectively restated for the changes in accounting policies on IAS 19.
  3  Includes subordinated borrowings and excludes bank overdrafts.

 

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Table of Contents
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         -         -         -         -   

 

Dividends

Aegon declared interim and final dividends on common shares for the years 2010 through 2013 in the amounts set forth in the following table. The 2013 interim dividend amounted to EUR 0.11 per common share. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 13, 2013. At the General Meeting of Shareholders on May 21, 2014, the Supervisory Board will, absent unforeseen circumstances, propose a final dividend of

EUR 0.11 per common share (at each shareholders option in cash or in stock), which will bring the total dividend for 2013 to EUR 0.22. Dividends in US dollars are calculated 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 business day following the General Meeting of Shareholders approving the relevant final dividend.

 

 

       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 shareholder’s option in cash or in stock.
  2 Proposed.

 

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From May 2003 to May 2013, Aegon had common shares and class A and class B preferred shares. The annual dividend on Aegon’s class A and class B preferred shares was calculated on the basis of the paid-in capital on the preferred shares using a rate equal to the European Central Bank’s fixed interest percentage for basic refinancing transactions plus 1.75%, as determined on NYSE Euronext Amsterdam’s first working day of the financial year to which the dividend relates. Apart from this, no other dividend was paid on the preferred shares. This resulted in a rate of 2.75% for the year 2012. Applying this rate to the weighted average paid-in capital of its preferred shares during 2012, the total amount of annual dividends Aegon made in 2013 on its preferred shares for the year 2012 was EUR 59 million. In addition, Aegon paid a 2013 interim dividend on the preferred shares of EUR 24 million, covering the period from January 1, 2013 until the cancellation of all preferred shares in May 2013.

Exchange rates

Fluctuations in the exchange rate between the euro and the US dollar will affect the dollar equivalent of the euro price of Aegon’s common shares traded on NYSE Euronext Amsterdam and, as a result, are likely to impact the market price of Aegon’s common shares in the United States. Such fluctuations will also affect any US dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on Aegon’s common shares.

As of March 3, 2014, the USD exchange rate was EUR 1 = USD 1.3763.

The high and low exchange rates for the US dollar per euro for each of the last six months through February 2014 are set forth below:

 

 

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   

 

The average exchange rates for the US dollar per euro for the five years ended December 31, 2013, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below:

 

 

 

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.

 

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Table of Contents
16   Business overview Business lines

 

Business lines

 

Americas

Includes Aegon’s businesses and operating units in the United States, Canada, Brazil, and Mexico.

 Life & Protection

Products with mortality, morbidity and longevity risks, including traditional and universal life, as well as endowment, term, and whole life insurance products. Accident and health business, including supplemental health, accidental death and dismemberment insurance, critical illness, cancer treatment, credit/disability, income protection, and long-term care insurance.

 Individual Savings & Retirement

Primarily variable annuity products and retail mutual funds. Currently fixed annuities are not actively sold.

 Employer Solutions & Pensions

Includes both individual and group pensions, as well as 401(k)-type of pension plans, and stable value solutions.

 

 

 

The Netherlands

 Life & Savings

Products with mortality, morbidity, and longevity risks, including traditional and universal life, as well as employer, endowment, term, whole life insurance products, mortgages, saving deposits, and annuity products.

 Pensions

Individual and group pensions usually sponsored by, or obtained via, an employer.

 Non-life

General insurance, consisting mainly of automotive, liability, disability, household insurance, and fire protection.

 Distribution

Independent distribution channel, offering both life and non-life insurance solutions.

 

 

 

United Kingdom

 Life

Immediate annuities, individual protection products, such as term insurance, critical illness, and income protection.

 Pensions

Individual pensions, including self-invested personal pensions and income drawdown products. Group pensions, sponsored by, or obtained via, an employer. Also includes the tied-agent distribution business.

 

 

New Markets

Includes all businesses and operating units in Central & Eastern Europe, Asia, Spain and France, as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management.

 Central & Eastern Europe

Active in the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey, and Ukraine. Includes life insurance, individual and group pension products, savings and investments, as well as general insurance.

 Spain

Distribution partnerships with Spanish banks, offering life insurance, accident and health, and general insurance and investment products.

 France

Partnership with French insurer and pension specialist AG2R La Mondiale.

 Asia

Direct and affinity products are marketed in Asia through Aegon Direct & Affinity Marketing Services. Aegon offers life insurance to high-net-worth individuals via the Transamerica brand. Aegon has joint ventures in China, India, and Japan. Products include (term) life insurance in China and India, and variable annuities in Japan.

 Variable Annuities Europe

Variable annuities offered by Aegon companies operating in Europe and international/offshore bonds for the UK market.

 Aegon Asset Management

Asset management products, including equity and fixed income, covering third party clients, insurance-linked solutions, and Aegon’s own insurance companies.

 

 

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17

 

Results of operations

Results 2013 worldwide

 

Underlying earnings geographically

            
Amounts in EUR millions      2013           2012           %   
Net underlying earnings      1,541           1,424           8%   

Tax on underlying earnings

     405           427           (5%
Underlying earnings before tax geographically             

Americas

     1,369           1,366           0%   

The Netherlands

     355           325           9%   

United Kingdom

     98           110           (11%

New markets

     236           274           (14%

Holding and other activities

     (113        (224        50%   
Underlying earnings before tax      1,945           1,851           5%   

Net fair value items

     (1,133        (41        -     

Gains / (losses) on investments

     502           407           23%   

Impairment charges

     (121        (176        31%   

Other income / (charges)

     (52        (162        68%   

Run-off businesses

     14           2           -     

Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates)

     1,155           1,881           (39%

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     8           15           (47%

 

Income tax

 

     (174        (338        49%   

Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     (8        (15        47%   
Net income      980           1,543           (36%

Commissions and expenses

     5,809           5,765           1%   

of which operating expenses

     3,328           3,177           5%   

 

This Annual Report includes the non-IFRS financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in the table above as well as in note 5 of the consolidated financial statements. This non-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in Spain, China and Japan and Aegon’s associates in India, Brazil and Mexico.

The table also includes the non-IFRS financial measure: net underlying earnings. This is the after-tax equivalent of underlying earnings before tax. The reconciliation of net underlying earnings to the most comparable IFRS measure is presented in the table above. Aegon believes that its non-IFRS measure provides meaningful information about the underlying operating results of Aegon’s businesses, including insight into the financial measures that senior management uses in managing the businesses.

Aegon’s senior management is compensated based in part on Aegon’s results against targets using the non-IFRS measure

presented herein. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measure 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 and 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 measure shown herein, when read together with Aegon’s reported IFRS financial statements, provides meaningful supplemental information for the investing public to evaluate Aegon’s businesses 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 (that is, companies may use different local generally accepted accounting principles (GAAPs)), and this may make the comparability difficult from period to period.

 

 

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Table of Contents
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 commission 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

     1,017           1,068           (5%)   

Individual Savings & Retirement

     507           490           3%    

Pensions

     386           352           10%   

Non-life

     12           15           (20%)   

Distribution

     16           15           7%    

Asset management

     95           101           (6%)   

Other

     (111)           (224)           51%    

Associates

     24           34           (29%)   
Underlying earnings before tax      1,945           1,851           5%    

 

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Annual Report on Form 20-F 2013


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19

 

Results 2013 worldwide

Aegon’s 2013 net income amounted to EUR 849 million. Increased underlying earnings before tax of EUR 1,945 milion were impacted by a loss of EUR 1,309 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.

 

Net income

Net income decreased to EUR 980 million compared to EUR 1,543 million in 2012. Higher underlying earnings, realized gains on investments, lower impairments and other charges were more than offset by losses from fair value items.

Underlying earnings before tax

Aegon’s underlying earnings before tax in 2013 increased 5% to EUR 1,945 million compared to EUR 1,851 million in 2012. Underlying earnings before tax rose from business growth, deleveraging, the positive effects of favorable equity markets and the net positive impact of one-time items. These positive one-time items were only partly offset by the loss of earnings due to divestments in Spain and Aegon Asset Management, and the impact of unfavorable currency exchange rates.

 

  ¿   Underlying earnings before tax in the Americas improved slightly to EUR 1,369 million. Growth in Variable Annuities and Pensions offset the impact of unfavorable currency exchange rates, lower earnings from Fixed Annuities, higher sales and employee related expenses, and additional investments in technology. At constant currencies, underlying earnings increased by 3%.
  ¿   In the Netherlands, underlying earnings before tax increased 9% to EUR 355 million. Higher Pension earnings, driven mostly by a benefit resulting from observed mortality of EUR 25 million and improvement in Non-life more than offset lower earnings in Life & Savings, due mostly to reduced policy charges on unit-linked products of EUR 28 million as part of the acceleration of product improvements to unit-linked insurance policies.
  ¿   Underlying earnings before tax in the United Kingdom amounted to EUR 98 million in 2013, a decline of 11% compared to 2012. The positive impact of higher equity markets was more than offset by adverse persistency of EUR 22 million following the implementation of the Retail Distribution Review and investment in technology.
  ¿   Underlying earnings before tax from New Markets declined 14% to EUR 236 million. Higher earnings in Asia and Aegon Asset Management, which benefitted from higher asset
   

balances, were more than offset by lower earnings in Central & Eastern Europe due to the introduction of the insurance tax in Hungary and divestments in Spain and Aegon Asset Management.

  ¿   Total holding costs decreased 50% to EUR 113 million, mainly as a result of lower net interest costs following debt redemptions, lower operating expenses and a gain of EUR 18 million related to interest on taxes.

Fair value items

The results from fair value items amounted to a loss of EUR 1,133 million. The loss was mainly driven by equity macro hedges (EUR 590 million) and long-term economic assumption changes (EUR 405 million) in the Americas and a loss of EUR 118 million in the guarantee portfolio in the Netherlands, which mainly the result of the tightening of Aegon’s credit spread and model refinements.

In 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 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 loss on fair value hedges in the Americas was mainly driven by the loss on the equity macro hedges, which have been set up to protect Aegon’s capital position, as a result of strong US equity market performance in 2013. Aegon restructured its equity hedges as the equity collar hedge expired at the end of the year.

 

 

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20   Business overview Results of operations – Worldwide

 

 

 

Realized gains on investments

Realized gains on investments amounted to EUR 502 million and were driven primarily by adjustments to the asset mix in the Netherlands during the second half of the year to bring it in line with the new regulatory yield curve, as well as normal trading activity.

Impairment charges

Impairment charges improved by EUR 55 million to EUR 121 million in 2013, mostly due to recoveries on investments in subprime residential mortgage-backed securities in the United States.

Other charges

Other charges amounted to EUR 52 million, which is a 68% improvement from 2012 and included a charge of EUR 192 million related to a write-off of intangibles related to the Polish pension fund business following a legislation change coming into force in January 2014. In addition, 2013 included a charge of EUR 71 million due to increased accruals in connection with Aegon’s use of the U.S. Social Security Administration’s death master-file and a EUR 25 million charge in the Netherlands following the Koersplan court verdict and restructuring charges mainly in the Americas and the United Kingdom (EUR 108 million in total). These charges were partly offset by gains from the sale of joint ventures with Unnim and CAM of EUR 102 million and EUR 74 million respectively, and gains from the recapture of certain reinsurance contracts amounting to EUR 200 million in the Americas.

Run-off businesses

The results of run-off businesses improved to EUR 14 million, mainly due to a deferred policy acquisition cost (DPAC) true-up of EUR 11 million in BOLI/COLI (bank/corporate owned life insurance).

Income tax

Income tax amounted to EUR 174 million resulting in an effective tax rate of 15%, driven mostly by the combined effects of negative fair value items taxed at nominal rates, tax credits, and tax exempt items. There was also a tax charge of EUR 50 million in the Americas related to hedging losses in 2013, and a benefit of EUR 93 million in the United Kingdom from a reduction in the corporate tax rate from 23% to 20%.

The effective tax rate on underlying earnings for 2013 was 21%

Commissions and expenses

Commissions and expenses in 2013 increased 1% compared to 2012 to EUR 5,809 million. Operating expenses increased 5% to EUR 3,328 million, driven mainly by higher sales and employee performance related expenses due to growth in the Americas, restructuring costs in the Americas and United Kingdom, and higher investments in technology to support future growth.

Production

Compared to 2012, Aegon’s total sales increased 6% to EUR 7.2 billion as higher gross deposits more than offset lower new life sales. Gross deposits increased 12% to EUR 44.3 billion, driven by variable annuities and mutual funds in the United States and Aegon Asset Management. New life sales were down 2%. Higher pension production in the United Kingdom was offset primarily by lower universal life sales in the Americas due to product withdrawals and product redesign, resulting from focus on value creation, as well as adverse currency movements.

Capital management

The 2013 gross leverage ratio, which is calculated by dividing the total gross financial leverage by the total capitalization, was 30.0%.

Aegon’s Insurance Group Directive (IGD) ratio decreased to 212%, mainly due to the impact of IAS 19 and the switch to the swap curve for regulatory solvency calculations in the Netherlands. The combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was approximately 440% of the Company Action Level (CAL) risk-based capital. The IGD ratio in the Netherlands, excluding Aegon Bank, was approximately 240%. The Pillar I ratio in the United Kingdom, including the With Profit fund, was approximately 150% at the end of 2013.

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 was effective March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.

Dividends from business units

Aegon received EUR 1.5 billion of dividends from its business units during 2013, split between EUR 0.9 billion from the Americas, EUR 0.5 billion from the Netherlands and EUR 0.1 billion from Aegon Asset Management and Central & Eastern Europe. Capital contributions of EUR 0.5 billion were paid to Aegon’s operating units, including EUR 0.4 billion to the United Kingdom.

 

 

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Annual Report on Form 20-F 2013


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21

 

Results 2012 worldwide

 

Underlying earnings geographically             
Amounts in EUR millions    2012        2011        %    
Net underlying earnings      1,424           1,247           14%     

Tax on underlying earnings

     427           297           44%     
Underlying earnings before tax geographically             

Americas

     1,366           1,286           6%     

The Netherlands

     325           298           9%     

United Kingdom

     110           14           -     

New markets

     274           249           10%     

Holding and other activities

     (224)           (303)           26%     
Underlying earnings before tax      1,851           1,544           20%     

Net fair value items

     (41)           (416)           90%     

Gains / (losses) on investments

     407           446           (9%)     

Impairment charges

     (176)           (388)           55%     

Other income / (charges)

     (162)           (267)           39%     

Run-off businesses

     2           28           (93%)     

Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates)

     1,881           947           99%     

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     15           9           67%     

Income tax

     (338)           (60)           -     

Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     (15)           (9)           (67%)     
Net income      1,543           887           74%     

Commissions and expenses

     5,765           6,250           (8%)     

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%     

 

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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 commission income

     1,177         329         133         524         (263)         1,900         (44)         1,856     

Other revenue

     5         -         -         3                 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

     1,068         992         8%     

Individual Savings & Retirement

     490         476         3%     

Pensions

     352         227         55%     

Non-life

     15         51         (71%)     

Distribution

     15         -         -      

Asset management

     101         60         68%     

Other

     (224)         (303)         26%     

Associates

     34         41         (17%)     
Underlying earnings before tax      1,851         1,544         20%     

 

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Results 2012 worldwide

Aegon’s 2012 net income of EUR 1,543 million and underlying earnings before tax of EUR 1,851 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.

 

Net income

Net income increased to EUR 1,543 million, driven by higher underlying earnings, more favorable results on fair value items, lower impairments, and lower other charges. These were only partly offset by higher tax charges and lower realized gains.

Underlying earnings before tax

Aegon’s underlying earnings before tax increased 20% to EUR 1,851 million in 2012. This was the result of business growth, implemented cost reduction programs, the non-recurrence of certain charges in the United Kingdom, and favorable equity markets and currency movements.

Underlying earnings before tax from the Americas rose to EUR 1,366 million. The 6% increase compared to 2011 was mainly due to growth of the business and a strengthening of the US dollar against the euro. The positive effects of business growth and favorable equity markets were partly offset by lower fixed annuity earnings (as the product was de-emphasized) and lower Life & Protection earnings, mostly the result of the non-recurrence of favorable items in 2011, recurring charges for Corporate Center expenses implemented in 2012, higher performance-related expenses, and an increase in employee benefit expenses.

In the Netherlands, underlying earnings before tax increased to EUR 325 million. The 9% increase compared to 2011 was mainly due to cost savings, lower funding costs, and the wind up of several contracts in Pensions, partly offset by a higher claim ratio and investments in banking activities. Higher earnings in Life & Savings driven by lower funding costs on its growing mortgage portfolio more than offset lower earnings in Pensions and Non-life, mostly driven by unfavorable claim experience.

In the United Kingdom, underlying earnings before tax increased to EUR 110 million. This improvement in earnings compared to 2011 was driven by the implementation of the cost reduction

program and the non-recurrence of charges and execution expenses related to a program to correct historical issues within customer policy records, partly offset by the benefit of changes to employee benefit plans recorded in 2011. Earnings were negatively impacted in 2012 by additional DPAC amortization related to adverse persistency and investments in new propositions in the pension business.

Underlying earnings before tax from New Markets increased 10% to EUR 274 million as higher earnings from Aegon Asset Management and Asia more than offset lower underlying earnings from Spain and Central & Eastern Europe. Results in Spain were impacted by the divestment of the joint venture with Banca Cívica and the exclusion of results from Aegon’s partnership with CAM pending the exit from this joint venture.

For the holding, underlying earnings before tax amounted to a loss before tax of EUR 224 million. This EUR 79 million improvement compared to 2011 was driven mostly by lower expenses as Aegon’s Corporate Center expenses were now being charged, in part, to operating units. These charges reflected the services and support provided to operating units by the Corporate Center and amounted to EUR 64 million in 2012. Funding costs were also lower in 2012.

Fair value items

Results from fair value items amounted to a loss of EUR 41 million. Negative results in the Americas and in the United Kingdom on hedges due to higher equity markets partly offset by positive results on the guarantee portfolio in the Netherlands.

Realized gains on investments

Realized gains on investments amounted to EUR 407 million and were mainly the result of asset liability management and normal activity in the investment portfolio in a low interest rate environment.

 

 

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24   Business overview Results of operations – Worldwide

 

 

Impairment charges

Impairments decreased 55% in 2012 compared to 2011 to EUR 176 million and continue to be linked primarily to residential mortgage-backed securities in the Americas.

Other charges

Other charges in 2012 amounted to EUR 162 million and were primarily the result of a EUR 265 million charge in the Netherlands related to the acceleration of product improvements for unit-linked insurance policies and a BOLI wrap charge in the United States (EUR 26 million). Providing most of the offset against these charges were the book gain of EUR 100 million on the sale of Aegon’s minority stake in Prisma Capital Partners and the divestment of Aegon’s 50% stake in the joint venture with Banca Cívica (EUR 35 million).

Run-off businesses

The results of run-off businesses amounted to a gain of EUR 2 million, with positive results from the institutional spread-based business only partially offset by accelerated amortization of the pre-paid cost of reinsurance asset related to the divestment of the life reinsurance activities in 2011 due to increased transfers of clients from Aegon to SCOR.

Income tax

Net income contained a tax charge of EUR 338 million in 2012 (including a tax charge of EUR 15 million related to profits of joint ventures and associates), resulting in an effective tax rate of 18%. Deviation from the nominal tax rate is largely the result of tax exempt items in the United States and the Netherlands, tax credits which primarily relate to low income housing and renewable energy in the United States (EUR 69 million), benefits from a tax rate reduction in the United Kingdom (EUR 70 million), benefits from cross border intercompany reinsurance transactions (EUR 38 million), and a benefit related to the run-off of the company’s institutional spread-based activities in Ireland (EUR 51 million). These benefits were partly offset by charges for non-recognition and impairment of deferred tax assets (EUR 56 million), mainly in the United Kingdom.

Commissions and expenses

Commissions and expenses in 2012 decreased by 8% compared to 2011 to EUR 5,765 million, largely driven by lower operating expenses. Operating expenses decreased 7% compared to 2011 to EUR 3,177 million, mainly as a result of the implementation of cost savings programs in the United Kingdom, the Netherlands, and the Americas.

Production

New life sales increased in 2012 compared to 2011 in the Americas and the United Kingdom, partially offset by decreases in the Netherlands and New Markets. Gross deposits increased by 25%, driven by variable annuity, retail mutual fund, retirement plan, and asset management deposits. New premium production for accident and health insurance increased by 19% for the year, mainly driven by travel and supplemental health insurance sales in the Americas and growth in Central & Eastern Europe.

Capital management

Aegon’s core capital excluding revaluation reserves and excluding remeasurement amounted to EUR 18.5 billion, equivalent to 76.7% of the company’s total capital base, at December 31, 2012 (2011: 73.5%). This is above the company’s capital base ratio target of at least 75% by the end of 2012.

Shareholders’ equity increased to EUR 23.5 billion, mainly as a result of net income and an increase in the revaluation reserves. The revaluation reserves increased EUR 2.6 billion during the year to EUR 6.1 billion, mainly a reflection of lower interest rates and credit spreads. Shareholders’ equity per common share, excluding preference capital and revaluation reserves, amounted to EUR 8.40 at December 31, 2012 (2011: EUR 8.19).

During 2012, Aegon aimed to maintain excess capital at the holding of at least EUR 750 million. At the end of the year, excess capital in the holding amounted to EUR 2.0 billion, an increase of EUR 0.8 billion compared to year-end 2011, as dividends received from business units were only partly offset by interest payments and operational expenses.

At December 31, 2012, Aegon’s Insurance Group Directive (IGD) ratio amounted to 228%, an increase from the level of 195% at December 31, 2011. Measured on a local solvency basis, the Risk Based Capital (RBC) ratio in the United States increased to approximately 495%, driven mainly by strong net income throughout the year and a capital management transaction in third quarter, offset by dividends paid to the holding company. The IGD ratio in the Netherlands increased to approximately 251%, driven mainly by a change in the yield curve to discount liabilities as prescribed by the Dutch Central Bank, offset somewhat during the year by interest rate movements. The Pillar I ratio in the United Kingdom decreased to approximately 126%.

 

 

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Annual Report on Form 20-F 2013


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Results 2013 Americas

 

     Amounts in USD millions             Amounts in EUR millions          
     2013     2012      %     2013     2012      %    
Net underlying earnings     1,328        1,288         3%        1,001        1,002         0%     

Tax on underlying earnings

    489        468         4%        368        364         1%     
Underlying earnings before tax by product segment              

Life & Protection

    752        746         1%        567        581         (2%)    

Fixed annuities

    205        255         (20%)        155        198         (22%)    

Variable annuities

    450        359         25%        339        280         21%     

Retail mutual funds

    33        25         32%        25        19         32%     

Individual Savings & Retirement

    688        639         8%        518        497         4%     

Employer Solutions & Pensions

    350        319         10%        263        248         6%     

Canada

    18        40         (55%)        14        31         (55%)    

Latin America

    9        12         (25%)        7        9         (22%)    
Underlying earnings before tax     1,817        1,756         3%        1,369        1,366         0%     

Net fair value items

    (1,288)        (98)         -          (971)        (76)         -      

Gains / (losses) on investments

    149        225         (34%)        112        175         (36%)    

Impairment charges

    (56)        (151)         63%        (42)        (117)         64%     

Other income / (charges)

    95        (37)         -          72        (28)         -      

Run-off businesses

    18        4         -          14        2         -      
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates)     734        1,699         (57%)        553        1,322         (58%)    

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

    4        4         0%        3        3         0%     

Income tax

    (142)        (342)         58%        (107)        (266)         60%     

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     592        1,357         (56%)        446        1,056         (58%)    

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

    4,332        4,276         1%        3,264        3,329         (2%)    

of which operating expenses

    1,985        1,823         9%        1,496        1,420         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%)    

 

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Table of Contents
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, 2013
     December 
31, 2012 
 

USD

           1.3272         1.2849         1.3780         1.3184    

CAD

                       1.3674         1.2839         1.4641         1.3127    

 

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Results 2013 Americas

Net income of USD 592 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 Aegon’s capital position. Underlying earnings before tax increased to USD 1,817 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.

 

Net income

Net income for the Americas decreased to USD 592 million in 2013. Higher underlying earnings, other income as well as lower impairments were more than offset by the increase of the loss on fair value items. Results on fair value items amounted to a loss of USD 1,288 million, which were primarily the result of long-term economic assumption changes of USD 514 million and the loss on equity hedges of USD 804 million, which was primarily caused by rising equity markets. Realized gains on investments amounted to USD 148 million, while impairment charges improved to USD 56 million. Other income was USD 95 million, mainly related to gains of USD 265 million on the recapture of certain reinsurance contracts being partly offset by increased accruals of USD 94 million in connection with the company’s use of the U.S. Social Security Administration’s death master-file and restructuring charges of USD 48 million.

Underlying earnings before tax

2013 underlying earnings before tax increased 3% to USD 1,817 million as higher earnings in variable annuities and pensions from business growth and favorable equity markets more than offset lower earnings in fixed annuities.

  ¿   Life & Protection underlying earnings before tax increased 1% to USD 752 million, as growth of the business was partially offset by the negative impact of lower reinvestment rates due to the low interest rate environment.
  ¿   Underlying earnings before tax from Individual Savings & Retirement increased 8% to USD 688 million, as higher earnings from variable annuities and mutual funds more than offset lower earnings from fixed annuities. Earnings from variable annuities were up 25% to USD 450 million, primarily driven by higher net inflows and favorable equity markets. Earnings from mutual funds increased 32% to USD 33 million, resulting from growth of the business and favorable markets.
¿   Employer Solutions & Pensions underlying earnings before tax increased 10% to USD 350 million in 2013, which was primarily the result of strong net pension inflows and favorable equity markets.
¿   Underlying earnings before tax from Canada decreased to USD 18 million, primarily as a result of actuarial assumption changes and model refinements. In Latin America underlying earnings before tax were down to USD 6 million.

Commissions and expenses

Commissions and expenses increased by 1% to USD 4,332 million in 2013 compared to 2012. Operating expenses increased by 9%, to USD 1,985 million, primarily the result of higher sales and employee performance related expenses, investments to expand Aegon’s digital capabilities and restructuring costs.

Production

New life sales decreased 8% to USD 615 million in 2013, as lower universal life sales due to product withdrawals and product redesign were only partly offset by higher sales of term life products. New premium production for accident & health insurance was stable compared to 2012 and amounted to USD 902 million. This was the result of strong sales of the Medicare part D prescription plan product, which was introduced in 2012, being offset by the loss of two distribution partners for travel insurance and the termination of certain affinity marketing partnerships.

Gross deposits increased 9% to USD 37.7 billion in 2013. Gross deposits in variable annuities, retail mutual funds and retirement plans were all higher than in 2012. Variable annuities gross deposits were up 59% to USD 8.5 billion in 2013, which was primarily driven by Aegon’s continued focus on key distribution partners. The increase in retirement plan deposits was driven by plan takeover deposits and focusing on retirement readiness by growing customer participation and contributions.

 

 

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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      1,288         1,342         (4%     1,002         965         4%   

Tax on underlying earnings

     468         446         5%        364         321         13%   
Underlying earnings before tax by product segment                 

Life & Protection

     746         791         (6%     581         569         2%   

Fixed annuities

     255         287         (11%     198         206         (4%

Variable annuities

     359         360         0%        280         260         8%   

Retail mutual funds

     25         23         9%        19         16         19%   

Individual Savings & Retirement

     639         670         (5%     497         482         3%   

Employer Solutions & Pensions

     319         278         15%        248         200         24%   

Canada

     40         48         (17%     31         35         (11%

Latin America

     12         1         -        9         -         -   
Underlying earnings before tax      1,756         1,788         (2%     1,366         1,286         6%   

Net fair value items

     (98      (663      85%        (76      (477      84%   

Gains / (losses) on investments

     225         166         36%        175         119         47%   

Impairment charges

     (151      (349      57%        (117      (250      53%   

Other income / (charges)

     (37      (49      24%        (28      (35      20%   

Run-off businesses

     4         41         90%        2         28         (93%
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates)      1,699         934         82%        1,322         671         97%   

Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     4         1         -        3         1         -   

Income tax

     (342      (27      -        (266      (20      -   

Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax

     (4      (1      -        (3      (1      -   
Net income      1,357         907         50%        1,056         651         62%   

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

     4,276         4,922         (13%     3,329         3,540         (6%

of which operating expenses

     1,823         1,931         (6%     1,420         1,389         2%   

 

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      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                            December     December  
Per 1 EUR                  2012     2011     31, 2012     31, 2011  

USD

         1.2849        1.3909        1.3184        1.2982   

CAD

                     1.2839        1.3744        1.3127        1.3218   

 

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30   Business overview Results of operations – Americas

 

Results 2012 Americas

Aegon’s 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 Aegon’s efforts to grow its fee-based earnings.

 

Net income

Net income from Aegon’s businesses in the Americas increased to USD 1,357 million in 2012. Better results from fair value items, lower impairments and higher realized gains on investments more than offset lower underlying earnings, lower earnings from run-off businesses and higher taxes.

Results from fair value items improved from USD (663) in 2011 to USD (98) million in 2012 as better than expected alternative asset performance and the impact of tightening credit spreads more than offset by the negative impact of the macro hedge caused by higher equity markets and the continued low interest rate environment. In addition, Aegon lowered its interest rate assumptions in 2011 which led to a charge of USD 237 million in 2011.

Gains on investments of USD 225 million were realized as a result of normal trading activity. Net impairments amounted to USD 151 million, down from USD 349 million in 2011, and continue to be primarily caused by mortgage related securities.

Underlying earnings before tax

Underlying earnings before tax from the Americas amounted to USD 1,756 million in 2012, a decrease of 2% compared to 2011. The positive effect of business growth and favorable equity markets was offset by lower Life & Protection earnings mostly the result of the non-recurrence of favorable items in 2011, recurring charges for Corporate Center expenses and higher employee benefit expenses.

  ¿   Life & Protection underlying earnings before tax decreased by 6% to USD 746 million, mostly the result of the non-recurrence of favorable items in 2011.
  ¿   Underlying earnings before tax from Individual Savings & Retirement decreased by 5% to USD 639 million in 2012 driven mostly by lower fixed annuity earnings due to declining account balances as the product is de-emphasized. Earnings from variable annuities were down slightly to USD 359 million as the benefit of higher account balances was offset mainly by the negative effect of policyholder assumption changes of USD 55 million. Earnings from retail mutual funds increased slightly to USD 25 million.
¿   Employer Solutions & Pensions underlying earnings before tax increased by 15% to USD 319 million in 2012 driven mostly by growing retirement plan account balances.  
¿   Underlying earnings before tax from Canada decreased to USD 40 million in 2012. In Latin America underlying earnings before tax increased to USD 12 million driven by improvements in both Brazil and Mexico.  

Commissions and expenses

Commissions and expenses decreased by 13% to

EUR 4,276 million in 2012, mainly due to lower amortization of deferred policy acquisition costs. Operating expenses decreased by 6% to USD 1,823 million, as cost savings and lower expenses related to the divestment of the life reinsurance business were only partly offset by higher performance related employee expenses, an increase in employee benefit expenses and costs to support growth.

Production

New life sales increased 15% to USD 668 million in 2012, primarily driven by strong indexed universal life sales as distribution expanded into the brokerage channel and by higher sales of certain products as they were withdrawn from the market. New premium production for accident & health insurance amounted to USD 905 million, up 11% on increased travel insurance sales following the addition of a new distribution partner in the second half of 2011.

Gross deposits amounted to USD 34.7 billion in 2012 compared to USD 32.0 billion in 2011. Gross deposits in variable annuities, retail mutual funds and retirement plans were all higher than in 2011. Variable annuities gross deposits increased in 2012 despite product re-pricing throughout the year to reflect the continued low interest rate environment and subsequent higher hedging costs. The increase in retirement plan deposits was driven by higher takeover deposits and successful efforts to increase inflows from the existing client base through higher contributions and larger participation count.

 

 

  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.

 

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Overview of Americas

Aegon Americas comprises Aegon USA, Aegon Canada and the operations in Brazil and Mexico.

 

Aegon USA

Aegon USA is one of the leading life1 insurance organizations in the United States and the largest of Aegon’s operating units. Aegon USA administers millions of policies and employs approximately 11,000 people. Many of the Aegon USA companies operate under the Transamerica brand, one of the best known names2 in the United States insurance business. Aegon USA companies have existed since the mid-19th century. Aegon USA’s main offices are in Cedar Rapids, Iowa, and Baltimore, Maryland, with affiliated companies’ offices located throughout the United States.

Through these subsidiaries and affiliated companies, Aegon USA provides a wide range of life insurance, pensions, long-term savings and investment products.

Like other Aegon companies, Aegon USA uses a variety of distribution channels to help customers access its products as best suits their needs. Aegon USA has long-standing relations with banks across the United States, and also distributes products and services through agents, broker-dealers, Registered Representatives, the Internet, and direct and worksite marketing.

Aegon Canada

Based in Toronto, Aegon Canada offers a range of insurance products and financial services, primarily through its Transamerica Life Canada and Canadian Premier Life subsidiaries. At December 31, 2013, Aegon Canada had approximately 657 employees.

Aegon Brazil

In 2009, Aegon acquired a 50% interest in Mongeral Aegon Seguros e Previdência S.A., Brazil’s sixth largest independent (i.e. non-bank affiliated) life insurer. At December 31, 2013, Aegon Brazil had approximately 444 employees.

Aegon Mexico

In 2006, Aegon acquired a 49% interest in Seguros Argos S.A. de C.V., a Mexican life insurance company. At December 31, 2013, Aegon Mexico had approximately 84 employees. In December 2013, Aegon entered into a joint venture with Adminstradora Akaan S.A. de C.V. to create Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This organization will initially focus on third party asset management.

Organizational structure

Aegon USA

Aegon USA was founded in 1989 when Aegon brought all of its operating companies in the United States under a single financial services holding company, AEGON USA, LLC. Business is conducted through its subsidiaries. The use of the term “Aegon USA” throughout this document refers to the operating subsidiaries in the United States, through which Aegon USA conducts business. Aegon USA has operating licenses in every US state, as well as the District of Columbia, Puerto Rico, the Virgin Islands, and Guam.

Aegon USA’s primary insurance subsidiaries are:

¿   Transamerica Life Insurance Company;  
¿   Transamerica Financial Life Insurance Company;  
¿   Transamerica Advisors Life Insurance Company;  
¿   Transamerica Advisors Life Insurance Company of New York;  
¿   Monumental Life Insurance Company;  
¿   Stonebridge Life Insurance Company;  
¿   Stonebridge Casualty Insurance Company;  
¿   Western Reserve Life Assurance Co. of Ohio.  

Aegon’s subsidiary companies in the United States contain three divisions acting through one or more of the Aegon USA life insurance companies:

¿   Life & Protection;  
¿   Individual Savings & Retirement;  
¿   Employer Solutions & Pensions.  

These divisions, described in further detail below, represent groups of products that are sold through Aegon USA’s operating companies through distribution methods and sales channels. The business structure is designed to enable Aegon USA to manage and improve the efficiency of the organization and operating processes, identify business synergies, and pursue cross-selling opportunities. Coordinated support services complement operations by providing functional support in systems technology, investment management, regulatory compliance, and various corporate functions. Products are also offered and distributed through one or more of the Aegon USA licensed insurance or brokerage subsidiary companies.

 

 

  1 Source: LIMRA.
  2 Source: Brand Power Analysis.

 

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32   Business overview Results of operations – Americas

 

Overview of sales and distribution channels

Aegon USA

Aegon USA uses a variety of sales and distribution channels in the United States. These include:

  ¿   Independent and career agents;
  ¿   Registered Representatives;
  ¿   Independent marketing organizations;
  ¿   Banks;
  ¿   Regional and independent broker-dealers;
  ¿   Benefit consulting firms;
  ¿   Wirehouses;
  ¿   Affinity groups;
  ¿   Institutional partners;
  ¿   Third party administrators.

In addition, Aegon USA provides a range of products and services online, and uses direct and worksite marketing. Generally, Aegon USA companies are focused on particular products or market segments, ranging from lower income to high-net-worth individuals, and from small to large corporations.

Aegon Canada

Transamerica Life Canada (TLC) provides life insurance products to Canadian consumers. By working through a variety of distribution channels, TLC has acquired a national network of thousands of independent advisors. These advisors provide middle market Canadians with individual life insurance and protection products. Canadian Premier offers simplified life, group creditor and accident and sickness coverage. Distribution channels include:

  ¿   Independent and career agents;
  ¿   Independent managing general agencies;
  ¿   Agencies owned by Transamerica Life Canada;
  ¿   Bank-owned national broker-dealers and mutual fund dealers;
  ¿   Bank and credit union affinity partners.

Overview of business lines

Aegon USA

Life & Protection

Life & Protection (L&P), the largest of the three divisions, serves customers in a broad range of market segments. Consumers may choose to purchase directly or through career (or independent) agents, the worksite, or sponsored (or affinity) groups. L&P offers a comprehensive portfolio of protection solutions.

Products

Products offered include whole life, universal life, variable universal life, indexed universal life and term life insurance, and supplemental health, specialty insurance, and long-term care protection.

Term life insurance

Term life insurance provides protection for a stated period of time. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period.

Universal life insurance

Universal life insurance pays death benefits, accumulates cash values at interest rates that adjust periodically, and has flexible premiums. Indexed universal life products have both interest rate guarantees and interest crediting linked in part to performance of an index, subject to a cap. Variable universal life products include varying investment options for cash values.

Whole life insurance

Whole (or permanent) life insurance provides life-long death benefit protection as long as required premiums are paid, while accumulating tabular cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy.

Other life insurance

Life products also include life insurance sold as part of defined benefit pension plans, single premium products, and additional optional benefits.

Supplemental health and specialty insurance

Supplemental health insurance products are sold primarily through affinity markets and include accidental death, other injury, critical illness, hospital indemnity, Medicare supplement, retiree medical and student health. Specialty lines include travel, membership and creditor (installment, mortgage or guaranteed auto protection) products.

Long-term care insurance

Long-term care (LTC) insurance products provide benefits to policyholders who require care due to a chronic illness or cognitive impairment. LTC insurance serves as an asset protection tool by reimbursing policyholders for costly expenses associated with LTC services, and it may also help a family better manage the financial, health and safety issues that are associated with LTC.

Sales and distribution

The L&P division is organized by distribution channel, with a shared services support platform. Each channel focuses on a specific type of distribution method and target market. The L&P distribution channels include affinity markets, agency group, brokerage, worksite, and broker-dealer.

Affinity markets

The Affinity Markets group markets directly to consumers through either broad market or affinity relationships, including associations, employers, financial institutions, retailers, and other sponsor groups. Life, supplemental health, and specialty accident and membership products are offered through a variety

 

 

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of direct response marketing channels, including mail, phone, digital, direct response TV, and point-of-sale.

Agency

Transamerica Agency Group includes Transamerica Agency Network (comprising Independent Group and Transamerica Agency Network), Career Agency, Transamerica Senior Markets, Edgewood Financial Network and several independent marketing organizations. This group provides life insurance and supplemental health insurance products, as well as marketing services to closely-tied distribution groups serving the middle income and small business markets.

Brokerage

Transamerica Brokerage offers life and long-term care insurance products and services through independent brokerage distributors and financial institutions to high-net-worth, affluent, emerging affluent and middle income individuals, families and businesses. These products are designed for family protection, business needs, and estate and legacy planning.

Worksite

Transamerica Employee Benefits (TEB) offers life and supplemental health insurance products through employers, labor unions and trade associations. TEB’s comprehensive portfolio includes universal life, whole life and term life insurance, as well as accident, critical illness, cancer, hospital indemnity, medical expense indemnity, short-term disability, and dental policies. Some of these products provide insureds with lump sum or specified income payments when hospitalized, disabled or diagnosed with a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and coinsurance amounts not covered by other health insurance. In addition, TEB offers stop loss insurance to employers to protect against catastrophic losses under self-funded health plans.

Broker-dealer

Transamerica Financial Advisors, Inc. (TFA) is a full service, Financial Industry Regulatory Authority (FINRA) registered independent broker-dealer and Securities and Exchange Commission (SEC) Registered Investment Adviser with approximately 5,000 Registered Representatives. TFA helps clients create, grow and protect wealth through a range of financial products and services.

Individual Savings & Retirement

Through its insurance companies, broker-dealers and investment advisors, Aegon USA offers a wide range of savings and retirement products and services, including mutual funds and variable and fixed annuities. The Individual Savings & Retirement (IS&R) division administers and distributes these products through a variety of channels, including wirehouse firms, banks, regional broker dealers, independent financial planners, and direct to consumer.

 

Products

Aegon USA’s fee-based business comprises asset management and insurance products that generate fee income by providing investment management, administrative or risk transfer services. Generally, fee income is sensitive to withdrawals and equity market movements.

Aegon USA’s operations provide various investment products and administrative services, individual and group variable annuities, mutual funds, collective investment trusts, and asset allocation services.

The operations in the United States provide the fund managers with oversight for the Transamerica mutual funds. Aegon USA selects, manages, and retains affiliated and non-affiliated managers from a variety of investment firms based on a number of qualitative and quantitative factors.

Mutual funds

Transamerica is a sub-advised or “manager of managers” fund platform. Fund managers can include those affiliated with Transamerica. Aegon USA earns investment management fees on investment products managed by unaffiliated sub-advisors and also earns direct investment management fees through affiliated managers acting as sub-advisors.

Variable annuities

Variable annuities are sold to individuals and retirement plans in the United States. Variable annuities allow policyholders to accumulate assets for retirement on a tax-deferred basis, and to participate in equity or bond market performance. Variable annuities allow policyholders to select payout options designed to help meet the policyholders need for income upon maturity, including lump sum payment, or income for a fixed period or life. Variable annuities have a maturity date at which benefits must be used or the contract surrendered. Commonly this date corresponds to the annuitant’s age, with a maximum age of 99 years.

Premiums paid on variable annuity contracts are invested in underlying funds chosen by the policyholder, including bond and equity funds, and types of asset-allocation funds. A fixed interest account is available on most products and the underlying funds are selected by a policyholder, within certain boundaries, based on the policyholder’s preferred level of risk. The assets and liabilities related to this product are legally segregated in separate accounts of the insurance company for the benefit of variable annuity policyholders. These separate accounts are classified as investments for the account of policyholders on Aegon’s statement of financial position. Variable annuity contracts contain riders, such as guaranteed minimum death, maturity, withdrawal, accumulation or income benefits.

The account value of variable annuities reflects the performance of the underlying funds. Aegon USA earns mortality and expense

 

 

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34   Business overview Results of operations – Americas

 

charges as well as various types of rider fees for providing guarantees and benefits. Generally, surrender charges are not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty remains. Collected surrender charges are typically used to recoup unamortized deferred acquisition costs.

A guaranteed minimum withdrawal benefit is offered on some variable annuity products Aegon USA has either issued or assumed from a ceding company. This benefit guarantees a policyholder may withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or the life of the policyholder.

Certain variable annuity contracts also provide guaranteed minimum death benefits and guaranteed minimum income benefits. Under a guaranteed minimum death benefit, upon the death of the insured the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured. The guaranteed minimum income benefit feature, which has not been offered on new business since 2003, provides for minimum payments if the policyholder elects to convert to an immediate payout annuity. The guaranteed amount is calculated using the total deposits made by the policyholder, 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.

These guaranteed benefits subject the company to interest rate risk and market risk. Poor market performance may cause the guaranteed benefits to exceed the policyholder account value.

Aegon USA addresses equity market, interest rate and market volatility risks through product design, including robust analysis of the underlying funds allowed within a product, and by using hedging strategies. Variable annuity products also contain policyholder behavior risk, mortality risk, and in the case of income riders, longevity risks, which are handled similarly to those in fixed annuities.

Fixed annuities

Fixed annuities include deferred annuities, fixed index annuities, and immediate annuities. These product lines have been de-emphasized due to the low interest rate environment. A fixed annuity exposes Aegon to interest rate risk and behavior and mortality risk. The insurer’s interest rate risk may be mitigated through product design, close asset liability management and hedging, although the effects of policyholder behavior cannot be fully mitigated. Immediate annuities have lower behavior risks than deferred annuities, but contain interest rate risk, and longevity risk if annuity payments are life contingent.

Income from fixed annuities is generated by spread on investment earnings over the credited rate, policy fees if

applicable, and surrender charges. Fees and surrender charges are not a large source of revenue on fixed annuities.

An immediate annuity is purchased with a single lump sum premium payment, and the benefit payments generally begin within a year of purchase. The benefit payment period may be for a fixed period or as long as the beneficiary is alive, or a combination of the two. Some immediate annuities and payout options under deferred annuities may also offer the owner or beneficiaries the option to surrender the annuity to have access to the account value if needed for unexpected events.

The policyholder may surrender the annuity prior to maturity and receive the cash value less surrender charges. Fixed annuities have a specified crediting rate that may be reset periodically at the company’s discretion after an initial guarantee period. Fixed annuity contracts in the United States also offer guaranteed minimum surrender values and payout options. Fixed annuities have a maturity date at which benefits must be used or the contract surrendered. Commonly this date corresponds to the annuitant’s age, up to a maximum of 95 years. Upon maturity of the annuity, the policyholder’s payout options include a lump sum payment, income for life, or payment for a specified period of time.

Minimum interest rate guarantees exist in all generations of fixed annuity products, as they are required by state non-forfeiture regulations. The average minimum interest rate guarantees of the in-force fixed annuity block is approximately 2.65%. The average current credited rate of the in-force fixed annuity block is approximately 3.25%. Equity indexed annuities offer additional returns that are index-linked to published stock market indices and proprietary indices, with a minimum cash value equal to a percentage of the premium increased at a minimum fixed or variable rate. Equity indexed annuities make up a small fraction of the in-force business. Certain fixed annuity products also offer a bailout provision. Under the bailout provision, if the crediting rate falls below the bailout rate, policyholders may surrender their contracts without incurring any surrender charges.

Sales and distribution

Aegon USA underwrites fixed and variable annuities through its various life insurance companies. Transamerica Capital Inc. (TCI), the underwriting and wholesaling broker-dealer, distributes variable annuities and mutual funds through major wirehouse firms, regional broker-dealers, and a large bank network. TCI serves these distribution channels through affiliated and external wholesalers.

From late 2009, Aegon USA reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns. Similar market conditions continue to restrict sales of fixed annuities and, as a result, Aegon USA has de-emphasized their sale.

 

 

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TFA provides a range of financial and investment products, operating as a retail broker-dealer registered with the FINRA and an investment adviser registered with the SEC. Products offered by TFA include mutual funds, variable life insurance, variable annuities and other securities.

Employer Solutions & Pensions

Aegon USA offers retirement plans, pension plans, and pension-related products and services, as well as step-by-step guidance to people who are transitioning to, or living in, retirement related to five key areas, - lifestyle, investments, health care, protection and income.

Aegon USA covers a range of different retirement plans, including:

  ¿   401(k) - a type of deferred compensation plan sponsored by a corporation (including subchapter S), self-employed individual, sole proprietorship, partnership or non-profit organization;
  ¿   403(b) - a type of deferred compensation plan for certain employees of tax-exempt organizations and certain minister;
  ¿   457(b) - a type of deferred compensation plan sponsored by governmental and certain non-governmental employers in the United States;
  ¿   Deferred compensation plan - a plan or agreement that defers the payment of a portion of the employee’s compensation to a future date and which may also include a contribution made by the employer for the employee’s benefit;
  ¿   Defined benefit - a pension plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee’s earnings history, tenure of service and age;
  ¿   Defined contribution - a plan in which the contributions made to the plan by the employee and/or employer are allocated to the employee’s individual account under the plan. Examples of defined contribution plans include 401(k) plans, 403(b) plans, 457(b) plans, money purchase plans and profit-sharing plans;
  ¿   Profit-sharing - a type of defined contribution plan in which the employer may make a contribution, on behalf of the plan participants, to the plan each year, either out of the company’s profits or otherwise.

Products

Retirement plans

As of January 2013, Diversified Retirement Corporation, Transamerica Retirement Services, and Transamerica Retirement Management were rebranded Transamerica Retirement Solutions.

Transamerica Retirement Solutions is a leading provider of retirement plans in both the institutional market (mid- to large-sized organizations) and the emerging market (small U.S. employers).

In the institutional market, Transamerica Retirement Solutions offers a wide array of investment options designed to create a fully customized investment line-up for clients, and a personalized retirement funding strategy for their retirement plan participants. Transamerica Retirement Solutions’ open architecture investment platform provides access to a broad range of investment options, including institutional and retail mutual funds, registered or non-registered variable annuities, and a collective investment trust. The investment options offered in each plan are selected by the client or the client’s financial adviser.

In the emerging market, Transamerica Retirement Solutions offers fully bundled and partially bundled retirement plan solutions to small and mid-sized employers. These plans are predominantly supported by a group variable annuity product, where plan assets are invested primarily in separate account investment choices, including bond and equity investment choices, and cash equivalent choices. A fixed account cash vehicle may also be available on most plans. The investment choices are selected by the client or by the client’s financial adviser.

Single premium group annuities

Single premium group annuities (Terminal Funding) is a non-participating group annuity product. This product is commonly used for an insurance company takeover of a terminating defined benefit pension plan. The company receives a single deposit from the contract holder and in return guarantees the payment of benefits to participants. Usually these annuity payments are paid monthly for the life of the participant or participant and spouse, commencing immediately for retired participants or at some date in the future for deferred participants.

Transamerica Stable Value Solutions (SVS) provides synthetic guaranteed investment contracts (GICs) in the United States, primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans. SVS provides a synthetic GIC ‘wrapper’ around fixed-income invested assets, which are owned by the plan and managed by the plan or a third party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets for plan participants, and provides book value benefit-responsiveness.

Sales and distribution

Transamerica Retirement Solutions provides a comprehensive and customized approach to retirement plan management for mid- to large-sized defined contribution, defined benefit and non-qualified deferred compensation retirement plans. Transamerica Retirement Solutions’ institutional market clients are generally organizations with 250 to 100,000 employees and between USD 15 million and USD 2 billion in retirement assets.

 

 

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Transamerica Retirement Solutions’ retirement plan products and services are distributed through intermediaries such as retirement plan advisors, benefit consultants, and financial planners. Transamerica Retirement Solutions works closely with strategic alliance relationships and more broadly with many broker-dealers.

Transamerica Retirement Solutions also offers single premium group annuities in the United States, which are used by companies to decrease the liability of their defined benefit plans. The market is growing in this segment as more employers look to reduce the cost and complexity of their pension liabilities, often driven by widespread economic and sector restructuring.

For those individual plan participants who are in transition due to a lay-off, job change or planned retirement, Transamerica Retirement Solutions provides personal retirement services by telephone through a team of experienced registered representatives and investment advisors. In addition, Transamerica Retirement Solutions provides pre-retirees guidance and decision support to transition to and through retirement. Transamerica Retirement Solutions offers a variety of solutions, including Individual Retirement Accounts (IRAs), advisory services, annuities and access to other insurance related products and resources. Each “plan for retirement” can be tailored to the goals and needs of the individual.

Latin America

Aegon’s business in Latin America comprises a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a 49% interest in Seguros Argos S.A. de C.V., a Mexican life insurance company. Mongeral Aegon’s insurance activities include pension product distribution, individual and group life insurance products, and administrative services. Seguros Argos’s primary product is a twenty-year term life insurance product. Both insurance companies distribute their products in the worksite market. In December 2013, Aegon became a 50% owner of a joint venture with Adminstradora Akaan S.A. de C.V. to create Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This organization will initially focus on third party asset management.

Run-off businesses

Institutional spread-based business

This business was put into run-off during 2009. The primary products included guaranteed investment contracts (GICs), funding agreements (FAs), and medium term notes (MTNs).

Guaranteed investment contracts and funding agreements

Guaranteed investment contracts (GICs) were generally issued to tax qualified plans, while FAs and MTNs were typically issued to non-tax qualified institutional investors.

GICs and FAs are spread-based products issued on a fixed-rate or floating-rate basis. They provide the customer a guarantee of

principal and a specified rate of return. Some spread products were issued by pledging, selling with the intent to repurchase, or lending investment securities that serve as collateral to these products. Practically all of the liabilities represented by the fixed-rate contracts were effectively converted to a floating-rate via swap agreements, and contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements to eliminate currency risk. Usually, credited interest on floating-rate contracts resets on a monthly basis to various market indices. The term of the contract may be fixed, generally from six months to ten years, or have an indefinite maturity. Market-indexed contracts provide a return based on the market performance of a published index designated in the contract. Futures or swap contracts are used to hedge the market risk on market-indexed contracts and effectively convert such contracts to a floating-rate.

Medium-term notes

Aegon USA utilized consolidated special purpose entities to issue MTNs that are backed by FAs. The proceeds of each note series were used to purchase an FA from an Aegon insurance company, which was used to secure that particular series of notes. The payment terms of any particular series substantially matched the payment terms of the FA that secured that series.

Payout annuities

Payout annuities are a form of immediate annuity. Aegon USA no longer issues these contracts, but continues to administer the closed block of business. These contracts were typically purchased as a result of a lawsuit or claim, with the injured party receiving special tax treatment. Rather than paying the injured party a lump sum, the payments were structured as a lifetime annuity with mortality risk, a period certain annuity, or a combination of both.

Bank- and corporate-owned life insurance

Aegon USA services life insurance products sold to the bank- and corporate-owned life insurance (BOLI/COLI) market in the United States. BOLI/COLI helps institutional customers fund long-term employee benefits such as executive compensation and post-retirement medical plans. The corporation insures key employees and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.

Clark Consulting specializes in the servicing and administration of bank-owned life insurance. Clark Consulting’s relationships and service model help maintain strong persistency for the block of business.

Life reinsurance

In August 2011, Aegon completed the divestment of its life reinsurance business, Transamerica Reinsurance, to SCOR, a global reinsurance company based in France. Under the agreement, Aegon divested its global life reinsurance activities

 

 

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with the exception of select blocks of business. The retained businesses comprise mainly variable annuity guarantee business.

Competition

Competitors of Aegon Americas’ companies include other large and highly-rated insurance carriers, as well as certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as variable annuities, life insurance, mutual funds, and 401(k) products.

In the United States, the Life & Protection division faces competition from a variety of carriers. Leading competitors include AIG, Genworth, John Hancock, Lincoln National, MetLife, and USAA. In Canada, the primary competitors are Industrial-Alliance, Manulife Financial, Power Corporation (comprising Canada Life, Great West Life, London Life,), and Sun Life Financial. The result is a highly competitive marketplace and increasing commoditization in many product categories.

Aegon USA markets variable universal life, mutual funds, and variable annuities to middle-income clients with equity investment objectives. Variable annuity sales are often driven by the competitiveness of the living benefits offered by competitors, with most product development focusing on guaranteed lifetime withdrawal benefits, which guarantee lifetime withdrawals of a certain amount under certain conditions. There is continued interest, and strong competition among providers, in guaranteed lifetime withdrawal products. Aegon USA competes in the variable annuity marketplace. It maintains an effective wholesaling force, and focuses on strategic business relationships and products with competitive features, benefits and pricing. Aegon USA’s primary competitors in the variable annuity market are Jackson National, Lincoln National, MetLife, Nationwide, and Prudential.

The top five competitors in the mutual fund market are American Funds, Fidelity, Franklin Templeton, PIMCO, and T. Rowe Price.

The retirement plan market continues to evolve rapidly and is facing growing regulatory compliance pressures, continuing demand for technological innovation, pricing pressures, and provider consolidation. Aegon USA’s ability to achieve greater economies of scale in operations will be assisted by continued growth in key market segments, technology improvements, and process management efficiency.

In the defined contribution market, Aegon USA’s main competitors are Fidelity, Mass Mutual, New York Life, Principal Financial, Schwab, T. Rowe Price, and Vanguard. Aegon USA’s main competitors in the defined benefit segment are Mass Mutual, New York Life, Principal Financial, and Prudential. In the emerging market segment and the multiple employer plan segment, Aegon USA’s main competitors are American Funds, Fidelity, ING, John Hancock, and Principal Financial. In the single premium group annuity market, Aegon USA’s main competitors are John Hancock, Mass Mutual, MetLife, Mutual of Omaha, and Prudential.

Aegon USA has been a leading issuer of synthetic GICs1.

Regulation and supervision

Aegon USA

The Aegon USA insurance companies are subject to regulation and supervision in the states and jurisdictions in which they transact business, maintain offices or otherwise have a business presence. Regulators in each of those states and jurisdictions have broad powers to grant or revoke licenses to transact business, regulate trade and marketing practices, license agents, approve policy forms and certain premium rates, set reserve and capital requirements, determine the form and content of required financial reports, examine the insurance companies, prescribe the type and amount of investments permitted, levy fines and seek restitution, fines, sanctions or other monetary penalties for failure to comply with applicable regulations. The international businesses of Aegon USA are governed by the laws and regulations of the countries in which they transact business, maintain offices or otherwise have a business presence.

Insurance companies are subject to a mandatory audit every three to five years by their domestic state insurance departments, and every year by their independent auditors. In addition, examinations by non-domestic state insurance departments are conducted, on a targeted, random or cyclical basis. Some state Attorneys General have also commenced investigations into certain insurers’ business practices. Within the insurance industry, substantial liability has been incurred by insurance companies based on their past sales, marketing and operational practices. Aegon USA continues to focus on these compliance issues, and costs may increase as a result of these regulatory activities.

State insurance regulators have risk-based capital (RBC) standards for life insurance companies, established by the National Association of Insurance Commissioners (NAIC). The RBC Model Act (Model Act) provides for various actions should an insurer’s adjusted capital, based on statutory accounting principles, fall below certain prescribed levels, which are defined

 

 

 

  1 Source: Reports from LIMRA International and the Stable Value Investment Association’s Stable Value and Funding Agreement Products as of the first three quarters of 2013.

 

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in terms of its risk-based capital. The adjusted capital levels of the Aegon USA insurance companies currently exceed all of the regulatory action levels as defined by the Model Act. Any modification of these adjusted capital levels by the regulators or rating agency capital models may impact Aegon USA. Previously, states adopted conservative reserving requirements for term and universal life products. These continue to cause capital strain for the life insurance industry and, in volatile market conditions, funding for these reserves is challenging.

The NAIC amended its Model Holding Company Act and Regulation to enhance disclosure to regulators about risk exposure to insurers from within their holding company system, for adoption by jurisdictions from 2012. Existing insurance holding company statutes and the regulations of each insurer’s domiciliary state in the United States already impose various limitations on investments in affiliates, and require prior approval of the payment of dividends above certain threshold levels by the licensed insurer to Aegon or its affiliates. In response to international developments, the NAIC also passed a new Own Risk and Solvency Protection Model Act and Guidance Manual, to come into effect in 2015. The NAIC passed a revised Model Standard Valuation Law (SVL) and Valuation Manual, which together established Principles-Based Reserving (PBR) in 2012. Seven states, none in Aegon USA’s domestic jurisdictions, passed the SVL in 2013. As adoption by a super-majority of states is required for PBR to be effective in any state, the effective date of PBR is expected to be 2016 or later. The NAIC will continue to consider changes to corporate governance and insurers’ use of captives through 2014. The impact of changes to the use of captives on the company cannot be predicted at this time. Proposals have included abolishing the use of captives or significantly restricting their use.

Although historically the federal government of the United States has not regulated the insurance business, many federal laws impact the insurance business in a variety of ways. US federal and state privacy laws and regulations impose restrictions on financial institutions’ use and disclosure, as well as the security of customer information, including obligations in the event of data security breaches. Congress is considering proposals intended to assist in combating cyberthreats. Proposals designed to assist the federal government in combating cyberthreats could impose additional obligations on companies to provide information relative to the effort. At this time, it is uncertain what impact, if any, these proposals may have on insurers.

In addition to the US Congress, non-traditional insurance regulators are increasingly involved in insurance matters traditionally reserved for State regulation; for example, the Federal Reserve Board, the Federal Insurance Office (FIO), the Securities & Exchange Commission and others have recently considered the regulation of captive reinsurance transactions.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), enacted in 2010, established the Federal Insurance Office. While the FIO has no direct regulatory authority over US insurers, it does have certain authority to represent the US government in establishing international regulatory standards for insurers, and to represent the US insurance industry in international matters. The FIO is also authorized to monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry of the US financial system. On December 12, 2013, the FIO submitted to Congress and released to the public a report on how to modernize and improve the system of insurance regulation in the United States. The report details strengths and weaknesses of the current US insurance regulatory system and outlines near-term reforms for states to undertake regarding capital adequacy, safety and soundness, reform of insurer resolution practices, and marketplace regulation. The report also outlines areas for federal involvement in insurance regulation, including pursuing national uniform treatment for reinsurers, adopting national standards for agent licensing and other provisions of The National Association of Registered Agents and Brokers Reform Act of 2013, and studying the use of personal information for insurance pricing and coverage purposes. The FIO is expected to continue to monitor state insurance activities, coordinate policy, and engage in other actions as necessary to pursue the recommendations made in its report. .

The Dodd-Frank Act has entrusted to the Board of Governors of the Federal Reserve Board (the “Federal Reserve”) a significant regulatory role with respect to life insurers which are either designated as systemically significant or have a bank within the group. Finally, the International Association of Insurance Supervisors (IAIS), which includes the Federal Reserve, FIO and representatives of state regulators, is developing international capital and supervisory standards for internationally active life insurance groups, such as Aegon. It is still to be determined the extent to which these developments or the activities of the FIO and the Federal Reserve will impact Aegon USA and the regulation of insurance in the United States, or life insurers in the United States or internationally.

The Dodd-Frank Act also established the Consumer Financial Protection Bureau, which has the authority to regulate the marketing practices of credit insurance and other financial products sold through banks. The Federal Reserve Board has also established certain disclosures relating to credit insurance sold in connection with a bank loan.

Federal laws and the rules of the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC) prohibit telephone solicitations to customers who have placed their telephone numbers on the National Do Not Call Registry. Additionally, proposals to place restrictions on direct mail are considered from time to time by the US Congress and states.

 

 

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These restrictions adversely impact the telemarketing efforts of Aegon USA, and new proposals, if enacted, will likely impact direct mail efforts. Proposed Federal Reserve Board disclosures regarding credit insurance provided in connection with a loan, if enacted as proposed, would adversely impact the market for credit insurance.

Many supplemental health insurance products offered by the Aegon USA companies, such as Medigap, are subject to both federal and state regulation as health insurance. The Patient Protection and Affordable Care Act (PPACA), enacted in 2011, significantly changes the regulation of health insurance and delivery of health care in the United States, including in certain respects, the regulation and delivery of supplemental health insurance products. Individual states are required to establish health care exchanges for the purchase of health care insurance by individuals. The extent to which employers may discontinue their provision of supplemental health insurance products to retired employees and the extent to which supplemental health insurance products may be sold through state exchanges may significantly impact Aegon USA’s supplemental health products business.

Additionally, certain policies and contracts offered by Aegon USA insurance companies are subject to regulation under the federal securities laws administered by the SEC and under certain state securities laws. The SEC conducts regular examinations of the insurance companies’ variable life insurance and variable annuity operations, and occasionally makes requests for information from these insurers in connection with examinations of affiliate and third party broker-dealers, investment advisors and investment companies. The SEC and other governmental regulatory authorities, including state securities administrators, may institute administrative or judicial proceedings that may result in censure, fines, issuance of cease-and-desist orders, or other sanctions against insurance companies or their distributors. Sales of variable insurance and annuity products are regulated by the SEC and the FINRA. The SEC, the FINRA and other regulators have from time to time investigated certain sales practices involving variable annuities and transactions in which an existing variable annuity is replaced by, or exchanged for, another annuity. Certain separate accounts of Aegon USA insurers are registered as investment companies under the Investment Company Act of 1940, as amended (the Investment Company Act). Separate account interests under certain annuity contracts and insurance policies issued by the insurance companies are also registered under the Securities Act of 1933, as amended (the Securities Act). Aegon USA insurance companies and other subsidiaries also own or manage other investment vehicles that are exempt from registration under the Securities Act and the Investment Company Act but may be subject to other requirements of those laws, such as anti-fraud provisions and the terms of applicable exemptions.

Some of the Aegon USA companies are registered as broker-dealers with the SEC under the Securities Exchange Act of

1934, as amended (the Securities Exchange Act) and are regulated by the FINRA. A number of Aegon USA companies are also registered as investment advisors under the Investment Advisers Act of 1940. In accordance with Dodd-Frank Act requirements, the SEC studied and recommended a harmonized standard of care for broker-dealers, investment advisors and persons associated with these firms who provide personalized investment advice. The SEC has solicited comments on the costs and benefits of regulations to establish a harmonized standard of care; however, it has not set a date for proposal of those regulations. Legislation has been proposed in prior congresses that would establish a self-regulatory organization for the examination of investment advisors; however, no action was taken on the legislation. Finally, the SEC and Congress are considering changes to the regulation of money market funds. The impact of any future legislation regulations regarding investment advisors, money market funds, or other investment products cannot be predicted at this time.

The financial services industry, which includes businesses engaged in issuing, administering, and selling fixed and variable insurance products, mutual funds, and other securities, and also includes broker-dealers, continues to be under heightened scrutiny and increased regulation in various jurisdictions. Such scrutiny and regulations have included matters relating to so-called producer compensation arrangements, suitability of sales (especially to seniors), selling practices, unclaimed property reporting, revenue sharing, and valuation issues involving mutual funds and life insurance separate accounts and their underlying funds. Aegon USA companies, like other businesses in the financial services industry, have received inquiries, examinations, and requests for information from regulators and others relating to certain Aegon USA companies’ historical and current practices with respect to these and other matters. Some of those inquiries have led to investigations, which remain open or have resulted in fines, corrective actions or restitution. Aegon USA companies continue to cooperate with these regulatory agencies. In certain instances, Aegon USA companies modified business practices in response to those inquiries or findings. Certain Aegon USA companies have paid, or been informed that the regulators may seek, restitution, fines or other monetary penalties or changes in the way that business is conducted. The impact of any such fines or other monetary penalties is not expected to have a material impact on Aegon USA’s financial position, net income or cash flow. Over the years, there has been an increase in litigation across the industry, new legislation, regulations, and regulatory initiatives aimed at curbing alleged improper annuity sales to seniors. As many of the estimated 78 million baby boomers are reaching the age of 60, the industry will likely see an increase in senior issues presented in various legal arenas. In addition, certain industry practices in respect of market conduct have been the subject of investigations by various state regulators. Management expects any significant marketplace volatility to drive further regulation and litigation, which could increase costs and limit Aegon USA’s ability to operate.

 

 

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Some Aegon USA companies offer products and services to individual retirement accounts (IRAs), pension and welfare benefit plans that are subject to the federal Employment Retirement Income Security Act (ERISA). ERISA is administered by the US Department of Labor (DOL) and Internal Revenue Service (IRS). Accordingly, the DOL and IRS have jurisdiction to regulate the products and services sold by these Aegon USA businesses. The DOL has issued regulations defining the nature of fees to be paid for investment advice in these plans, as well as requiring increased fee disclosure from defined contribution plan service providers and to plan participants. The DOL has indicated that it will re-propose regulations regarding the scope of an “investment advice fiduciary” in IRAs and defined contribution plans, as well as further define the nature of a plan sponsor’s obligations regarding certain plan participants’ investment options selected through a plan’s brokerage window. Implementation of these and other regulations in the manner proposed could increase the cost and administrative burdens of the Aegon USA companies.

Finally, both the US Treasury Department and the DOL have published, in final and proposed forms, respectively, guidance to facilitate the offering of guaranteed lifetime income products (for example annuities), both as an investment option in a retirement savings plan or as a distribution from that plan. US federal legislation has also been proposed that is designed to increase savings in employer retirement plans and to facilitate managing those retirement savings as income in retirement through annuities. The likelihood of passage of these legislative proposals or finalization of the regulatory guidance cannot be predicted at this time. However, the proposed legislation and guidance, if enacted and finalized as proposed, would increase the awareness of the benefits of annuitization and/or would significantly reduce the administrative burden of offering annuities within a retirement savings plan or as a distribution option from the plan.

In an attempt to increase the number of workers covered by a retirement savings plan, California has enacted legislation that would permit non-governmental workers to join the state government workers’ retirement plan or a similar governmental plan. Certain steps must be taken, however, before the legislation can be implemented. Several other states are considering similar legislation. The opening of state retirement plans to non-governmental workers could impact the products and services sold by some Aegon USA companies to private employers in those states.

Although the insurance business is regulated at State level, the US federal tax treatment of life insurance, pension and annuity products is governed by the US federal tax code. Proposals to remove or decrease the value of these tax incentives for these products – both in and of themselves and relative to other investment vehicles – have been debated periodically in the US Congress and also have been proposed in the Executive

Administration’s annual budget for the US federal government. Executive Administration budget proposals must be enacted by Congress before they become law. The risk of tax law changes is heightened when additional revenue is sought to reduce the federal deficit. In addition, tax reform initiatives of the type currently being considered by congressional committees further increase the risk of changes to the tax incentives for short- and long-term savings products, to the tax treatment of derivatives used by life insurers to hedge product-related liabilities, and perhaps even to the taxation of life insurers. These changes, if enacted, would directly impact the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans’ financial and retirement security.

Moreover, legislative proposals which impose restrictions on executive compensation, or restrict employment-based savings plans or the tax benefits related thereto, could adversely impact the sale of life insurance products used in funding those plans and their attractiveness relative to other non-insurance products. Regulations announced under the Dodd-Frank Act that limit investment by banks in certain financial services products or increase the cost of issuing certain life insurance products would adversely impact the sale of life insurance products. In particular, the market for stable value products sold to defined contribution plans, as well as other insurance products, would be adversely affected if it was decided that these products should be regulated as derivatives. Finally, proposed legislation that would limit the ability of an insurer to access the US Social Security Death Master File records would adversely impact the efficient administration of its life insurance policies. The likelihood of enactment of any such legislation cannot be predicted at this time.

There have also been occasional legislative proposals in the US Congress that target foreign-owned companies, such as a proposal containing a corporate residency provision that would redefine some historically foreign-based companies as US corporations for US tax purposes.

Many details of the Dodd-Frank Act were left to study or regulation; therefore, the impact of the Dodd-Frank Act on Aegon USA, or the life insurance market in general, cannot be fully determined until the regulations implementing the Dodd-Frank Act are promulagated and the studies completed. For example, the Dodd-Frank Act established the Federal Stabilization Oversight Council (‘FSOC’), responsible for identifying ‘systemically significant’ companies which are to be subject to additional oversight and heightened and other prudential standards imposed by the Federal Reserve Board. While Aegon USA has not to date been identified by FSOC as systemically significant, the likelihood of future identification of Aegon USA as systemically significant and/or the impact of any designation of other insurers as systemically significant on the competitive position of Aegon USA cannot be predicted at this time.

 

 

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Aegon USA companies administer and provide both asset management services and products used to fund defined contribution plans, individual retirement accounts, 529 plans and other savings vehicles. Changes to defined benefit plans by sponsors in reaction to the financial economic environment and the enactment of funding relief provisions may impact the services Aegon USA companies provide to these plans. In addition, legislative and regulatory proposals are considered from time to time which relate to the disclosure and nature of fees paid by defined contribution plan sponsors and their participants. Other proposals that may be considered relate to the nature of education, advice or other services Aegon USA companies provide to defined contribution plan sponsors and their participants. Finally, as noted above, proposals to change the structure, or remove or decrease the US federal tax preferences of pension and annuity products, either as part of tax reform or pursuant to deficit reduction, would directly impact the cost and competitiveness of pension and annuity products and pension services sold to ensure Americans’ financial and retirement security. Aegon USA companies also provide plans used to administer benefits distributed upon termination of defined benefit plans.

Any proposals that seek to either restrict fees and services to, or investment advice in, employer plans, or change the manner in which Aegon USA companies may charge for such services in a way that is inconsistent with business practices, will adversely impact the Aegon USA companies that provide administration and investment services and products to employment based plans.

The Patient Protection and Affordable Care Act does not directly impact the business of life insurance. It is uncertain whether any of the new regulations to implement this law, anticipated over the next several years, will impact the nature or distribution of any of Aegon USA’s supplemental products.

The American Taxpayer Relief Act (ATRA), enacted in January 2013, made permanent, with some modifications, many of the tax cuts enacted in 2001 and 2003 during the Bush administration. The ATRA provisions that are most significant for the Aegon USA companies’ business include those: (a) on the estate tax (setting the unified estate and gift tax exemption threshold at USD 5 million (adjusted for inflation after 2011), and the maximum tax rate at 40%); (b) on Roth conversions (permitting participants in qualified retirement savings plans to convert otherwise non-distributable 401(k) plan balances to a Roth account if the plan so provides); and (c) increasing the top individual income tax rates to 39.6% and capital gains rates to 20%. Other provisions of ATRA, such as the phase-out of personal exemptions and limitations on itemized deductions, as well as the new 3.8% tax on net investment income (enacted by the Patient Protection and Affordable Care Act and first effective in 2013), will further increase the marginal income tax rate of certain high income households. Making the estate tax permanent will facilitate estate planning for Americans. The extent to which

the other tax law changes impact the purchase of life insurance and annuity products, as well as the participation of individuals in qualified retirement savings plans, is as yet uncertain.

Aegon Canada

Transamerica Life Canada (TLC) and Canadian Premier Life (CPL) are organized and regulated pursuant to the federal Insurance Companies Act (Canada). The primary regulator is the Office of the Superintendent of Financial Institutions. In addition, TLC and CPL are subject to the laws, regulations and insurance commissions of each of Canada’s ten provinces and three territories in which it carries on business. The laws of these jurisdictions generally establish supervisory agencies with broad administrative powers that include granting and revoking licenses to conduct business, regulating trade practices, licensing agents, establishing reserve requirements, determining permitted investments, and establishing minimum levels of capital. TLC’s ability to continue to conduct its insurance business depends upon the maintenance of its licenses at both the federal and provincial/territorial levels. It is also governed by policy statements and guidelines established by the Canadian Life & Health Insurance Association.

The mutual fund and investment management operations of Aegon Canada are governed by the Securities Acts of each province and territory.

Asset liability management

The Aegon USA insurance companies are primarily subject to regulation under the laws of the states in which they are domiciled. Each state’s laws prescribe the nature, quality, and percentage of various types of investments that may be made by the companies. Such laws generally permit investments in government bonds, corporate debt, preferred and common stock, real estate, and mortgage loans. Limits are generally placed on other classes of investments.

The key investment strategy for traditional insurance-linked portfolios is asset liability management, whereby predominately high-quality investment assets are matched in an optimal way to the corresponding insurance liability. This strategy takes into account currency, yield and maturity characteristics. Asset diversification and quality considerations are also taken into account, along with considerations of the policyholders’ guaranteed or reasonably expected excess interest sharing. Investment-grade fixed income securities are the main vehicle for asset liability management, and Aegon USA’s investment personnel are highly skilled and experienced in these investments.

The Aegon USA companies manage their asset liability matching through the work of several committees. These committees review strategies, define risk measures, define and review asset liability management studies, examine risk-hedging techniques, including the use of derivatives, and analyze the potential use of new asset classes. Cash flow testing analysis is performed using

 

 

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computer simulations, which model assets and liabilities under projected interest rate scenarios and commonly used stress-test interest rate scenarios. Based on the results of these simulations, an investment portfolio is constructed to best match the cash flow and interest sensitivity of the underlying liabilities while trying to maximize the spread between the yield on the portfolio assets and the rate credited on the policy liabilities. Interest rate scenario testing is a continual process and the analysis of the expected values and variability for four critical risk measures (capital charges, cash flows, present value of profits, and interest rate spreads) forms the foundation for modifying investment strategies, adjusting asset duration and mix, and exploring hedging opportunities. On the liability side, Aegon USA has some offsetting risks, whereby some liabilities perform better in rising interest rate environments while others tend to perform well in falling interest rate environments. The amount of offset may vary depending on the absolute level of interest rates and the magnitude and timing of interest rate changes, but it generally provides some level of diversification. On the asset side, hedging instruments are continuously studied to determine whether their cost is commensurate to the risk reduction they offer.

Reinsurance ceded

Aegon USA reinsures part of its life insurance exposure with third party reinsurers under both quota share (traditional indemnity) reinsurance treaties, and excess-of-loss contracts. Aegon USA’s reinsurance strategy is consistent with typical industry practice.

Ceding reinsurance does not remove Aegon’s liability as the primary insurer. Aegon could incur losses should reinsurance companies not be able to meet their obligations. To minimize its exposure to the risk of such defaults, the creditworthiness of Aegon’s reinsurers is monitored regularly.

Aegon USA

These reinsurance contracts are designed to diversify Aegon USA’s overall risk and limit the maximum loss on risks that exceed policy retention levels. The maximum retention limits vary by product and class of risk, but generally fluctuate between USD 3,000 and USD 10 million per life insured.

Aegon USA remains contingently liable with respect to the amounts ceded should the reinsurance company not be able to meet its obligations. To minimize its exposure to such defaults, Aegon USA regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit or trust agreements. For certain agreements, funds are withheld for investment by the ceding company. Aegon USA has experienced no material reinsurance recoverability problems in recent years.

Aegon USA reinsures part of its life insurance exposure with third-party reinsurers under quota share (traditional indemnity) reinsurance treaties, and excess-of-loss contracts. Aegon USA’s reinsurance strategy is consistent with typical industry practice.

The Aegon USA insurance companies also enter into contracts with company-affiliated reinsurers, both within the United States and overseas. These contracts have been excluded from the company’s consolidated financial statements.

Aegon Canada

In the normal course of business, Transamerica Life

Canada reinsures part of its mortality and morbidity risk with third-party reinsurers that are registered with Canada’s Office of the Superintendent of Financial Institutions. The maximum life insurance exposure retained is CAD 1.25 million per life insured.

 

 

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Results 2013 the Netherlands

 

Amounts in EUR millions    2013       2012        
Net underlying earnings      274          260          5%    

Tax on underlying earnings

     81          65          25%    
Underlying earnings before tax by product segment         

Life & Savings

     243          267          (9%)   

Pensions

     111          67          66%    

Non-life

     (20)         (27)         26%    

Distribution

     18          16          13%    

Share in underlying earnings before tax of associates

                     0%    
Underlying earnings before tax      355          325          9%    

Net fair value items

     (65)         71          -     

Gains / (losses) on investments

     342          138          148%    

Impairment charges

     (32)         (29)         (10%)   

Other income / (charges)

     (36)         (279)         87%    

Income before tax

     564          226          150%    

Income tax from certain proportionately consolidated joint ventures and associates included in
income before tax

     -           (3)         -     

Income tax

     (141)                 -     

Of which Income tax from certain proportionately consolidated joint ventures and associates
included in income before tax

     -           3          -     
Net income      424          228          86%    

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

     997          1,036          (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%)   

 

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44   Business overview Results of operations – the Netherlands

 

Results 2013 the Netherlands1

2013 net income increased to EUR 424 million compared to 2012 due to higher realized gains on investments and higher underlying earnings before tax which is partly offset by a loss on fair value items (compared to a gain in 2012). The increase in underlying earnings before tax was mostly driven by Pensions earnings and lower operating expenses following implemented cost reduction initiatives.

 

Net income

Net income from Aegon’s businesses in the Netherlands amounted to EUR 424 million. Realized gains on investments totaled EUR 342 million and were primarily the result of adjustments to the asset mix to bring it in line with the new regulatory yield curve and selective de-risking activities. Results on fair value items amounted to a loss of EUR 65 million, which was primarily driven by adverse real estate revaluations of EUR 74 million and a loss in the guarantee portfolio of EUR 118 million. This loss in the guarantee portfolio was mainly the result of the tightening of Aegon’s credit spread and model refinements. 2013 impairment charges amounted to EUR 32 million and other charges were EUR 36 million, which mainly included charges of EUR 25 million related to Koersplan (compared to a charge of EUR 265 million related to the acceleration of product improvements for unit-linked insurance products in 2012).

Underlying earnings before tax

Underlying earnings from Aegon’s operations in the Netherlands increased 9% to EUR 355 million compared to 2012 as higher earnings in Pensions more than offset lower earnings in Life & Savings.

  ¿   Earnings from Life & Savings declined 9% to EUR 243 million compared to 2012 and was impacted by EUR 28 million from reduced policy charges on unit-linked products, as part of the acceleration of product improvements for unit-linked insurance policies.
  ¿   Earnings from Pensions increased 66% to EUR 111 million compared to 2012, mainly driven by a benefit resulting from observed mortality of EUR 25 million and higher income on mortgage loan investments allocated to the investment portfolio of the Pension business.
  ¿   Non-life earnings improved to a loss of EUR 20 million in 2013. Higher investment income and lower claims on disability products more than compensated for lower profitability of the general insurance business. Distribution recorded a profit of EUR 18 million, up 13% from 2012. This was primarily driven by a continued focus on cost control.

Commissions and expenses

Commissions and expenses decreased by 4% in 2013 compared to 2012. Operating expenses decreased by 2% compared to 2012, to EUR 732 million, as realized cost savings and lower employee benefit expenses offset investments in the business.

Production

Total new life sales decreased 16% in 2013 to EUR 206 million. Individual life sales declined 13% to EUR 40 million in 2013, as the ongoing shift to banksparen products more than offset higher term life sales related to new mortgage production. Pensions sales declined 17% compared to 2012 as signing multiple new contracts was more than offset by the non-recurrence of a very large transaction in 2012. Production of mortgage loans in 2013 amounted to EUR 3.2 billion, up EUR 2.7 billion from 2012.

Premium production for accident & health amounted to EUR 24 million up from EUR 21 million in 2012. General insurance production declined 13% to EUR 26 million. Production was negatively impacted by the focus on profitable business.

Gross deposits decreased to EUR 1.3 billion, as a higher production of banksparen products was more than offset by a decline in traditional savings deposits.

 

 

  1 Throughout this report, Aegon the Netherlands refers to all Aegon companies operating in the Netherlands.

 

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Results 2012 the Netherlands

 

Amounts in EUR millions    2012       2011        
Net underlying earnings      260          238          9%    

Tax on underlying earnings

     65          60          8%    
Underlying earnings before tax by product segment         

Life & Savings

     267          185          44%    

Pensions

     67          98          (32%)   

Non-life

     (27)                 -     

Distribution

     16                  100%    

Share in underlying earnings before tax of associates

                     100%    
Underlying earnings before tax      325          298          9%    

Net fair value items

     71          156          (54%)   

Gains / (losses) on investments

     138          269          (49%)   

Impairment charges

     (29)         (15)         (93%)   

Other income / (charges)

     (279)         (164)         (70%)   

Income before tax

     226          544          (58%)   

Income tax

             (125)         -     
Net income      228          419          (46%)   

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

     1,036          1,122          (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%)   

 

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46   Business overview Results of operations – the Netherlands

 

Results 2012 the Netherlands

Higher underlying earnings before tax in the Netherlands were driven by improved Life & Savings earnings and lower operating expenses following implemented cost reduction initiatives in 2011. Aegon’s 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.

 

Net income

Net income from Aegon’s businesses in the Netherlands amounted to EUR 228 million and included a charge of EUR 265 million before tax related to the acceleration of product improvements for unit-linked insurance products. Realized gains on investments totaled EUR 138 million for the year and were mainly the result of asset liability management related trading activity and selective de-risking. Results on fair value items amounted to a gain of EUR 71 million and impairments amounted to EUR 29 million.

Underlying earnings before tax

Underlying earnings before tax from Aegon’s operations in the Netherlands increased 9% in 2012 to EUR 325 million as higher earnings in Life & Savings more than offset lower earnings in Pension and Non-life. Recurring charges for Corporate Center expenses amounted to EUR 16 million.

 

  ¿   Underlying earnings before tax from Aegon’s Life & Savings operations in the Netherlands increased to EUR 267 million, up 44% compared to 2011. This increase was driven by cost savings, a higher contribution from Aegon’s growing mortgage portfolio on lower funding costs, the non-recurrence of certain expenses and a benefit in the fourth quarter resulting from updated mortality tables of EUR 24 million.
  ¿   Underlying earnings before tax from the Pension business declined to EUR 67 million as the benefit of cost savings and the wind up of several contracts were more than offset by lower interest income, the non-recurrence of a employee benefit release in 2011 and a charge in 2012 of EUR 17 million resulting from updated mortality tables.
  ¿   Non-life recorded an underlying loss before tax of EUR 27 million in 2012 as a result of adverse claim experience on disability and general insurance products. Losses on these products led to the implementation of actions to improve future results with disability insurance products already showing improvements in 2012.
  ¿   In 2012, the distribution businesses recorded underlying earnings before tax of EUR 16 million, an improvement compared to 2011 due to cost savings and lower amortization of value of business acquired following an impairment in 2011.

Production

New life sales decreased by 3% in 2012 to EUR 246 million. The decline in Individual life sales to EUR 46 million, primarily driven by a shrinking Dutch life insurance market, more than offset the 16% increase in pension sales. Production of mortgages in 2012 amounted to EUR 2.7 billion down from EUR 3.3 billion in 2011.

Premium production for accident & health amounted to EUR 21 million, down from EUR 27 million in 2011. Sales in income insurance products were negatively impacted by strong competition and price increases to maintain margins. General insurance production amounted to EUR 30 million, up 11% for the year, resulting from successful new distribution initiatives.

Gross deposits declined to EUR 1,484 million, driven by strong competition on the Dutch savings market and a reduction of the rate offered on savings accounts to protect margins.

Commissions and expenses

Commissions and expenses decreased by 8% in 2012 compared to 2011 driven by lower operating expenses. Operating expenses decreased by 9%, to EUR 746 million, as realized cost savings and the non-recurrence of restructuring charges offset investments in new distribution capabilities and recurring charges for Corporate Center expenses.

Aegon was on track to reduce operating expenses by EUR 100 million in comparison to the cost base for 2010, of which the majority was in 2012. Over the years, Aegon has implemented cost savings of EUR 89 million.

 

 

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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 country’s 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.

 

Organizational structure

Aegon the Netherlands operates through a number of brands, including TKP Pensioen, Optas and Unirobe Meeùs. Aegon itself is one of the most widely recognized brands in the Dutch financial services sector3.

Aegon the Netherlands’ primary subsidiaries are:

 

  ¿   Aegon Bank N.V.

 

  ¿   Aegon Levensverzekering N.V.

 

  ¿   Aegon Schadeverzekering N.V.

 

  ¿   Aegon Spaarkas N.V.

 

  ¿   Optas Pensioenen N.V.

 

  ¿   Aegon Hypotheken B.V.

 

  ¿   TKP Pensioen B.V.

 

  ¿   Unirobe Meeùs Groep B.V.

 

  ¿   Aegon PPI B.V.

Aegon the Netherlands has four lines of business:

 

  ¿   Life & Saving;

 

  ¿   Pensions;

 

  ¿   Non-life;

 

  ¿   Distribution.

Overview of sales and distribution channels

Aegon the Netherlands sells through several channels. The Pensions business line includes Sales and account management, which serves large corporations and financial institutions such as company and industry pension funds. In general all business lines use the intermediary channel, which focuses on independent agents and retail sales organizations in the Netherlands. Aegon Bank uses the direct channel, primarily for savings, and Aegon Schadeverzekering has strategic partnerships for the sale of its products and uses an online channel. Aegon the Netherlands launched online bank Knab in 2012 and online insurer Kroodle in 2013, in line with its drive to embrace technology to meet the evolving needs of its customers. Furthermore, Aegon the Netherlands has made significant investments in the direct online channel, which is starting to generate results.

 

 

  1 Source: DNB/CVS Reports 2012.
  2 Source: AM 2012 Jaarboek, published by Assurantie Magazine.
  3 Source: Tracking Report Motivaction+.

Overview of business lines

Life & Savings

Aegon the Netherlands provides a range of individual savings products, mortgage loans and life insurance and personal protection products and services, including traditional, universal and term life. Based on underlying earnings before tax, Life & Savings is Aegon the Netherlands’ largest line of business.

Products

Endowment insurance

Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract.

Accumulation products pay benefits on the policy maturity date, subject to survival of the insured. Most policies also pay death benefits should the insured die during the term of the contract. 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 accumulation products written, except for universal life type products for which premiums are invested solely in equity funds. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3% and in 2013 the guarantee decreased to 0%.

There are various profit-sharing arrangements. Bonuses are either paid in cash (usually for a pension, as described later) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indices that are based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have differing remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on Dutch high-quality financial investments.

 

 

 

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48   Business overview Results of operations – the Netherlands

 

 

Term and whole life insurance

Term life insurance pays out death benefits should the insured die during the term of the contract. Whole life insurance pays out death benefits in the event of death, regardless of when this occurs. Premiums and amounts insured are established at inception of the contract and are guaranteed. The amount insured may be adjusted at the request of the policyholder. Term life insurance policies do not include profit-sharing arrangements. Part of the whole life insurance portfolio has profit-sharing features, which are based on external indices or the return of related assets.

Annuity insurance

Annuity insurance includes products in the accumulation phase and products in the payout phase. Payout commences at a date determined in the policy and usually continues until death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy. The contracts contain minimum guarantees of 3%, or 4% and prior to 1999 of 4%. Interest rebates are given on both single and regular premium annuity insurance, and may be based on a portfolio of Dutch government bonds, although other calculation benchmarks may also be applied. There are also profit-sharing schemes set by reference to external indices that are based on pre-defined portfolios of Dutch government bonds.

Variable unit-linked products

These products have a minimum benefit guarantee, except for premiums invested in equity funds. The initial guarantee period is ten years.

Tontine plans

Tontine plans are unit-linked contracts with a specific bonus structure. At the end of the year in which the insured dies, the policy balance is distributed to the surviving policyholders who belong to the same tontine series, rather than to the policyholder’s estate. Should the policyholder die before the policy matures, a death benefit is paid to the dependants. Tontine policyholders may invest premiums in a number of Aegon funds. Aegon the Netherlands manages but no longer sells tontine plans.

Mortgage loans

Since 2013, Aegon the Netherlands has offered annuity and linear residential mortgage loans, either individually or in combination. Previously the business also offered interest-only, unit-linked and savings mortgage loans.

Savings accounts

Aegon the Netherlands offers flexible savings accounts with cash withdrawal with limited restrictions, and deposit accounts with a predetermined maturity.

Investment contracts

Investment contracts are investment products that offer index-linked returns and generate fee income from the performance of the investments.

Long-term deposits (“Banksparen”)

Banksparen is a saving product for which amounts are deposited in a “locked” bank account exempt from capital gains tax. The amount saved is available for specific purposes after a certain time period.

Knab

Aegon the Netherlands launched online bank Knab in 2012. The platform provides customers with insights into their financial future and uses a fee-based model to empower informed decision making by customers. A product of collaboration with customers, experts and critics, Knab is designed to meet contemporary customer needs.

Kroodle

In the first quarter of 2013, Aegon the Netherlands launched Kroodle, one of the world’s first insurance companies to operate primarily through Facebook allowing customers in the Netherlands to purchase insurance and manage their accounts through their Facebook profile.

Sales and distribution

Aegon the Netherland’s life and savings products are sold through Aegon’s intermediary and direct channels.

Pensions

The Pensions business provides a variety of full service pension products to pension funds and companies.

Products

Aegon the Netherlands provides full-service pension solutions and administration-only services to company and industry pension funds and large companies. The full-service pension products for account of policyholders are separate account group contracts with and without guarantees.

 

 

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Separate account group contracts are large group contracts that have an individually determined asset investment underlying the pension contract. A guarantee usually consists of profit sharing, and is the highest of either the market interest rate or the contractual interest rate, 3% or 4%. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is dependent on the life of the insured so that their pension benefit is guaranteed. Large group contracts also receive part of the technical results for mortality risk and disability risk. The contract period is typically five years and the tariffs, cost loadings and risk premiums are generally fixed over this period.

Separate account guaranteed group contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with Aegon the Netherlands. Non-guaranteed separate account group contracts provide little guarantee on the benefits. Aegon the Netherlands may not renew a contract at the end of a contract period.

Aegon offers all customers a defined benefit product with guaranteed benefits. The expected profit is paid to the customer upfront, with the premium adjusted for anticipated investment returns. Customers may contribute funds for future pension increases to a separate account. Aegon the Netherlands also offers defined contribution products with single and recurring premiums to all customers. Profit sharing is based on investment returns on specified funds, and all positive and negative risks, such as investment risk and longevity risk, are attributed to the employees.

A decrease in the number of company and industry pension funds in the Netherlands will continue over the next few years. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fund buy-out product for its terminating pension funds, for which it takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lump-sum premium. All risks related to the transferred benefits are carried by Aegon the Netherlands.

Sales and distribution

Most of Aegon the Netherlands’ pensions are sold through Sales and account management and Aegon’s intermediary channel. Customers include individuals, company and industry pension funds, and small, medium and large corporations. Aegon the Netherlands is one of the country’s leading providers of pensions1.

For the majority of company and industry customers, Aegon the Netherlands provides a full range of pension products and services. In addition, TKP Pensioen specializes in pension administration for company and industry pension funds and provides defined contribution plans to corporate and institutional clients, Aegon PPI offers defined contribution plans for small and medium companies.

Non-life

The Non-life business consists of general insurance and accident and health insurance.

Products

General insurance

Aegon the Netherlands offers general insurance products in the corporate and retail markets. These include house, inventory, car, fire and travel insurance.

Accident and health insurance

Aegon the Netherlands offers disability and sick leave products to employers that cover sick leave payments to employees not covered by social security and for which the employer bears the risk.

Sales and distribution

Aegon the Netherlands offers non-life insurance products primarily through the Aegon intermediary channel, and through the direct channel Aegon Online and strategic partnerships, such as with local retailer Kruidvat. Aegon also uses the co-assurance market for the corporate sector, and Sales and account management provides products for larger corporations in the Netherlands.

Distribution

Unirobe Meeùs Group is the main distribution channel owned by Aegon the Netherlands, through which it offers financial advice to its customers, including the sale of insurance, pensions, mortgage loans, financing, savings and investment products.

 

 

 

  1 Source: DNB/CVS Reports 2012.

 

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50   Business overview Results of operations – the Netherlands

 

 

Competition

Aegon the Netherlands faces strong competition in all of its markets from insurers, banks and investment management companies. The main competitors are ING Group, Eureko (Achmea), ASR, SNS Reaal (including Zwitserleven) and Delta Lloyd/OHRA. This market is, however, subject to quickly changing market dynamics, including the growing use of online channels and a slowly changing pensions landscape (PPI).

Aegon the Netherlands has been a key player in the total life market for many years and is ranked second based on gross premium income in 2012, after ING. The life insurance market in the Netherlands comprises pensions and life insurance. The top six companies by gross premium income accounted for approximately 90% of the total premium income in 20121. Based on gross premium income in 20121, Aegon the Netherlands ranks first in the pension market and sixth in the individual life insurance market. Aegon the Netherlands is one of the smaller players in the non-life market. Aegon the Netherlands’ non-life market share is around 4%1, measured in premium income.

In the mortgage loans market, Aegon the Netherlands’ market share is growing and the company now holds a market share of approximately 9,1% based on new sales2. Rabobank, ING and ABN AMRO are the largest mortgage loan providers in this market.

Aegon the Netherlands holds approximately 1.3%3 of Dutch households savings and is small in comparison to banks Rabobank, ING, ABN AMRO and SNS Bank.

In recent years, several changes in regulations have limited opportunities in the Dutch insurance market, notably in the life insurance market where the tax deductibility of certain products has been reduced, such as for company savings plans. Furthermore, low economic growth and financial market volatility has made customers more reluctant to commit to long-term contracts. These changes have increased competition, resulting in a greater focus on competitive pricing, improved customer service and retention, and product innovation. Since 2011, Aegon the Netherlands has accelerated its response through organizational restructuring accompanied by significant cost savings.

In the pension market, funds face pressure on their coverage ratios, and increased regulatory and governance requirements. In response, pension funds are seeking to reduce risk exposure by insuring the whole or part of a fund. This is an opportunity for pension providers.

The PPI market is to grow significantly due to the shift from defined benefit plans to defined contribution plans, and demand

for transparent and cost efficient pension products. As a result, significant economies of scale will be required to service this market effectively and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an opportunity for growth and plans to invest in building a leadership position.

Regulation and supervision

Two bodies are responsible for the supervision of financial institutions in the Netherlands: