Securities and Exchange Commission

Washington, D.C. 20549

 

 

Form 6-K

 

 

Report of Foreign Issuer

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

of the Securities Exchange Act of 1934

May 2019

 

 

AEGON N.V.

 

 

Aegonplein 50

2591 TV THE HAGUE

The Netherlands

 

 

 

Aegon’s 2018 Solvency and Financial Condition Report, dated May 13, 2019, are included as appendix and incorporated herein by reference.

SIGNATURE

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

 

						AEGON N.V.
						(Registrant)
Date: May 24, 2019				By		/s/ J.H.P.M. van Rossum
						J.H.P.M. van Rossum
						Head of Corporate Financial Center

 

Table of contents

 

 

		Solvency and Financial Condition Report 2018

3     Introduction Scope of the report

 

Scope of the report

This report is Aegon N.V.’s Group Solvency and Financial Condition Report (SFCR) for the year 2018. This report informs Aegon N.V.’s stakeholders about its:

 

•

Business and performance;

 

•

System of governance;

 

•

Risk profile;

 

•

Valuation for solvency purposes; and

 

•

Capital management.

The valuation differences between the scope of Aegon Group used for the consolidated financial statements based on IFRS-EU and the scope of Aegon Group for the consolidated data determined in accordance with Article 335 of the Delegated Regulation Solvency II, are discussed in more detail in section D. Valuation for solvency purposes.

Basis of presentation

This report is prepared in accordance with the requirements of Solvency II Directive and Delegated Regulation (in particular article 256 of the Solvency II Directive, articles 359 – 371 and articles 290-298 of the Delegated Regulation, and relevant EIOPA Guidelines, in particular ‘Guidelines on reporting and public disclosure’ (EIOPA-BoS-15/109) as issued by the European Insurance and Occupational Pensions Authority (EIOPA).

Aegon N.V. is referred to in this document as ‘Aegon’, or ‘the Company’, and is together with its member companies referred to as ‘Aegon Group’ or ‘the Group’. For such purposes ‘member companies’ means, in relation to Aegon, those companies required to be consolidated in accordance with Solvency II requirements.

The figures reflecting monetary amounts in the SFCR are presented in euro (unless stated otherwise). Aegon discloses monetary amounts in millions of units for disclosing purposes. All values are rounded to the nearest million unless otherwise stated. The rounded amounts may therefore not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount.

In cases in which IFRS figures are disclosed, the figures are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS-EU).

Under Solvency II, Aegon uses a combination of method 1 (Accounting Consolidation) and method 2 (Deduction & Aggregation) for the calculation of the Solvency II Group Solvency. The Solvency II consolidated data (the data included in accordance with method 1) does not include the entities that are included in the Group Solvency calculation in accordance with method 2 (US Life insurance entities, Bermuda, Japan, Mexico and Brazil). Furthermore, joint ventures are partially consolidated under Solvency II, whereas joint ventures are not consolidated under IFRS. As part of method 1 under Solvency II, Other Financial Sector (OFS) entities are included as related undertakings based on local sectoral rules, whereas, when OFS are controlled entities, such are consolidated under IFRS.

The consolidation under Solvency II is set out in more detail in section D. Valuation for solvency purposes and E. Capital management of the SFCR.

The 2018 SFCR of Aegon Group has been prepared and disclosed under the responsibility of Aegon’s Executive Board. This document was approved on May 13, 2019 by the Executive Board.

 

		Solvency and Financial Condition Report 2018

4     Introduction Summary

 

 

Summary

The 2018 Solvency Financial Condition Report provides Aegon’s stakeholders insight in:

A. Business and performance

Aegon is an international financial services group. We provide life insurance, pensions and asset management. Its listed holding company, Aegon N.V., is a public limited liability company with its corporate seat and head office in the Netherlands.

Through its subsidiaries and joint ventures, Aegon employs over 26,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries and are directly or indirectly held by three intermediate holding companies incorporated under Dutch law. These legal entities are directly or indirectly held by 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 a number of its asset management entities. Aegon has the following operating segments: the Americas, which includes the United States, Mexico and Brazil; the Netherlands; the United Kingdom; Central & Eastern Europe; Spain & Portugal; Asia; Aegon Asset Management and Holdings.

Aegon exists to help people achieve a lifetime of financial security. It uses a multi-brand, multichannel distribution approach to meet its customers’ needs, and fosters an entrepreneurial spirit within its businesses, encouraging the development of innovative products and services.

Aegon’s business model focuses on the following items:

 

•

Product development and pricing: Aegon begins with customers – Aegon assesses the customer’s needs and develop products and services that meet those needs. Next Aegon estimates and prices the risk involved for Aegon as a financial services provider.

 

•

Distribution: Aegon’s products and services are then branded, marketed and sold. Aegon offers products and services via intermediaries, like brokers and banks or financial advisors. Aegon also sells direclty to customers.

 

•

Investments: In exchange for products and services, customers pay fees or regular premiums. On certain pension products, savings and investments, customers make deposits. Aegon invests the money received to make an attractive return on the money invested.

 

•

Claims & Benefits: From the premiums, deposits and investment returns Aegon receives, Aegon pays customer claims and benefits, covers its expenses and makes profits for Aegon’s shareholders. Customers also make regular withdrawals from pensions and saving products.

For more information on Aegon’s strategy, please see the Integrated Annual Report 2018 of Aegon Group.

Key events in 2018:

 

•

In the first quarter, Aegon Americas transferred administration of its US insurance and annuity businesses to Tata Consultancy Services (TCS). The agreement will help modernize the business, and is expected to lead to significant cost savings. Furthermore, Aegon launched a new USD 100 million US affordable housing fund. The fund is the first of its kind and will finance home loans across 13 US states.

 

•

In the second quarter, Aegon completed the sale of Aegon Ireland for EUR 195 million to Athora Holding. The sale was first announced in 2017. Furthermore, Aegon Asset Management set up a new EUR 120 million innovation fund in the Netherlands. The fund is backed by the European Investment Fund, and will benefit around 85 small and medium-sized Dutch companies. Aegon also invested in a new Dementia Discovery Fund, dedicated to finding effective treatments for the disease. Aegon is among investors pledging USD 350 million to support the fund’s work.

 

•

In the third quarter, plans were announced to expand Aegon’s partnership with Spain’s Banco Santander. The plan gives Aegon access to another four million potential customers in Spain. Aegon also bought Robidus, a leading income protection services provider in the Netherlands. The acquisition will strengthen Aegon’s existing income protection service for Dutch employers. Furthermore, Aegon agreed to divest the last substantial block of US life reinsurance business to SCOR Global Life. Most of the business had already been sold to SCOR in 2011 and 2017. Aegon also agreed to sell its businesses in Czech Republic and Slovakia to NN Group. The sale was completed on January 8, 2019.

 

		Solvency and Financial Condition Report 2018

5     Introduction Summary

 

•

In the fourth quarter, Aegon Americas announced that it settled a US lawsuit challenging rate adjustments on universal life insurance policies. Furthermore, Aegon UK signed a new 15-year contract with Atos. The digital services provider will take over administration of policies belonging to around 1.4 million customers. Aegon also realized an additional USD 1 billion in one-off capital generation following a merger of two US legal entities. The merger simplified Aegon’s corporate structure in the US and further strengthen the company’s capital position.

 

		2018				2017
Results of operations and performance Amounts in EUR millions		Group				Group
Net income			744				2,361
Underlying earnings before tax			2,074				2,140
Investment income			7,035				7,338
Premium income			19,316				22,826
Commissions and expenses			6,224				5,925
Policyholder claims and benefits			10,557				45,599
Results from financial transactions			(11,670	)			20,108

Net income amounted to EUR 744 million in 2018, as underlying earnings before tax of EUR 2,074 million were partly offset by fair value losses and other charges.

From an underlying earnings perspective, Aegon’s underlying earnings before tax decreased to EUR 2,074 million in 2018 (EUR 2,140 million in 2017). This was mainly driven by lower fee revenue due to declining equity markets and net outflows of revenue generating investments, and unfavorable mortality experience in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.

Investment income amounted to EUR 7.0 billion in 2018 compared to EUR 7.3 billion in 2017. Aegon Americas is the largest contributor to the investment income with EUR 3.1 billion, followed by Aegon the Netherlands, EUR 2.3 billion, and Aegon UK with EUR 1.3 billion.

Premium income amounted to EUR 19.3 billion, down by 15% from 2017 (EUR 22.8 billion). This decrease was mostly driven by lower premium income in Aegon UK affected by a reduction of upgraded Life insurance policies to the platform in the UK, and a decrease in Non-life premiums mainly from product exits and currency translation adjustments in the Americas.

Commissions and expenses increased by 5% compared with 2017 to EUR 6,224 billion in 2018 mainly driven by increased amortization of intangible assets in Americas.

Total policyholder claims and benefits amounted to EUR 10.6 billion in 2018 compared to EUR 45.6 billion in 2017. The decrease of EUR 35.0 billion is mainly attributable to changes in the valuation of liabilities of insurance contracts and investment contracts. The changes in valuation of liabilities for insurance contracts and investment contracts reflect changes in technical provisions resulting from net fair value changes on financial assets for account of policyholder included in results from financial transactions.

Results from financial transactions amounted to EUR (11.7) billion in 2018 compared to EUR 20.1 billion in 2017. The main contributor is the net fair value change on for account of policyholder financial assets of EUR (11.3) billion in 2018 and is mainly driven by unfavorable credit markets and equity markets.

Full details on the Aegon’s business and performance are described in section A. Business and performance.

 

		Solvency and Financial Condition Report 2018

6     Introduction Summary

 

B. System of governance

General governance

Aegon is incorporated and established in the Netherlands and therefore must comply with Dutch law, such as the provisions of Book 2 of the Dutch Civil Code. In addition, Aegon is subject to the Dutch Corporate Governance Code.

Aegon is governed by three main corporate bodies: the Executive Board, the Supervisory Board, and the General Meeting of Shareholders. The Executive Board is assisted in its work by the Management Board which provides vital support and expertise in safeguarding Aegon’s strategic goals. There were no material changes in the system of governance during the reporting period.

Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile. In addition, it oversees any relevant sustainability issues and the development of Aegon’s earnings. Aegon’s Articles of Association determine that for certain decisions the Executive Board must seek prior approval from the Supervisory Board and/or the approval of the General Meeting of Shareholders. In addition, the Supervisory Board may also subject other Executive Board decisions to its prior approval.

Aegon’s Management Board is comprised of the members of the Executive Board, the Chief Executive Officers (CEOs) of the Americas, United Kingdom, Continental Europe, Asset Management and the following global functions: Group Chief Risk Officer, Group General Counsel, Global Head of HR and the Global Chief Technology Officer.

Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board members, comprising seven members as per December 31, 2018, are appointed by the shareholders at the General Meeting of Shareholders. Aegon aims for the Supervisory Board to be well-balanced in terms of professional background, geography and gender. The Supervisory Board has the following committees:

 

•

Audit Committee;

 

•

Risk Committee;

 

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Remuneration Committee; and

 

•

Nomination and Governance Committee.

These committees are exclusively comprised of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management, executive remuneration and appointments.

In addition to the corporate bodies, described above, Aegon has in place a number of key functions, as required under Solvency II. These key functions are described below, in the section ‘control environment’.

Risk management

Aegon’s risk management framework is designed and applied to identify and manage potential events and risks that may affect Aegon. This is established in the Enterprise Risk Management (ERM) framework which aims to identify and manage individual and aggregate risks within Aegon’s risk tolerance in order to provide reasonable assurance regarding the achievement of Aegon’s objectives. The ERM framework applies to all material businesses of Aegon for which it has operational control. Aegon’s businesses are required to either adopt the Group level ERM framework directly, or tailor it to local needs, while meeting the requirements of the Group level ERM framework. Aegon’s ERM framework is based on a well-defined risk governance structure. In addition to the Supervisory, Management and Executive Boards, the risk governance structure includes the following committees:

 

•

Group Risk & Capital Committee and its sub-committees; and

 

•

Regional Risk & Capital Committees.

Control environment

In addition to risk management, Aegon’s Solvency II control environment consists of an internal control system, which includes a compliance function, an actuarial function and an internal audit function. The internal control system serves to facilitate compliance with applicable laws, regulation and administrative processes and it provides for an adequate control environment including appropriate control activities for key processes. The actuarial function has end-to-end accountability for the adequacy and reliability of reported technical provisions, including policy setting and monitoring of compliance regarding actuarial risk tolerances. Aegon’s internal audit function is independent and objective from operational functions, including in performing its duties in evaluating the effectiveness of Aegon’s internal control system.

Full details on the Aegon’s system of governance are described in section B. System of governance.

 

		Solvency and Financial Condition Report 2018

7     Introduction Summary

 

C. Risk profile

As an insurance group, Aegon accepts and manages risk for the benefit of its customers and other stakeholders. Aegon’s risk management and control systems are designed to ensure that these risks are managed effectively and efficiently in a way that is aligned with the Company’s strategy. The targeted risk profile is determined by customer needs, Aegon’s competence to manage the risk, Aegon’s preference for risk, and whether there is sufficient capacity to take the risk. Aegon currently targets an equal balance between financial market and credit risks and underwriting risks. The targeted risk profile is set at Aegon Group level and developed in more detail within the subsidiaries where insurance business is written. Aegon’s risk strategy provides direction for the targeted Aegon risk profile while supporting Aegon’s business strategy. Aegon is exposed to a range of underwriting, market, credit, liquidity and operational risks.

Material movements in risk profile during 2018 mainly include the following:

 

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The implementation of approved major model changes to Aegon’s Partial Internal Model (PIM), related to Aegon the Netherlands’ dynamic VA model, and Longevity risk model, which increased the contribution of underwriting risk to Aegon’s risk profile;

 

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US tax reform (corporate income tax rate from 35% to 21%), which increased required capital of Aegon Americas;

 

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Changes to the interest rate hedge of Aegon the Netherlands, which impacted market risks;

 

•

Additional investments in illiquid assets and real estate by Aegon the Netherlands, which increased market risk;

 

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Completion of the sale of Ireland, which released the related capital requirement (mainly SF market risk and underwriting risks);

 

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Acquisition of BlackRock business in the UK, impacting both market and underwriting risk;

 

•

Market movements, mainly influencing market risks, but also underwriting risks.

The following table provides a quantitative representation of the key risks of the AC (Accounting Consolidation) part of Aegon Group on the basis of the Solvency II framework, split between risks determined using the SF (Standard Formula) and IM (Internal Model) and the D&A (Deduction & Aggregation) and OFS (Other Financial Sector) SCR as one amount:

 

Composition of Group SCR Amounts in EUR millions
SFCR section		QRT S.25.02.22		2018				2017
C.2 Market risk		Market Risk (SF)			898				1,056
		Market Risk (IM)			2,714				2,258
C.3 Credit risk 1)		Counterparty default risk (SF)			368				371
		Counterparty default risk (IM)			22				18
C.1 Underwriting risk		Life underwriting risk (SF)			1,009				1,137
		Life underwriting risk (IM)			2,341				2,156
		Health underwriting risk (SF)			332				306
		Health underwriting risk (IM)			—				—
		Non-life underwriting risk (SF)			138				130
		Non-life underwriting risk (IM)			—				—
C.5 Operational risk		Operational risk (SF)			288				304
		Operational risk (IM)			299				301
E.2.1 Solvency Capital Requirement		LAC-DT			(756	)			(714	)
		Total undiversified components			7,653				7,321
		Diversification			(3,000	)			(2,851	)
		PIM SCR after diversification (AC only) 2)			4,654				4,470
		Capital requirements for D&A and OFS 3)			3,695				3,304
		Group PIM SCR			8,349				7,774

 

1

To align with the SCR in QRT s.25.02.22 and section E, Aegon will only discuss Counterparty Default Risk (as defined in the Delegated Regulation) in section C3.3. More generally, Aegon considers the term ‘credit risk’ to also include spread risk, migration risk and default (market risk concentration) risk relating to financial investments. To keep this alignment with QRT s.25.02.22 consistent throughout the SFCR, these other components of credit risk are discussed instead in section C.2 Market risk.

2	AC stands for Accounting Consolidation method for the calculation of the Solvency II group solvency.

3	Excluding Aegon Bank in line with Group supervisor requirement.

 

		Solvency and Financial Condition Report 2018

8     Introduction Summary

 

Aegon Group’s net Partial Internal Model (PIM) SCR amounted to EUR 8,349 million on December 31, 2018, which was an increase of EUR 575 million compared to the SCR on December 31, 2017 of EUR 7,774 million. This net SCR increase was mainly driven by the following movements in gross SCR risks:

 

•

IM Market Risk increased by EUR 456 million due to increased fixed income risk, caused by the impact of spread movements on the dynamic VA of Aegon the Netherlands, despite a partial offset due to the introduction of the new dynamic VA of Aegon the Netherlands in 2018, and due to increased alternative investment risk caused by increased investments by Aegon the Netherlands. These increases were partially offset by lower interest rate risk due to changes of the Aegon the Netherlands interest rate hedge and by a decrease in equity volatility risk due to increased hedge efficiency of Aegon the Netherlands;

 

•

IM Life Underwriting risk increased by EUR 185 million, mainly due to the increase of longevity risk caused by the updated Longevity model of Aegon the Netherlands;

 

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The diversification amount increased by EUR 149 million (which decreased net SCR with EUR 149 million). This was mainly driven by the increase in gross SCR;

 

•

The loss absorbing capacity of deferred taxes (LAC DT) increased by EUR 42 million, driven by the increase of the other SCR components, with a partial offset by the impact from the corporate tax decrease in the Netherlands;

 

•

The SCR for D&A and OFS increased by EUR 391 million, mainly due to the impact of the US tax reform on required capital in Aegon Americas.

Full details on Aegon’s risk profile are described in section C. Risk profile.

D. Valuation for solvency purposes

Aegon values its Solvency II balance sheet items on a basis that reflects their economic value. Where the IFRS-EU fair value is consistent with Solvency II requirements, Aegon follows IFRS-EU for valuing assets and liabilities.

The reconciliation of Excess of Assets over Liabilities (Solvency II basis) and Shareholder’s Equity (IFRS-EU basis) can be summarized as follows:

 

•

Revaluation differences mainly on assets and liabilities using a method other than fair value in the IFRS-EU balance sheet;

 

•

Differences in scope, where Aegon’s Non-EEA (re)insurance entities are aggregated based on the Deduction & Aggregation method and the net asset values is represented in the line Participation on Aegon’s Solvency II economic balance sheet; and

 

•

De-recognition of items presented on the Solvency II economic balance sheet which are admissible on the IFRS-EU statement of financial position but not under Solvency II, for instance deferred policy acquisition costs, goodwill and intangible assets.

Full details on the reconciliation between Aegon’s economic balance sheet based on Solvency II and consolidated financial statements based on IFRS-EU are described in section D. Valuation for solvency purposes.

 

		Solvency and Financial Condition Report 2018

9     Introduction Summary

 

E. Capital management

Aegon’s target Solvency II capital ratio is between 150%—200%. At December 31, 2018, the Solvency II ratio of 211% was in excess of this target range.

In the following table the Solvency II key figures for Aegon are presented as at December 31, 2018:

 

Aegon Group capital position Amounts in EUR millions		December 31, 2018				December 31, 2017
Group own funds			17,602				15,628
Group PIM SCR			8,349				7,774
Group Solvency II ratio			211	%			201	%
Group Solvency II ratio (Matching Adjustment set to zero)			209	%			199	%
Group Solvency II ratio (Volatility Adjustment set to zero)			176	%			169	%
Group Solvency II ratio (excluding transitional measures)			210	%			200	%
Group Solvency II ratio (excluding Long term guarantees and transitional measures)			174	%			168	%
Group eligible own funds to meet minimum consolidated group SCR			7,335				6,152
Minimum consolidated Group SCR			1,953				1,930
Group MCR ratio 1)			376	%			319	%

 

1	Ratio of Group eligible own funds over minimum consolidated Group SCR.

 

		December 31, 2018												December 31, 2017
Solvency II Group own funds Amounts in EUR millions		Available own funds				Eligible own funds				Eligible own funds to meet minimum consolidated Group SCR				Available own funds				Eligible own funds				Eligible own funds to meet minimum consolidated Group SCR
Unrestricted Tier 1			12,205				12,205				5,555				10,428				10,428				4,613
Restricted Tier 1			3,406				2,889				1,389				3,540				2,451				1,153
Tier 2 own funds			1,487				2,004				391				1,213				2,302				386
Tier 3 own funds			504				504				—				448				448				—
Total Tiers			17,602				17,602				7,335				15,628				15,628				6,152

Aegon uses a combination of Accounting Consolidation (method 1) and Deduction & Aggregation (method 2) for the calculation of the Solvency II Group Solvency. In addition, Aegon uses a Partial Internal Model (PIM) to calculate the solvency position of Aegon Levensverzekering N.V, Scottish Equitable Plc, Aegon Spaarkas N.V., Optas Pensioenen N.V, and Aegon N.V. (which is a mixed financial holding company). Other entities included via the Accounting Consolidation method, excluding Other Financial Sector entities, use the Solvency II determined Standard Formula approach. The capital requirements of Other Financial Sector entities are based on relevant sectoral capital requirements. Aegon Bank is excluded from the Group Solvency II ratio, as required by the Group Solvency II supervisor, DNB.

In Aegon’s Non-EEA regions, (re)insurance entities domiciled in third countries deemed (provisional) equivalent (US life insurance entities, Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements.

Aegon’s internal model was approved by the College of Supervisors as part of the Internal Model Application Process. Aegon is of the opinion a (partial) internal model is a better representation of the actual risk, since this contains Company specific modelling and sensitivities as opposed to industry-wide approximations included in the standard formula methodology.

Aegon has applied a method to allocate centrally issued subordinated debt between the AC and D&A parts of the group on an available Own Funds basis. The Solvency II contribution of the Aegon Americas insurance and reinsurance entities (US regulated entities) under Deduction & Aggregation (D&A) involves converting 150% Risk-Based Capital Company Action Level into Solvency Required Capital (SCR) and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review.

 

		Solvency and Financial Condition Report 2018

10     Introduction Summary

 

The LAC-DT is calculated after diversification and lowered the net PIM SCR by EUR 756 million (2017: EUR 714 million).

The LAC-DT benefit mainly stemmed from Aegon the Netherlands. Aegon has applied a LAC-DT factor in the Netherlands of 75% as of December 31, 2018 (2017: 75%), while taking into account the impact of the reduction of announced Corporate Income Tax (CIT) (decrease from 25.00% in 2019 to 22.55% in 2020 and to 20.5% from 2021 onwards). The LAC-DT factor is recalibrated on a quarterly basis.

The Solvency II capital ratios of the Group and Aegon the Netherlands do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as any potential liability cannot be reliably quantified at this point.

Aegon applies the matching adjustment, in Aegon UK and Aegon Spain, which has a positive impact to the Group own funds of EUR 32 million as of December 31, 2018 (2017: EUR 55 million) and an impact of EUR (46) million (2017: EUR (65) million) on the Group solvency capital requirement. The matching adjustment methodology has been approved by local regulators. In addition, Aegon applies a volatility adjustment in Aegon the Netherlands, Aegon UK and Aegon Spain, which has a positive impact to the Group own funds of EUR 1,284 million (2017: EUR 205 million) and an impact of EUR (930) million (2017: EUR (1,273) million) on the Group solvency capital requirement.

The combined positive impact of the matching adjustment, volatility adjustment and transitional measures on the Group Solvency II ratio is 37% (2017: 33%).

Aegon Group and all of the EEA (re)insurance entities subject to the Solvency II regulation did not face any form of non-compliance with the Minimum Capital Requirement or significant non-compliance with the Group solvency capital requirement during the reporting period.

Full details on Aegon’s available and eligible own funds are described in section E.1 Own funds, and Aegon’s PIM SCR is described in section E.2.1 Solvency capital requirement.

 

		Solvency and Financial Condition Report 2018

11     Business and performance Business

 

A. Business and performance

A.1 Business

A.1.1 Overview

Aegon is an international financial services group. We provide life insurance, pensions and asset management. Our main operations are in the US, the Netherlands and the UK. We also have significant businesses in Southern & Eastern Europe, Asia and Latin America. Aegon can trace its roots back to the first half of the 19th century. Nearly 175 years later, we have businesses in more than 20 countries, serving 28.5 million customers and managing more than EUR 800 billion in assets.

Aegon is headquartered in the Netherlands, and through its subsidiaries and joint ventures it employs over 26,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries. These 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 a number of its asset management entities.As a company, our purpose is to help people achieve a lifetime of financial security. This purpose is particularly relevant in today’s world, as people live longer, healthier lives, new technologies are transforming the way we work, and it is clear that in many countries state and company pensions are no longer enough to maintain living standards.

Aegon’s financial results are impacted by a number of external factors, including demographic trends, market conditions, and regulation. Furthermore, the business is affected by corporate actions taken by the Group, including acquisitions, disposals and other action in order to achieve Aegon’s strategy. The key significant business events or other events that have occurred over the reporting period that have had a material impact on Aegon are mentioned in the summary of section A on page 5.

A.1.2 Regulators and auditor

The supervisory authority responsible for Solvency II group supervision on the Aegon Group and for supplementary group supervision in accordance with the EU Financial Conglomerates Directive (FCD) is:

De Nederlandsche Bank (DNB), the Dutch Central Bank

Address: Westeinde 1, 1017 ZN, Amsterdam

Telephone: +31(0)20 524 91 11

Aegon’s external auditor is PricewaterhouseCoopers Accountants N.V. The external auditor’s mandate does not cover an audit on the information disclosed in this SFCR. Their contact details are:

PricewaterhouseCoopers Accountants N.V.

Address: Thomas R. Malthusstraat 5, 1066 JR, Amsterdam

Telephone: +31 (0)88 792 00 20

 

		Solvency and Financial Condition Report 2018

12     Business and performance Business

 

A.1.3 Holders of qualifying holdings

A qualifying holding means a direct or indirect holding in Aegon N.V. which represents 10% or more of the capital or of the voting rights or which makes it possible to exercise a significant influence over the management of Aegon N.V.. Only Vereniging Aegon qualifies based on this definition.

Vereniging Aegon, is a Dutch association located in The Hague, the Netherlands, with a special purpose to protect the broader interests of Aegon N.V. and its stakeholders.On December 31, 2018 Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 571,165,680 common shares B.

Under the terms of the 1983 Merger Agreement as amended in May 2013, Vereniging Aegon has the option to acquire additional common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake to 32.6% of the voting rights, irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6%. In the absence of a ‘Special Cause’ Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. As ‘Special Cause’ qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months. Accordingly, at December 31, 2018, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.33%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, currently to 32.6%, for up to six months.

A.1.4 Aegon’s Group structure

We have four main reporting segments: Americas, Europe, Asia and Asset Management. Of these, the Americas is by far the largest, accounting for nearly 60% of our annual earnings. Our holding company, Aegon N.V., is headquartered in The Hague, the Netherlands. Aegon Asset Management manages assets on behalf of third parties and Aegon’s own businesses, covering all major asset classes, including fixed income, equity and real estate. Our reporting segments include businesses, associates and joint ventures in:

 

•

Americas (US, Canada, Brazil and Mexico);

 

•

Europe (the Netherlands, UK, Hungary, Poland, Turkey, Romania, Spain and Portugal);

 

•

Asia (Singapore, Hong Kong, Japan, China, Indonesia, Malaysia, Thailand, Vietnam, Philippines, Australia and Bermuda1);

 

•

Asset management (AAM businesses and joint ventures in US, UK, the Netherlands, Hungary, Spain, Germany, France, China, Hong Kong and Japan).

Our businesses operate locally through two main brands: Aegon (mainly in Europe and Asia) and Transamerica (mainly in the US).

For more information on Aegon’s governance structure, please see section B.1.1. Corporate Governance.

A.1.5 List of material related undertakings

The principal undertakings of the parent company Aegon N.V. are listed by geographical segment. All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance or reinsurance business, pensions, asset management or services related to these activities. The voting power in these undertakings held by Aegon is equal to the shareholdings unless otherwise specified.

For information on the material differences between the scope of the group used for the consolidated financial statements and the scope for the consolidated data used for the Group Solvency calculation, see section D “Valuation of Solvency Purposes” and section E.1.4 “Difference between Solvency II own funds and IFRS-EU shareholders’ equity”.

 

 

1	Bermuda relates to Transamerica Life Bermuda.

 

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13     Business and performance Business

 

Americas

 

•

Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States);

 

•

Transamerica Casualty Insurance Company, Columbus, Ohio (United States);

 

•

Transamerica Corporation, Wilmington, Delaware (United States);

 

•

Transamerica Financial Life Insurance Company, Harrison, New York (United States);

 

•

Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States);

 

•

Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States);

 

•

Akaan-Aegon, S.A.P.I. de C.V., Mexico City (Mexico), (50% voting rights); and

 

•

Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), (50%).

Europe

The Netherlands

 

•

Aegon Bank N.V., The Hague;

 

•

Aegon Hypotheken B.V., The Hague;

 

•

Aegon Levensverzekering N.V., The Hague;

 

•

Aegon Schadeverzekering N.V., The Hague;

 

•

Aegon Spaarkas N.V., The Hague;

 

•

Optas Pensioenen N.V., Rotterdam (as per April 1, 2019, merged with Aegon Levensverzekering N.V.);

 

•

TKP Pensioen B.V., Groningen;

 

•

Nedasco B.V., Amersfoort;

 

•

Robijn Participaties B.V. (Robidus Groep B.V.), Zaandam (until January 2, 2019);

 

•

Aegon PPI B.V., The Hague (until January 1, 2019);

 

•

CAPPITAL Premiepensioeninstelling B.V., Groningen (Aegon Cappital B.V. as of January 1, 2019); and

 

•

AMVEST Vastgoed B.V., Utrecht (50%).

Central & Eastern Europe

 

•

Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Aegon Hungary Composite Insurance Co.);

 

•

Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Aegon Poland Life);

 

•

Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna, Warsaw (Aegon Poland Pension Fund Management Co.);

 

•

Aegon Emeklilik ve Hayat A.Ş., Istanbul (Aegon Turkey);

 

•

Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private S.A., Cluj (Aegon Romania Pension Administrator Co.);

 

•

Aegon Pojištovna, a.s., Prague (Aegon Czech Life) (until January 8, 2019);

 

•

Aegon Životná poist’ovňa, a.s., Bratislava (Aegon Slovakia Life) (until January 8, 2019); and

 

•

Aegon, d.s.s., a.s., Bratislava (Aegon Slovakia Pension Management Co.) (until January 8, 2019).

Spain & Portugal

 

•

Aegon España S.A.U. de Seguros y Reaseguros, Madrid (Spain);

 

•

Aegon Administracion y Servicios A.I.E., Madrid (Spain);

 

•

Aegon Activos A.V., S.A., Madrid (Spain);

 

•

Aegon Mediacion, S.L.U, Madrid (Spain);

 

•

Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), (51%);

 

•

Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal), (51%);

 

•

Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal), (51%);

 

•

Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), (51%); and

 

•

Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain), (50%).

United Kingdom

 

•

Aegon Investment Solutions Ltd., Edinburgh;

 

•

Scottish Equitable plc, Edinburgh; and

 

•

Cofunds Limited, London.

 

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Asia

 

•

Transamerica Life (Bermuda) Ltd., Hamilton (Bermuda);

 

•

Aegon Sony Life Insurance Co., Tokyo (Japan), (50%);

 

•

Aegon Life Insurance Co. ltd (India) (49%)

 

•

Aegon THTF Life Insurance Co., Ltd., Shanghai (China), (50%); and

 

•

SA Reinsurance Ltd, Hamilton (Bermuda), (50%).

Asset Management

 

•

Aegon Asset Management Holding B.V., The Hague (The Netherlands);

 

•

Aegon Custody B.V., The Hague (The Netherlands);

 

•

Aegon Asset Management Pan-Europe B.V., The Hague (The Netherlands);

 

•

Kames Capital plc, Edinburgh (United Kingdom);

 

•

TKP Investments B.V., Groningen (The Netherlands), (Merged with Aegon Investment Management B.V. as per January 1, 2019);

 

•

Aegon USA Investment Management, LLC, Cedar Rapids (United States);

 

•

Aegon USA Realty Advisors, LLC, Des Moines (United States);

 

•

Aegon Magyarország Befektetési Alapkezelő Zártkörűen Működő Részvénytársaság (Aegon Hungary Asset Management Company ZrtA), Budapest (Hungary);

 

•

Aegon Investment Management B.V, The Hague (The Netherlands);

 

•

Aegon Industrial Fund Management Co., Ltd, Shanghai (China), (49%); and

 

•

La Banque Postale Asset Management, Paris (France), (25%).

For a complete list of related undertakings, please refer to QRT S.32.01.22 - Undertakings in scope of the group. A list of Aegon’s branches is provided below:

 

Aegon’s branches

Ownership

Trading at town/city

Country

Company name

Aegon Asia B.V. - Hong Kong Branch

100

%

Hong Kong

Hong Kong

Aegon Asset Management Pan-Europe B.V. - Germany Branch

100

%

Frankfurt

Germany

Aegon Asset Management Pan-Europe B.V. - Japan Branch

100

%

Tokyo

Japan

Aegon Asset Management Pan-Europe B.V. - Spain Branch

100

%

Madrid

Spain

AEGON Asset Management Value Hub B. V., Hungarian Branch

100

%

Budapest

Hungary

Aegon CEE B.V., Hungarian Branch Office

100

%

Budapest

Hungary

Aegon Industrial Fund Management Co., LTD, Beijing Branch

49

%

Beijing

China

Aegon Industrial Fund Management Co., LTD, ShenZhen Branch

49

%

ShenZhen

China

Aegon Industrial Fund Management Co., LTD, Xiamen Branch

49

%

Xiamen

China

Aegon Magyarország Általános Biztosító Zártkörűen Csehországi Fióktelepe - Czech Branch

100

%

Prague

Czech Republic

Aegon Magyarország Általános Biztosító Zártkörúen Szlovákiai Fióktelepe - Slovakian Branch

100

%

Bratislava

Slovakia

Aegon Ubezpieczenia Majátkowe Oddziaĺ w Polsce Zakĺadu Aegon Magyarország Általános Biztosító Spóĺka Akcyjna w Budapeszcie - Polish Branch

100

%

Chorzów

Poland

Aegon UK Corporate Services Limited - Irish Branch

100

%

Dublin

Ireland

S.C. Aegon Towarzystwo Ubezpieczeń na Źycie S.A. Varsovia-Sucursala Floresti - Romanian Branch

100

%

Floresti

Romania

Transamerica Life (Bermuda) Ltd. - Hong Kong Branch

100

%

Hong Kong

Hong Kong

Transamerica Life (Bermuda) Ltd. - Singapore Branch

100

%

Singapore

Singapore

 

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15     Business and performance Business

 

A.1.6 Material lines of business and material geographical areas

Below is an overview, region by region, of Aegon’s different business units and the material lines of business that they provide.

Americas

Life

Aegon Americas offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Products offered include term life, universal life, variable universal life, index universal life and whole life insurance.

Accident & health

Aegon Americas offers supplemental health insurance and long-term care insurance.

Mutual funds

Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous and different individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments and other securities.

Variable annuities

Variable annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. Additional insurance guarantees, also referred to as riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs).

Fixed annuities

Fixed annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis through periodic interest crediting and principal protection.

Retirement plans and IRAs

Comprehensive and customized retirement plan services are offered to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation, and multiple employer plans (MEPs). Services are also offered to individuals rolling over funds from other qualified retirement funds or Individual Retirement Accounts (IRAs).

Stable value solutions

Synthetic Guaranteed Investment Contracts (GICs) are offered primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans. A synthetic GIC ‘wrapper’ is offered 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.

Latin America

Aegon’s businesses in Latin America are comprised of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a joint venture with Administradora Akaan S.A. de C.V., which created and operates Akaan Transamerica in Mexico.

Europe

The Netherlands

Life

Products with mortality, morbidity, and longevity risks, including traditional and universal life, in addition to employer, endowment, term, whole life insurance products; mortgages; annuity products; and banking products, including saving deposits.

Non-life

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

Banking

Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.

Services Business

Services business consist of offering mortgage loans, PPI, Knab Advies & Bemiddeling, TKP, Robidus and Nedasco.

 

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Central & Eastern Europe

Activities in the Czech Republic (till 8 January 2019), Hungary, Poland, Romania, Slovakia (till 8 January 2019) and Turkey includes life insurance, individual and group pension products, savings and investments, in addition to general insurance.

Spain & Portugal

Aegon Spain focuses primarily on retail customers. It offers individual life, pensions, general insurance, accident and health products through different distribution channels, including its own channels (agents, brokers and direct), together with bancassurance products through its joint venture partnerships with Liberbank S.A. and Banco Santander Group, the latter of which in both Spain & Portugal.

United Kingdom

Aegon UK is organized into Digital Solutions and Existing Business:

 

•

The Digital Solutions business is responsible for Aegon UK’s new digital platform propositions sold through Retail Advisor and Workplace channels, together with the protection lines. The majority of new assets going forward will be accumulated in this business. In addition, where appropriate, Aegon UK is upgrading customers from its Existing Business to Digital Solutions to ensure an enhanced customer experience, a more engaged relationship, and lower cost to serve.

 

•

The Existing Business is responsible for older products that are no longer actively marketed to new customers. However, new assets are accumulated as customers pay into existing policies, or as new employees join older workplace schemes. These propositions include older style group pensions, individual pensions and with-profits policies. Individual protection products, such as term insurance, critical illness, income protection and international/offshore bonds.

Asia

High-net-worth businesses

TLB’s main products consist of USD denominated Universal Life and USD denominated Term Life Insurance plans for the high-net-worth market segment. Universal Life products are TLB’s key products to meet the needs of high-net-worth individuals, supporting estate planning by providing life protection, while also helping to preserve and accumulate wealth. In addition to the Universal Life products, Term Life products are also offered with financial protection at a guaranteed level rate for up to 30 years.

Aegon Insights

Aegon Insights primarily worked with local insurers to develop marketing, distribution and administration solutions tailored to the needs of specific markets and customers. With changes in consumer preferences, the ongoing focus is on exploring opportunities in the emerging digital distribution landscape, in addition to continuing to provide services to existing customers. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services, product distribution and administration. During 2017, Aegon made the strategic decision to discontinue Aegon Insights’ outbound telemarketing businesses.

Strategic partnerships

In China and India, Aegon provides a broad range of life insurance products including unit-linked, universal life, and traditional life products. Aegon also offers variable annuities in Japan through Aegon Sony Life.

Aegon Asset Management

Aegon Asset Management has three distinct business lines.

 

•

General account business consists of funds held on the balance sheet of Aegon insurance companies to meet policyholder liabilities typically when the insurer has given the policyholder a guarantee. These assets are managed to match the insurers’ liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Furthermore, Aegon Asset Management manages Aegon’s general account derivatives book of Aegon the Netherlands;

 

•

The majority of third-party business sourced through affiliates consists of funds sold by Aegon insurers through which the policyholder’s return is determined by the investment return of the fund. These funds have various legal structures, and are usually managed against a benchmark or peer group target. The main asset classes include fixed income, equities, real estate, mortgage loans and alternatives. In the United States and the United Kingdom, a significant element of Affiliate Sales is conducted on an open architecture basis, where Aegon Asset Management competes with external fund managers;

 

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•

For third-party business sourced externally, Aegon Asset Management distributes its investment strategies directly to its clients. The wholesale businesses typically sell collective investment vehicles (mutual funds) to customers through wholesale distributors and independent intermediaries. The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target. The institutional businesses typically sell tailored services to large corporations or pension funds. Aegon Asset Management employs a full range of asset classes, and manages the funds against objectives, targets and risk profiles agreed with clients. Aegon Asset Management offers both absolute and relative return products. Via its brand TKPI, Aegon Asset Management offers fiduciary services and manager selection propositions targeted at institutional investors.

A.1.7 Results of operations    

Results 2018 (IFRS-EU)    

 

Underlying earnings geographically Amounts in EUR millions		2018				2017				%
Net underlying earnings			1,754				1,571				12
Tax on underlying earnings			320				568				(44	)
Underlying earnings before tax geographically
Americas			1,216				1,381				(12	)
The Netherlands			615				557				10
United Kingdom			128				116				10
Central & Eastern Europe			72				67				8
Spain & Portugal			24				4				n.m.
Europe			839				744				13
Asia			55				49				12
Asset Management			151				136				12
Holding and other activities			(188	)			(170	)			(10	)
Underlying earnings before tax			2,074				2,140				(3	)
Fair value items			(260	)			(61	)			n.m.
Gains / (losses) on investments			(77	)			413				n.m.
Net impairments			(19	)			(15	)			(24	)
Other income / (charges)			(875	)			(68	)			n.m.
Run-off businesses			(14	)			30				n.m.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates)			829				2,437				(66	)
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax			47				44				6
Income tax			(84	)			(76	)			(11	)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax			(47	)			(44	)			(6	)
Net income			744				2,361				(68	)
Commissions and expenses			6,673				6,309				6
of which operating expenses			3,786				3,878				(2	)
New life sales
		2018				2017				%
Amounts in EUR millions
Americas			420				472				(11	)
The Netherlands			101				99				2
United Kingdom			40				37				8
Central & Eastern Europe			83				88				(6	)
Spain & Portugal			54				48				11
Europe			278				273				2
Asia			122				151				(19	)
Total recurring plus 1/10 single			820				896				(9	)

 

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18     Business and performance Business

 

Gross deposits (on and off balance) Amounts in EUR millions		2018				2017				%
Americas			38,279				38,543				(1	)
The Netherlands			10,169				8,061				26
United Kingdom			13,223				17,259				(23	)
Central & Eastern Europe			374				323				16
Spain & Portugal			32				36				(11	)
Europe			23,798				25,679				(7	)
Asia			128				222				(42	)
Asset Management			59,495				61,332				(3	)
Total gross deposits			121,700				125,776				(3	)
Net deposits (on and off balance)
Amounts in EUR millions		2018				2017				%
Americas			(14,734	)			(29,713	)			50
The Netherlands			1,411				1,067				32
United Kingdom			1,225				4,665				(74	)
Central & Eastern Europe			156				176				(11	)
Spain & Portugal			(14	)			13				n.m.
Europe			2,779				5,921				(53	)
Asia			7				129				(95	)
Asset Management			7,526				6,913				9
Total net deposits excluding run-off businesses			(4,421	)			(16,750	)			74
Run-off businesses			(234	)			(338)				31
Total net deposits / (outflows)			(4,656	)			(17,088	)			73

 

Worldwide revenues geographically 2018 Amounts in EUR millions		Americas				The Nether- lands				United Kingdom				Central & Eastern Europe				Spain & Portugal				Europe				Asia				Asset Man- age- ment				Holding, other activities and eliminations				Segment total				Associates and Joint Ventures elimina- tions				Consoli- dated
Total life insurance gross premiums			7,004				1,632				7,509				405				217				9,763				779				—				2				17,548				(579	)			16,969
Accident and health insurance premiums			1,571				219				29				2				100				351				94				—				—				2,015				(36	)			1,979
General insurance premiums			—				136				—				231				112				479				—				—				—				479				(112	)			367
Total gross premiums			8,575				1,987				7,539				638				429				10,592				873				—				2				20,042				(727	)			19,316
Investment income			3,125				2,265				1,346				48				36				3,695				268				5				2				7,095				(59	)			7,035
Fees and commission income			1,826				211				198				47				16				473				58				632				(206	)			2,782				(224	)			2,558
Other revenue			5				—				—				—				—				—				2				1				4				12				(6	)			5
Total revenues			13,530				4,463				9,083				733				480				14,760				1,201				638				(199	)			29,930				(1,016	)			28,914
Number of employees, including agent employees			8,824				3,548				3,135				2,318				519				9,520				6,344				1,464				390				26,543

Net income

Net income amounted to EUR 744 million in 2018, as underlying earnings before tax of EUR 2,074 million were partly offset by fair value losses and other charges.

 

 

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Underlying earnings before tax

Aegon’s underlying earnings before tax decreased compared with 2017 to EUR 2,074 million in 2018. This was mainly driven by lower fee revenue due to declining equity markets and net outflows, and unfavorable mortality experience in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.

 

•

In Americas, underlying earnings before tax in 2018 decreased by 12% compared with 2017 to EUR 1,216 million caused by adverse currency movements, lower fee revenue due to declining equity markets and net outflows of revenue generating investments, and unfavorable mortality experience. This was partly offset by expense reductions.

 

•

In Europe, underlying earnings before tax in 2018 increased by 13% compared with 2017 to EUR 839 million as a result of growth in all regions.

 

•

In Asia, underlying earnings before tax improved by 12% compared with 2017 to EUR 55 million in 2018, mainly as a result of higher earnings in the High-Net-Worth business.

 

•

Underlying earnings before tax from Asset Management increased by 12% in 2018 compared with 2017 to EUR 151 million. This increase was mainly driven by higher underlying earnings before tax in 2018 compared with 2017 from Strategic partnerships and the Netherlands.

 

•

Total Holdings costs amounted to EUR 188 million in 2018 compared with EUR 170 million in 2017, as a result of interest expenses on USD 800 million Tier 2 securities issued in April 2018 to replace perpetual securities. Interest expenses for these Tier 2 securities are taken through the profit & loss statement, while the interest expenses for the perpetuals were recognized directly through equity.

Fair value items

The loss from fair value items amounted to EUR 260 million in 2018. Fair value losses in the Americas amounted to EUR 613 million in 2018, which was primarily related to hedge losses, reflecting the equity market decline at the end of the year, and losses on fair value investments. Fair value gains in Europe amounted to EUR 346 million, as a result of real estate investments in the Netherlands and gains on equity hedges in the United Kingdom. Gains on fair value items in Asia and at the Holding totalled EUR 8 million.

Realized gains on investments

Realized losses on investments amounted to EUR 77 million in 2018, as losses on the sale of US treasuries as part of normal trading activity were more than offset by realized gains on investments in the Netherlands and the United Kingdom

Impairment charges

Net impairments of EUR 19 million in 2018 primarily related to an impairment of corporate bonds caused by a bankruptcy filing in the US.

Other income/charges

Other charges amounted to EUR 875 million in 2018. Other charges in the Americas of EUR 397 million in 2018 mainly related to EUR 127 million transition and conversion charges for the TCS partnership, a EUR 140 million charge for a class action litigation settlement with universal life policyholders, a EUR 93 million book loss on the divestment of the last remaining substantial block of life reinsurance business, EUR 33 million impact from assumption updates, and a EUR 27 million addition to the provision for unclaimed property. Other charges in Europe of EUR 409 million in 2018 reflect EUR 111 million model & assumption changes in the Netherlands, EUR 93 million loss on the sale of Aegon Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business, and a EUR 49 million reserve strengthening related to the residual annuity book. Other charges at the Holdings amounted to EUR 57 million in 2018 and were driven by IFRS 9 / 17 implementation expenses for the Group.

Run-off businesses

The results of run-off businesses declined compared with 2017 to a loss of EUR 14 million in 2018, which is in line with expectations following the divestment of the majority of the remainder of these businesses in 2017.

Income tax

The effective tax rate amounted to 10% as a result of one-time tax benefits of declining US and Dutch corporate income tax rates next to the regular tax exempt income items and tax credits. The effective tax rate on underlying earnings before tax amounted to 15%, reflecting the lowering of the US tax rate.

 

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Commissions and expenses

Commissions and expenses increased by 6% compared with 2017 to EUR 6.7 billion in 2018. Operating expenses decreased by 2% compared with 2017 to EUR 3.8 billion in 2018. Expense savings and the divestment of UMG were more than offset by restructuring expenses associated with the acquisitions of Cofunds and BlackRock’s defined contribution business in the United Kingdom as well as the partnership with TCS in the United States.

Production

Compared with 2017, gross deposits were down by 3% to EUR 121.7 billion in 2018, driven by lower platform deposits in the United Kingdom and lower Asset Management deposits. Net outflows amounted to EUR 4.7 billion as inflows in Asset Management, the United Kingdom platform and the Dutch banking business were more than offset by outflows in the United States mainly caused by Retirement Plans due to a small number of large contract discontinuances and higher participant withdrawals. New life sales declined by 9% compared with 2017 to EUR 820 million in 2018, mostly driven by lower indexed universal life and term life production in the United States. New premium production for accident & health and property & casual insurance decreased by 52% compared with 2017 to EUR 429 million in 2018, caused by the strategic decision to exit the travel insurance, affinity and stop loss insurance segments.

A.1.8 Related party transactions

This section provides information about the material transactions during the reporting period with Aegon’s shareholders, with persons who exercise a significant influence on Aegon, i.e. members of the executive, management or supervisory board. The second part of this section provides information on relevant operations and transactions within the Group.

Referring to section A.1.3 Holders of qualifying holdings, Aegon’s largest and only material holder of qualifying holdings is Vereniging Aegon. All other qualifying holdings in Aegon are less than 10% and are considered not to have significant influence over the management of the company. The transactions with Vereniging Aegon during the financial year 2018 were:

 

•

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

 

•

On December 19, 2017, Aegon N.V. repurchased 13,042,592 common shares B from Vereniging Aegon for the amount of EUR 1,725,169.73 based on 1/40th of the Value Weight Average Price of the common shares of the five trading days preceding this transaction. The repurchase of common shares B was executed to align the aggregate shareholding of Vereniging Aegon in Aegon N.V. with its special cause voting rights of 32.6% following the completion of the Share Buy Back Program, initiated by Aegon N.V. in October 2017 to neutralize the dilutive effect of the distribution of final dividend 2016 in stock and interim dividend 2017 in stock.

 

•

On June 23, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 13,042,612 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on June 23, 2017, being the final dividend 2016 in the form of stock dividend; and

 

•

On May 19, 2017, Vereniging Aegon exercised its options rights to purchase in aggregate 1,979,260 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused the issuance of shares on May 19, 2017, in connection with the Long Term Incentive Plans for senior management.

Material transactions with persons who exercise a significant influence on the undertaking

The transactions during 2018 that classify as being transactions with members of the Executive, Management and Supervisory Board consist of transactions related to the remuneration (fixed compensation / conditional variable compensation) of the members of the Executive and Management Board and the remuneration of active and retired members of the Supervisory Board.

Executive Board

Through 2018, the Executive Board consisted of Mr. Wynaendts and Mr. Rider. The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2018 was EUR 5,015 thousand and for Mr. Rider EUR 2,091 thousand. At the reporting date, Mr. Wynaendts and Mr. Rider had no loans with Aegon. No other outstanding balances such as guarantees or advanced payments exist.

 

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21     Business and performance Business

 

Management Board

The total remuneration for the members of the Management Board over 2018 was EUR 22.6 million, consisting of EUR 8.4 million fixed compensation, EUR 8.7 million variable compensation awards, EUR 0.9 million other benefits and EUR 4.5 million pension benefits.

Supervisory Board

The total remuneration in 2018 of active and retired members of the Supervisory Board amounted to EUR 809 thousand excluding VAT.

Members of the Supervisory Board are entitled to the following:

 

•

A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings;

 

•

An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference;

 

•

A committee fee for members on each of the Supervisory Board’s Committees;

 

•

An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and

 

•

An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member’s home location and the meeting location.

Each of these fees is a fixed amount. Members of Aegon’s Supervisory Board do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance. There are no outstanding balances such as loans, guarantees or advanced payments.

Relevant operations and transactions within the Group

Aegon facilitates intra-group transactions (IGTs) to support intra group efficiencies, including optimizing economies of scale, processes, liquidity and capital management. Due to the nature of these activities, there is interaction with business units and affiliates within the Group, resulting in a diverse set of IGTs. These include intercompany loans, derivatives, guarantees, internal reinsurance and capital injections. Aegon’s IGT Policy establishes definitions, governance, reporting and monitoring of IGTs ensuring a consistent standard of IGT usage across the Aegon Group for new and existing IGTs. All IGTs are further covered by the Aegon Global Transfer Pricing policy in order to ensure compliance with the internationally accepted at arm’s length principle, which dictates that related entities transact with each other as if they are third parties.

Loans

Aegon utilizes intercompany loans for operational liquidity and capital purposes. Within the Group, the following material uncollateralized intra-group loans are granted:

 

•

A loan granted by Aegon Global Investment Fund B.V. to Aegon Nederland N.V. for an amount of EUR 2,520 million (2017: EUR 2,500 million);

 

•

A loan granted by Aegon N.V. to Transamerica Corporation, for an amount of EUR 2,122 million (2017: EUR 2,172 million), to finance activities in the US;

 

•

A loan granted by Optas Pensioenen N.V. to Aegon Nederland N.V. for an amount of EUR 851 million (2017: EUR 850 million);

 

•

A subordinated loan granted by Aegon Nederland N.V. to Aegon Levensverzekering N.V. for an amount of EUR 766 million (2017: EUR 600 million) to provide Aegon Levensverzekering N.V. with capital;

 

•

A loan granted by Aegon Levensverzekering N.V. to Aegon Hypotheken B.V. for an amount of EUR 510 million (2017: EUR 510 million), to finance the issuing of mortgage loans; and

 

•

A loan granted by Aegon Funding Company LLC to Transamerica Corporation, for an amount of EUR 437 million (2017: EUR 416 million), to finance activities in the US.

Derivatives

Aegon Derivatives N.V., a 100% pass-through vehicle, centralizes and mitigates counterparty risk related to the use of OTC derivatives across the Aegon Group in one entity. Primarily European entities (except UK domiciled entities), make use of Aegon Derivatives N.V. In addition, foreign exchange derivatives are centrally managed within Aegon N.V. ensuring netting advantages. As of December 31, 2018, the net (credit) exposure on the abovementioned internal arrangements was limited as most of these are supported by collateral arrangements.

 

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22     Business and performance Underwriting performance

 

Guarantees

Aegon N.V. and its subsidiaries provide guarantees for performance under contracts for certain aspects of the business transacted within the group. The agreements include, but are not limited to, letters of credit, (re)insurance contracts, maintenance of liquidity, capital and net worth maintenance agreements. The performance of the various entities under the terms of the agreements are regularly assessed to ensure that the entity has sufficient resources on a best estimate basis to meet the obligations guaranteed under the agreement. As a result, there is minimum exposure for these guarantees to the group.

Internal reinsurance

Subsidiaries of Aegon N.V. enter into reinsurance agreements in the normal course of business to (among other reasons), pool risks, improve group diversification, facilitate higher group risk retention for smaller units and efficiently manage capital. All transactions are executed with the arm’s length principle and in accordance with the Aegon Global Transfer Pricing Framework. In many cases, the reinsurance is supported by trusts, funds withheld and / or letters of credit. Any exposure above these amounts are assessed based on Aegon N.V.’s IGT policy to ensure the exposure is within policy limits. As of December 31, 2018, there are no exposures greater than the policy levels set for affiliated reinsurance.

Capital injections

Capital injections are done to strengthen the capital position of the legal entities making the request, if deemed necessary, and are typically provided by the centrally-managed Dutch holding companies.

A.2 Underwriting performance

 

		2018																				2017
Underwriting performance by geographical area Amounts in EUR millions		Group				Ameri- cas				The Nether- lands				United King- dom				Other1)				Group				Americas				The Nether- lands				United Kingdom				Other1)
Premium income			19,316				8,403				1,987				7,539				1,387				22,826				9,383				2,208				9,635				1,600
Premiums paid to reinsurers			2,663				2,335				27				240				62				3,431				2,996				16				369				50
Policyholder claims and benefits			10,557				4,604				2,328				2,491				1,134				45,599				25,407				3,096				15,616				1,480
Commissions and expenses
Commissions			2,445				2,219				107				130				(11	)			2,661				2,392				110				139				19
Operating expenses			3,538				1,513				703				521				801				3,658				1,537				818				546				757
Deferred expenses			(831	)			(645	)			(10	)			(66	)			(110	)			(980	)			(760	)			(11	)			(62	)			(146	)
Amortization of intangibles			1,072				852				25				119				76				586				336				27				134				89
Total Commissions and expenses			6,224				3,939				826				704				755				5,925				3,505				944				757				719

 

1	Includes all other businesses other than Americas, NL and UK.

Premium income

Aegon Americas’ total premium income for the year 2018 amounted to EUR 8.4 billion (2017: EUR 9.4 billion) and is comprised of recurring premiums for an amount of EUR 8.1 billion (2017: EUR 8.8 billion) and single premiums for an amount of EUR 0.3 billion (2017: EUR 0.6 billion). The main lines of businesses contributing to Aegon Americas’ total premium income are Life for EUR 6.8 billion (2017: EUR 7.3 billion) and Non-life (Accident & Health) for EUR 1.6 billion (2017: EUR 2.1 billion). The decrease in Non-life premiums is mainly from product exits in the US and currency translation adjustments.

Total premium income of Aegon the Netherlands amounted to EUR 2.0 billion (2017: EUR 2.2 billion) of which EUR 1.3 billion relates to recurring premiums and EUR 0.7 billion to single premiums. Most of Aegon the Netherlands’ premium income relates to the Life EUR 1.6 billion (2017: EUR 1.9 billion), and the Non-life segment with EUR 0.4 billion (2017: EUR 0.4 billion). The decrease in premium income compared to 2017 is mainly due to shrinking individual life portfolio and shifts in traditional pension portfolio from defined benefit towards defined contribution solutions.

 

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23     Business and performance Underwriting performance

 

Total premium income of Aegon UK amounted to EUR 7.5 billion (2017: EUR 9.6 billion) of which EUR 2.2 billion (2017: EUR 2.5 billion) related to recurring premiums and EUR 5.3 billion (2017: EUR 7.1 billion) to single premiums (including premiums related to insurance policies upgraded to the retirement platform in the UK). The decrease in single premium income compared to 2017 is driven by a reduction of upgraded Life insurance policies to the platform in Aegon UK. Most of Aegon UK’s premium income relates to the Life and Pensions business (2018: EUR 7.5 billion, 2017: EUR 9.6 billion).

Commissions and expenses

In 2018, commissions and expenses in Aegon Americas increased by 12% compared with 2017 to EUR 3.9 billion (2017: EUR 3.5 billion) mainly driven by increased amortization of intangible assets. Operating expenses in Aegon Americas decreased by 2% compared with 2017 to EUR 1.5 billion in 2018 (2017: EUR 1.5 billion) as a result of expense savings, which were largely offset by investments in business transformation and project expenses.

Commissions and expenses in Aegon the Netherlands decreased by 13% compared with 2017 to EUR 826 million (2017: EUR 944 million) in 2018. Operating expenses in Aegon the Netherlands were down by 14% compared with 2017 to EUR 703 million (2017: EUR 818 million) in 2018, reflecting the sale of UMG in the fourth quarter of 2017 and expense savings in the insurance businesses. This was partly offset by investments in new digital propositions.

Commissions and expenses in Aegon UK decreased by 7% compared with 2017 to EUR 704 million (2017: EUR 757 million) in 2018. Operating expenses in Aegon UK decreased by 5% compared with 2017 to EUR 521 million (2017: EUR 546 million) in 2018, as higher restructuring expenses were more than offset by the realization of cost synergies and the sale of Aegon Ireland.

Policyholder claims and benefits

Total policyholder claims and benefits amounted to EUR 10.6 billion in 2018 compared to EUR 45.6 billion in 2017. The decrease of EUR 35.0 billion is mainly attributable to changes in the valuation of liabilities of insurance contracts (2018: EUR (2.6) billion and 2017: EUR 22.7 billion) and investment contracts (2018: EUR (8.1) billion) and (2017: EUR (2.6) billion).

The changes in valuation of liabilities for insurance contracts and investment contracts reflect changes in technical provisions resulting from net fair value changes on financial assets for account of policyholders included in results from financial transactions of EUR 11.3 billion negative (2017: EUR 20.5 billion positive) (please see section A.3.2 Investment related results and impairments). In addition, the change in valuation of liabilities for insurance contracts includes an increase in technical provisions for life insurance contracts of EUR 1.4 billion (2017: increase of EUR 0.6 billion).

Total claims and benefits paid amounted to EUR 21.3 billion (2017: EUR 25.5 billion) and is comprised of claims and benefits paid for Aegon’s life business amounting to EUR 19.7 billion (2017: EUR 23.6 billion) and claims and benefits paid for Aegon’s non-life business amounting to EUR 1.7 billion (2017: EUR 1.9 billion).

Of the total policyholder claims and benefits of EUR 10.6 billion (2017: EUR 45.6 billion), EUR 4.6 billion (2017: EUR 25.4 billion) relates to Aegon Americas, EUR 2.3 billion (2017: EUR 3.1 billion) to Aegon the Netherlands and EUR 2.5 billion (2017: EUR 15.6 billion) to Aegon UK.

 

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24     Business and performance Investment performance

 

A.3 Investment performance

 

Investment performance recognized in income statement
Amounts in EUR millions		Note				2018				2017
Investment income			A.3.1				7,035				7,338
Gains/(losses) on investments 1)			A.3.2				(77	)			413
Results from financial transactions			A.3.2				(11,670	)			20,108
Net impairments			A.3.2				(19	)			(15	)

 

1	This relates to realized gains/(losses) on investments which are included in the line Results from financial transactions.

The following sections will provide more detail about Aegon’s investment income in general and by asset class (section A.3.1) and its investment related results and impairments (section A.3.2). Section A.3.3 provides information about Aegon’s gains and losses of investments recognized directly in equity. Finally, the last section A.3.4 provides information about Aegon’s investments in securitizations.

A.3.1 Investment income

Aegon Americas is the largest contributor to the investment income with EUR 3,125 million (2017: EUR 3,368 million) followed by Aegon the Netherlands with EUR 2,265 million (2017: EUR 2,172 million), and Aegon UK with EUR 1,346 million (2017: EUR 1,517 million).

Most of Aegon’s investment income relates to investment income related to general account investments for an amount of EUR 5,268 million (2017: EUR 5,394 million), while the investment income for account of policyholders amounted to EUR 1,767 million (2017: EUR 1,944 million), mainly due to the fact that the investments for account of policyholders are on a fair value through profit or loss (FVtPL) basis.

Investment income by asset class

For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument. Investment income includes the interest income and dividend income on financial assets carried at fair value through profit or loss. Investment income also includes rental income due.

 

		2018																2017
Investment Income by asset class		Interest				Dividend				Rental								Interest				Dividend				Rental
Amounts in EUR millions		income				income				income				Total				income				income				income				Total
Shares			—				1,124				—				1,124				—				1,164				—				1,164
Debt securities and money market instruments			3,899				—				—				3,899				4,248				—				—				4,248
Loans			1,704				—				—				1,704				1,686				—				—				1,686
Real estate			—				—				129				129				—				—				121				121
Other			181				—				—				181				119				—				—				119
Total			5,783				1,124				129				7,035				6,052				1,164				121				7,338

Included in interest income is EUR 160 million (2017: EUR 190 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 4,811 million (2017: EUR 5,056 million).

Most of Aegon’s investment income relates to debt securities and money market instruments, namely EUR 3,899 million (2017: EUR 4,248 million), which represent 55% (2017: 58%) of total investment income. The expenses related to debt securities and money market instruments mainly consisted of transaction costs. As the transaction costs are included in the fair value at the date of recognition, these are not separately disclosed.

 

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25     Business and performance Investment performance

 

A.3.2 Investment related results and impairments

First, this section will provide more information about Aegon’s gains/(losses) on investments amounting to EUR (77) million (2017: EUR 413 million), followed by its results from financial transactions amounting to EUR (11,670) million (2017: EUR 20,108 million). Finally, information about Aegon’s net impairments is provided, which amounted to EUR (19) million (2017: EUR (15) million).

Realized gains/(losses) on investments

Realized losses on investments amounted to EUR 77 million in 2018 (2017: EUR 413 million gains) as losses on the sale of US treasuries as part of normal trading activity were partly offset by realized gains on investments in the Netherlands and the United Kingdom.

Results from financial transactions

The income arising from financial transactions during the years 2018 and 2017 comprises of:

 

Results from financial transactions
Amounts in EUR millions		2018				2017
Net fair value change of General Account investments at FVtPL other than derivatives			(79	)			232
Realized gains and losses on financial investments			(92	)			431
Gains and (losses) on investments in real estate			261				193
Net fair value change of derivatives			(514	)			(1,301	)
Net fair value change of policyholder’ assets at FVtPL			(11,326	)			20,524
Net fair value change of investments in real estate for policyholder			5				38
Net foreign currency gains and (losses)			44				(20	)
Net fair value change on borrowing and other financial liabilities			29				10
Realized gains and (losses) on repurchased debt			1				1
Total results from financial transactions			(11,670	)			20,108

The net fair value change of policyholder’ assets at FVtPL amounted to EUR (11,326) million in 2018 (2017: EUR 20,524 million) and is mainly driven by unfavorable credit and equity markets. Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by changes in technical provisions reported as part of the lines Change in valuation of liabilities for insurance contracts and Change in valuation of liabilities for investment contracts.

Net impairments

Net impairments amounted to EUR (19) million in 2018 (2017: EUR (15) million), and were primarily related to an impairment of corporate bonds caused by a bankruptcy filing.

A.3.3 Gains and losses recognized directly in equity

This section provides information about the gains and losses of investments recognized directly in equity. The gains and losses of investments recognized directly in equity consist of the unrealized gains or losses of available-for-sale investments.

 

Items that may be reclassified subsequently to profit and loss
Amounts in EUR millions		2018				2017
Gains/(losses) on revaluation of available-for-sale investments			(2,138	)			1,283
(Gains)/losses transferred to income statement on disposal and impairment of available-for-sale investments			66				(1,330	)

Losses on revaluation of available-for-sale investments amounted to EUR 2,138 million (2017: EUR 1,283 million gains) reflecting unfavorable markets resulting in increased interest rates and credit spreads widening.

 

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26      Business and performance Investment performance

 

A.3.4 Investments in securitization

This section provides information about any of Aegon’s investments in securitizations.

Residential mortgage-backed securities

Aegon Americas and Aegon the Netherlands hold EUR 2,497 million (December 31, 2017: EUR 3,541 million) of available-for-sale Residential mortgage backed securities (RMBS), of which EUR 2,102 million (December 31, 2017: EUR 2,985 million) is held by Aegon Americas and EUR 395 million (December 31, 2017: EUR 556 million) by Aegon the Netherlands. Residential mortgage backed securities are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit characteristics and are pooled together and sold in tranches. The following table shows the breakdown of Aegon America’s RMBS available-for-sale (AFS) portfolio.

 

		2018
AFS RMBS by quality Amounts in EUR millions		AAA				AA				A				BBB				<BBB				Total amortized cost				Total fair value
GSE guaranteed			450				149				—				—				—				599				599
Prime jumbo			—				16				1				5				98				120				124
Alt-A			—				59				17				5				221				301				397
Negative amortization floaters			—				1				—				11				438				450				533
Other housing			—				13				4				16				333				366				450
At December 31, 2018			450				238				22				36				1,089				1,836				2,102
Of which insured			—				—				20				5				99				124				113
		2017
AFS RMBS by quality Amounts in EUR millions		AAA				AA				A				BBB				<BBB				Total amortized cost				Total fair value
GSE guaranteed			1,025				270				—				—				—				1,295				1,298
Prime jumbo			—								—				5				124				130				136
Alt-A			—				33				20				8				277				337				437
Negative amortization floaters			—				—				—				—				502				502				584
Other housing			—				9				17				30				397				453				530
At December 31, 2017			1,025				312				37				43				1,300				2,717				2,985
Of which insured			—				—				24				5				146				175				166

A significant part of Aegon America’s RMBS holdings are rated < BBB, as the issuances took place before the United States housing downturn that started in 2007. Additionally, Aegon Americas has investments in RMBS of EUR 35 million (December 31, 2017: EUR 40 million), which are classified as fair value through profit or loss.

For more information about Aegon’s residential mortgage-backed securities, reference is made to pages 190 - 191 of the Integrated Annual Report 2018 of Aegon Group.

Commercial mortgage-backed securities

As of December, 31, 2018, Aegon Americas and Aegon the Netherlands hold EUR 3,349 million (December 31, 2017: EUR 3,403 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 3,314 million (December 31, 2017: EUR 3,375 million) is held by Aegon Americas and EUR 35 million (December 31, 2017: EUR 28 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateralized debt obligations (CRE CDOs), collateralized debt obligations (CDOs), government agency, and franchise loan receivable trusts.

 

		Solvency and Financial Condition Report 2018