Integrated Integrated Aegon Annual Report 2018 Annual Report Aegon Annual Report 2018 1 Welcome to Aegon’s 2018 Annual Report To prosper, we believe companies must create long-term value a responsible approach to business. This report also contains for the societies in which they operate. Aegon creates value the 2018 consolidated financial statements and Company in several ways: as a provider of financial services, as well financial statements for Aegon N.V. (from page 101). as a responsible employer and business partner. We also make significant social and economic contributions through returns We have prepared this report in accordance with the International to shareholders, tax and support for local communities, as well Financial Reporting Standards, as adopted by the European Union as through investments both for our own account and on behalf (IFRS-EU), as well as the International Integrated Reporting of our customers. Our aim is to be a responsible corporate citizen, Council (IIRC) framework and reporting standards issued fully aware of the impact we have on our stakeholders and by the Global Reporting Initiative (GRI). This report also conforms on society as a whole. to relevant reporting requirements under the Dutch Corporate Governance Code and Dutch Civil Code (Part 9, Book 2). This is Aegon’s Annual Report for the year ending December 31, 2018. It is the Company’s first fully integrated report. This Annual Report is also used as the basis for our Form 20-F Aegon’s aim in producing this report is to provide a clear, (in compliance with our listing on the New York Stock Exchange). balanced overview of the Company’s operations, strategy and performance. In this report, we look at the trends and challenges If you have comments or suggestions about this report, please our business is facing, at our strategy, at how we create and contact our offices in The Hague. Contact details may be found share value – and at how we safeguard this value through on page 446. References Throughout this document, Aegon N.V. is referred to as either ‘Aegon’ or ‘the Company’. Along with its member companies, Aegon N.V. may be referred to as ‘Aegon Group’ or ‘the Group’. For the purposes of this report, ‘member companies’ shall mean, with respect to Aegon N.V., those companies consolidated in accordance with Dutch legislation relating to consolidated accounts. References to ‘NYSE’ and ‘SEC’ relate to the New York Stock Exchange and the US Securities and Exchange Commission respectively. Aegon uses ‘EUR’ and ‘euro’ when referring to the lawful currency of European Monetary Union member states; ‘USD’ and ‘US dollar’ when referring to the lawful currency of the United States and ‘GBP’, ‘UK pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom. Integrated Annual Report 2018 CONTENTS TOC 1 2 3 Table of contents 2018 at a glance Who we are and what we do The value we created for our stakeholders 4 Letter from our CEO 8 Aegon today 6 Main events of 2018 10 Our businesses 28 Results, performance and targets 7 Performance highlights 2018 13 Value creation 30 Value created and shared with our 16 Stakeholder engagement stakeholders 17 Our operating environment 30 Customers 21 Our strategy 32 Employees 34 Business partners 35 Investors 36 Wider community How we safeguard long-term value creation 40 Letter from our Supervisory Board Chairman 42 Corporate governance 46 Differences between Dutch and US company laws 47 Composition of our Boards 51 Report of the Supervisory Board 59 Remuneration report 66 Non-financial policies, procedures and outcomes 69 Code of conduct 70 Regulation and supervision 76 Capital and liquidity management 86 Asset liability management 88 Reinsurance ceded 90 Risk management 97 In control statement 99 Controls and procedures 30 4 Integrated Annual Report 2018 3 Financial information Financial statements of Additional information Aegon N.V. 104 Selected financial data 345 Overview 106 Results of operations 311 Income statement of Aegon N.V. 345 Americas 107 Worldwide 312 Statement of financial position 354 The Netherlands 115 Americas of Aegon N.V. 362 United Kingdom 123 Europe 313 Notes to the financial statements 366 Central & Eastern Europe 133 Asia 369 Spain & Portugal 139 Aegon Asset Management 372 Asia 324 Independent auditor’s 375 Aegon Asset Management report 378 Risk factors Aegon N.V. Consolidated financial 399 Compliance with regulations statements of Aegon N.V. 400 Property, plant and equipment Other information 400 Employees and labor relations 143 Exchange rates 400 Dividend policy 144 Consolidated income statement 333 Profit appropriation 401 The offer and listing of Aegon N.V. 334 Major shareholders 402 Memorandum and Articles 145 Consolidated statement of of Association comprehensive income 404 Material contracts of Aegon N.V. Other financial information 405 Exchange controls 146 Consolidated statement of 406 Taxation financial position of Aegon N.V. 337 Schedule I 414 Principal accountant fees 147 Consolidated statement of changes 338 Schedule II and services in equity of Aegon N.V. 340 Schedule III 415 Purchases of equity securities by 150 Consolidated cash flow statement 342 Schedule IV the issuer and affiliated purchasers of Aegon N.V. 343 Schedule V 416 Half year results – unaudited 151 Notes to the consolidated financial statements Other non-financial information 418 Other non-financial data 421 Basis of preparation 425 Reference tables 425 Global Reporting Initiative (GRI) standards 433 International Integrated Reporting Council (IIRC) framework 434 EU directive on Non-Financial Information 434 UN Principles for Sustainable Insurance (PSI) 435 UN Sustainable Development Goals (SDG) 437 Glossary 443 Abbreviations 444 Disclaimer 103 446 Contact Integrated Annual Report 2018 CONTENTS 2018 at a glance Letter from our CEO Letter from our CEO 4 2018 at a glance Letter from our CEO 5 “A lifetime of financial security requires smart planning, promoting healthy lifestyles and offering the right solutions at every stage of our customers’ lives.” Alex Wynaendts CEO Aegon 2018 was another year of positive change at Aegon. We have continued to improve our service to millions of customers, continued to simplify and modernize our organization and capitalized on new growth opportunities. These initiatives stem from a clear purpose and culture – of 2018, Aegon was entrusted to manage and administer more fundamentals which define why we exist and will continue than EUR 800 billion of investments on behalf of our customers. to exist, and grow, long into the future. Our purpose is clear, We are doing so, fully integrating environmental, social and to help people achieve a lifetime of financial security. That governance factors into our investment analysis. Further to that, requires smart planning, promoting healthy lifestyles and we are actively engaging with companies in our investment offering the right solutions at every stage of our customers’ lives. portfolio to improve their sustainability performance. We are clear in the responsibility we have for our customers. We have put forward a robust approach to securing the financial Our annual retirement research shows that there is a clear security of our customers’ retirement and promoting healthy connection between wealth and health. We have therefore taken aging in our society. our commitment one step further, supporting people to achieve prosperity and health through all stages of their lives. We are Serving customers a vocal participant in debates about the retirement challenge Our services have never been more necessary than it is today. and share our knowledge and expertise with the governments According to the World Health Organization, over 2 billion and international organizations we work with. Meeting the people will be over 60 years of age by 2050 – almost a quarter dynamic needs of our customers and society, responding to of the world’s population. This demographic change poses new competition, technological and regulatory change, shapes far-reaching challenges for society, governments, business and our DNA. We strive to be future fit: by acting as one in an agile Aegon. One of the key shifts will be who provides that financial manner, being accountable, and above all, being customer centric. security during retirement. The responsibility is shifting fast from This has led to considerable strategic, operational and financial governments and employers to individuals. Though many people changes across our company, enabling us to enhance our products are neither equipped with the knowledge nor the resources and services to meet the evolving needs of our almost 29 million to protect their financial futures. It is our responsibility to help customers worldwide. customers make the right choices. There is more work to be done. Our Net Promoter Score (NPS), But it does not end there. There is a clear relationship between a measure that captures all aspects of our relationship with well-being and the environment we live in. Toward the end our customers, showed a decrease in 2018 compared with Integrated Annual Report 2018 CONTENTS 5 2018 at a glance Letter from our CEO a strong increase the year before. The result only strengthens Specific steps in 2018 included rationalizing our geographical our commitment to continue to enrich the quality, solutions footprint, entering partnership agreements, upgrading our and support we provide to customers. technology and the consolidation of our administration systems. Actions like these have allowed us to remove expenses from Financial results and new medium-term targets our operations, while at the same time freeing up resources Financially, 2018 was challenging. Markets significantly to focus on further improving customer experience and reduce declined toward the end of the year and this directly influenced time-to-market. We finalized the sale of the Irish operation the value of our customers’ investments, which impacted results and divested our businesses in the Czech Republic and of our own administration and services businesses.