Aegon Annual Report2017 Aegon Annual Report 2017 1 Table of contents Strategic information Financial statements of Aegon N.V. Introduction 3 Income statement of Aegon N.V. 310 CEO letter 4 Statement of financial position of Aegon N.V. 311 Composition of the Executive Board Notes to the financial statements 312 and the Management Board 6 Aegon’s strategy 9 Independent auditor’s report 323 Business overview History and development of Aegon 11 Other information Selected financial data 12 Profit appropriation 332 Non-Financial Statement 14 Major shareholders 333 Business lines 21 Results of operations 23 Worldwide 23 Other financial information Americas 32 Schedule I 336 Europe 48 Schedule II 337 Asia 74 Schedule III 340 Aegon Asset Management 83 Schedule IV 342 Asset-Liability Management 90 Schedule V 343 Reinsurance ceded 92 Risk management 94 Capital and liquidity management 100 Additional information In control statement 109 Compliance with regulations 345 Regulation and Supervision 111 Risk factors 346 Property, plant and equipment 366 Employees and labor relations 366 Governance Dividend policy 367 Report of the Supervisory Board 115 The offer and listing 368 Members of the Supervisory Board 123 Memorandum and Articles of Association 369 Remuneration Report 126 Material contracts 370 Corporate governance 134 Exchange controls 370 Differences between Dutch and US company laws 139 Taxation 371 Code of ethics 140 Principal accountant fees and services 377 Controls and procedures 141 Purchases of equity securities by the issuer and affiliated purchasers 379 Quarterly results – unaudited 380 Consolidated financial statements Glossary 381 of Aegon N.V. Abbreviations 387 Exchange rates 146 References 388 Consolidated income statement of Aegon N.V. 147 Disclaimer 389 Consolidated statement of comprehensive income Contact 391 of Aegon N.V. 148 Consolidated statement of financial position of Aegon N.V. 149 Consolidated statement of changes in equity of Aegon N.V. 150 Consolidated cash flow statement of Aegon N.V. 153 Notes to the consolidated financial statements 154 Remuneration 302 Annual Report 2017 2 This page has been intentionally left blank. Annual Report 2017 CONTENTS Strategic information Introduction 3 Strategic information Introduction 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, 2017. It presents the consolidated financial and references to the ‘SEC’ are to the US Securities and statements of Aegon pages 147-308 and the stand-alone Exchange Commission. Aegon uses 'EUR' and 'euro' when financial statements of Aegon N.V. pages 310-322, both referring to the lawful currency of the member states of the prepared in accordance with the International Financial Reporting European Monetary Union; 'USD', and 'US dollar' when referring Standards as adopted by the European Union ('IFRS-EU'), and to the lawful currency of the United States of America; 'GBP', Part 9 of Book 2 of the Dutch Civil Code. 'UK pound' and 'pound sterling' when referring to the lawful currency of the United Kingdom; and 'PLN' when referring Aegon N.V. is referred to in this document as 'Aegon', or 'the to the lawful currency of Poland. Company', and is together with its member companies referred to as 'Aegon Group' or 'the Group'. For such purposes, 'member References companies' means, in relation to Aegon N.V., those companies References are included on page 388 of this document. required to be consolidated in accordance with the Netherlands legislative requirements relating to consolidated accounts. Annual Report 2017 CONTENTS CEO letter 4 Strategic information CEO letter CEO letter 2017 was a year to be proud of as we continued to grow our business profitably, strengthened our capital position, executed our strategy and helped millions of people achieve a lifetime of financial security. Our environment In our largest market, the US, we continued our work to reduce Last year saw a welcome improvement in the world economy, expenses in order to boost earnings and modernize our business with the 3% pickup in global growth the highest rate recorded by investing in new technology. In early January of 2018, since 2011. For Aegon, the macroeconomic backdrop was we announced that we would outsource the administration of our in general positive. Economic growth improved across the life, health, annuities and benefits businesses. This decision majority of our markets, and this was reflected in business and represents a major strategic step forward, as our customers consumer confidence. Inflation remained relatively low and will benefit from both enhanced digital capabilities and higher central bank policies moved slowly onto a path of normalization service levels. In addition, the divestment of the majority of our globally. The rise in interest rates, be it from a very low base, was run-off businesses marked a major milestone in the strategic a beneficial development not only for customers wishing to save transformation of our US business. for the future, but also for Aegon and the industry as a whole. The most important development in the Netherlands over Political events were once again followed very closely the last year was the recapitalization of our Dutch business by the financial community. Indeed, political developments by injecting capital from the Group and divesting Unirobe in Aegon’s three largest markets continued to make headlines, Meeùs Groep. As a result, the unit is now strongly capitalized, with a new President taking office in the US, the formation of a is expected to generate healthy cash flows, and is positioned new coalition in the Netherlands, and the triggering of article to pay a dividend to the group in 2018, which represents a very 50 by the UK government to leave the EU. The regulatory world significant turnaround from only a year ago. also continued to change rapidly. In the US, for instance, the Department of Labor implemented a new fiduciary rule to ensure In the UK, we have transformed our business into the number customers’ best interests are served, whereas in the UK, changes one retail investment platform in the market, with over to corporate tax rate policy required us to hold more capital. 1.2 million customers. Our main focus over the last year was continuing to integrate Cofunds and BlackRock’s defined Our financial performance contribution business, together with upgrading tens of thousands 2017 was a very positive year for Aegon from a financial of customers from our backbook onto our state-of-the-art perspective, and I am pleased that we are, as a result, well platform, which increased assets to more than GBP 117 billion. positioned to achieve our 2018 financial targets. In terms of our This growth is a direct result of our decision to reposition our key financial metrics, our earnings were strong, we continued UK business, and underlines the benefits of moving to a fee- to generate solid sales – particularly in fee businesses, pension based business model. businesses, mutual funds and third-party asset management – and we made progress on our return on equity target. During 2017, we took the decision to implement a new structure Furthermore, recapitalizing our Dutch business and strengthening in our European asset management business to enhance our group solvency ratio means that we are able to fully focus synergies, become more agile and improve earnings. Furthermore, on continuing to implement our strategy, such as executing our asset management joint ventures in China and France have our expense savings program, which will lead to annual proven very successful in contributing to underlying earnings and EUR 350 million cost savings by year-end 2018. Most important the growth of our business. of all, we paid out a total of close to EUR 50 billion in claims and benefits over the year, demonstrating how relevant our company The significant progress achieved in our largest markets was is to the lives of our millions of customers also replicated in our developing markets. In Asia, for instance, our Chinese joint venture has become profit-making due to the Our company’s transformation continued success of our critical illness product. Our Asian high- Customers’ needs and expectations are continuously evolving net-worth business has made a meaningful contribution to the and we are therefore changing the way we serve them. In 2017, group, upstreaming a special dividend of USD 200 million for the we made significant progress across our company in becoming first time. Elsewhere, our business in India is a leader in the digital a more innovative and digital company, positioning us well for insurance market, and continues to set the standard for offering future growth. life insurance online. Perhaps most pleasing of all, we have made significant progress in terms of how we share ideas, information Annual Report 2017 CONTENTS 5 Strategic information CEO letter and innovation across our company. This means that customers Our organization in one market can benefit from what we have learned in another, We are this year saying farewell to Aegon’s Supervisory Board demonstrating one of the key benefits of being active in such Chairman, Rob Routs, and fellow member of the Supervisory diverse markets. Board, Dirk Verbeek, both of whom are stepping down at the Annual General meeting in May 2018. I would like to sincerely Our communities thank Rob and Dirk for the commitment, challenge and support Being a responsible corporate citizen is a role we take very they have provided over the last 10 years, and wish them well seriously. We manage over EUR 800 billion of investments for the future. and have a duty to invest responsibly. We also support our communities in other ways: raising global awareness about Looking ahead retirement issues; fulfilling our tax obligations; and helping Our company has every reason to look forward with confidence.