Annual Report 2015 II This page has been intentionally left blank. Annual Report 2015 This pdf is interactive. The content is clickable so you can navigate through this document. 3 Table of contents Strategic information Financial statements of Aegon N.V. Introduction 5 Income statement of Aegon N.V. 294 CEO letter 6 Statement of financial position of Aegon N.V. 295 Composition of the Executive Board Notes to the financial statements 296 and the Management Board 8 Aegon’s strategy 10 Independent auditor’s report 309 Business overview History and development of Aegon 12 Other information Selected financial data 13 Proposal for profit appropriation 318 Business lines 16 Major shareholders 319 Results of operations 18 Worldwide 18 Americas 26 Other financial information The Netherlands 42 Schedule I 322 United Kingdom 53 Schedule II 323 New Markets 62 Schedule III 325 Risk management 85 Schedule IV 327 Capital and liquidity management 89 Schedule V 328 In control statement 93 Regulation and Supervision 94 Additional information Compliance with regulations 330 Governance Risk factors 331 Report of the Supervisory Board 98 Property, plant and equipment 351 Members of the Supervisory Board 106 Employees and labor relations 351 Remuneration Report 108 Dividend policy 352 Corporate governance 116 The offer and listing 353 Differences between Dutch and US company laws 120 Memorandum and Articles of Association 354 Code of ethics 121 Material contracts 355 Controls and procedures 122 Exchange controls 356 Taxation 356 Principal accountant fees and services 362 Consolidated financial statements Purchases of equity securities by the issuer of Aegon N.V. and affiliated purchasers 364 Exchange rates 128 Quarterly results – unaudited 365 Consolidated income statement of Aegon N.V. 130 Glossary 366 Consolidated statement of comprehensive income Disclaimer 371 of Aegon N.V. 131 Contact 373 Consolidated statement of financial position of Aegon N.V. 132 Consolidated statement of changes in equity of Aegon N.V. 133 Consolidated cash flow statement of Aegon N.V. 136 Notes to the consolidated financial statements 137 Remuneration 286 4 This page has been intentionally left blank. Annual Report 2015 Strategic information Introduction 5 Introduction About this report Presentation of certain information This report serves as Aegon’s Annual Report for the year ended References to the 'NYSE' are to the New York Stock Exchange December 31, 2015. It presents the consolidated financial and references to the SEC are to the US Securities and Exchange statements of Aegon (pages 130-292) and the stand-alone Commission. Aegon uses 'EUR' and 'euro' when referring to financial statements of Aegon N.V. (pages 294-308), both the lawful currency of the member states of the European prepared in accordance with the International Financial Reporting Monetary Union; 'USD', and 'US dollar' when referring to Standards (IFRS) as adopted by the European Union, and Part 9 the lawful currency of the United States of America; 'GBP', of Book 2 of the Dutch Civil Code. 'UK pound' and 'pound sterling' when referring to the lawful currency of the United Kingdom; 'CAD' and 'Canadian dollar' when Aegon N.V. is referred to in this document as 'Aegon', or referring to the lawful currency of Canada; 'CNY' when referring 'the Company', and is together with its member companies to the lawful currency of the People's Republic of China; 'CZK' referred to as 'Aegon Group' or 'the Group'. For such purposes, when referring to the lawful currency of the Czech Republic, 'member companies' means, in relation to Aegon N.V., those 'HUF' when referring to the lawful currency of Hungary; 'PLN' companies required to be consolidated in accordance with when referring to the lawful currency of Poland; 'RON' when the Netherlands legislative requirements concerning relating referring to the lawful currency of Romania; 'TRY' when referring to consolidated accounts. to the lawful currency of Turkey, and 'UAH' when referring to the lawful currency of Ukraine. CEO letter 6 Strategic information CEO letter CEO letter 2015 was a year in which we made significant progress in the execution of our strategy. Our operational and financial successes are ultimately the result of customers placing their trust in Aegon, and I’m proud that we are helping millions of people achieve a lifetime of financial security. Once again, one of the key highlights of the year was the very Transforming our business strong and profitable sales we generated across the Company, 2015 was the final year of a five-year strategy cycle at which are up by 24% on 2014. Moreover, I am pleased that we the Company. As pleasing as it was to not only meet, but exceed, have seen a 12% year-on-year increase in sales over the last five our targets for operational free cash flows and fee-based years, and this success underlines the continued progress Aegon earnings, I am disappointed that we did not achieve our targets has made to connect with customers in new ways – including for return on equity and earnings growth. In January 2016, we through our new and innovative digital propositions. updated the market on our strategy and the steps we are taking to continue to improve our operational performance. Central While we had strong results in terms of sales, it was to this is the announcement that we will further reduce our a challenging year from an earnings perspective and I am expenses by EUR 200 million over the next three years. disappointed that our results – in particular those in the US – In parallel, we will focus on developing a life-long relationship did not meet our expectations. The main cause of this decline with our customers so that we can serve their financial needs in earnings was the adverse effect from model updates and at all the major financial junctures in their lives; rather than on assumption changes. These included the impact of changes a one-off basis. In order to accomplish this, we need to get much in customer behavior, the effect of which was exacerbated closer to our customers and connect with them how and when by the low interest rate environment. We have taken actions they wish. To this end, we will step up our work to provide to mitigate this adverse effect and remain committed to guidance and advice to customers and accelerate our investments generating attractive returns. in digital solutions. Adapting to change Focusing on value creation The global economic climate continues to present challenges We continued to make progress in the optimization of our for the insurance sector. Credit conditions worsened in 2015 portfolio, allocating capital to those businesses that create value as world oil prices reached their lowest point in over a decade. and growth in order to deliver on our financial targets and While the gradual upturn in the US economy was a positive sign, strategy. 2015 saw the divestment of a number of non-core the economic growth outlook in the US remains mixed and below activities, including our life insurance business in Canada, that of the pre-crisis level. Similarly, although measures to Clark Consulting and our joint venture with La Mondiale in France, stimulate the eurozone economy had a positive effect on freeing up close to a billion euros of capital. In terms of the outlook for the region, conditions for insurers became more reinvesting our capital, two transactions that we secured are challenging as interest rates dropped to historic lows. In this particularly exciting: first, the creation of a strategic partnership challenging environment Aegon remains well positioned for with La Banque Postale Asset Management, the fifth largest the future. The transformation in our business over the last five asset manager in France with over 10 million customers; and years, from one reliant largely on spread businesses to one second, the acquisition of Mercer’s record keeping business, focused on fee and technical income, makes us a stronger and which makes Aegon one of the top five in the US pension more resilient franchise going forward. administration market, with approximately 5 million plan participants. Both of these deals illustrate how we are reaching new customers by enhancing our distribution networks and teaming up with market leaders. Annual Report 2015 7 Navigating a complex regulatory landscape Our communities and our employees While regulation of our industry is changing rapidly and Although this report provides a comprehensive overview of compliance costs are rising, with the right business model these Aegon’s financial activities, we take the impact we have on changes represent a clear opportunity. Indeed, Aegon has the the communities in which we operate, wider society and added competitive advantage of knowing how to operate the environment very seriously. For this reason, we are pleased to in rapidly changing markets due to its global presence. also publish an annual review, which is available on aegon.com. This explains our social, economic and environmental performance Preparations for the European Union Solvency II Directive were and impacts, together with outlining how we create value for a considerable undertaking throughout the year. Gaining approval our stakeholders. for Aegon’s internal model in the Netherlands and the United Kingdom in December was a significant achievement, and our I am proud to work alongside over 31,500 talented colleagues strong capital position was reflected in the fact that all our major who are dedicated to making a difference and who share my business units are above their respective target levels. I am passion for our purpose – to help people achieve a lifetime of pleased that our estimated group Solvency II ratio of 160% is financial security. On behalf of the Management Board I would in the upper end of our target range, meaning we are in a strong like to express my sincere thanks for all their hard work and position to return capital to our shareholders.