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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 2022

 

AEGON N.V.

 

 

Aegonplein 50

2591 TV THE HAGUE

The Netherlands


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Aegon’s 2021 Solvency and Financial Condition Report, dated May 2, 2022, 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 3, 2022

   

By

 

/s/ J.H.P.M. van Rossum

     

J.H.P.M. van Rossum

     

Head of Corporate Financial Center


Table of Contents

LOGO


Table of Contents

 

This pdf is interactive. Therefore you can click on the table of contents to navigate through this document.

 

Table of contents

 

Introduction

  

Scope of the report

   3

Summary

   4

A. Business and performance

   4

B. System of governance

   5

C. Risk profile

   7

D. Valuation for solvency purposes

   9

E. Capital management

   9

A. Business and performance

  

A.1 Business

   11

A.2 Underwriting performance

   26

A.3 Investment performance

   26

A.4 Performance of other activities

   29

A.5 Any other information

   29

B. System of governance

  

B.1 General information on the system of governance

   30

B.2 Fit and proper requirements

   36

B.3 Risk management system including the Own Risk and Solvency Assessment

   39

B.4 Internal control system

   46

B.5 Internal Audit function

   49

B.6 Actuarial function

   50

B.7 Outsourcing

   51

B.8 Any other information

   52

C. Risk profile

  

General

   53

Prudent person principle

   55

Off-balance positions and special purpose vehicles

   56

C.1 Underwriting risk

   57

C.2 Market risk

   60

C.3 Credit risk

   66

C.4 Liquidity risk

     67  

C.5 Operational risk

     69  

C.6 Other material risks

     72  

C.7 Any other information

     72  

 

D. Valuation for solvency purposes

  

Solvency II valuation principles

     74  

Balance sheet reconciliation

     76  

D.1 Assets

     79  

D.2 Technical provisions

     85  

D.3 Other liabilities

     91  

D.4 Alternative methods for valuation

     97  

D.5 Any other information

     100  

E. Capital management

  

Management of capital

     101  

Material development throughout 2021

     101  

Capital adequacy of Aegon’s operating units

     102  

Cash Capital at Holding and liquidity management

     104  

Leverage

     105  

Capital quality

     105  

Globally systemically important insurer (G-SII) designation

     108  

E.1 Own Funds

     108  

E.2 Solvency Capital Requirement and Minimum Capital Requirement

     115  

E.3 Use of the duration-based equity risk sub-module

     121  

E.4 Differences between standard formula and partial internal model used

     121  

E.5 Non-compliance with capital requirements

     122  

E.6 Any other information

     123  

Additional information

  

Glossary

     124  

Cautionary notes

     130  

Contact

     132  
 
 

 

Aegon Solvency and Financial Condition Report Group 2021


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3     LOGO    Scope of the report   Introduction

 

Scope of the report

This report is Aegon N.V.’s Group Solvency and Financial Condition Report (SFCR) for the year 2021, and is designed to inform Aegon N.V.’s stakeholders about the Group’s:

  Business and performance;
  System of governance;
  Risk profile;
  Valuation for solvency purposes; and
  Capital management.

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 290-298 and articles 359 – 371 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.

Aegon is required to submit the Quantitative Reporting Templates (‘QRTs’) to its supervisor De Nederlandsche Bank (DNB). A subset of these QRTs, which provide quantitative information in accordance with Solvency II as at December 31, 2021, is available on Aegon’s website.

The figures in the SFCR reflecting monetary amounts are presented in millions of euros and rounded to the nearest million unless stated otherwise. 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 case IFRS figures are disclosed, the figures are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (EU-IFRS).

Under Solvency II, Aegon uses a combination of method 1 (Accounting Consolidation) and method 2 (Deduction & Aggregation) for the calculation of the Group Solvency II ratio. 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 (mainly US Life insurance entities and companies in Bermuda 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.

Aegon uses a Solvency II Partial Internal Model (PIM) to calculate the solvency position of the majority of its European Economic Area (EEA) insurance activities under Solvency II. Following the end of the Brexit transition period on December 31, 2020, UK and EU prudential regulations for insurers are distinct and UK insurers are no longer directly subject to EU’s Solvency II regulation. Aegon’s UK insurance subsidiaries have been included in the Group Solvency II calculation in accordance with Solvency II standards, including Aegon’s approved Partial Internal Model. Aegon’s Internal Model was approved by the College of Supervisors as part of the Internal Model Application Process. For Aegon, a PIM is a better representation of the actual risk since this contains Aegon specific modelling and sensitivities as opposed to industry-wide approximations included in the standard formula (SF) methodology.

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

The SFCR for the year 2021 of Aegon Group has been prepared and disclosed under the responsibility of Aegon’s Executive Board. This document was approved on May 2, 2022 by the Executive Board.

 

 

Aegon Solvency and Financial Condition Report Group 2021

 


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Summary

A. Business and performance

Business and performance

Aegon has life insurance and pensions operations and is also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Aegon focuses on three core markets (the United States, the Netherlands, and the United Kingdom), three growth markets (Spain & Portugal, China, and Brazil) and one global asset manager. Headquarters are located in The Hague, the Netherlands. The Group employs over 22,000 people worldwide (2020: over 22,000).

Aegon operates in a fast-changing environment, in which we face new challenges but also opportunities. Aegon aims to play a key role in shaping a thriving and sustainable society by delivering on our purpose of Helping people live their best lives. Aegon’s strategy is not just about strengthening our operational and financial performance; but also strives to have a positive impact on society at large, including by managing our direct operations and our investment activities as sustainably and responsibly as possible.

Aegon’s business model focuses on the following items:

  Solutions development and pricing: Development of our financial solutions begins with our customers. We assess their needs, and develop products and services to suit them. We then estimate and price the risk involved for us as a provider.
  Distribution: Our products and services are branded, marketed, and distributed. We offer products and services via intermediaries, like brokers, banks, or financial advisors. We also sell directly to our customers.
  Investments: In exchange for products and services, customers pay fees or premiums. On certain pension, savings, and investment products, customers make deposits. By investing this money, we earn returns for our customers.
  Claims & Benefits: From the premiums, deposits and investment returns on the general investments Aegon pays customer claims and benefits, covers its expenses and makes profits for Aegon’s shareholders.

For information on Aegon’s strategy, please see the Integrated Annual Report 2021 of Aegon Group.

Milestone moments in 2021 included:

  Transamerica ceases sales of variable annuities with significant interest-rate-sensitive riders, fixed index annuities, and standalone individual long-term care products;
  To standardize its operating model and reduce costs, Aegon Asset Management (AAM) launches a program to reduce its IT complexity by approximately halving the number of systems it employs. AAM also creates a common front office platform and global portfolio risk environment, while shortening its client reporting from over five business days to between one and two business days;
  Aegon the Netherlands successfully prices a EUR 657 million residential-mortgage-backed securitization to further diversify its mortgage funding. The transaction is oversubscribed three times by investors;
  Aegon completes the divestment of Stonebridge, a UK-based provider of accident insurance products.
  Together with its joint venture partner, Aegon ceases funding of GoBear, a digital financial supermarket in Southeast Asia;
  In the second quarter of 2021 the Hungarian Ministry of Interior denies the acquisition of the Aegon companies in Hungary by Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG). Aegon and VIG jointly appeal this decision;
  To achieve cost and capital efficiencies, Aegon combines its programs for purchasing corporate insurance into a single existing US-based unit and centralizes all retained risks;
  Transamerica completes the sale of its portfolio of fintech and insurtech companies to a fund managed and advised by private equity firm Montana Capital Partners;
  Aegon the Netherlands expands mortgage options to help customers finance energy-efficient home improvements;
  Aegon places second in responsible investment NGO ShareAction’s 2021 ranking of how leading global life and health insurers approach responsible investment and underwriting;
  To reduce financial market exposure and release capital, Transamerica launches a program offering certain variable annuity customers a lump-sum payment in return for surrendering their policies;
  Aegon the Netherlands ceases offering savings products to customers of its original savings bank, giving them the opportunity to transfer their funds to a Knab account or to another bank;
 

 

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  In the third quarter of 2021 the European Commission grants the competition law clearance for the acquisition of Aegon’s businesses in Central & Eastern Europe by VIG and the Budapest Metropolitan Court rejects a joint appeal by Aegon and VIG challenging the Ministry of the Interior’s decision to block the latter’s acquisition of Aegon’s Hungarian businesses. Subsequently, VIG and Aegon ask the Hungarian Supreme Court to review the ruling. VIG continued its dialogue with the Hungarian Ministry of Finance to clarify possibilities for a positive conclusion to the acquisition. On March 23, 2022, Aegon announced that it completed the divestment of its Hungarian businesses. In April 2022 Aegon also completed the divestment of its Turkish businesses. Reference is made to section E.6 for more information;
  Aegon calls USD 250 million in perpetual capital securities in line with the target to reduce gross financial leverage;
  Aegon commits to transitioning its general account investment portfolio to net-zero greenhouse gas emissions by 2050 and, in doing so, joins the Net-Zero Asset Owner Alliance;
  Aegon Asset Management becomes a signatory to the Net Zero Asset Managers initiative;
  Aegon Asset Management and Aegon UK partner with the Global Ethical Finance Initiative (GEFI) to introduce the new Aegon Global Sustainable Sovereign Bond Fund at ‘COP26’;
  Aegon becomes a signatory of the United Nations (UN) Global Compact, which calls upon companies to align on universal principles on human rights, labor, environment, and anti-corruption, and to advance societal goals;
  Transamerica expands its dynamic hedging program to the legacy variable annuities portfolio to stabilize economic cash flows and reduce economic sensitivities to equity and interest rate risks;
  Aegon reinsures an additional part of its longevity exposure in the Netherlands with Reinsurance Group of America, improving its risk profile;
  Transamerica reinsures a portfolio of universal life secondary guarantee policies with Wilton Re, which reduces its exposure to mortality risk and policies with a large face amount;
  Aegon maintains its position as leading third-party mortgage originator in the Netherlands, having originated EUR 10.9 billion worth of residential mortgages in 2021;
  Aegon’s Global Sustainable Equity Fund wins the 2021 UNCTAD Global Sustainable Fund Award.

 

Results of operations and performance

     2021        2020  

Amounts in EUR millions

                      Group                        Group  

Net result

     1,701        55  

Operating result

     1,906        1,710  

Investment income

     6,967        7,149  

Premium income

     15,444        16,099  

Commissions and expenses

     5,984        5,983  

Policyholder claims and benefits

     41,852        42,006  

Results from financial transactions

     23,848        21,677  

The 2021 net result amounted to EUR 1,701 million and was driven by the operating result of EUR 1,906 million. Aegon’s operating result increased by 11% compared with 2020 to EUR 1,906 million in 2021. Adverse claims experience in the US was more than offset by increased fees from higher equity markets, the positive contribution from business growth and lower expenses driven by expense savings initiatives, leading to higher operating result in all other units, except International. The latter was driven by the reclassification of the 2021 result of Central & Eastern Europe from operating result to Other income following the announced divestment of the business.

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

B. System of governance

General governance

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

Aegon is governed by three main corporate bodies: the Executive Board, the Supervisory Board, and the General Meeting of Shareholders. There were no material changes in the system of governance during the reporting period.

 

 

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Aegon’s Executive Board is charged with the overall management of the Company, and is therefore responsible for developing and executing Aegon’s strategy. Additionally, it is responsible for managing the Company’s risk profile and overseeing any relevant sustainability issues. The Executive Board is assisted in its work by the Company’s Management Board, which had ten members, including the members of the Executive Board per December 31, 2021. Aegon’s Executive Board consists of Lard Friese, Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matt Rider, Chief Financial Officer (CFO).

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.

The Supervisory Board is entrusted with supervising and advising the Executive Board regarding management of the Company and overseeing Aegon’s strategy and the general course of its businesses.The Supervisory Board consisted of eight members as per December 31, 2021. Members of the Supervisory Board are appointed by the shareholders at the General Meeting of Shareholders. Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. The Supervisory Board has the following committees:

 

 

Audit Committee;

 

Risk Committee;

 

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.

For the composition of and changes in the Supervisory Board, Executive Board and Management Board, refer to section B. System of governance.

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 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

Aegon’s Solvency II control system consists of appropriate administrative and accounting procedures, an internal control framework, appropriate reporting arrangements, as required by regulation. Furthermore, Aegon’s control environment consists of a risk management function, an actuarial function, a compliance 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 takes accountability for the coordination of the calculation of the technical provisions, the assessment of the adequacy and reliability of those technical provisions, together with the assessment of the appropriateness of the overall underwriting policy, and the adequacy of the reinsurance arrangements. The actuarial function also contributes to the effective implementation of the risk management system. Aegon’s internal audit function is independent 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.

 

 

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C. Risk profile

As an insurance group, Aegon accepts and manages risks 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 this risk, and whether there is sufficient capacity to take the risk. Aegon targets a balance between financial market, credit risks and underwriting risks. The targeted risk profile is set at Aegon Group level and developed in more detail within the subsidiaries where 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.

The most significant financial risks Aegon faces are related to financial markets (particularly credit, equity and interest rates), and underwriting risks (particularly related to mortality, morbidity and policyholder behavior).

Financial markets saw equity markets generally finding higher levels during 2021. Interest rates increased considerably in the United States compared with the low levels seen during 2020, whereas credit spreads remained relatively stable over the year.

Material movements in Aegon’s risk profile during 2021 include:

 

  Aegon calls USD 250 million in perpetual capital securities in line with the target to reduce gross financial leverage;
  Transamerica launches a program, offering certain variable annuity customers a lump-sum payment in return for surrendering their policies, to reduce financial market exposure and release capital;
  Transamerica reinsures a portfolio of universal life secondary guarantee policies with Wilton Re, which reduces its exposure to mortality risk and policies with a large face amount;
  Transamerica expands its dynamic hedging program to the legacy variable annuities portfolio to stabilize economic cash flows and reduce economic sensitivities to equity and interest rate risks;
  Aegon reinsures an additional part of its longevity exposure in the Netherlands (NL Life) with Reinsurance Group of America, improving its risk profile;
  Installment of inflation hedges in Aegon the Netherlands;
  De-risking of employee pension schemes in Aegon UK and Transamerica.

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.

 

 

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Composition of Group SCR

 

Amounts in EUR millions

                               2021                       2020  

SFCR section

   QRT S.25.02.22       

C.2 Market risk

   Market Risk (SF)        1,140       1,077  
   Market Risk (IM)        3,027       2,896  

C.3 Credit risk1)

   Counterparty default risk (SF)        161       286  
   Counterparty default risk (IM)        49       10  

C.1 Underwriting risk

   Life underwriting risk (SF)        1,224       1,242  
   Life underwriting risk (IM)        2,222       2,831  
   Health underwriting risk (SF)        281       288  
   Health underwriting risk (IM)        -       -  
   Non-life underwriting risk (SF)        128       126  
   Non-life underwriting risk (IM)        -       -  

C.5 Operational risk

   Operational risk (SF)        310       333  
   Operational risk (IM)        330       348  

E.2.1 Solvency Capital Requirement

   LAC-DT          (998     (716
     Total undiversified components          7,875       8,721  
     Diversification          (3,080     (3,508
     PIM SCR after diversification (AC only)          4,795       5,213  
     Capital requirements for D&A and OFS          4,431       4,260  
     Group PIM SCR          9,226       9,473  
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.

Aegon Group’s Partial Internal Model (PIM) net SCR amounted to EUR 9,226 million on December 31, 2021, which was a decrease of EUR 247 million compared to the net SCR on December 31, 2020 of EUR 9,473 million. The net SCR decrease was mainly driven by the following movements:

  Market risk (SF) increased by EUR 63 million driven by an increase in equity risk as a result of higher equity markets causing an increase in the symmetric adjustment1 for equity risk under the standard formula, and by an increase in Own Funds for the US non-regulated entities;
  Market risk (IM) increased by EUR 131 million mainly due to increased equity risk given the higher exposure to equity markets, particularly for SE plc;
  The changes in counterparty default risk for IM and SF (decrease of EUR 86 million) are a result of capturing some of Aegon UK’s counterparty default risk under the IM rather than the SF at Group level from 2021 following Brexit, whilst reflecting the fact that some of the risk is borne by policyholders;
  Life underwriting risk (IM) decreased by EUR 609 million, mainly due to reduced longevity risk following a reinsurance transaction of NL Life, and model updates;
  There were minor changes in life, health and non-life underwriting risk (all SF) and operational risk (both SF and IM)
  The loss absorbing capacity of deferred taxes (LAC-DT) increased (which decreases net SCR) by EUR 282 million. The increase is mainly caused by a higher LAC-DT factor applied in the Netherlands and a change in tax rate in the UK;
  The diversification benefit amount decreased by EUR 428 million (which increases the net SCR). This was mainly driven by the decrease in gross SCR of the life underwriting risk (IM) and increase in market risk (IM), leading to lower diversification between these risks;
  The SCR for D&A and OFS entities increased by EUR 171 million, mainly due to new business strain in China and Aegon Asset Management, and higher capital requirements related to the UK employee pension scheme. Note that there is a decrease in SCR for the US RBC entities in US dollar terms, driven by a change in hedging strategy and release of inforce SCR, but in euro terms there is minimal movement as the euro depreciated against the US dollar.

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

 

 

1

The symmetric adjustment is designed to reduce procylicality by increasing/decreasing the equity shock in the standard formula when equity markets are up/down compared to their 3-year historic average

 

 

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D. Valuation for solvency purposes

Solvency II valuation principles

Aegon values its Solvency II balance sheet items on a basis that reflects their economic value. Where the fair value under IFRS as adopted by the EU (EU-IFRS) is consistent with Solvency II requirements, Aegon follows EU-IFRS for valuation of its assets and liabilities.

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

 

 

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

 

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

 

De-recognition of items that are admissible on the EU-IFRS statement of financial position, but not under Solvency II, for instance deferred expenses (including deferred policy acquisition costs), goodwill and other intangible assets.

Long-term guarantees

Aegon applies the matching adjustment in Aegon UK, which has a positive impact to the Group Own Funds of EUR 23 million as of December 31, 2021 (2020: EUR 30 million) and reduces the Group solvency capital requirement by EUR 60 million (2020: EUR 64 million reduction). The matching adjustment methodology has been approved by the UK regulator.

In addition, Aegon applies a volatility adjustment in Aegon the Netherlands, Aegon UK and Aegon Spain, which has a positive impact on the Group Own Funds of EUR 244 million (2020: EUR 453 million) and reduces the Group solvency capital requirement by EUR 1,262 million (2020: EUR 1,468 million).

The combined impact of the matching adjustment and the volatility adjustment on the Group Solvency II ratio is 29%-points (2020: 32%-points).

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

E. Capital management

Key Solvency II figures

During 2021, Aegon Group and all the entities within the Group that are on a solo level subject to Solvency II capital requirements (including Aegon UK) continued to comply with the MCR and SCR requirements. In the following tables the key Solvency II figures for Aegon are presented as at December 31, 2021:

Aegon Group capital position

 

Amounts in EUR millions

                      2021 1)                      2020  

Group Own Funds

     19,431       18,582  

Group PIM SCR

     9,226       9,473  

Group Solvency II ratio

     211%       196%  

Group Solvency II ratio (Matching Adjustment set to zero)

     209%       195%  

Group Solvency II ratio (Volatility Adjustment set to zero)

     184%       166%  

Group Solvency II ratio (excluding transitional measures)

     211%       196%  

Group Solvency II ratio (excluding Long-term guarantees and transitional measures)

     182%       164%  

Group Eligible Own Funds to meet minimum consolidated group SCR

     8,816       7,888  

Minimum consolidated Group SCR

     2,304       2,326  

Group MCR ratio2)

     383%       339%  
1

The Solvency II ratios are not final until filed with the respective supervisory authority.

2

Ratio of Group Eligible Own Funds to meet the minimum consolidated Group SCR.

 

 

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Solvency II Group Own Funds

     2021        2020  

Amounts in EUR millions

    
Available
Own Funds
 
 
    
Eligible
Own Funds
 
 
    



Eligible Own
Funds to meet
minimum con-
solidated
Group SCR
 
 
 
 
 
    
Available Own
Funds
 
 
    
Eligible Own
Funds
 
 
    



Eligible Own
Funds to meet
minimum
consolidated
Group SCR
 
 
 
 
 

Unrestricted Tier 1

     14,044        14,044        6,979        12,971        12,971        6,016  

Restricted Tier 1

     2,364        2,364        1,377        2,571        2,571        1,408  

Tier 2 Own Funds

     2,348        2,348        461        2,340        2,340        465  

Tier 3 Own Funds

     675        675        -        700        700        -  

Total Own Funds

     19,431        19,431        8,816        18,582        18,582        7,888  

Aegon Group Eligible Own Funds amounted to EUR 19,431 million on December 31, 2021 (2020: EUR 18,582 million). The increase of EUR 849 million in Own Funds since December 31, 2020, was mostly driven by the positive impact from expected return on inforce business and market impacts. The positive impact was partly offset by claims experience in the Americas due to COVID-19, and the negative impact on Own Funds resulting from management actions.

Aegon’s Group PIM SCR amounted to EUR 9,226 million on December 31, 2021 (2020: EUR 9,473 million). The SCR decreased by EUR 247 million compared to December 31, 2020. This decrease was mainly the result from the release of required capital of in force business, partially offset by the need to setup SCR for new business, the impact from management actions - notably the reinsurance of longevity risk for NL Life - and model and assumption changes. There were partial offsets from market impacts and a lower benefit of group diversification. As a result of the above changes in Eligible Own Funds and PIM SCR, the Group Solvency II ratio increased by 15%-points to 211% in 2021.

Aegon uses 150% of the local Risk-Based Capital (RBC) Company Action Level as the Solvency II SCR equivalent for including the United States life insurance and reinsurance entities into the Group solvency calculation, and in addition, reducing Own Funds by an amount equal to 100% RBC Company Action Level requirement to reflect transferability restrictions. The United States conversion methodology is subject to periodic review and approval by DNB. Aegon allocates centrally issued subordinated debt between the AC and D&A parts of the group on an Available Own Funds basis.

The Solvency II capital ratios of the Group and Aegon the Netherlands do not include the impact of 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.

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.

Management of capital

Aegon’s capital management framework is based on adequate capitalization of its operating units, Cash Capital at Holding and leverage.

Adequate capitalization levels have been defined as sufficient to absorb moderate shocks without impacting the remittances to the Group. These moderate shocks could be caused by various factors, including general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitration proceedings. To mitigate the impact of such factors on the ability of operating units to transfer funds, Aegon established an operating level of capital in each of the units, 150% SCR for Solvency II units and 400% RBC Company Action Level in the United States, which includes additional capital in excess of regulatory capital requirements. Aegon manages capital in the units to their respective operating levels.

The regulatory capital requirement, minimum dividend payment level, operating level and actual capitalization for Aegon’s main operating units at December 31, 2021, are included in the following table:

 

Capital requirements

    
Regulatory capital
requirement
 
 
    
Minimum dividend
payment level
 
 
     Operating level       
Actual
capitalization
 
 

US RBC ratio

     100%        350%        400%        426%  

NL Life Solvency II ratio

     100%        135%        150%        186%  

Scottish Equitable Plc (UK) Solvency II ratio

     100%        135%        150%        167%  
 

 

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A. Business and performance

A. 1 Business

A. 1.1 Overview

Aegon is an integrated, diversified, international financial services group. Aegon offers investment, protection, and retirement solutions, always with a clear purpose: Helping people live their best lives.

Aegon’s common shares are listed on Euronext Amsterdam and the New York Stock Exchange. 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.

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 actions 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.

A.1.2 Regulators and auditor

The supervisory authority responsible for Solvency II group supervision of 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: Spaklerweg 4, 1096 BA Amsterdam

Telephone: +31(0)20 524 91 11

PricewaterhouseCoopers Accountants N.V. is Aegon’s external auditor.

PricewaterhouseCoopers Accountants N.V.

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

Telephone: +31 (0)88 792 00 20

 

 

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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, 2021, Vereniging Aegon, Aegon’s largest shareholder, held a total of 301,774,161 common shares and 538,250,640 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 Vereniging Aegon, acting at its sole discretion, determines that a Special Cause has arisen, it must notify the General Meeting of Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months. Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders. Accordingly, at December 31, 2021, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 15.39%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, to 32.6%, for up to six months.

A.1.4 Aegon’s Group structure

Aegon’s operating segments are based on the businesses as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. All reportable segments are involved in insurance or reinsurance business, asset management or services related to these activities. The reportable segments are:

  Americas: one operating segment which covers business units in the United States and Brazil, including any of the units’ activities located outside these countries;
  The Netherlands: which covers businesses activities from Aegon the Netherlands;
  United Kingdom: which covers businesses activities from platform business and traditional insurance in the United Kingdom;
  International: one operating segment which covers businesses operating in Hong Kong, Singapore, China, India, Indonesia, Hungary, Poland, Turkey, Romania, Spain and Portugal including any of the units’ activities located outside these countries;
  Asset Management: one operating segment which covers business activities from AAM Global Platforms and Strategic Partnerships;
  Holding and other activities: one operating segment which includes financing, employee and other administrative expenses of holding companies.

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

On November 29, 2020, Aegon agreed to sell its insurance, pension, and asset management businesses in Hungary, Poland, Romania, and Turkey to Vienna Insurance Group AG Wiener Versicherung Gruppe (VIG) for EUR 830 million, of which EUR 35 million was received by Aegon in the form of net remittances in 2021. As a result of the transaction, the Group Solvency II ratio is estimated to improve by approximately 8 percentage points. Based on the balance sheet position at December 31, 2021, a book gain amounting to EUR 266 million is expected, which includes a loss of EUR 204 million related to the foreign currency translation reserve, which will be reclassified from Other Comprehensive Income into the income statement. As a result of this transaction, IFRS equity is expected to increase by EUR 470 million. The closing of the transaction is subject to local regulatory and competition approvals customary for transactions of this nature. On March 23, 2022, Aegon announced that it completed the divestment of its Hungarian businesses. In April 2022 Aegon also completed the divestment of its Turkish businesses. Reference is made to section E.6 for more information.

 

 

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On February 28, 2021, Aegon successfully completed the divestment of Stonebridge, a UK-based provider of accident insurance products to Global Premium Holdings group, part of Embignell group. Under the terms of the agreement, Aegon sold Stonebridge for a consideration of approximately GBP 60 million (EUR 65 million), consisting of the purchase price and dividends related to the transaction. This excludes a contingent consideration of up to GBP 10 million. The transaction had no material impact on Aegon’s capital position and results.

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 EU-IFRS shareholders’ equity.

Americas

 

Transamerica Corporation, Wilmington, Delaware (United States);

 

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

 

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

 

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

 

Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil) (55%, voting rights 50%).

The Netherlands

 

Aegon Bank N.V., The Hague;

 

Aegon Cappital B.V., Groningen;

 

Aegon Hypotheken B.V., The Hague;

 

Aegon Levensverzekering N.V., The Hague;

 

Aegon Schadeverzekering N.V., The Hague;

 

Aegon Spaarkas N.V., The Hague;

 

Nedasco B.V., Amersfoort;

 

Robidus Groep B.V., Zaandam;

 

TKP Pensioen B.V., Groningen;

 

AMVEST Vastgoed, Utrecht (50%);

 

AMVEST Living & Care Fund, Amsterdam (50%);

 

AMVEST Development Fund, Amsterdam (50%);

 

AMVEST Residential Core Fund, Amsterdam (29%);

 

N.V. Levensverzekeringmaatschappij ‘De Hoop’, The Hague (33%);

 

OB Capital Cooperatief U.A., Schiphol (95%; Aegon does not have control to direct the daily activities of the company).

United Kingdom

 

Aegon Investment Solutions Ltd., Edinburgh;

 

Aegon Investments Ltd., London;

 

Scottish Equitable plc, Edinburgh;

 

Cofunds Limited, London.

International

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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Asset Management

 

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

 

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

 

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

 

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

 

Aegon Asset Management UK plc, Edinburgh (United Kingdom);

 

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

 

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. Aegon does not have any significant branches in the meaning of Article 354(1) of the Solvency II directive.

A.1.6 Material lines of business and material geographical areas

Below is an overview, region by region, of the material lines of business that they provide.

Americas

Aegon has designated the US as a core market, with Transamerica’s businesses organized into Strategic Assets and Financial Assets.

Strategic Assets are those that are considered to have a greater potential for an attractive return on capital and growth. In Workplace Solutions, Transamerica is focused on small to mid-sized retirement plan administration, employee benefits, stable value solutions and the Transamerica Advice Center. It also continues to operate in the retirement plan administration market for large employers. In addition, Workplace Solutions provides value-added services, such as Managed Advice® and its proprietary investment solutions. In Individual Solutions, Transamerica focuses on select life insurance and investment products, including term life insurance, final expense whole life insurance, and indexed universal life insurance, as well as mutual funds and individual retirement products, like accumulation variable annuities (VA) with limited interest rate sensitivity.

Several Transamerica product lines are considered Financial Assets, which are capital intensive with relatively low returns on capital employed. These are traditional VAs with interest rate sensitive guaranteed living benefits and death benefits; stand-alone individual long-term care (LTC) insurance; and fixed annuities. Transamerica ceased new sales of these products in the first half of 2021 and any future new sales for Financial Assets are limited, if any, and focused on products with higher returns and a moderate risk profile.

Life

Transamerica offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Life products include term life (TL), universal life (UL), variable universal life (VUL), index universal life (IUL), and whole life insurance (WL).

Term life insurance

TL insurance provides death benefit protection without cash value accumulation. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period. Living benefit riders that provide accelerated benefits for critical illnesses or chronic conditions are available on term insurance.

Universal life insurance

UL insurance is flexible permanent life insurance that offers death benefit protection together with the potential for cash value accumulation. After the first few years, there is usually no set premium. The policyholder can adjust the frequency and amount of premium payments, as long as sufficient premiums are accumulated in the policy’s account value to cover charges in the month that follows, which are called ‘monthly deductions’. Some versions of this product have ‘secondary guarantees.’ These maintain life insurance coverage when the cash value is insufficient, as long as the customer pays a specified minimum premium.

Variable universal life insurance

VUL insurance is permanent life insurance that offers both a death benefit and cash value accumulation potential with financial market participation. The premium amount for VUL insurance is flexible and may be changed by the policyholder within contract limits. Coverage amounts may change as well. The investment feature usually includes ‘sub-accounts,’ which provide exposure to investments, such as stocks and bonds. This exposure increases cash value return potential, but also the risk of additional premium requirements or lower coverage amounts in comparison with a traditional, non-variable life insurance policy. Transamerica did not actively market VUL insurance in 2021 but may do so in the future.

 

 

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Index universal life insurance

IUL insurance provides permanent death benefit protection and cash value accumulation with flexible premium payments.

What distinguishes it from other types of permanent life insurance is the way in which interest earnings are credited. Net premiums may be allocated to either a fixed account or indexed accounts. Indexed accounts credit interest based in part on the performance of one or more market indices. The credited interest is based on the index, but with a floor and a cap. IUL offers both market-paced growth potential in the indexed accounts and downside protection. It is an alternative to traditional UL - for which interest is credited at a fixed rate - and VUL, in which the cash value is directly exposed to market fluctuations. LTC riders and other living benefit riders are available on IUL products.

Whole life insurance

WL insurance provides permanent death benefit protection provided that the required premiums are paid, while accumulating cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy. Among the WL insurance products offered is final expense WL insurance, which is intended to cover medical bills and burial expenses.

Accident & health

Transamerica offers supplemental health insurance and LTC insurance.

Supplemental health insurance

Supplemental health insurance products include accidental death and dismemberment, accidental injury, cancer, critical illness, disability, hospital indemnity, Medicare supplement, retiree medical, dental, vision, and supplemental medical expense indemnity issued by affiliated and/or unaffiliated insurance companies.

Long-term care insurance

LTC insurance products are a category of health insurance and provide benefits to policyholders that require qualified LTC services when they are unable to perform two or more specified activities of daily living or develop a severe cognitive impairment. LTC insurance helps protect against the high cost of LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC. Transamerica offers a LTC rider on certain life insurance products and ceased offering a standalone product in the first half of 2021.

Mutual funds and Exchange Traded Funds (ETFs) and Collective Investment Trusts (CITs)

Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments, and other securities. Transamerica offers mutual funds that are focused on several different asset classes, including US equity, global/ international equity, fixed income, money markets and alternative investments, as well as asset allocation and target-date funds with combined equity and fixed income strategies. Transamerica mutual funds utilize the portfolio management expertise of asset managers across the industry in a sub-advised platform, using managers both affiliated with and not affiliated with Aegon. These managers are subject to a rigorous selection and monitoring due diligence process conducted by Transamerica Asset Management.

ETFs are a pooled investment vehicle for individual and institutional investors that combine some of the features of a mutual fund with the flexibility of allowing investors to trade throughout the day on an exchange. Transamerica offers a suite of managed-risk passive ETFs that seek to track the S&P Managed Risk 2.0 Indices marketed under the name DeltaShares. This Managed Risk strategy is applied to US Large Cap, Mid Cap, Small Cap, International Developed Equity and Emerging Market Equity Indices.

A CIT is a pooled investment fund, held by a bank or trust company, and generally available only to certain types of retirement plans and other institutional investors. Transamerica serves as the advisor to some of the CITs it offers, which are focused on several different asset classes including US equity, international equity, and fixed income. Transamerica also leverages the portfolio management expertise of asset managers across the industry.

Variable annuities

Variable annuities (VAs) 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, which are offered through riders, can be added to VAs, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection. While Transamerica discontinued sales of variable annuities with significant interest rate sensitive living and death benefits in the first quarter of 2021, it continues to offer variable annuities, including certain annuities with GLBs and GMDBs.

 

 

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Fixed annuities

Fixed annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis through periodic interest crediting and principal protection. Transamerica no longer allows new contracts of any fixed annuities as it ceased new sales of fixed indexed annuities in the first quarter of 2021. Premium additions on in force fixed annuities are allowed in some contracts; however, Transamerica’s fixed indexed annuity rider will no longer receive any premium deposits after the second quarter of 2022, as the contracts allow for additions only for one year after issue.

Retirement plans and IRAs

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

Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments with focus on small to mid-sized organizations. Transamerica also works closely with plan advisors and third-party administrators to serve their customers. Transamerica Retirement Solutions is a top-ten defined contribution record-keeper in the United States based on number of plan participants.

Plan sponsors have access to a wide array of investment options. Tools are provided to help plan participants monitor their retirement accounts and engage in behavior to stay on track towards a funded retirement. Managed Advice® is a managed account option that plan sponsors can make available to participants that provides investment advice to participants using the plan’s slate of funds.

For individuals, retirement related services and products include IRAs, advisory services, and annuities as well as access to other financial insurance products and resources.

Stable value solutions

Transamerica’s Stable Value Solutions business offers synthetic guaranteed investment contracts (GICs) primarily to tax-qualified institutional entities such as 401(k) plans and other retirement plans and college savings 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. 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 and provides book value withdrawals for plan participants. Stable Value fixed annuity contracts are also available to certain types of qualified retirement plans as a participant investment option.

Brazil

Aegon has designated Brazil as a growth market. The Americas business in Brazil consists of a 54.9% economic interest, inclusive of 50% of voting common shares, in Mongeral Aegon Group (MAG Seguros), a Brazilian independent life insurer. MAG Seguros’ activities include a life insurance and pension company, an asset management company, a multi-sponsored pension fund, a liabilities management company for pension funds, and a longevity institute. MAG Seguros and Bancoob (Banco Cooperativo do Brasil) own Sicoob Seguradora de Vida e Previdência (Sicoob), a life insurance and pensions company that provides life insurance and pension products via the Sicoob system. The joint venture distributes products through Sicoob. Bancoob is a private commercial bank owned by the credit cooperative entities affiliated with the Sicoob system. Sicoob represents a key distribution channel for MAG Seguros, which serves over 4 million customers nationwide through over 4,000 brokers.

The Netherlands

Within the strategy of Aegon, Aegon the Netherlands is designated a core market, organized into Financial Assets and Strategic Assets.

The Life activities of Aegon the Netherlands are considered Financial Assets. Aegon has established a dedicated team to manage these businesses, which is responsible for maximizing its value through active in-force management, disciplined risk management and capital management actions. These actions are focused on protecting the capital position, increasing capital generation capital, and reducing expenses by outsourcing of the servicing of the life-books. Aegon selectively competes in the defined benefit market. This also includes supporting employers in their transition towards defined contribution solutions under the new pension agreement. In 2021, new life sales consisted mainly of immediate pensions annuities, indexations on existing group life contracts and risk insurance.

Strategic Assets are the businesses in which Aegon the Netherlands will invest to grow its customer base and increase margins. Aegon the Netherlands strategically focuses on the following business: Mortgages (Aegon Hypotheken), Banking (Knab); and Workplace solutions for employers. The last category consists of the following businesses: Aegon Cappital, TKP Pensioen, Aegon Schadeverzekering, Robidus and Nedasco.

 

 

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Life

Aegon the Netherlands’ Life entity (Aegon Levensverzekering) is managed as a Financial Asset. This means that the focus is on maximizing its value through active in-force management, disciplined risk management and capital management actions. These actions are focused on protecting the capital position, increasing capital generation capital, and reducing expenses by outsourcing of the servicing of the life-books.

Pensions

Interest rates have been low for an extended period of time, creating a shift from Defined Benefit (DB) pension plans to Defined Contribution (DC) pensions plans. In 2020, fundamental changes were proposed to the Dutch pension system. Although implementation is delayed from 2026 to 2027, these include that new pension accrual is only allowed in DC schemes. As Aegon the Netherlands offers DC schemes through a separate legal entity - Aegon Cappital - the consequence for Aegon Levensverzekering is that all of its Group pension products will become closed books.

Aegon the Netherlands will only selectively compete in the defined benefit market. This also includes supporting employers in their transition towards defined contribution solutions under the new pension agreement. Renewals of existing contracts are possible, but only if the renewal facilitates the existing customers in their transition to DC. In addition, Aegon Levensverzekering will continue to sell risk insurance and annuities that are closely linked to DC schemes. More detail on annuities is provided further below.

The Group DB products that remain on the balance sheet of NL Life are as following:

 

Separate account group contracts with individually determined asset investment strategies, profit sharing and guarantees;

 

Contracts with profit sharing based on a pre-determined interest rate;

 

Traditional variable unit-linked products;

 

DB subscriptions, a standardized product that offers a 1-year guarantee; and

 

Contracts without profit sharing.

As the DB subscription product remains open for existing customers and, as some contracts have a due date in the future, there are still premiums received for these products. In addition, indexations remain possible for all of the Group DB products.

Annuities

The actively sold products in this category are simple payout annuities and variable annuities without guarantees. These products are linked to DC schemes in which participants build up their capital and are obliged, by law, to purchase an annuity at the pension date. Participants can choose between a guaranteed annuity - where all risks are borne by Aegon - or a variable annuity without investment guarantees, where all risks are borne by the participant. Given that a significant shift has been observed to DC schemes, these annuities are a natural driver of growth as they provide a solution for the payout phase. Annuity insurance also includes older products with guaranteed interest rates and profit sharing for which no new business is written.

Risk insurance

This category mainly includes the survivor’s pension insurance sold as a rider to DC pension schemes. Premiums are mainly paid by the employer and the product pays benefits to the spouse/children in the event of the death of the insured.

Endowment insurance

Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract. These 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. Minimum interest guarantees exist for all generations of endowment insurance products written, except for universal life products, for which premiums are invested solely in equity funds. These products are no longer being sold.

Mortgages

Aegon the Netherlands offers mainly annuity and linear residential mortgages, while also catering to consumers requiring interest only mortgage loans. Mortgage loans are originated both as investments for Aegon the Netherlands’ insurance and bank entities as well as distributed to third-party investors. Such investors are provided access to this high-quality asset class through the Aegon Dutch Mortgage Fund, Robuust (a third-party label where Aegon has the exclusive right to purchase and distribute the mortgages receivables), SAECURE (Aegon’s Dutch residential mortgage-backed securities program), Aegon Bank’s covered bond program, and various bespoke structures to tailor to investors’ needs. Investors value our mortgage offering for the attractive spread and low credit-loss experience through disciplined underwriting. Consumers and independent financial advisors choose Aegon mortgages for the high quality of service, reliable operations, and accessibility through the economic cycle.

 

 

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Banking

In 2021, Aegon completed the migration and integration of the Aegon Bank brand to the Knab brand. Knab is a fully online digital bank that went live in 2012. By integrating both operations and rationalizing product offerings, costs are lower, operations more efficient, and governance is unified. Knab continues to offer banking products like savings accounts and investments, as part of Aegon’s pension offerings in the Netherlands. In 2020, Banking was classified as a Strategic Asset and forms the gateway to individual retirement solutions.

Knab customer growth is geared towards fee-paying customers and products. Increasing efforts to deliver products and offer functionalities (e.g. Google pay, VAT savings) in a higher customer demand environment is key for retaining and acquiring new customers.

Workplace solutions

Non-life

Accident and Health

Aegon the Netherlands offers disability and sick leave products to employers that cover these payments for employees not covered by social security and where the employer bears the risk. For some forms of disability, employers can choose to use the social security system to insure these risks or opt out and seek private insurance, which Aegon also offers. Private insurance appeals to employers, because it offers a wider set of coverage options and therefore better tailor to the needs of the employer regarding the disability risk of their employees, and as a result helps reduce absenteeism and disability thanks to better reintegration efforts.

For individuals, Aegon the Netherlands offers a disability product mainly targeted at the growing self-employed market.

Property and Casualty (P&C)

Aegon the Netherlands has focused exclusively on retail lines in P&C insurance, offering products in the segments of property, motor, travel, legal assistance, private liability claims, pet insurance, and injury. The ambition for the P&C retail segment is to provide the best digital service in the Dutch P&C market while building long-lasting relationships with customers and distribution partners.

Through the service concepts, Aegon the Netherlands supports intermediaries with excellent digital processes to help their customers in the best possible way. This is done by stimulating performance at sustainable levels for customers, intermediaries, and the insurer. In addition to the intermediary market, Aegon the Netherlands has further developed digital and online capabilities, especially as the direct market has sustained a sizable share in the overall distribution in the past years, in particular for the Motor segment. The direct market includes sales via Aegon’s own website and affiliates, as well as through aggregator websites.

Aegon Cappital

Aegon Cappital is a low-cost provider of DC pension schemes offered through intermediary advisors. Aegon Cappital offers DC pension schemes in a standardized subscription-based model to small and medium enterprises and customized contracts for medium-to-large corporations. The model enables employers to choose from a variety of contribution tables and social security offsets, while remaining flexible for regulatory changes, such as changes in pension age or fiscal contribution limits. Savings premiums are invested in life cycle funds managed by Aegon Investment Management B.V

Aegon Cappital is one of the largest pension premium institutions (‘PPIs’) in the Netherlands and benefits considerably from economies of scale. The low interest rate environment, and the fundamental changes of the Dutch pension system as of January 1, 2027, will result in a continued shift to DC schemes.

PPIs cannot bear any investment or insurance risks on their offerings due to regulatory requirements. The schemes include disability and/or life insurance which are offered by partners Aegon Levensverzekering, Aegon Schadeverzekering and Elips Life AG, and the option for participants to buy deferred annuities offered by partner Aegon Levensverzekering. The main risks for Aegon Cappital are operational and regulatory risk.

TKP Pensioen, Robidus and Nedasco

TKP Pensioen is a top three player in the Dutch market for pension administration. TKP Pensioen administers pension rights for several large company and industry pension funds, as well as other pension providers such as premium pension institutions. Their customers – 67,000 employers representing 3.4 million participants – rely on TKP Pensioen for correct and timely pension payments, and clear and accessible pension information and communication. This ranges from the mandatory pension statements to customer contact and digital customer services.

 

 

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Robidus Groep advises corporations on the risks and associated costs of absenteeism and disability under Dutch social security legislation and acts as an insurance broker for income related insurances.

Nedasco is an intermediary service provider that is mainly active in non-life business domains.

United Kingdom

Aegon UK has both a modern fee-based investment ‘platform’ business, built organically and scaled through the acquisition of Cofund’s retail savings platform and BlackRock’s Workplace Defined Contribution business, and a ‘traditional insurance’ business.

Aegon UK’s platform business delivers a range of propositions through Retail and Workplace channels, together with protection products and an institutional trading platform business. This is supported by an investment solutions capability which allows customers to invest in proprietary Aegon funds, driving additional fee margin.

Aegon UK’s traditional insurance business consists of older contracts that are no longer actively marketed to new customers. An out-source relationship is in place with Atos to service and administer the book, building on an existing relationship, which has seen Atos successfully administer over 400,000 protection policies since 2016.

International

Aegon International consists of businesses in Central and Eastern Europe, the high-net-worth life insurance business and some smaller ventures in Asia and two growth markets, China and Spain & Portugal. As of 2022, International will include Brazil and be responsible for all three growth markets of Aegon.

Aegon International focuses on serving retail customers with individual life and different types of general, accident, and health insurances.

Life Insurance, Savings & Protection

Spain & Portugal’s life insurance business comprises of life savings and individual and group protection products, where individual life-risk and health products form the larger part of the business.

In Asia, Aegon provides a broad range of life insurance products, including unit-linked, universal life, and traditional life products. Over the past year, TLB has updated and diversified its product suite. Along with its enhanced flagship product of Universal Life Alpha Pro & Pro Century, its offerings now include the Genesis Indexed Universal Life (IUL) product, that provides a lower guarantee combined with a greater wealth accumulation potential, and the Trendsetter Ultra Term Life, designed for HNW personal and business protection.

In India, Aegon Life currently offers Group term plans, individual term plans and unit-linked life insurance plans.

In Hungary, Aegon offers primarily unit-linked and traditional savings products, which are frequently accompanied with riders that provide customers with additional financial support in the event of an accident, disability or hospitalization. Similarly, in Poland Aegon focuses on unit-linked and traditional life products. The Romanian branch currently sells term life insurance policies with guaranteed interest, with or without profit sharing component. In Turkey, Aegon focuses on Return on Premium (ROP) and savings life products, available in USD.

Health insurance

Health insurance is primarily offered as riders on life insurance policies in Spain and China and as a standalone health insurance in Turkey and Spain.

Pensions

In Spain, customers’ pension saving needs are serviced by the joint venture with Liberbank Life and Pensions and Aegon España through its managed pension funds.

Aegon’s pension business in CEE was impacted by reforms to the pension system in several countries during the past years. In 2021, Aegon was active in the (formerly mandatory) private pension market in Poland and Romania. In the voluntary pension market, Aegon was active in Hungary and Romania. In Turkey, Aegon is only servicing existing pension customers.

 

 

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General insurance

Aegon España has been offering general insurance products, mainly household protection, unemployment, accident, dependency and funeral insurance, since 2013 through its joint ventures with Banco Santander. Aegon Hungary also offers various non-life covers, mainly household and car insurance, in addition to some wealth and liability industrial risk and travel insurance. It is a market leader in home insurance in Hungary. Aegon THTF in China also offers short-term accident products.

Aegon Asset Management

Aegon Asset Management has three distinct business lines.

  Third-party business accounts for circa 53% of its Assets under Management (AuM). The main sources for this include third-party business where 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 asset classes are fixed income, equities, real assets and multi-asset & solutions with fund performance usually measured against a benchmark or peer group. The institutional businesses typically sell its services to large insurance companies, fiduciary managers and OCIO’s and pension funds. Aegon AM manages a full range of asset classes and manages the strategies against objectives, targets and risk profiles agreed with clients. It offers both absolute and relative return products.
  Affiliates source third-party business where Aegon AM manages funds for Aegon insurers and retirement companies. These funds have various legal structures and performance is usually measured against a benchmark or peer group. The main asset classes include fixed income, equities, real estate, and multi-asset.
  The Aegon general account is the third source, this consists of funds held on the balance sheet of Aegon insurance companies to back 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 real assets. Furthermore, Aegon AM manages the general account derivatives book of Aegon the Netherlands.

A.1.7 Results of operations

The following table includes our operating results for the year ended December 31, 2021, including certain comparative discussion on our operating results for the year ended December 31, 2020. The information on the following tables also includes the non-EU-IFRS financial measure operating result before and after tax.

The reconciliation from operating result before tax to the net result, being the most comparable EU-IFRS measure, is presented in note 5 of the Integrated Annual Report 2021. Aegon believes that these non-EU-IFRS measures provides meaningful supplemental information about the operating results of Aegon’s businesses, including insight into the financial measures that senior management uses in managing the businesses.

Please note that the following tables have been updated compared to the 2020 SFCR reflecting a change in the naming convention and measurement of Aegon’s primary performance measure. Aegon has changed the naming convention of its primary performance measure to improve alignment with industry practice and the way in which Aegon manages its business. As of 2021, Aegon no longer refers to underlying earnings before tax for segment reporting purposes, instead Aegon refers to Operating result. Furthermore, Aegon introduced a new grouping of non-operating result which is the sum of Fair value items, Realized gains and losses on investments, and Net impairments. Other income / charges remains a separate category outside of Aegon’s operating result. In addition, Aegon has changed the measurement of its operating result from January 1, 2021. Reference is made to note 5 ‘Segment information’ section Change in measurement of performance measure on page 177 of Aegon’s Integrated Annual Report 2021.

Where applicable, comparative numbers have been restated enabling a like for like comparison.

 

 

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Results 2021 (EU-IFRS)

 

Operating result geographically

      

Amounts in EUR millions

                      2021                       2020                       %  

Operating result after tax

     1,582       1,425       11  

Tax on operating result

     324       285       14  

Operating result geographically

      

Americas

     788       792       -  

The Netherlands

     755       665       13  

United Kingdom

     184       144       28  

International

     145       164       (12

Asset Management

     253       182       39  

Holding and other activities

     (219     (237     8  

Operating result

     1,906       1,710       11  

Fair value items

     432       (421     n.m.  

Gains / (losses) on investments

     446       150       196  

Net impairments

     53       (237     n.m.  

Other income / (charges)

     (780     (1,239     37  

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

     2,056       (37     n.m.  

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

     78       47       64  

Income tax

     (355     92       n.m.  

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

     (78     (47     (64

Net result

     1,701       55       n.m.  

Operating expenses

     3,775       3,852       (2

of which addressable expenses

     2,903       2,986       (3

New life sales

      

Amounts in EUR millions

     2021       2020       %  

Americas

     430       380       13  

The Netherlands

     74       92       (19

United Kingdom

     31       33       (7

International

     151       233       (35

Total recurring plus 1/10 single

     686       737       (7 ) 

            

                        

Amounts in EUR millions

     2021       2020       %  

New premium production accident and health insurance

     170       180       (6

New premium production general insurance

     96       126       (23

Gross deposits (on and off balance)

      

Amounts in EUR millions

     2021       2020       %  

Americas2)

     32,861       36,359       (10

The Netherlands

     19,902       16,399       21  

United Kingdom

     24,764       8,599       188  

International

     26       320       (92

Asset Management1)

     157,290       135,375       16  

Total gross deposits2)

     234,843       197,053       19  
1 

Includes deposits from Third-Party and Strategic Partnerships only.

2 

Retirement Plans deposits for previous reporting periods have been updated to correct for a double count of intra-plan transfers. Account balances have not been impacted, as there was an offset in the market attribution. The cumulative adjustment for 2020 amounted to EUR (1,461) for gross and net deposits and the equal and opposite amount for market impacts.

 

 

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Net deposits (on and off balance)

 

Amounts in EUR millions

                      2021                        2020                        %  

Americas2)

     (17,469     (19,461     (10

The Netherlands

     (273     1,758       n.m.  

United Kingdom

     10,228       (3,587     n.m.  

International

     3       155       (98

Asset Management1)

     12,885       5,912       118  

Total net deposits / (outflows)2)

     5,374       (15,223     n.m.  
1 

Includes deposits from Third-Party and Strategic Partnerships only.

2 

Retirement Plans deposits for previous reporting periods have been updated to correct for a double count of intra-plan transfers. Account balances have not been impacted, as there was an offset in the market attribution. The cumulative adjustment for 2020 amounted to EUR (1,461) for gross and net deposits and the equal and opposite amount for market impacts.

Worldwide revenues geographically 2021

 

Amounts in EUR millions

    
Ameri-
cas
 
 
   The Nether- lands    United Kingdom    Interna- tional    Asset Manage- ment    Holding, other activi- ties and elimina- tions    Seg- ment total    Associ- ates and Joint Ven- tures elimina- tions    Consoli- dated

Total life insurance gross premiums

     7,108      1,323    4,613    1,181    -    -    14,225    (825)    13,400

Accident and health insurance premiums

     1,273      254    3    179    -    -    1,709    (67)    1,643

General insurance premiums

          136    -    432    -    -    569    (168)    401

Total gross premiums

     8,381      1,713    4,616    1,793    -    -    16,504    (1,060)    15,444

Investment income

     2,910      2,088    1,691    360    12    (19)    7,042    (75)    6,967

Fees and commission income

     1,920      300    223    59    800    (183)    3,120    (335)    2,785

Other revenue

     11      -    -    2    2    12    27    (15)    13

Total revenues

     13,222      4,101    6,531    2,215    814    (190)    26,693    (1,484)    25,209

Number of employees, including agent employees

     7,675      3,534    2,476    6,590    1,675    321    22,271    -    -

Net results

The 2021 net result amounted to EUR 1,701 million and was driven by the operating result of EUR 1,906 million. Non-operating items amounted to a gain of EUR 930 million in 2021, whereas a loss of EUR 508 million was recorded in 2020. The improvement in Non-operating items in 2021 resulted mostly from positive fair value items and increased realized gains on investments, while 2020 reflected the adverse economic impact from the COVID-19 pandemic. Fair value items amounted to EUR 432 million in 2021 and were mainly driven by positive revaluations from real estate and private equity investments in the Americas. Realized gains on investments were EUR 446 million in 2021 and were primarily due to asset sales in the Americas, in part to fund investments in long-duration assets as part of the interest rate risk management plan. Net recoveries – mainly related to the unsecured loan portfolio of the Bank in the Netherlands – amounted to EUR 53 million in 2021. Other charges in 2021 amounted to EUR 780 million, compared with EUR 1,239 million in 2020. Other charges in 2021 were mainly driven by management actions to release capital and increase the predictability of capital generation from the US variable annuity business. The profit before tax in 2021 amounted EUR 2,056 million. After the tax charge of EUR 355 million, the net result for 2021 amounted to EUR 1,701 million. The effective tax rate in 2021 was 17%, and reflects regular tax exempt income items and the use of tax credits.

Operating results

Aegon’s operating result increased by 11% compared with 2020 to EUR 1,906 million in 2021. Adverse claims experience in the US was more than offset by increased fees from higher equity markets, the positive contribution from business growth and lower expenses driven by expense savings initiatives, leading to higher operating result in all other units, except International. This latter was driven by the reclassification of the 2021 result of Central & Eastern Europe from operating result to Other income following the announced divestment of the business

  The Americas’ operating result in 2021 decreased by 1% compared with 2020 to EUR 788 million as favorable morbidity experience in Long-Term Care and the impact of favorable market performance in Mutual Funds, Variable Annuities and Retirement Plans and lower expenses largely offset the impact of adverse mortality in the Life business and unfavorable currency movements.
 

 

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  Operating result from the Netherlands increased by 13% compared with 2020 to EUR 755 million in 2021. The increase in the operating result reflects the benefits from expense savings, business growth and an improved investment margin in the Life segment.
  In the United Kingdom, the operating result rose by 28% compared with 2020 to EUR 184 million in 2021. The increase in operating result was mainly driven by higher fee revenues from the growth of the platform business and favorable equity markets, and provision releases along with lower expenses, which more than offset the impacts from the loss of earnings due to the sale of Stonebridge and the gradual run-off of the traditional product portfolio.
  The operating result from International decreased by 12% compared with 2020 to EUR 145 million in 2021. The decrease reflects the reclassification of the result of Aegon’s businesses in Central & Eastern Europe from operating result to Other income, following the announced divestment of the business. Adjusted for this, International’s operating results increased when compared with 2020, driven by higher results in Spain & Portugal, China and TLB. This reflects portfolio growth in Spain & Portugal and China, and favorable claims experience.
  The operating result from Asset Management increased by 39% compared with 2020 to EUR 253 million in 2021. This increase was mainly driven by higher management fees as a result of net deposits and favorable markets.
  The operating result for Holdings and other activities amounted to a loss of EUR 219 million in 2021 compared with a loss of EUR 237 million in 2020. This is mainly due to a one-time charge in 2020.

Operating expenses

Operating expenses decreased by 2% compared with 2020 to EUR 3.8 billion in 2021. This decrease primarily reflects a reduction in addressable expenses, which decreased by 3% compared with 2020 to EUR 2.9 billion. The reduction in addressable expense savings reflects the benefits from expense savings initiatives across the Group. All business units showed a reduction in addressable expenses compared with 2020, except for Asset Management. The latter was mainly driven by accruals of performance-related compensation.

Sales

Net deposits in 2021 amounted to EUR 5.4 billion, whereas in 2020 net outflows of EUR 15.2 billion were recorded. The improvement was due to the United Kingdom and Asset Management. In the United Kingdom, this was mainly driven by the Institutional business – which can be lumpy – while Retail and Workplace contributed positively as well. For Asset Management, this was mainly the result of net deposits from the Global Platforms, driven by net deposits in the fixed income platform. Net outflows in the Americas were mainly caused by Retirement Plans due to outflows in the low-margin Large-Market segment. Individual Solutions saw outflows from Variable and Fixed Annuities following product exits as these books mature. Net outflows in the Netherlands were driven by the Bank, and mainly resulted from Aegon’s decision to stop offering savings products to non-fee-paying customers.

New life sales in 2021 decreased by 7% compared with 2020 to EUR 686 million. Higher new life sales in the United States, mainly driven by increased sales of whole life final expense and indexed universal life, were more than offset by lower new life sales in International and the Netherlands. The lower new life sales in International mainly reflect the exclusion of sales from Central & Eastern Europe as of 2021. In the Netherlands, the decrease follows from the decision to classify the Dutch Life business as a Financial Asset and to close most products for new sales.

New premium production for accident & health insurance decreased by 6% compared with 2020 to EUR 170 million in 2021. This was mainly due to the decision to exit the individual Medicare supplement segment in the United States and an unfavorable impact from currency movements, which more than offset higher long-term-care sales also in the United States. The latter resulted from a change in legislation in the state of Washington. Otherwise, the product remains closed for new business.

New premium production for property & casualty insurance amounted to EUR 96 million, which is a decrease of 26% compared with 2020. The decrease was mainly the result of the exclusion of sales from Central & Eastern Europe as of 2021. Adjusting for this impact, property & casualty sales increased compared with 2020 mainly due to higher sales in Spain & Portugal, driven by the introduction of a new household insurance product in the bancassurance channel.

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.

 

 

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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 years 2021 and 2020 were:

 

  On December 15, 2021, Aegon repurchased 22,643,360 common shares B from Vereniging Aegon for the amount of EUR 2,285,621 based on 1/40th of the Value Weighted 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 holding of voting shares by Vereniging Aegon in Aegon with its special cause voting rights of 32.6%.

 

  On June 3, 2021, Vereniging Aegon exercised its options rights to purchase in aggregate 1,983,360 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 the issuance of shares on June 3, 2021, in connection with the Long Term Incentive Plans for senior management.

 

  On December 11, 2020, Aegon repurchased 2,955,600 common shares B from Vereniging Aegon for the amount of EUR 228,911.22 based on 1/40th of the Value Weighted 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 holding of voting shares by Vereniging Aegon in Aegon with its special cause voting rights of 32.6%.

 

  On May 15, 2020, Vereniging Aegon exercised its options rights to purchase in aggregate 2,154,000 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by the issuance of shares on May 15, 2020, 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 with Key Management during 2021 consisted of transactions related to the remuneration of the active and retired members of the Supervisory, Executive and Management Board.

Supervisory Board

The total EU-IFRS remuneration expenses for active and retired members of the Supervisory Board were EUR 0.9 million in 2021. Members of the Supervisory Board were entitled to the following in 2021:

 

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, continental or US interstate travel between the Supervisory Board member’s home location and the meeting location.

Where required, Aegon paid the employer social security contributions in the home country of the Supervisory Board member. The employee social security contributions in the home country, if any, was paid by the Supervisory Board members. Each of these fees were a fixed amount. Members of Aegon’s Supervisory Board did not receive any performance or equity-related compensation, and did not accrue pension rights with the Company. These measures were designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance. There were no outstanding balances such as loans, guarantees or advanced payments.

Executive Board

In 2021, the Executive Board members were Mr. Friese and Mr. Rider. The total EU-IFRS remuneration expenses in 2021, which consisted of expenses for the fixed compensation, variable compensation, pension contributions and other benefits, were EUR 2.9 million for Mr. Friese and EUR 2.0 million for Mr. Rider. For Mr. Friese this included EUR 0.1 million in expenses for the sign-on arrangement that was offered when he joined Aegon in March 2020. At the reporting date, Mr. Friese and Mr. Rider had no loans with Aegon. No other outstanding balances such as guarantees or advanced payments exist.

Key Management

The total EU-IFRS remuneration expenses of Aegon’s Key Management consisting of the Supervisory, Executive and Management Board members in 2021 was EUR 27.5 million, which consisted of EUR 16.8 million in fixed compensation, EUR 3.6 million in cash-based variable compensation, EUR 3.2 million in share-based variable compensation, EUR 2.8 million in pension contributions and EUR 1.1 million in other benefits.

 

 

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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, and internal (re-)reinsurance. Aegon’s IGT Policy establishes definitions, governance, reporting and monitoring of IGTs ensuring a consistent standard of IGTs 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 2,535 million (2020: EUR 2,500 million);

 

  A loan granted by Aegon Funding Company LLC to Transamerica Corporation, for an amount of EUR 813 million (2020: EUR 756 million), to finance activities in the US;

 

  A loan granted by Aegon N.V. to Transamerica Corporation, for an amount of EUR 1,578 million (2020: EUR 879 million), to finance activities in the US;

 

  A loan granted by Aegon Bank N.V. to Orange loans B.V. for an amount of EUR 530 million (2020: EUR 664 million), to fund investments in consumer loans.

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 the UK domiciled entities), make use of Aegon Derivatives N.V. In addition, foreign exchange derivatives are centrally managed within Aegon N.V. ensuring netting and process advantages. As of December 31, 2021, the net (credit) exposure on the abovementioned internal arrangements was limited as these are mitigated through collateral arrangements.

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, reinsurance is supported by trusts, funds withheld and/or letters of credit. Any exposure above these amounts is assessed based on Aegon N.V.’s IGT policy to ensure the exposure is within policy limits.

 

 

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A.2 Underwriting performance

Underwriting performance by geographical area    

 

       2021       2020  

Amounts in EUR millions

     Group       Americas      

The
Nether-
lands
 
 
 
    
United
Kingdom
 
 
    Other 1)      Group       Americas      

The
Nether-
lands
 
 
 
    
United
Kingdom
 
 
    Other 1) 

Premium income

     15,444       8,190       1,713        4,616       924       16,099       8,326       1,994        4,858       920  

Premiums paid to reinsurers

     3,518       3,167       99        197       55       2,703       2,396       63        188       56  

Policyholder claims and benefits

     41,852       23,886       1,755        15,170       1,040       42,006       23,574       6,140        11,421       870  

Commissions and expenses

     5,984       3,744       806        619       815       5,983       3,674       837        631       841  

Commissions

     2,562       2,422       77        110       (47     2,283       2,145       75        114       (51

Operating expenses

     3,478       1,441       729        448       860       3,588       1,524       763        456       845  

Deferred expenses

     (1,160     (1,049     -        (53     (58     (741     (633     -        (59     (50

Amortization of intangibles

     1,103       929       -        113       61       854       637       -        119       97  

 

1 

Includes all other businesses other than Americas, the Netherlands and the UK .    

Premium income decreased by EUR 655 million in 2021 and is mainly driven by a shrinking life portfolio in the Netherlands and a reduction of upgraded life insurance policies to the retirement platform in the UK. Premium paid to reinsurers increased by EUR 815 million in 2021, mainly driven by a reinsurance transaction covering universal life policies with secondary guarantees in Americas. More details can be found in Note 6 of the Integrated Annual Report 2021. There are no material changes in the total amount in ‘Policyholder claims and benefits’. More details can be found in Note 12 of the Integrated Annual Report 2021. There are no material changes in the total amount in ‘Commissions and expenses’. More details can be found in Note 14 of the Integrated Annual Report 2021.

A.3 Investment performance

Investment performance recognized in income statement    

 

Amounts in EUR millions

     Note                     2021                    2020  

Investment income

     A.3.1        6,967        7,149  

Gains/(losses) on investments 1)

     A.3.2        446        150  

Results from financial transactions

     A.3.2        23,848        21,677  

Net impairments

     A.3.2        53        (237

 

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 2,910 million (2020: EUR 2,986 million) followed by Aegon the Netherlands with EUR 2,088 million (2020: EUR 2,083 million), and Aegon UK with EUR 1,691 million (2020: EUR 1,795 million).

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.

 

 

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Investment Income by asset class

     2021        2020  

Amounts in EUR millions

    
Interest
income
 
 
    
Dividend
income
 
 
    
Rental
income
 
 
     Total       
Interest
income
 
 
    
Dividend
income
 
 
    
Rental
income
 
 
     Total  

Shares

     -        1,528        -        1,528        -        1,609        -        1,609  

Debt securities and money market instruments

     3,548        -        -        3,548        3,663        -        -        3,663  

Loans

     1,649        -        -        1,649        1,710        -        -        1,710  

Real estate

     -        -        99        99        -        -        114        114  

Other

     142        -        -        142        53        -        -        53  

Total

     5,340        1,528        99        6,967        5,426        1,609        114        7,149  

Most of Aegon’s investment income relates to debt securities and money market instruments, namely EUR 3,548 million (2020: EUR 3,663 million), which represents 51% (2020: 51%) 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.

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 446 million (2020: EUR 150 million), followed by its results from financial transactions amounting to EUR 23,848 million (2020: EUR 21,677 million). Finally, information about Aegon’s net impairments is provided, which amounted to a EUR 53 million recovery (2020: EUR 237 million charge).

Realized gains/(losses) on investments

Realized gains on investments amounted to EUR 446 million in 2021 (2020: EUR 150 million gain) driven primarily due to asset sales in the Americas, in part to fund investments in long-duration assets as part of the interest rate risk management plan.

Results from financial transactions

 

Amounts in EUR millions

                      2021                        2020  

Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives

     785       191  

Realized gains and losses on financial investments

     510       132  

Gains and (losses) on investments in real estate

     253       74  

Net fair value change of derivatives

     (1,890     409  

Net fair value change of policyholder financial assets at at fair value through profit or loss

     23,811       20,982  

Net fair value change on investments in real estate for policyholders

     46       (36

Net foreign currency gains and (losses)

     347       (93

Net fair value change on borrowing and other financial liabilities

     (13     18  

Total

     23,848       21,677  

The income arising from financial transactions during the years 2021 and 2020 comprises mainly the net fair value change on account of policyholder financial assets at fair value through profit or loss (FVtPL), which amounted to EUR 23,811 million in 2021 (2020: EUR 20,982 million) and is mainly driven by more favorable equity markets compared to 2020. This was offset by changes in technical provisions reported as part of the lines ‘Change in valuation of liabilities for insurance contracts’ and ‘Change in valuation of liabilities for investment contracts’ in ‘Policyholder claims and benefits’. Reference is made to note 12 of the Integrated Annual Report 2021.

Net impairments

Net impairments reflect a recovery of EUR 53 million in 2021 mainly related to the unsecured loan portfolio in the Netherlands.

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.

 

 

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Items that may be reclassified subsequently to profit and loss

 

Amounts in EUR millions

                      2021                        2020  

Gains/(losses) on revaluation of available-for-sale investments

     (1,173     2,990  

(Gains)/losses transferred to income statement on disposal and impairment of available-for-sale investments

     (450     13  

Losses on revaluation of available-for-sale investments amounted to EUR 1,173 million (2020: EUR 2,990 million gain).

A.3.4 Investments in securitization

This section provides information about Aegon’s investments in securitizations. For residential mortgage-backed securities (RMBSs), commercial mortgage-backed securities (CMBSs) and asset-backed securities (ABSs) in which Aegon has an interest at reporting date, the following tables present total income received from those interests for 2021 and 2020. The investments column reflects the carrying values recognized in the statement of financial position of Aegon’s interests in RMBSs, CMBSs and ABSs. For more information about these instruments, reference is made to pages 166 - 167 of the Integrated Annual Report 2021 of Aegon Group.

 

                        Total result 2021        December 31, 2021  

2021

     Interest income       

Total gains and
losses on sale  of
assets
 

 
    Total        Investments  

Residential mortgage-backed securities

     83        (28     55        1,980  

Commercial mortgage-backed securities

     113        (31     82        3,647  

Asset-backed securities

     29        -       29        1,878  

ABSs - Other

     70        (11     59        2,323  

Total

     295        (69     226        9,829  

 

                        Total result 2020        December 31, 2020  

2020

     Interest income       
Total gains and losses
on sale of assets
 
 
    Total        Investments  

Residential mortgage-backed securities

     120        25       144        2,565  

Commercial mortgage-backed securities

     128        92       220        3,599  

Asset-backed securities

     38        (5     34        2,159  

ABSs - Other

     79        104       183        1,965  

Total

     366        215       581        10,289  

Residential mortgage-backed securities

RMBSs total EUR 1,980 million in 2021 (2020: EUR 2,565 million). Aegon Americas is the largest contributor with EUR 1,854 million (2020: EUR 2,317 million) followed by Aegon the Netherlands with EUR 106 million (2020: EUR 165 million), and Aegon International with EUR 20 million (2020: EUR 80 million).

Commercial mortgage-backed securities

CMBSs total EUR 3,647 million in 2021 (2020: EUR 3,599 million). Aegon Americas is the largest contributor with EUR 3,005 million (2020: EUR 2,970 million) followed by Aegon International with EUR 517 million (2020: EUR 495 million), and Aegon UK with EUR 122 million (2020: EUR 122 million).

Asset-backed securities

ABSs total EUR 1,878 million in 2021 (2020: EUR 2,159 million). Aegon the Netherlands is the largest contributor with EUR 1,576 million (2020: EUR 1,703 million) followed by Aegon Americas with EUR 265 million (2020: EUR 422 million), and Aegon International with EUR 37 million (2020: EUR 35 million). The credit quality of Aegon Americas and Aegon the Netherlands is AAA for the majority of the available-for-sale (AFS) asset-backed securities portfolio.

 

 

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A.4 Performance of other activities

A. 4.1 Other activities income and expenses

Aegon did not recognize other material income or expenses related to other activities during 2021 (2020: nil).

A.4.2 Leases

As a lessee

The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of real estate and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses (using the same rate to measure the lease liability), if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. The Group presents right-of-use assets that do not meet the definition of investment property in ‘Other assets and receivables’ and lease liabilities in ‘Other liabilities’ in the statement of financial position.

The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, including small office equipment. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

As a lessor

Where the Group is the lessor under an operating lease, the assets subject to the operating lease arrangement are presented in the statement of financial position according to the nature of the asset. Income from these leases is recognized in the income statement on a straight line basis over the lease term, unless another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is diminished.

Future lease payments

The operating lease rights relate to non-cancellable commercial property leases.

Investments in real estate

Aegon the Netherlands has invested in long-term residential property leases that can be terminated subject to a short-term notice. Under Dutch law, the maximum annual rent increase on residential property rented in the affordable housing segment is specified by the Dutch national government and equals the annual inflation rate plus a small margin.

Investment in real estate for account of policyholders

As of December 31, 2021, the investment properties amounted to EUR 563 million (2020: EUR 467 million) and are leased out under operating leases.

A.5 Any other information

Aegon does not have any other material information regarding its business and performance.

 

 

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B. System of governance

B.1 General information on the system of governance

B.1.1 Corporate governance

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. The Supervisory Board has established an Audit Committee, Risk Committee, Remuneration Committee and Nomination and Governance Committee from amongst its members.

B.1.1.1 The Supervisory Board and its committees

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

Composition of the Supervisory Board

Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board members are appointed for a four-year term and may then be reappointed for another four-year period. Subsequently, a Supervisory Board member can be reappointed again for a period of two years, and then extended by two years at the most. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined by the General Meeting of Shareholders. In 2021, no transactions were concluded between the Company and any of the Supervisory Board members. Furthermore, the Company did not provide loans or issue guarantees to any members of the Supervisory Board. At present, Aegon’s Supervisory Board consists of eight members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code.

Committees

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

 

 

Audit Committee;

 

 

Risk Committee;

 

 

Remuneration Committee; and

 

 

Nomination and Governance Committee.

Audit Committee

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

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

 

 

The integrity of the consolidated quarterly, half-yearly and full-year financial statements and financial reporting processes;

 

 

Internal control systems and the effectiveness of the internal audit process; and

 

  The performance of the external auditors and the effectiveness of the external audit process, including monitoring the independence and objectivity of the external auditor.
 

 

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

Risk Committee

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

 

Risk strategy, risk tolerance, and risk governance;

 

Product development and pricing;

 

Risk assessment;

 

Risk responses and internal control effectiveness;

 

Risk monitoring; and

 

Risk reporting.

Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings, liquidity, operations, and compliance with risk policies. The Company’s risk management is an important topic for the Supervisory Board. The Risk Committee works closely with the Audit Committee. One combined meeting was held in December 2021. The combined meeting focused on the 2022 global risk plan, model validation, information security, cloud governance and controls, and system of governance.

For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on aegon.com.

Remuneration Committee

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

 

Reviewing the Aegon Group Global Remuneration Framework and making recommendations on the remuneration policies;

 

Overseeing the remuneration of the Executive Board and Heads of Group Control functions;

 

Preparing recommendations regarding variable compensation both at the beginning and at the end of the performance year; and

 

Preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report.

Nomination and Governance Committee

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

 

Board member and senior management succession planning;

  Drawing up selection criteria and procedures for the appointment of Board members, together with supervising the selection criteria and procedures for senior management;
 

Advising on and proposing nominations, appointments and reappointments;

  Assessing and advising on the responsible business strategy as part of the corporate strategy, and overseeing the execution of the responsible business strategy;
 

Reviewing and updating the Supervisory Board profile and charters for the Supervisory Board and its committees;

 

Periodically assessing the functioning of individual members of the Supervisory Board and the Executive Board;

  Overseeing the corporate governance structure of the Company, compliance with the Dutch Corporate Governance Code and any other applicable corporate governance legislation and regulations.

B.1.1.2 Executive Board

Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for developing and executing Aegon’s strategy. Additionally, it is responsible for managing the Company’s risk profile and overseeing any relevant sustainability issues. Each member has duties related to his or her specific area of expertise.

 

 

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

Composition of the Executive Board

Aegon’s Executive Board consists of Lard Friese, who is Chief Executive Officer (CEO) and Chairman of the Executive Board, and Matt Rider, who is Chief Financial Officer (CFO).

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

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

In 2021, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board.

B.1.1.3 Management Board

Aegon’s Executive Board is assisted in its work by the Company’s Management Board, which had 10 members, including the members of the Executive Board per December 31, 2021. Aegon’s Management Board is composed of Lard Friese, Matt Rider, Elisabetta Caldera, Will Fuller, Mike Holliday-Williams, Allegra van Hövell-Patrizi, Marco Keim, Onno van Klinken, Bas NieuweWeme and Duncan Russell. At the time of publishing this 2021 Solvency Financial Condition Report, the Management Board consisted of 12 members, including Astrid Jäkel as Chief Risk Officer and Deborah Waters as Chief Technology Officer.

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

In the relationship between the Supervisory Board and the Management Board, the CEO shall be the first contact for the Supervisory Board and its Chairman. Further, the members of the Boards will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter, and the Supervisory Board Charter.

B.1.1.4 General Meeting of Shareholders

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

B.1.1.5 Key functions review

A description of the main roles and responsibilities of key functions, as well as their necessary and operational independence is disclosed in section B.2 Fit and proper requirements. Reference is made to sections B.3, B.4, B.5 and B.6 for more details on Aegon’s key functions.

B.1.1.6 Material changes in the system of governance

During 2021, there were no material changes to the system of governance. For the changes in the composition of the Supervisory Board and Executive Board during 2021, please refer to page 38-39 of the Integrated Annual Report 2021 of Aegon Group.

Risk management, internal control systems and reporting procedures

For a description of how the risk management and internal control systems and reporting procedures are implemented consistently, please see section B.4 Internal control system. There were no material changes during 2021 on how the risk management and internal control systems and reporting procedures are implemented.

 

 

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B.1.2 Remuneration policies

Aegon’s Global Remuneration Framework (GRF) outlines the Aegon Group Human Resources strategy, the Aegon Group Remuneration Principles and the Aegon Group Remuneration Guidelines, which apply to all Aegon employees, including the Executive Board members. The GRF has been designed in accordance with relevant rules, guidelines, and interpretations, such as the Dutch Financial Supervision Act, the Dutch Civil Code, the Dutch Corporate Governance Code and the Solvency II Legal Framework.

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

The below provides a summary of Aegon’s Supervisory Board and Executive Board remuneration policies as well as the remuneration of the Board members in 2021.

For further details, reference is made to the Remuneration Report on pages 55-72 of the Integrated Annual Report 2021 of Aegon Group.

B.1.2.1 Supervisory Board Remuneration Policy

Aegon’s Supervisory Board Remuneration Policy is aimed at ensuring fair compensation and protecting the independence of the Supervisory Board members. The Supervisory Board Remuneration Policy that has been applied in 2021 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. The policy remains in place until a new or revised policy has been adopted by the shareholders in accordance with the applicable requirements from the Dutch Civil Code. The Supervisory Board will submit a proposal to the shareholders to adopt a policy at an Annual Meeting of Shareholders at least every four years.

Under the current policy the Supervisory Board members are entitled to the following:

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

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, continental or US interstate travel between the Supervisory Board member’s home location and the meeting location.

Each of these fees is a fixed amount. Where required, Aegon pays the employer social security contributions in the home country of the Supervisory Board member. The employee social security contributions in the home country, if any, are paid by the Supervisory Board member. The Supervisory Board is allowed to annually index the fees for economic developments in the Netherlands, however the fees have not been indexed in 2021.

B.1.2.2 Supervisory Board remuneration in 2021

The total remuneration that was allocated to active and retired members of the Supervisory Board in 2021 was EUR 896 thousand (2020: EUR 752 thousand). There are no outstanding balances such as loans, guarantees or advanced payments.

B.1.2.3 Executive Board Remuneration Policy

The Supervisory Board has the overall responsibility for Aegon’s remuneration policies, including the Executive Board Remuneration Policy. The Executive Board Remuneration Policy that has been applied in 2021 was adopted at the Annual General Meeting of Shareholders on May 15, 2020. This policy will be subject to annual reviews by the Supervisory Board. The policy remains in place until a new or revised policy has been adopted by the shareholders in accordance with the applicable requirements from the Dutch Civil Code. The Supervisory Board will submit a proposal to the shareholders to adopt a policy at an Annual Meeting of Shareholders at least every four years.

The Remuneration Committee may recommend policy changes to the Supervisory Board. In that case, the Remuneration Committee will conduct scenario analyses to determine the long-term effects on the level and structure of compensation granted to each Executive Board member, and reports their findings to the Supervisory Board. The Supervisory Board can subsequently decide on referring the proposed policy changes to the Annual General Meeting of Shareholders for adoption.

 

 

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Total compensation

Total compensation for Executive Board members is defined in the Executive Board Remuneration Policy as a combination of fixed compensation, variable compensation, pension and other benefits. The Supervisory Board determines and regularly reviews the appropriate selection of remuneration elements and their (maximum) remuneration level for the Executive Board members to ensure the structure remains competitive and provides proper and risk-based incentives in line with Aegon’s risk appetite. The fixed and variable compensation elements and their levels are reviewed at least once a year. The pension arrangements and other benefits and their levels are reviewed at least every four years. In its review the Supervisory Board takes the specific role, responsibilities, experience and expertise of the Executive Board member into account as well as internal and external reference information.

Fixed compensation

The fixed compensation for the Executive Board members is paid in monthly instalments. The policy allows the fixed compensation to be paid in cash and in shares. All Executive Board members received their 2021 fixed compensation in cash.

The Supervisory Board may offer a permanent or temporary gross monthly fixed allowance when the Supervisory Board considers this an appropriate alternative for other remuneration elements.

Variable compensation

Executive Board members are eligible for variable compensation with a target level of 80% of the fixed compensation level (excluding allowances), with a threshold level of 50% and a maximum opportunity of 100% of fixed compensation level.

The variable compensation award is based on performance against a set of performance indicators, weights and target levels that have been set by the Supervisory Board at the start of the performance year. The performance indicators contribute to Aegon’s strategy, long-term interests and sustainability, within Aegon’s risk tolerance and should comply with the following rules:

  It contains a mix of financial and non-financial performance indicators, with at least 50% weight allocated to the non-financial performance indicators in accordance with article 1:118.3 of the Dutch Financial Supervision Act;
  The maximum weight for unadjusted financial indicators is determined by the Global Remuneration Framework and it currently set at 50%.
  It contains a mix of Aegon and personal performance indicators, which can range in weight between 50-80% and 20-50% respectively, depending on the Aegon priorities of the performance year.
  At least 20% of the indicators has a retrospective 3-year performance horizon, while the remainder has a 1-year performance horizon;
  The indicators should cover the following mandatory performance indicator categories: Shareholders, Capital, Earnings, Growth, Stakeholders, ESG and Strategy.

The Remuneration Committee and the Executive Board members prepare a proposal for the performance indicators, weights and target levels. These are subsequently reviewed by Aegon’s Risk Management team (i.e. the first ex-ante risk assessment) before the Supervisory Board approves these, to ensure that:

  The performance indicators and weights are in line with the policy;
  The financial performance indicators are consistent with the risk tolerance statements;
  The non-financial performance indicators are consistent with risk tolerance levels, regulatory requirements, reasonable stakeholder expectations and are supporting sound and responsible business practices and integrity of the products and services delivered.

The Remuneration Committee sends the proposal and the ex-ante risk assessment to the Supervisory Board, which can approve, revise or reject the proposal. After approved the Executive Board members are granted their conditionally variable compensation award for plan year. This conditional award equals their at target variable compensation level, split between 33.33% upfront cash and 66.67% deferred Aegon shares. The grant price for the shares is equal to the volume weighted average price on the Euronext Amsterdam stock exchange for the period December 15 to January 15 at the start of the plan year.

 

 

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After the completion of the performance period, the Remuneration Committee prepares a recommendation for the allocation of a variable compensation award to each Executive Board member. This recommendation is based on the actual performance results compared to target levels and takes a second ex-ante risk assessment by the Risk Management team into account. This risk assessment looks into whether there are reasons for a downward adjustment of the intended variable compensation award (malus) which were not take into account yet, such as:

  Significant risk or compliance incident(s);
  Insufficient response to risk incident(s), compliance incident(s), regulatory fine(s) and/or insufficient execution of risk mitigating measures in response to these incidents;
  Breaches of laws and regulations;
  Insufficient evidence of embedding good standards of practice;
  Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and
  Reputation damage due to risk events.

In this assessment possible risk mitigating behaviors are also taken into account, such as remaining within risk indicator levels, risk reduction, risk avoidance, risk transfer and risk response by the Executive Board member.

The Remuneration Committee sends its recommendation and the second ex-ante risk assessment to the Supervisory Board, which can approve, revise or reject the recommendation. This Supervisory Board decision includes validating that, when taken together, the results of the performance indicators represent a fair reflection of the overall performance of the Executive Board member over the performance year.

The allocated variable compensation award is subsequently split between 33.33% upfront cash (i.e. paid in the year following the performance year) and 66.67% deferred shares. These shares are deferred for a 3-year period after allocation after which they cliff-vest. Before vesting, the Risk Management team executes an ex-post risk assessment which looks into whether there are reasons for a downward adjustment of the originally allocated variable compensation award (malus) which were not taken into account yet. This risk assessment takes the same criteria into consideration as the second ex-ante risk assessment. Based on this assessment, the Remuneration Committee subsequently prepares a recommendation how to pay-out the deferred portion (i.e. unchanged or adjusted downward). The Remuneration Committee sends its recommendation and the ex-post risk assessment to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation.

Claw back provisions

Aegon’s Supervisory Board can claw-back variable compensation that has already been paid to the Executive Board member in case of a material financial restatement or individual gross misconduct, after considering a risk assessment by Aegon’s Risk Management team which looks into whether in hindsight the paid amount should have been lower or nil. Examples of misconduct are, but not limited to, significant breach of laws and/or regulations, use of violence, either verbally or physically, involvement with fraud, corruption or bribery, significant issues due to evident dereliction of duty and/or discrimination of any kind (for example age or gender).

Pension arrangements

The Executive Board members are entitled to pension contributions that equal 40% of their fixed compensation level, which consists of the following three parts:

  Participation in Aegon’s defined contribution pension plan for NL-based employees, for his fixed income up to EUR 110,111 (2021 threshold set by Dutch law).
 

Participation in Aegon’s defined contribution pension plan for NL-based employees, for his fixed income above EUR 110,111.

 

An additional gross allowance for pension to make the sum of these three pension contributions equal to 40% of their fixed compensation level.

The Executive Board members receive pension contributions that are somewhat higher compared to NL-based employees of similar age (ca. 10-15% difference). This is done to achieve a competitive total compensation level. Please note the Supervisory Board will consider discontinuing the additional gross allowance for new Executive Board members, while ensuring their total compensation level stays competitive, and including this as a policy change in the next update of the Executive Board Remuneration Policy.

Other benefits

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

 

 

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

Terms of Engagement Agreement

Members of the Executive Board are appointed for four years and may then be re-appointed for successive mandates also for a period of four years. Executive Board members have a board agreement with Aegon N.V., rather than an employment contract. Members of the Executive Board may terminate their board agreement with a notice period of three months. The Supervisory Board may terminate the board agreement by giving six months’ notice if it wishes to terminate the agreement.

The Supervisory Board may entitle Executive Board members to a termination payment up to or equal to the total annual fixed compensation level. This payment is not allowed in case of early termination at the initiative of the Executive Board member (unless due to imputable acts or omissions of Aegon), imputable acts or omissions by the Executive or failure of Aegon during the appointment term of the Executive Board members. Mr. Friese and Mr. Rider have a termination clause included in their board agreement.

B.1.2.4 Executive Board remuneration in 2021

The total compensation allocated to Mr. Friese related to the 2021 performance year was EUR 3.5 million (2020: EUR 3.2 million including sign-on arrangement) and to Mr. Rider EUR 2.3 million (2020: EUR 2.0 million). The total remuneration allocated to the members of the Executive Board related to the performance year 2021 was EUR 5.8 million (2020: EUR 6.5 million).

B.1.2.5 Management Board remuneration

Members of the Management Board, who were not on the Executive Board, were rewarded in 2021 based on local remuneration policies and in line with local market practice for roles with a similar scope and complexity. These policies were derived from the GRF. Their remuneration included fixed compensation, variable compensation, pension and benefits.1

The variable compensation was determined by a similar approach as for the members of the Executive Board. It was also based on a mix of individual and company performance indicators that are linked to Aegon’s objectives, business strategy, risk tolerance and long-term performance. However, their targets, levels and performance assessment were agreed and determined by their local Remuneration Committee.

The Executive Board and/or their local Remuneration Committee decide on a potential downward adjustment of the variable compensation (based on either an ex-ante or ex-post risk assessment) or claw back.

The allocated variable compensation was paid for 33.33% in upfront cash and for 66.67% in deferred Aegon shares which will vest three years after allocation.

Depending on local practices the pension arrangements may include provisions allow for early retirement.

Material transactions with Aegon’s boards

There were no material transactions with members of the Supervisory, Executive, or Management Boards.

B.2 Fit and proper requirements

B.2.1 Requirements

Executive Board

The Executive Board is charged with the management of the Company, which means, among other things, that it is responsible for setting and achieving the Company’s objectives, strategy and the associated risk strategy and risk tolerance, and ensuring delivery of results and corporate social responsibility issues that are relevant to the Company. The Executive Board is accountable for these matters to the Supervisory Board and the General Meeting of Shareholders. Responsibility for the management of the Company is vested collectively in the Executive Board. The Executive Board is responsible for compliance with all relevant laws and regulations, for managing the risks attached to the Company’s activities and for the financing of the Company. The Executive Board reports on these issues to and discusses the internal risk management and control systems with the Supervisory Board, the Audit Committee of the Supervisory Board, and the Risk Committee of the Supervisory Board.

 

 

1 Please refer to A.1.8. for the total EU-IFRS remuneration expenses for the members of the Management Board.

 

 

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Individual members of the Executive Board may be charged with specific parts of the managerial tasks, without prejudice to the collective responsibility of the Executive Board as a whole. The Executive Board is collectively responsible for decisions, even if they are prepared by individual members of the Executive Board. An individual member of the Executive Board may only exercise such powers if these are explicitly attributed or delegated to the individual member and the individual member may never exercise powers beyond those exercisable by the Executive Board as a whole. The division of tasks within the Executive Board is determined (and amended, if necessary) by the Executive Board, subject to the approval of the Supervisory Board. Executive Board members charged with particular managerial tasks are primarily responsible for the risk control and monitoring of the managerial tasks concerned.

To fulfil these tasks, the specific skills that members of the Executive Board should have at their disposal include:

  Leadership (i.e. ideas, people and change);
  Strategic thinking and sound judgment, financial and commercial acumen, particularly around complex and inorganic change activities;
  Influencing and relationship building;
  Communication;
  Delivery with clear focus on outcomes; and
  Innovation and problem solving and customer-centric.

Moreover, the members of the Executive Board should possess knowledge and experience in the areas of having a strategic understanding of - and insight into - the financial services industry, with particular emphasis on the challenges and opportunities associated with achieving success for a market leading life and pensions and digitized platform company specifically, a good understanding of the different regimes associated with insurance and investments, including capital management and regulatory frameworks. The Executive Board should possess extensive industry and executive management experience in a number of financial, operational and strategic roles – in addition to being - an industry leader recognized by regulators, trade associations and government bodies. The Executive Board should have a proven ability to lead complex transactions across an organization, including inorganic activity.

Management Board

As stated in section B.1.1.1, the Executive Board is assisted in its work by the Company’s Management Board. The Management Board is entrusted with the overall strategic direction of Aegon Group, particularly with respect to Aegon Group’s business objectives and strategy as well as ensuring delivery of results, Aegon Group’s policies, Enterprise Risk Management, corporate responsibility issues that are relevant to Aegon Group.

Management Board members are collectively responsible for managing Aegon’s senior leadership talent. Management Board members have a responsibility to manage talent consistently at all Aegon’s business units around the world. The Management Board has full information rights vis-à-vis all countries and business lines within the Aegon Group.

The Management Board has, in performing its duties, access to the expertise of and support and services from all Corporate Center departments. In undertaking its responsibilities, the Management Board acts in accordance with the interests of Aegon Group and the business units connected with it, taking into consideration the interests of Aegon Group’s stakeholders. Members of the Management Board express views with respect to important affairs, matters of principle and matters of general interest in accordance with final decision-making, and with due observance of each member’s individual responsibilities.

All members of the Executive and Management Boards have been approved by the Dutch supervisory authorities in relation to fitness and propriety prior to their respective appointments and fulfil these requirements on an ongoing basis.

Supervisory Board

Aegon’s Supervisory Board is entrusted with supervising and advising the Executive Board regarding management of the Company and overseeing Aegon’s strategy and the general course of its businesses. The Supervisory Board must take the interests of all Aegon stakeholders into account. The Supervisory Board operates according to the principles of collective responsibility and accountability.

 

 

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The Supervisory Board, as a collective, should have the following qualifications:

  An international composition;
  Experience with, and understanding of the administrative procedures and internal control systems; an affinity with and knowledge of the industry, its clients, its products and services, the financial services market and Aegon’s businesses and strategy;
  Knowledge and experience in (digital) marketing and distribution and the applications of information technology;
  Expertise and experience in digital transformation;
  Experience in the business world, both nationally and internationally; and
  Expertise in financial, accounting and business economics, and the ability to judge issues in the areas of risk management, solvency, actuarial, currencies and investment and acquisition projects.

Individual members of the Supervisory Board will be assessed on the basis of personal qualifications including: managerial experience and skills at the highest levels; experience with large, listed companies; understanding of a global business; entrepreneurial attitude; sound business judgment, common sense and decisiveness; independence and a critical attitude with regard to the other Supervisory Board members and the Executive Board; an international orientation; and outside experience.

Aegon aims to ensure that the composition of the Company’s Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy.

All members of Aegon’s Supervisory Board have been approved by the Dutch supervisory authorities, the Dutch Central Bank (DNB) and the Netherlands Authority of Financial Markets (AFM), with regard to fitness and propriety prior to their appointment and fulfil these requirements on an ongoing basis.

Other key functions

Furthermore, with regard to the Solvency II Delegated Regulation, Aegon has implemented the following four key functions: risk management, compliance, internal audit and the actuarial function. These functions have been in place within Aegon for many years.

Risk management

 

  The Aegon Group Chief Risk Officer (CRO) is the function holder for risk management. The Aegon Group CRO is also member of the Management Board and of high-level Risk Committees. For more information about the risk management system and its functions, please refer to section B.3 Risk management system.

Compliance

 

  The Global Head of Compliance is the key function holder for compliance. For more details about the compliance function reference is made to section B.4 Internal control system.

Internal Audit

 

  The Global Head of Internal Audit is the function holder for Internal Audit. In line with the requirements, Internal Audit is objective and independent from the operational functions, reporting directly to the CEO and Supervisory Board Audit Committee. For more details about the Internal Audit function refer to section B.5 Internal audit function.

Actuarial function

 

  The Actuarial function holder is the Global Chief Actuary/Head of Underwriting Risk Management and is part of the second line at Aegon Group level. For more details about the Actuarial function please refer to section B.6 Actuarial function.

The key functions stated above have the necessary resources to carry out their tasks. Resourcing of staff and other means required to execute control is documented as part of the charters agreed with the Supervisory Board of Aegon N.V. Changes to the resources require approval from the key function.

The necessary operational independence of the key functions is also documented as part of the charters agreed with the Supervisory Board of Aegon N.V. Issues can be brought forward to the Supervisory Board of Aegon N.V. for resolution.

 

 

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B.2.2 Process for assessment

In accordance with the Dutch Financial Supervision Act, Aegon has identified, in addition to the members of the Management Board and Supervisory Board, those persons that fulfil “key functions” as referred to in Articles 3:271 and 3:272, in connection with Articles 3:8 and 3:9 of the Dutch Financial Supervision Act. This group of persons is broader than but includes all persons that fulfil key functions as referred to in Art. 294 (2) of the Solvency II Delegated Regulation. These persons are subject to a pre-employment screening prior to their employment within Aegon, as well as a propriety assessment by the Dutch supervisory authorities prior to their appointment in a key function.

Ongoing compliance with propriety requirements of the persons that effectively run the undertaking or have other key functions is a joint responsibility of the respective person as well as Aegon.

Fitness of the persons that effectively run the undertaking or have other key functions is determined at the point of selection as well as thereafter. As regards the point of selection, Aegon has drawn up a specific job profile for each function. These profiles detail the requirements in terms of the level of skills, knowledge and experience required to successfully fulfil the specific position within the Company. The selection of the jobholder takes place by assessing the candidate for a position against these specific job requirements. The score on the three elements (expertise, knowledge and experience) is balanced and leads to potential recruitment in the position. Once selected, fitness of a specific person for a function is continuously assessed against this job profile. The ongoing compliance with fitness requirements is monitored as part of the regular human resource cycle within Aegon. Regular formal assessments of performance against the requirements are part of this cycle and are documented for record keeping purposes. In the human resources cycle, performance management is an important element in which targets are set and the results are monitored to assess if the jobholder continues to meet both the specific job requirements and the fitness requirements.

B.3 Risk management system including the Own Risk and Solvency Assessment

B.3.1 Risk management system

As an insurance group, Aegon manages risk for the benefit of its customers and other stakeholders. The Company is exposed to a range of underwriting, operational and financial risks. Aegon’s risk management and internal 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.

For Aegon, risk management involves:

  Understanding risks that the Company faces;
  Maintaining a company-wide framework through which the risk-return trade-off associated with these risks can be assessed;
  Maintaining risk tolerances and supporting policies to limit exposure to a particular risk or combination of risks; and
  Monitoring risk exposures and actively maintaining oversight of the Company’s overall risk and solvency positions.

B.3.1.1 Aegon’s Enterprise Risk Management framework

Aegon’s ERM framework is designed and applied to identify risks that may affect Aegon and manage individual and aggregate risks within Aegon’s set risk tolerances. The ERM framework covers the ERM components as identified by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The ERM framework applies to all of Aegon’s businesses for which it has operational control.

The ERM framework consists of various components, as shown below:

Risk strategy and risk tolerance

The formulation of the risk strategy starts with the principle that taking a risk should be based on serving a customer’s need.

The competence to manage the risk is assessed and Aegon’s risk preferences are formulated, taking into account Aegon’s risk capacity. The process results in a targeted risk profile, reflecting the risks Aegon wants to keep on the balance sheet, and the risks Aegon would like to avoid.

Aegon’s risk appetite statement and risk tolerances are established to assist management in carrying out Aegon’s strategy within the boundaries of the resources available to Aegon. Aegon’s risk appetite statement is to:

 

 

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“Fulfil our promises towards our customers and other stakeholders by delivering sustainable and growing long-term free cash flow through strong resilience in solvency and liquidity, with a healthy balance in exposures, and by running a responsible business with effective controls.”

Following from the risk appetite statement, risk tolerances are defined on:

  Solvency, including Cash Capital at Holding and capital generation, to ensure that Aegon remains solvent even under adverse scenarios;
  Liquidity, to ensure that Aegon remains liquid even under extreme scenarios;
  Risk balance, to ensure a healthy balance of risk exposures that supports delivering on our capital generation and return on capital targets;
  Responsible business with effective controls, which acknowledges an acceptable level of operational risk and stresses a low tolerance for (lack of) actions which could lead to material adverse risk events that result in breaking promises or not meeting reasonable expectations of customers, legal breaches or reputational damage.

The tolerances are further developed into measures, limits and thresholds that have to be complied with to remain within the tolerances.

Risk identification and risk assessment

Aegon has identified a risk universe that captures all known material risks to which the Company is exposed. To assess all risks, Aegon maintains a documented, consistent methodology for measuring risks. The risk metrics are embedded in Aegon’s key reports and are used for decision making.

Risk response

Aegon distinguishes the following risk responses:

 

Risk acceptance when the exposure is within the set risk tolerance; and

  Risk control, transfer or avoidance when the exposure exceeds the established risk tolerance or if cost-benefit analysis supports further actions.

Risk monitoring and reporting

Risks are monitored regularly and reported on at least a quarterly basis. The impact of key financial, underwriting, and operational risk drivers on earnings and capital is shown in the quarterly risk dashboards for the various risk types both separately and on an aggregate basis.

Risk exposures are compared with the measures and indicators as defined by Aegon’s risk tolerance statements. Reporting also includes compliance and incident reporting. Finally, the main risks derived from Aegon’s strategy and day-to-day business are discussed, as well as forward looking points for attention. If necessary, mitigating actions are taken and documented.

Risk control

A system of effective controls is required to mitigate the risks identified. In Aegon’s ERM framework, risk control includes risk governance, risk policies, internal control framework, model validation, risk embedding, risk culture and compliance.

B.3.1.2 Aegon’s risk governance framework

Aegon’s risk management is based on clear, well-defined risk governance. The goals of risk governance are to:

  Define roles and responsibilities, and risk reporting procedures for decision makers;
  Institute a proper system of checks and balances;
  Provide a consistent framework for managing risk in line with the targeted risk profile; and
 

Facilitate risk diversification.

Governance structure

Aegon’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the Company. Similarly, Aegon has a comprehensive range of company-wide risk policies that detail specific operating guidelines and limits. These policies include legal, regulatory, and internally set requirements, and are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or business units.

 

 

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Aegon’s risk management governance structure has four layers:

  The Supervisory Board and the Supervisory Board Risk Committee (SBRC);
  The Executive Board and the Management Board;
  The Group Risk & Capital Committee (GRCC) and its sub-committees; and
  The Regional Risk & Capital Committees (RCC).

1. Supervisory Board

The SBRC reports to the Supervisory Board on topics related to the ERM framework and the internal control system. The formal responsibility regarding the effectiveness and design, operation, and appropriateness of the ERM and internal control system rests, however, with the Audit Committee of the Supervisory Board. The Audit Committee works closely together with the SBRC with regard to the oversight of, and reports on, the effectiveness of the ERM framework and the risk control systems of the Company. The Audit Committee relies on the findings of the SBRC. The SBRC oversees Aegon’s ERM framework, including risk governance and measures taken to ensure risk management is properly integrated into the Company’s broader strategy.

For a description of the main roles and responsibilities of the SBRC see the section on the Risk Committee in section B.1.1. Corporate governance.

2. Executive Board and Management Board

Aegon’s Executive Board has overall responsibility for risk management. The Executive Board adopts the risk strategy, risk governance, risk tolerance and material changes in risk methodology and risk policies. The Group’s CRO has a standing invitation to attend Executive Board meetings and a direct reporting line to the Supervisory Board to discuss ERM and related matters, and is a member of the Management Board.

The Management Board oversees a broad range of strategic and operational issues. While the Executive Board is Aegon’s statutory executive body, the Management Board provides vital support and expertise in safeguarding Aegon’s strategic goals. The Management Board discusses and sponsors ERM, in particular the risk strategy, risk governance, risk tolerance and the introduction of new risk policies.

The Executive Board and Management Board are supported by the Group Risk & Capital Committee.

3. Group Risk & Capital Committee (GRCC)

The GRCC is Aegon’s most senior risk committee. It is responsible for managing Aegon’s balance sheet at the global level, and is in charge of risk oversight, risk monitoring and risk management related decisions on behalf of the Executive Board and in line with its charter. The GRCC ensures risk-taking is within Aegon’s risk tolerances; that the capital position is adequate to support financial strength, credit rating objectives and regulatory requirements, and that capital is properly allocated. The GRCC informs the Executive Board about any identified (near) breaches of overall tolerance levels which threaten the risk balance, as well as any potential threats to the Company’s solvency, liquidity, or operations.

The GRCC has three sub-committees: the ERM framework, Accounting and Actuarial Committee (ERMAAC), the Non-Financial Risk Committee (NFRC) and the Model Validation Committee (MVC).

The ERM framework, Accounting and Actuarial Committee (ERMAAC)

The purpose of the ERMAAC is to assist the GRCC, Executive Board and Management Board with financial risk framework setting and maintenance across all group-level balance sheet bases, including policies, standards, guidelines, methodologies, and assumptions.

The Non-Financial Risk Committee (NFRC)

The purpose of the NFRC is to assist the GRCC, Executive Board and Management Board with non-financial risk framework setting and maintenance, including policies, standards, guidelines and methodologies, and to act as formal discussion and exchange of information platform on matters of concern regarding non-financial risk management.

The Model Validation Committee (MVC)

The MVC is responsible for approving all model validation reports across Aegon. This is an independent committee that reports into the GRCC and the Executive Board to provide information on model integrity and recommendations for further strengthening of models.

 

 

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4. Regional Risk & Capital Committee (RCC)

Aegon’s regions have a risk, or risk and capital committee, and an audit committee established. The responsibilities and prerogatives of the committees are aligned with the Group-level committees and further set out in their respective charters, which are tailored to local circumstances.

Group-wide risk function

In addition to the four layers described above, Aegon has an established Group-wide risk function. It is the mission of the Risk Management function to ensure the continuity of the Company through safeguarding the value of existing business, protecting Aegon’s balance sheet and reputation, and through supporting the creation of sustainable value for all stakeholders.

In general, the objective of the Risk Management function is to support the Executive Board, Management Board, Supervisory Board, and regional and business unit boards in ensuring that the Company reviews, assesses, understands, and manages its risk profile. Through oversight, the Risk Management function ensures the Group-wide risk profile is managed in line with Aegon’s risk tolerances, and stakeholder expectations are managed under both normal business conditions and adverse conditions caused by unforeseen negative events.

The following roles are important in order to realize the objective of the Risk Management function:

  Advising on risk-related matters including risk tolerance, risk governance, risk methodology and risk policies;
  Supporting and facilitating the development, incorporation, maintenance and embedding of the ERM framework and sound practices; and
  Monitoring and challenging the implementation and effectiveness of ERM practices.

In the context of these roles, the Risk Management Function has the following responsibilities:

Enterprise Risk Management (ERM) Framework

 

  The overarching ERM Framework supports Aegon’s corporate strategy and enables management to effectively deal with uncertainty and the associate risk-return trade-offs.

Global Risk Appetite (GRA)

 

  The GRA is linked to and supports Aegon’s strategy and purpose and translates into risk tolerances and risk indicators.

Risk Identification and Assessment

 

  All material risks are captured and classified in Aegon’s risk universe. An emerging risk process is in place to ensure that risk universe remains up-to-date and complete. Risk assessment includes risk measurement across valuation and reporting metrics and feeds into Aegon’s risk strategy, including risk preferences and risk profile considerations.

Risk Governance

 

  A risk governance framework is in place across all levels of the company, including formal committees, committee charters, memberships across relevant functions, and escalation procedures.

Policies and Standards

 

  Risk policies and standards set out requirements, roles and responsibilities and processes to manage risks across the risk universe.

Risk Embedding

 

  The ERM Framework is embedded in Aegon’s key business areas. The Own Risk Self-Assessment (ORSA) unites the risk and capital management and the business planning processes across Aegon and aligns to its strategy. The risk strategy is aligned with the business strategy, the strategy execution is closely monitored, and risks are timely identified to help steer towards strong delivery in a safe and timely manner.

Risk Oversight

 

  Major business (and risk) decisions are risk-based; properly risk informed and, where relevant, challenged by the Risk Management function to protect the balance sheet and proper customer conduct.
 

 

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Risk Monitoring and Reporting

 

Risks across the risk universe are monitored and reported;

 

Risk culture is embedded across the company;

 

Awareness of employees, management, and leadership of relevant risks and how risks are managed.

Aegon’s Group and business unit’s risk management staff structure is fully integrated. Business unit CROs have either a direct reporting line to the Group CRO or one of the regional CROs that reports directly to the Group CRO.

Model Risk Management process

Aegon has Group-wide requirements in place on management of model risk. The requirements are covered in the Model Risk Management Framework, which consists of the Model Risk Management, Model Change (for Solvency II PIM only) and Model Validation policies. The purpose of the model risk management process is to assess, monitor and report on model integrity and the operation of related controls. The Model Risk Management function is part of the Risk Management function, and supports model owners and business users with standards on attaining and maintaining model integrity across the model life cycle. The model risk management function monitors changes in the gap remediation log and reports on model risk exposures and gap action progress by the first line.

Model Validation process

Aegon has Group-wide requirements in place on model validation. The requirements are covered in the Model Validation Framework, including the Model Validation and Model Change policies. The Model Validation function is part of the Risk Management function and is independent from model owners and business users. The model validation reports are approved in the independent Model Validation Committee (MVC).

The purpose of the model validation process is to assess the model’s integrity, including the performance of the model and the ongoing appropriateness of its specifications. Before model validation by Aegon’s second line can take place, responsible management – the first line – should have ensured that the model in scope of the validation meets the requirements as set out in the Model Validation Framework. Among other things, the Model Validation function assesses the appropriate use of test tools under the responsibility of local management and also performs its own independent testing. The findings of the model review are documented and result in a model opinion. Identified gaps need to be closed by the model owners according to a gap closure plan. Overarching model validations are performed on annual basis.

Solvency II PIM governance

The governance of Aegon’s Solvency II Partial Internal Model (PIM) is fully integrated in Aegon’s risk management system and governance structure. Aegon’s methodology for assessing risks includes the Solvency II PIM and is used to measure and aggregate risks and to calculate the Solvency Capital Ratio.

All Solvency II PIM models have been independently validated. After passing the initial validation, models are part of the regular validation program, in which models are subject to validation on a rolling basis to secure ongoing appropriateness.

In addition to the validation of individual models, the Solvency II PIM is also subject to a top-down analysis as part of the overarching validation performed by the Model Validation function. The overall purpose of the overarching validation is to provide an independent assessment of the overall appropriateness of the Solvency II PIM as adopted and used within Aegon. The overarching validation of the Solvency II PIM is updated annually. The last overarching validation was completed with a positive conclusion in July 2021.

There were no material changes to the internal model governance during the reporting period.

 

 

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B.3.2 Own Risk and Solvency Assessment

B.3.2.1 ORSA process overview

The Own Risk and Solvency Assessment (‘ORSA’) Process has a primary purpose of providing a holistic, inter-connected view of a) Aegon’s business strategy, b) the risks to which the business is exposed and c) Aegon’s capital levels. It assesses the financial security of the business given the risks Aegon is exposed to. The ORSA captures the key elements of the risk management and capital management processes which support the Company in pursuit of fulfilling its business strategy.

Own Risk and Solvency Assessment

 

 

LOGO

 

The ORSA is integrated within the Company through Aegon’s annual Budget/Medium Term Plan (MTP) process and the ongoing Risk and Capital assessments.

The Budget/MTP contains the business plan over a three-year period. This includes business projections on a variety of bases to indicate different economic assumptions. The business plan combines the business and financial strategy. Also included within the Budget/MTP are stress testing techniques and scenario analysis to provide details of how the Company would be impacted by particular changes in macro and micro economic factors, in addition to non-financial factors impeding the fulfilment of Aegon’s strategic objectives. The outcomes of the process inform management, enabling them to determine appropriate mitigating actions and define capital and solvency needs.

An Own Risk and Capital assessment takes into account the strategy and the acceptable level of the associated risks in pursuit of that strategy. Aegon’s risk management process and ORSA cover Aegon’s risk universe and also give explicit attention to strategic risks, emerging risks and top risk themes.

The ORSA process is iterative and subject to on-going monitoring. The Budget/MTP and ORSA Steering Committee is responsible for the direction, integration of the business strategy and key decision making in respect of the Budget/MTP and ORSA process. The committee oversees the delivery of the Budget/MTP and ORSA and acts as an escalation point for decisions, risks or issues up to the Management Board. It approves all key deliverables throughout the process. The ORSA process is also used for decision making and responding to changes impacting the business. “Use” of the ORSA process relates to actions recommended to the Board arising from the ORSA process.

All of the above is evidenced and documented in Aegon’s annual ORSA report. More frequently, quarterly reports are produced internally that document the ongoing Risk and Capital assessments of the ORSA process throughout the year. The outcomes of these reports contribute to the annual ORSA report.

 

 

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The ORSA report is targeted primarily at the Management Board, Executive Board and Group Risk & Capital Committee as key approval bodies. However, the concepts of ORSA are business wide and all senior management engage with the ORSA process in developing business plans that are aligned with Aegon’s overall risk and capital strategy. The Executive Board approves and signs off the annual (and any non-regular) ORSA reports.

B.3.2.2 ORSA frequency

The ORSA is performed annually or more often if deemed necessary, like in situations where the business, solvency or risk profile significantly changes. A non-regular ORSA does not necessarily require all sections to be re-produced. Management is responsible for the monitoring of the triggers that may initiate the execution of a non-regular ORSA. The Executive Board is responsible for the execution of a non-regular Aegon Group ORSA.

B.3.2.3 Aegon’s own solvency needs

An important element of Aegon’s ERM framework is establishing the organization’s tolerance for risk in order to assist management in carrying out Aegon’s strategy within the limits of available resources. To achieve this, Aegon has defined the following key areas in which risk tolerance plays an important role:

 

Capital generation;

 

Solvency;

 

Liquidity;

 

Risk balance; and

 

Responsible business with effective controls

The tolerances on capital generation and solvency both directly relate to capitalization. Capital generation relates to the change in the capital position over time. The tolerance is forward looking and focuses on the long term. A sustainable growth in long-term capital generation protects capital and helps to ensure policyholder protection while allowing Aegon to pay-out a sustainable dividend to investors. The solvency tolerance is integrated within the Capital Management Policy.

Aegon’s overall capital management strategy is based on adequate capitalization of its operating units, Cash Capital at Holding and leverage. Aegon manages capital in operating units at levels sufficient to absorb moderate shocks without impacting the remittances to the Group. For more details about the Capital Management Policy and the capital adequacy of Aegon’s operating units, please refer to section E. Capital management.

Capitalization is also a relevant factor in the risk balance tolerances. The targeted risk balance or risk profile is the outcome of Aegon’s risk strategy setting process. This process assesses by risk type whether the risk serves a customer need, whether Aegon has the competence to manage the risk, if Aegon has a preference for the risk and if the risk fits within Aegon’s risk-taking capacity. The risk taking capacity is determined by the available capital. Ultimately, the risk-taking capacity is allocated to specific risks through risk tolerances in line with the Company’s risk preferences.

A breach of any of the risk tolerances needs to be followed by a review of business plans and identification of management actions to remediate the breach.

Capitalization is not an explicit factor in the liquidity risk tolerance which requires having sufficient liquidity to meet cash demands, even after an extreme event. However, both sound capital and liquidity management are required to ensure that Aegon is able to meet its obligations in the short and the long run.

Capitalization is also not an explicit factor in the tolerance on responsible business with effective controls, which links risk management to the organization culture and sets tolerances for operational risk events, ensuring business integrity and operational resilience.

 

 

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B.4 Internal control system

Aegon has developed an internal control system that facilitates its compliance with applicable laws, regulations and administrative processes, and the effectiveness and efficiency of operations with regard to its objectives, in addition to the availability and reliability of financial and non-financial information. The overall internal control system ensures appropriate control activities for key processes and the documentation and reporting of administrative and accounting information. The internal control system is embedded through policies and frameworks such as the ERM framework, the Model Validation Framework and the Operational Risk Management (ORM) Framework, and is considered wider than the ‘Internal Control – Integrated Framework issued by COSO in 2013, on which criteria for the internal control system are based.

The internal control system was developed in accordance with regulations that Aegon must comply with (i.e. Sarbanes-Oxley Act and Solvency II). Aegon’s control activities should assure an adequate level of internal control over Aegon’s objectives and in particular compliance, operational and financial reporting objectives including the production of Solvency II and EU-IFRS numbers. The objective is to provide assurance regarding the reliability, accuracy, completeness, timeliness and quality of internal and external (regulatory) reporting, the safeguarding of assets, and compliance with internal and external requirements. A key element of Aegon’s internal control system is to facilitate action planning and embed continuous improvement regarding the internal control environment throughout the organization.

As part of the internal control system, a financial reporting internal control framework has been established supported by Aegon’s Group Sarbanes Oxley methodology. For more information about Aegon’s internal control framework, reference is made to section B.4.2 ORM Framework. Furthermore, as required by Solvency II, Aegon’s internal control framework includes a compliance function, which is described in section B.4.3.

The internal audit function and actuarial function are described in section B.5 and B.6 respectively.

B.4.1 General principles of Aegon’s internal control system

The general principles of Aegon’s internal control system apply to all undertakings, functional areas or departments. These principles are as follows:

  All employees must comply with the Code of Conduct. The Code of Conduct states that all employees will conduct their work in an ethical manner;
  If employees become aware of, or observe fraud, questionable accounting practices, or other unethical behavior, they should report it to a member of management, human resources or to Aegon Speak Up helpline;
  Employees are instructed regarding the sensitivity and confidentiality of the Group and policyholder information or client information;
  All departments have developed a system of internal control to ensure that the assets and records of the Group are adequately protected from loss, theft, alteration or unauthorized access;
  All departments embed and maintain adequate segregation of duties. Where adequate segregation cannot be achieved, other risk mitigating controls are designed, implemented, effectively performed and results documented;
  All departments have business continuity plans in place that are periodically updated;
  The interest of the customer is considered when designing, approving and reviewing products and distribution channels (in line with Aegon’s market conduct principles); and
  Records of the Group are maintained in compliance with record retention policies and local regulatory requirements.

B.4.2 ORM framework

A key element of Aegon’s internal control system is to facilitate action planning and embed continuous improvement regarding the internal control environment throughout the organization. From an Operational Risk Management (ORM) perspective and given the different nature of operational risks vis-à-vis financial and underwriting risks, the ORM framework is considered an integral part of the internal control system to facilitate its compliance with applicable laws, regulation and administrative processes and the effectiveness and efficiency of operations in view of its objectives. The ORM framework is part of the more comprehensive ERM Framework, which is not limited to operational risk. From that perspective the ORM function applies building blocks of the ERM framework. The figure below provides a graphical illustration of this ORM framework.

 

 

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Aegon’s ORM Framework

 

 

LOGO

A Risk (Self) Assessment (RSA) is achieved through periodic risk control self-assessments. These are performed to understand business objectives, identify operational risks for realizing these objectives, assess the adequacy of the risk mitigating factors or controls in place given the identified risks, and assess the impact and likelihood of losses (including financial reporting errors). These assessments contribute to the understanding of all known risks for which key control activities can be determined to (partly) mitigate those risks. This risk identification is supported by a value chain contributing to the completeness of the risk assessment and the identification of handover points.

Scenario Analysis is the process of developing scenarios along structured dimensions, using opinions from subject matter experts and business leaders, and deriving reasoned risk assessment of the severity and frequency, thereby enabling business improvements and enhanced risk management.

Risk Monitoring is accomplished through the effective design and implementation of Key Risk Indicators (KRIs) or other monitoring mechanisms that inform about current risk and control profiles. Relative to financial reporting, management actively monitors processes and key controls to ensure that they are designed and operating effectively. Management’s active monitoring of key controls, KRIs, or other measurements along with identifying and implementing related action plans reflects the proactive nature of risk management efforts. Appropriate metrics or measurements should be identified to the extent that they are indicators of potential risk or control deficiencies.

Risk Validation is obtained through the identification, collection and analysis of operational loss events, or through validating the effectiveness of controls that mitigate risks. The operational loss events are collected and analyzed in a centralized loss database. To stimulate learning within and as an organization, root causes of operational loss events or control deficiencies are analyzed and shared. By sharing the root causes, Aegon facilitates more effective risk management and continuous process improvement.

Risk Response & Action Plans follow the risk identification, monitoring and validation process. Risk Response is the decision-making process to accept, control, transfer or avoid risks. Action plans are developed and activities performed to achieve the desired risk mitigation. Action plans arise from losses incurred, risk assessments performed, monitoring activities (including key risk indicators identified) and control testing results.

Risk Reporting covers all aspects of operational risk management, validating and demonstrating the importance of risk management to Aegon’s operations. Reporting of (key) risks, loss events, control weaknesses and trends in KRIs provides a mechanism for taking appropriate and adequate actions on a timely basis, enhancing the decision-making process and providing feedback that gauges the success for the ORM program as a whole.

 

 

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B.4.3 Compliance function

B.4.3.1 Introduction

For Aegon, compliance is based on integrity risk which is defined as the threat to the reputation of, or the current or future threat to the capital or the results of Aegon due to insufficient compliance with the law and regulations, internal company rules and policies governing.

The business is supported by the Aegon Group Compliance function and business unit-level compliance teams by:

 

Identifying new and revised regulations and managing the regulatory compliance universe;

 

Identifying and assessing risks stemming from these regulations;

 

Advising how to comply with new changes and existing regulations;

 

Policy setting and implementation;

 

Investigating compliance breaches; and

 

Periodic and ad hoc reporting on regulatory developments, and compliance and integrity incidents.

B.4.3.2 Aegon Group Compliance function

At Aegon Group level, the key function holder for Compliance assurance with Solvency II requirements is the Global Head of Compliance. The independence of the key function holder is maintained by, amongst other governance practices, having the Global Head prepare and present his/her own report to the Supervisory Board Audit Committee. At the business unit level, there are also compliance personnel who support local management in the development of the local programs. They also report to the Global Head of Compliance about the effectiveness of the local program.

B.4.3.3 Objective of the Compliance function

The objective of the Compliance function is to support the Executive Board, Management Board and business units’ Management Boards in ensuring that Aegon acts in line with relevant legal, regulatory requirements and Aegon Group risk tolerance. In this role, the function will promote and foster compliance with laws and regulations. Conducted effectively, strong compliance enables the organization to act with integrity, and provide optimal service delivery to Aegon’s clients. To ensure the achievement of this objective, the Compliance function prepares an annual plan that is approved by the Audit Committee and reports on progress against the plan on a quarterly basis. Business units must also prepare local annual plans as well as a compliance monitoring plan to ensure that business is operating in accordance with the agreed-upon requirements. The Compliance function is supported by a compliance methodology as well as certain tooling, such as sanction screening tooling, to ensure that there is alignment across the business units.

B.4.3.4 Activities

The Compliance function is responsible for the identification and assessment of regulatory developments and associated risks, the management and implementation of programs to respond to regulatory developments (risk mitigation) and first line monitoring, and reporting of compliance with existing regulations and internal policies to ensure that Aegon operates within its integrity risk tolerance.

The following thematic regulatory areas fall within the scope of the compliance function:

 

Market Conduct Regulation (Treating Customers Fairly);

 

Prudential Financial Regulation (Solvency II, et al.);

 

Organizational Conduct Regulation (Market Abuse, Anti-Trust and Competition);

 

Personal Conduct Regulation (Conflict of Interest, Fitness & Propriety; Personal Conduct Regulation)

 

Customer Conduct Regulation (Sanctions); and

 

Financial Crime Regulation (Anti-Money Laundering, Counter Terrorist Financing, Fraud, Anti-Bribery and Corruption).

B.4.3.5 Role of management

Compliance is a global function within Aegon. The Executive Board, supported by the Management Board, is responsible for the effectiveness of the Aegon organization as a whole at all times; they are responsible for the establishment of an effective compliance function that meets the requirements set out in the Compliance Charter.

B.4.3.6 Responsibilities & roles of the Compliance function

Compliance acts as a gatekeeper within the organization to identify regulatory requirements, and, working with business unit management, to ensure compliance. The function maintains a charter, a framework and a suite of global policies designed to manage the risk of non-compliance.

 

 

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In realizing the objective of the function, the following aspects are important:

 

 

Advise the Executive Board, Management Board, and Supervisory Board Audit Committee on:

   

the (potential) impact of regulatory developments on Aegon;

    the development of a compliance framework that encompasses the relevant regulatory requirements and risks pertaining to Aegon and serves as a standard for all entities of Aegon; and
    the status of Aegon’s compliance with laws, regulations and appropriate Aegon Group’s policies.
  Support and facilitate the Executive Board, Management Board, business unit Management Boards and the business in the implementation, maintenance and embedding of the compliance framework.
  Monitor on behalf of the Executive Board, Management Board and business unit Management Boards in cooperation with local teams the implementation and effectiveness of the compliance framework.

B.5 Internal Audit function

B.5.1 Internal Audit function

Aegon’s Internal Audit function (Internal Audit) assists the Executive Board, the Supervisory Board and senior management in protecting Aegon’s assets, reputation, and sustainability by independently and objectively evaluating the effectiveness of internal controls, risk management and governance processes. The Internal Audit function is the third line function.

The Aegon Global Chief Audit Executive reports functionally and administratively to Aegon’s Group Chief Executive Officer and the Audit Committee of the Supervisory Board. Internal Audit’s main tasks and responsibilities are to:

  Prepare and execute a risk-based audit plan which, after review by the Management Board, is approved by the Risk and Audit Committees of the business units and the Audit Committee of the Supervisory Board;
  Identify, and agree with management, opportunities to improve the internal controls, risk management and governance processes, and verify that such improvements are implemented effectively within a predetermined period of time;
 

Execute audits on the functioning of the first and second line of defense;

  Assist in the investigation of significant suspected fraudulent activities or conduct special reviews or consulting which may not usually be included in the scope of Internal Audit; and
 

Issue periodic reports to respective management and Audit Committees, summarizing the progress and results of the annual audit plan.

B.5.2 Independence and objectivity of the Internal Audit function

Internal Audit executes its duties freely and objectively in accordance with the Institute of Internal Auditors’ International Standards for the Professional Practices of Internal Audit, in addition to Aegon policies and procedures. Internal Audit’s policies also align with local professional auditing standards.

Internal Audit avoids any conflict of interest and accesses the knowledge necessary to perform audit activities in specific areas of expertise. If required, temporary resourcing constraints can be alleviated by outsourcing of Internal Audit activities.

The business units’ Chief Audit Executives verify as to whether any resource not employed by Internal Audit departments (for example contractors or other externally hired resources) possesses the necessary knowledge, skills and other competencies to execute the duties of Internal Audit. These resources are appropriately assigned to audit teams or otherwise assist the internal auditors, and comply with the principles of the Aegon Internal Audit Charter.

Resources employed within the Internal Audit function do not execute any operational duties for Aegon and will not review a business area or function in which they have had recent management or operational responsibility or are otherwise conflicted.

To ensure the independence of the auditors and effective governance, the business units’ Chief Audit Executives have a reporting line to the Aegon Global Chief Audit Executive, as well as to their respective business units’ Risk and Audit Committee and business units’ Chief Executive Officer.

 

 

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B.6 Actuarial function

B.6.1 Global functions

The Executive Board has defined the Actuarial Function in accordance with Article 48 of the Solvency II Directive. In addition, to support the Actuarial Function, the Executive Board has defined the Underwriting Risk Management (URM) function (as a sub-function within risk). There are also a number of actuarial activities which are included in the scope of the Finance Function and these are often led by the Chief Actuary in the business unit.

  The Actuarial Function is to co-ordinate the calculation of the technical provisions, provide opinions on the adequacy and reliability of the technical provisions, the adequacy of the underwriting policy and reinsurance arrangements and support the implementations of the risk management system.
  The actuarial activities performed in Finance are usually led by the Chief Actuary in the BUs. The Chief Actuary’s role is to advise, to support, to facilitate, to monitor and to challenge on matters relating to the calculation of insurance liabilities, pricing and product development, reinsurance use, underwriting practices, required capital assessment and the maintenance of a strong control culture. The Chief Actuary, traditionally, oversees the setting of the assumptions and methodology, capital reporting and the oversight of pricing and reinsurance. The exact split of responsibilities depends on the organizational structure within Finance.
  The URM function is to monitor and to challenge on matters relating to actuarial risk analysis, risk policy and limit framework setting, risk management and compliance, assessment of required capital methodology and modelling, in addition to related risk controls. Furthermore, the role of the Head of URM is to set frameworks in which the first line operates and to perform independent peer reviews of the Actuarial Function reports where these are prepared by the Chief Actuary. At Aegon Group and Aegon the Netherlands, there is no requirement for an independent peer review of the Actuarial Function Report. This reflects that the Head of the Actuarial function (placed in the second line) is not directly responsible for the calculation of the technical provisions and is therefore able to provide an independent opinion.

The roles and responsibilities of the Actuarial function as defined in line with the Solvency II framework are allocated at Aegon Group and in each Insurance entity to either the Chief Actuary (in a first line position) or the Head of URM (in a second line position). In Aegon N.V. and Aegon the Netherlands, due to regulatory requirements, the Head of the Actuarial Function role is a second line position and is therefore allocated to the Head of URM, reporting to the CRO. In the other operating units, the Head of the Actuarial Function role is allocated to the Chief Actuary in the first line.

B.6.2 Objectives of the function

The objectives of the Actuarial Function consist of the delivery of the requirements of Article 48 of the Solvency II directive. This includes the coordination of the calculation of the technical provisions, including risk margins by ensuring a proper control framework, appropriate guidelines, accurate reporting and appropriate data, modelling, methodology and assumptions, the assessment of the overall underwriting policy and reinsurance use and the contribution to the effective implementation of the risk management system.

The Actuarial Function is facilitated and supported by the Finance and URM functions. The Finance Function provides senior management with actuarial analysis on: quarterly changes in technical provisions, product pricing, actual and expected assumption experience including expert judgments, and in general the impact of strategic or management decisions on liabilities and actuarial risks. The URM function reviews and challenges matters related to non-financial assumptions, model and methodologies, pricing and reinsurance through the setting and thereafter the attestation of the policies, setting and monitoring of guidelines and the assumption review process.

It is the responsibility of the actuarial function to ensure the appropriateness of the methodologies and underlying models used as well as the assumptions included in the calculation of the technical provisions. This aims to ensure compliance with regulatory actuarial (reporting) requirements, including effective local actuarial sign-off on the adequacy and reliability of technical provisions (also referred to as reserves). The actuarial function ensures the compliance of the internal actuarial framework with Solvency II legislation as well as compliance with the abovementioned policies and guidelines with respect to actuarial risks and supporting management in the execution of an effective underwriting policy, also covering the pricing and product development, by providing expert opinions. Furthermore, the objective of the actuarial function is to support management in the assessment of the appropriate use of reinsurance.

B.6.3 Reporting

The Actuarial Function Holder reports periodically about the adequacy and reliability of the technical provisions (Actuarial Function Report), actuarial assumption assumed/expected results and analysis, analysis of annual actuarial financials (source of earnings), pricing developments, reinsurance use, underwriting practices, actuarial content in regulatory reports (e.g. SFCR and ORSA), and required capital methodology for actuarial risks.

 

 

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The URM function reports periodically about peer reviews of Actuarial Function reports (except for Aegon Group and insurance companies operating in the Netherlands) and actuarial assumptions, actuarial/underwriting risks versus risk indicators, compliance with pricing & product development policies, reinsurance counterparty risk exposure and policy compliance, actuarial risk framework developments, and relevant risk controls.

B.7 Outsourcing

B.7.1 External outsourcing arrangements

Outsourcing arrangements are arrangements of any form between an Aegon entity and a third party, in which the third party performs a function or an activity, whether directly or by sub-outsourcing, which would otherwise be performed by the Aegon entity itself.

An external outsourcing arrangement is considered to be a material risk under Solvency II and by Aegon when it covers a critical or important function or activity that is essential to the operation of the undertaking as it would be unable to deliver its services to policyholders without the function or activity.’ Aegon defines material external outsourcing arrangements based on a vendor segmentation, which is included in Aegon’s ‘Third Party Risk Management policy’.

Material suppliers are performing critical or important functions or activities that Aegon is unable to perform itself and which are essential to the operation of the undertaking and in the absence of which Aegon would be unable to deliver its services to policy holders.

Material outsourcing arrangements and material suppliers have an impact on operational risk as a result of potential material changes to and reduced control over the related people, processes and systems. To manage material outsourcing arrangements and material suppliers, Aegon has a ‘Third Party Risk Management Policy’. The aim of this policy and other procurement related documentation is to ensure that all arrangements entered into by Aegon are subject to appropriate assessment and approval, the policy aims to manage the risk related to third parties through their full lifecycle. In case arrangements are identified as material outsourcing arrangements due diligence, approval and on-going monitoring is performed in line with the policy. All material risks arising from external material outsourcing arrangements and material suppliers are appropriately managed to ensure that Aegon is able to meet both its financial and service obligations.

External outsourcing arrangements are those where the third party is not a member of the Aegon Group of companies. In 2018 Aegon Americas entered into an agreement with Tata Consultancy Services (TCS) to administer the company’s US insurance and annuity business lines. The partnership is enabling Aegon Americas to accelerate the enhancement of its digital capabilities and the modernization of its platforms to service customers in all lines of business; oversight is performed by Aegon Americas.

In 2019 Aegon United Kingdom expanded its existing partnership with Atos, through a 15-year contract to service and administer its Non-Platform business. This will further improve customer service for the customers of Aegon UK’s Non-Platform business with a multitude of different policy types. The same teams previously supporting Aegon’s Non-Platform businesstransferred to Atos and remained in Edinburgh, thereby providing continuity of service. Oversight is performed by Aegon UK to reflect that ultimate accountability for service delivery remains with Aegon UK.

As of June 1, 2020, Aegon the Netherlands entered into an agreement with IBM Services for the servicing and administration of its individual life policies. This is designed to further digitally enhance the service for around 800,000 policies until the last life insurance policy in the portfolio expires. Aegon employees servicing and administering the individual life book transferred to IBM to ensure continuity of knowledge regarding the life-book. The ownership and accountability regarding the individual life-book remains with Aegon the Netherlands.

B.7.2 Intra-group outsourcing arrangements

Aegon has material intra-group outsourcing agreements. At business unit level, Aegon makes use of several ancillary service companies. These companies perform a range of services for Aegon entities. These ancillary service companies are fully owned by Aegon and in most cases (hierarchically) managed by the local business units. One intra-group outsourcing arrangement relates to Aegon’s insurance entities having outsourced their asset management to Aegon Asset Management. Aegon Asset Management manages investments for Aegon’s insurance companies based on investment mandates.

 

 

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The ‘Third Party Risk Management Policy’ also covers the intra-group outsourcing. For intra-group outsourcing the examination of the vendor may be less detailed, provided that the business unit has greater familiarity with the vendor, and if the business unit has sufficient control over, or can influence the actions of, the vendor. However, for intra-group outsourcing agreements, Aegon requires a written agreement, including a service level agreement (SLA), stipulating duties and responsibilities of both parties.

B.7.3 Material intra-group outsourcing arrangements

The material intra-group outsourcing arrangements at Aegon Group level are:

  An intra-group agreement between Transamerica Life Insurance Company and Aegon N.V. The different services provided by Transamerica Life Insurance Company relate to information and technology services mutually agreed upon, which may be modified from time to time;
  The business unit Aegon Asset Management manages a large part of the assets of Aegon’s insurance companies, including Aegon Americas. The contracting entities Aegon Investment Management B.V. (AIM), Aegon USA Investment Management, LLC (AUIM) and Aegon USA Realty Advisors, LLC (AURA) are part of this Unit; and
  Aegon Derivatives faciliates the use of derivatives by Aegon Group companies by among other things: mitigating counterparty risk related to the use of derivatives through netting and collateral management, and monitoring regulatory and legal developments. Pursuant to mandate agreements with certain Aegon Group entities, Aegon Derivatives enters into derivatives transactions with third parties. Aegon Derivatives does so in its own name, but for the account and risk of internal clients.

B.8 Any other information

B.8.1 Assessment of adequacy

Corporate governance at Aegon is determined by the Executive Board and Supervisory Board of Aegon N.V. Regulations and (inter) national guidelines are taken into account and the roles and responsibilities of the Executive Board and Supervisory Board are reflected in the respective board charters. Those board charters are reviewed on a regular basis and revisions will follow required approval processes.

In addition, all Aegon employees are committed to the Code of Conduct, which consists of Aegon’s purpose, core values and rules of conduct. The Code of Conduct also addresses governance aspects and reflects compliancy with laws and regulations, information sharing and the identification and management of risks in a prudent way (for instance internal guidelines and policies).

Aegon’s risk management system is an important part of Aegon’s system of governance. Both its risk governance framework, as described in section B.3.1.2, and its ERM framework, as described in section B.3.1.1, are designed to adequately manage risks according to the nature, scale and complexity. Where appropriate, the risk governance structure is updated to meet changing demands.

Escalation thresholds for decision making are linked to the scale and impact of the risks to the organization. Risk tolerances, policies, methodologies and models are regularly reviewed to ensure they remain appropriate and up-to-date. Aegon’s Solvency II PIM is fully integrated into Aegon’s risk management system and governance structure, and the model validation function regularly assesses the Solvency II PIM and underlying components. The model integrity is assessed, including performance of the model and ongoing appropriateness of its specifications.

The conclusion of the latest assessment by Group Model Validation was that the Solvency II PIM, including underlying internal models, standard formula shocks, and aggregation methodology, is considered fit for purpose for use within the Solvency Capital Requirement (SCR) calculations. Aegon’s risk management is continuously being improved to ensure capabilities remain at a high level in changing conditions.

In 2021, risk management and internal control topics were discussed by the relevant management committees and bodies, including the Management Board, the Executive Board, the Risk Committee of the Supervisory Board and the Audit Committee of the Supervisory Board. From analysis of internal and external audit reports and risk reviews, no material weaknesses were observed, and no significant changes or major improvements were made or planned to the risk management and internal control systems following from the review.

 

 

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C. Risk profile

General

This section provides general information regarding Aegon’s risk profile.

Introduction to Aegon’s risk profile

As an insurance group, Aegon accepts and manages risk for the benefit of its customers and other stakeholders.

As a result of its activities, the Group is exposed to a range of underwriting, market, credit, liquidity and operational risks. The table below provides information on the Solvency II capital requirement for these risks. The other capital requirements category mainly includes capital requirements for entities under Deduction & Aggregation on a (provisional) equivalence basis, being US Life insurance entities, Bermuda, and Brazil. The capital requirements of Other Financial Sector entities (including Aegon Bank) are also part of this category.

 

Composition of Group SCR

        

Amounts in EUR millions

          2021        2020  
SFCR section    QRT S.25.02.22              

C.2 Market risk

   Market Risk (SF)      1,140        1,077  
     Market Risk (IM)    3,027      2,896  

C.3 Credit risk1)

   Counterparty default risk (SF)      161        286  
     Counterparty default risk (IM)    49      10  

C.1 Underwriting risk

   Life underwriting risk (SF)      1,224        1,242  
     Life underwriting risk (IM)    2,222      2,831  
     Health underwriting risk (SF)    281      288  
     Health underwriting risk (IM)    -      -  
     Non-life underwriting risk (SF)    128      126  
     Non-life underwriting risk (IM)    -      -  

C.5 Operational risk

   Operational risk (SF)      310        333  
     Operational risk (IM)    330      348  

E.2.1 Solvency Capital Requirement

   LAC-DT      (998      (716
     Total undiversified components      7,875        8,721  
      Diversification    (3,080)      (3,508)  
     PIM SCR after diversification (AC only)      4,795        5,213  
      Capital requirements for D&A and OFS    4,431      4,260  
     Group PIM SCR      9,226        9,473  
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.

 

 

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Aegon Group’s net Partial Internal Model (PIM) SCR amounted to EUR 9,226 million on December 31, 2021, which was a decrease of 247 million compared to the SCR on December 31, 2020 of EUR 9,473 million. The net SCR decrease was mainly driven by the following movements:

 

 

Market risk (SF) increased by EUR 63 million driven by an increase in equity risk as a result of higher equity markets causing an increase in the symmetric adjustment1 for equity risk under the Standard Formula, and by an increase in Own Funds for the US non-regulated entities. This is partly offset by reduced market risk for Aegon Spain following the integration of the Popular Vida investment into Santander Life;

 

 

Market risk (IM) increased by EUR 131 million mainly due to higher equity exposure given the increase in equity markets, particularly for SE Plc;

 

 

The changes in counterparty default risk for IM and SF (decrease of EUR 86 million) are a result of capturing some of Aegon UK’s counterparty default risk under the IM rather than the SF at Group level from 2021 following Brexit, whilst reflecting the fact that some of the risk is borne by policyholders;

 

 

Life underwriting risk (IM) decreased by EUR 609 million, mainly due to reduced longevity risk following a reinsurance transaction by NL Life and model updates. The increase in EUR and GBP interest rates over 2021 also contributed to the decrease;

 

 

There were minor changes in life, health and non-life underwriting risk (all SF) and operational risk (both SF and IM);

 

 

The loss absorbing capacity of deferred taxes (LAC-DT) increased (which reduces the net SCR) by EUR 282 million. The increase is caused by the increase in LAC-DT factor applied by NL Life from 45% to 65%, as well as changes in the future corporation tax rate for the UK and the Netherlands. When determining the LAC-DT factor the enacted future corporate income tax rate (25% instead of 19% for the UK, 25.8% instead of 25% for the Netherlands) is taken into account, with the higher tax rates leading to an increase in LAC-DT benefit;

 

 

The diversification benefit amount decreased by EUR 428 million (which increases the net SCR). This was mainly driven by the decrease in gross SCR of the life underwriting risk (IM) and increase in market risk (IM), leading to lower diversification between these risks;

 

 

The SCR for D&A and OFS increased by EUR 171 million, mainly due to new business strain in China and Aegon Asset Management, and higher capital requirements related to the UK employee pension scheme. Note that there is a decrease in SCR for the US RBC entities in US dollar terms, driven by a change in hedging strategy and release of inforce SCR, but in euro terms there is minimal movement as the euro depreciated against the dollar.

When managing its day-to-day risk exposures, Aegon includes the D&A businesses in its analyses and managing of underwriting risk, market risk, credit risk, liquidity risk and operational risk. 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. Risk management and control systems are applied consistently across the Group.

Aegon’s risk strategy provides direction for the targeted risk profile while supporting Aegon’s business strategy. The targeted risk profile is determined by customer needs, Aegon’s competence to manage the risk, the preference of Aegon for the risk, the return that can be achieved 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.

To manage its risk exposure, Aegon has risk policies in place. Many of these policies are Group-wide while others are adapted to the situation of local businesses. As mentioned in B.3.1.2 Risk governance framework, Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, and currency. The risk indicator levels in these policies in aggregate remained within the Group’s overall tolerance for risk and the Group’s financial resources.

Factors influencing Aegon’s risk preferences include expected returns, the alignment between Aegon, counterparty and customer interests, the existing risk exposures and other risk characteristics such as diversification, the severity of the risk in an extreme market event and, the speed at which risk can materialize in Aegon’s capital position, liquidity position and/or net income.

 

1 

The symmetric adjustment is designed to reduce procylicality by increasing/decreasing the equity shock in the standard formula when equity markets are up/ down compared to their 3-year historic average

 

 

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To monitor Aegon’s position against its risk appetite the Risk governance framework sets out Risk Tolerances and Risk Indicators. Adherence to these tolerances and indicators is tested on a frequent basis using actual results in addition to sensitivity and scenario analyses. For indicators related to statutory capital purposes EEA legal entities use methods and assumptions that are defined by Solvency II, in some cases this is PIM based while in others it is Standard Formula based. For non-EEA legal entities, the methods and assumptions are based on local regulatory requirements. When relevant, local rules will be applied, for example when allowing for the impact of tax upon results.

The sections C.1 Underwriting risk; C.2 Market risk; C.3 Credit risk; C.4 Liquidity risk; C.5 Operational risk and C.6 Other material risk include qualitative and quantitative information with respect to specific risks.

Applicable risk mitigation techniques are described in each section. Furthermore, the sections include a description of the methods used, the assumptions made and the outcome of sensitivity analysis. Management actions that are ‘business as usual’ are factored into the sensitivity analysis. Reactive management actions are not factored into the sensitivity analysis. The impacts of established hedge programs are taken into account where applicable. The sensitivities do not, in general, reflect what the Solvency ratio would have been if risk variables had been different. This is because the analysis is based on the existing exposures on the reporting date, rather than on those that actually occurred during the year. The results of the sensitivities are also not intended to be an accurate prediction of Aegon’s Solvency ratio.

In addition, these aforementioned sections do not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be interpolated/extrapolated for smaller/wider variations because effects do not tend to be linear. No risk management process can clearly predict future results.

Prudent person principle

The prudent person principle has been embedded into Aegon’s system of governance, and is applicable for Underwriting risk, Market risk and Credit risk.

In accordance with the Investment and Counterparty Risk policy, the business unit is required to explain how the Solvency II prudent person principle requirements are met.

The Investment and Counterparty Risk Policy requires relevant business units to satisfy the prudent person principle. The risks on the investment side are presented in Risk Reporting analysis with more detailed reporting performed by Aegon Asset Management. Aegon’s Risk Appetite Framework is in place to ensure that the assets held are appropriate to the nature of the liabilities without taking on excessive risks:

 

 

ERC Risk limit indicators for market and financial risks are set and form part of the Aegon Risk Appetite Framework;

 

 

The Investment and Counterparty Risk Policy establishes the prudent person principle requirements;

 

 

Concentration in exposures is avoided by testing adverse plausible scenarios in the Budget/MTP process and by setting single counterparty limits in the Group Credit Name Limit Policy. This is supplemented with the Focus List that provides a more proactive process to monitor and control concentration;

 

 

The requirements related to use of derivatives can be found in the Derivative Use Policy. This policy ensures that a consistent standard of responsible derivative usage is in place across the Aegon Group. In addition, the consolidated reporting of derivative positions provides transparency to derivative usage as well as a demonstration of controls;

 

 

The Securities Lending and Repo Policy ensures a consistent standard for Securities Lending and Repurchase (Repo) programs within the Aegon Group. This Policy sets out the minimum required processes and documentation standards that must be in place for any unit to operate in these instruments; and

 

 

The Reinsurance Use Policy establishes the process with which reinsurance use is conducted at Aegon in order to ensure a consistent high standard of reinsurance use across the Group, to ensure proper internal controls are in place around risks arising from reinsurance wherever material (e.g. counterparty risk and basis risk), and to ensure globally consistent information on Aegon’s reinsurance treaties is available.

 

 

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Off-balance positions and special purpose vehicles

This section provides information regarding Aegon’s risk exposure arising from off-balance sheet positions and the transfer of risk to special purpose vehicles. The off-balance sheet positions at the end of 2021, which consist of other commitments and contingencies and contractual obligations, are disclosed including a description of the risk exposure arising from them. Aegon has no exposure to special purpose vehicles as defined by Article 13(26) of the Solvency II Directive (2009/138/EC).

Other commitments and contingencies

As of December 31, 2021, guarantees amounted to EUR 506 million (2020: EUR 364 million) and include those guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States, which can be called upon if there is a deficiency in the tax benefits delivered to the investor or if Aegon is in default under a material provision of the contract. Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.

 

Other commitments and contingencies

     

Amounts in EUR millions

                              2021                                2020    

Guarantees

     506        364    

Standby letters of credit

     12        11    

Share of contingent liabilities incurred in relation to interests in joint ventures

     7        7    

Other guarantees

     11        11    

Other commitments and contingent liabilities

     -        7    

Contractual obligations

In March 2019, affiliates of Transamerica Corporation and Long Term Care Group (LTCG), entered into a series of agreements to which Transamerica transferred to LTCG the administration and claims management of its long term care insurance business line, enabling Transamerica to accelerate the enhancement of its digital capabilities and modernize its long term care insurance platform. Over the course of the multi-year contract, Transamerica will pay approximately USD 390 million to LTCG. These fees represent compensation for administering Transamerica’s long term care product line including policyholder service, claims processing and care management. The agreement also contains a termination clause in which Transamerica – subject to certain limitations – agrees to compensate LTCG, on a specified schedule, for early termination.

In April 2018, affiliates of Transamerica Corporation entered into a series of agreements with affiliates of Tata Consultancy Services Limited (TCS) to administer the Company’s US life insurance, voluntary benefits, and annuity business lines. The collaboration enables Transamerica to accelerate the enhancement of its digital capabilities and the modernization of its platforms to service its customers in all lines of business. Over the course of the multi-year contract, Transamerica could pay more than USD 2 billion to TCS. These fees represent compensation for administering Transamerica’s over 10 million policies and are driven by both new business and policies already in force. In addition, this commitment includes remaining transition and conversion charges of approximately USD 9 million in 2022 as well as administrative, IT and finance service fees which are contingent on TCS meeting specified milestones in the underlying agreement with Transamerica. The agreement also contains termination clauses which in certain conditions and subject to certain limitations, could require Transamerica to compensate TCS, on a specified schedule, for early termination.

In November 2018, Aegon UK announced an extended partnership with Atos BPS Ltd (Atos) to service and administer its Traditional Products Business (non-Platform customers). The agreement is a 15-year contract under which Aegon UK pays Atos to administer around 1.4 million customers, which took effect on June 1, 2019 as planned. At year-end 2021, outstanding transition and conversion charges are estimated to amount to approximately GBP 8 million, which are expected to be recorded over the next year, with fixed payments to Atos defined in the agreement and subject to completion of milestones which have been agreed with Aegon UK.

On October 31, 2017, Aegon the Netherlands sold its shares in Unirobe Meeùs Groep (UMG) for EUR 295 million to Aon Groep Nederland. Under the share purchase agreement between Aegon Nederland and the buyer, Aegon the Netherlands indemnifies and holds the buyer and its group (including UMG) harmless for and against any damage suffered or incurred which is the result of the Unit Linked Insurances Claims until 2027 with respect to Unit Linked Policies in the portfolio of UMG prior to January 1, 2017. The aggregate liability for Aegon the Netherlands is maximized at an amount equal to the purchase price.

An Aegon N.V. indirect US life subsidiary has a net worth maintenance agreement with its subsidiary Transamerica Life (Bermuda) Ltd, pursuant to which Transamerica Life Insurance Company, a US life insurance subsidiary, will provide capital sufficient to maintain a S&P ‘AA’ financial strength rating and capital sufficient to comply with the requirements of the countries in which its branches are located.

 

 

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Aegon N.V. has guaranteed and is severally liable for the following:

 

Due and punctual payment of payables under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation. At December 31, 2021, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 1,157 million (2020: EUR 1,618 million); as of that date no amounts had been drawn, or were due under these facilities;

 

Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company LLC and Commonwealth General Corporation with respect to fixed subordinated notes, bonds, capital trust pass-through securities and notes issued under commercial paper programs amounting to EUR 987 million (2020: EUR 993 million); and

 

Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. enters into derivative transactions with counterparties with which ISDA master netting agreements, including collateral support annex agreements, have been agreed. Net (credit) exposure on derivative transactions with these counterparties was therefore limited as of December 31, 2021.

C. 1 Underwriting risk

C. 1.1 Underwriting risk description

Underwriting risk, sometimes referred to as “insurance risk”, arises from deviations from product pricing assumptions. These are typically actuarial assumptions that cover policyholder behavior and claims. Underwriting risk is the result of both the inaccuracies in projecting liability cash flows over several future time periods, as well as fluctuations in the incidence of claims.

Underwriting risk can be broken down into five distinct risk types: mortality risk, morbidity risk, policyholder behavior risk, property & casualty risk and expense risk. These five risk types are relevant across many of Aegon’s businesses and are detailed hereafter.

Mortality/longevity risk

Mortality risk arises from economic losses due to mortality levels deviating from expectation (when mortality is lower than expected, this is referred to as longevity). Policyholders are typically grouped into different classes in which each class is expected to have the same mortality. Best estimate assumptions are then developed for each policyholder class. Aegon is exposed to the risk that the best estimate mortality assumptions are inaccurate.

From Aegon’s perspective, mortality risk can result into increased policyholder benefits. Depending on the type of insurance product this can be because of mortality rates developing above or below expectation:

 

In Aegon’s life insurance business (i.e. term assurance and other death protection products), mortality risk is the risk that mortality is higher than expected; and

 

In Aegon’s annuity business (i.e. annuity and pension portfolios) and Long-Term Care (providing benefits to cover care services to policyholders who are unable to perform two or more specified activities of daily living or develop a severe cognitive impairment), mortality risk is the risk that mortality is lower than expected. This is referred to as longevity risk, as Aegon is exposed to an increase in life expectancy.

Morbidity risk

Morbidity risk arises from economic losses due to morbidity levels deviating from expectation. These variations can be driven by changes in policyholder illness, disability and disease rates. Similar to mortality risk, policyholders are typically grouped into different classes that are expected to have the same morbidity. Assumptions are then developed for each class.

Morbidity risk is inherent to income protection plans (disability insurance), health insurance, Long-Term Care and critical illness protection products. For these products, increased incidence of illness increases the likelihood of policyholder claims. For many products, such as disability insurance, both the increased frequency and severity of claims are significant sources of exposure.

Policyholder behavior risk

Policyholder behavior risk arises from economic losses due to policyholder behavior deviating from expectation. Insurance contracts typically provide policyholders with a variety of options that they may or may not exercise. Policyholder behavior risk is the risk that actual policyholder behavior varies from the assumptions built into the reserve calculations. This includes assumptions about lapses, withdrawals, premium payment levels, allocation of funds, and the utilization of possible options in the products.

 

 

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Property & Casualty risk

Property & Casualty risk (P&C) covers the risk that the parameters used in setting reserves or premiums for property and casualty business are inaccurate. Due to the different nature of setting reserves for property & casualty business it has its own risk type.

In practice, Aegon’s overall exposure to P&C-related risk is relatively small. Examples of Property & Casualty risks within Aegon are:

 

Motor, which includes automobile property damage and third-party liability coverage;

 

Commercial property: commercial structures and contents;

 

Marine, aviation and transport;

 

Liability: public/third-party liability; and

 

Homeowners: buildings and contents coverage.

Expense risk

Expense risk is the risk that the expenses arising from servicing (re)insurance contracts may develop differently than expected. There are various types of expense risk:

 

Expense inflation risk: this is the risk that expenses inflate at a higher rate than that assumed in the calculation of the technical provisions. This does not cover the risk of general price inflation increases; and

 

Expense level risk: this is the risk that there will be unexpected changes in maintenance expenses for in-force business (assuming that the volumes of business are unchanged from best estimate assumptions). This risk therefore corresponds to an increase in the total expenses spread among the same number of policies – meaning the per policy expenses increase.

Most expenses Aegon has within its businesses will be subject to expense risk if not contractually defined. These types of expenses include for example: salaries, office space, software licenses and fees to intermediaries.

C.1.2 Underwriting risk assessment

Aegon monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results in comparison to expectations. Aegon’s units also perform experience studies for underwriting risk assumptions, comparing Aegon’s experience with industry experience as well as combining Aegon’s experience and industry experience based on the depth of the history of each source for use in Aegon’s underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses as the basis for modifying these charges, with a view to maintain a balance between policyholder and shareholder interests. Aegon also has the ability to reduce expense levels over time, thus mitigating unfavorable expense variation.

Aegon reviews its actuarial and economic assumptions periodically. In addition, as part of an ongoing commitment to deliver operational excellence, the company reviews and refines its models where necessary.

Aegon manages underwriting risks by regularly reviewing the experience, holding capital to cover the extreme events, monitoring the risk exposures against ERC Risk limit indicators (which are set in accordance to the risk strategy) and continuing to look for risk mitigation opportunities.

There were no material changes to the measures used over the reporting period.

C.1.3 Risk concentration

Besides the risk indicator levels as measured by gross Economic Required Capital (ERC) at group and business unit level, it’s a common practice to address ‘concentration’ of risk on insured lives or, for property and casualty business, on insured objects, using a risk limit per single life (or joint lives) and per insured object. The exposures on a few lives (or objects) with a much higher risk than the average in the portfolio can create a too high volatility in the results. Limiting such exposures reduces the impact of process risk and also increases the stability of the underwriting results. These risk limits per single life (or joint lives) and per insured object will be further referred to as ‘retention limits’.

The retention limits are typically chosen in such a way that the remaining exposure is acceptable, relative to the size of the earnings and the size of the balance sheet of the company. Risk mitigation and managing compliance with the retention limits can be achieved by reinsurance (external or internal), by the underwriting process or by the product design.

Aegon also monitors on a regular basis underwriting geo-concentration risk. This is the risk that an event causes losses on more than one underwriting exposure. An example of such an event is a terrorist attack on a single building leading to property damage, multiple deaths and severe injuries in the building and surrounding areas.

 

 

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C.1.4 Risk mitigation

Aegon’s risk management and control systems are designed to ensure that risks are managed effectively and efficiently in a way that is aligned with the Company’s strategy. Risk management involves, among others, the monitoring of risk exposures and actively maintaining oversight of the Company’s overall risk and solvency positions. Underwriting risk is mitigated through various processes:

Underwriting process

Underwriting serves as a key risk management tool to manage the underwriting risk by selecting or controlling the individual applications. The underwriting process determines whether a cover should be provided to a prospective policyholder, whether exclusions or amendments to the cover are required, and whether additional rates or standard terms are appropriate. Underwriting process also collects data to be used in the risk management cycle. The underwriting process is conducted by following a mandatory Underwriting Manual which includes: the underwriting classes; procedures to ensure the appropriateness, completeness and accuracy of data for use in underwriting process and controls to prevent anti-selection.

Claim process

Claims are the outcome of the risks on an individual case-by-case basis. When a claim is made on a policy, an assessment needs to be made as to whether the terms of the insurance policy have been met such that a claim payment is due. Where this is the case, claims are paid out. Where evidence shows potential non-disclosure of relevant information or fraudulent claims, further investigation is undertaken. Aegon’s business units must have a Claims Manual in place that includes among others: how claims are assessed and paid; how relevant regulation is being adhered to; and procedures to follow to identify fraudulent claims and the handling of claim disputes.

Best estimate assumption review process

Aegon’s business units must set up and maintain an underwriting assumption catalogue that contains all the underwriting risks that may impact financials of the company. Each risk must be reviewed periodically in which frequency is based on materiality. Material assumptions must be reviewed at least annually.

Underwriting risk indicators

Aegon’s risk strategy sets out risk indicator levels for each risk type including underwriting risks. These indicators define the maximum risk that Aegon is willing to be exposed to. Business units actively monitor the actual risk exposure (measured by gross required capital) and management takes actions when these indicator levels are breached. In addition to risk indicators, it is common practice to address concentration of risk on one insured life or, for property and casualty business, insured object, using a retention limit per life or per insured object. Exposure on a few lives with a much higher net amount at risk than the average in the portfolio can create additional volatility in results. A retention limit reduces the impact of process risk and also increases the stability of the underwriting results.

Using reinsurance to hedge existing risk

Furthermore, Aegon also mitigates existing underwriting risk by entering into reinsurance arrangements with external parties. Reinsurance arrangements allow Aegon to reduce part of the uncertainty in the mortality/longevity dependent payments by mitigating the mortality/longevity risk and it reduces the amount of required capital needed which improves Aegon’s Solvency ratio.

Aegon ensures the effectiveness of these mitigation measures through the policies in place, the yearly policy attestations where Aegon’s business units attest to complying with the policies and the periodic measuring of the underwriting risks and setting these against the risk indicators.

C.1.5 Risk sensitivity

Longevity sensitivity

An important underwriting sensitivity Aegon applies internally is a longevity shock of 5%, which is defined as an additional 1-time reduction in annual mortality rates by 5%. The table below shows the estimated impact on the Solvency II ratio.

 

      Scenario      Group    Americas 2)    NL Life    SE Plc
            2021      2020      2021      2020      2021      2020      2021      2020  

Longevity1)

   +5%      (5%)      (7%)      (8%)      (12%)      (8%)      (10%)      (2%)      (3%)  
1 

Reduction of annual mortality rates by 5%

2 

The sensitivities presented for Americas includes US regulated (life) companies, non-regulated holding companies and the employee pension plan. The sensitivities are presented on a Solvency II basis, after calibration of the US insurance entities to a Solvency II equivalent basis and inclusion of non-regulated holding companies

This sensitivity will increase the expected benefit payments for all products where benefits are paid while the policy holder is alive, for example annuities.

 

 

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All main business units contribute to the Group risk that people will live longer than the expectations embedded in our provisions. The exposure has decreased since last year, driven by improved premium deficiency reserve sufficiency in the LTC business in the US, and additional longevity reinsurance that was implemented in NL Life.

C.2 Market risk

C. 2.1 Market risk description

As an insurance group, Aegon is exposed to a variety of risks. Aegon’s largest exposures are to changes in financial markets (e.g. bond market, equity market, interest rate, currency exchange rate risks and credit risks). When market prices fall, the value of Aegon’s investments is reduced. For certain products, Aegon’s insurance liabilities may also increase, as investments held for the benefit of policyholders reduce in value. In addition, the value of future fee income potential reduces. The cost of insurance liabilities is also determined with reference to interest rates and the liabilities associated with long term benefits (such as annuities) increase and decrease as interest rates fall and rise.

To align with the SCR in QRT S.25.02.22 and section E, only Counterparty Default Risk (as defined in the Delegated Regulation) is discussed in section C.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 align with QRT S.25.02.22 throughout the SFCR, these other components of credit risk are discussed in this section.

Credit risk

Internally Aegon considers credit risk to be included within market risk. Credit risk has three components, namely:

 

  Spread risk; the risk that the value of the bond reduces due to a general widening of credit spreads;

 

  Migration risk; the risk that the rating of the bond falls due to an increased risk of default and as a consequence its value falls; and

 

  Default risk; the risk that the counterparty fails to meet the agreed obligations.

For general account products, Aegon typically bears the risk for investment performance and is exposed to credit risk in the fixed-income portfolio, over-the counter derivatives and reinsurance contracts.

Aegon is also indirectly exposed to credit risk on separate account investments held for the benefit of policyholders. Credit losses reduce account values, leading to lower fee income to Aegon. For certain products, Aegon has also provided guarantees to protect customers against the risk of losses in the separate account. For these benefits Aegon is exposed to separate account credit losses.

Aegon’s investment portfolios contains mainly US treasury, agency and state bonds, government bonds and other government issued securities. The portfolios also include a significant proportion of corporate bonds investments, together with real estate and mortgage lending to US commercial and Dutch retail borrowers.

Equity market risk and other investments risk