Annual report 2016 22 March 2017 Table of contents Overview 5 Highlights 5 Message from the chairman 6 About Delta Lloyd 8 Our brands 8 Our strategy 9 Our environment 12 How we create value 14 Value creation model 14 Delta Lloyd’s contribution to the UN SDGs 16 Stakeholders and materiality 17 Materiality assessment 20 Delta Lloyd in 2016 23 Capital management 27 Financial and operational performance 29 Life Insurance 31 General Insurance 34 Asset Management 37 Bank 39 Corporate and other activities 41 Investor relations and share developments 41 Human capital 46 Risk management and compliance 50 Risk management 50 Risk management philosophy 50 Risk governance 51 Risk management responsibilities 52 Risk processes and systems 53 Risk culture 54 Risk taxonomy 55 Top five risks 58 Compliance 61 Fraud 62 Corporate governance 64 Executive Board and Supervisory Board 64 Executive Board 64 Supervisory Board 64 Supervisory Board committees 65 Report of the Supervisory Board 66 Role of the Supervisory Board 67 Strategy 67 Key issues in 2016 68 Other issues 69 Supervisory Board composition 70 Supervisory Board meetings 70 Supervisory Board committees 71 Financial statements and profit appropriation 75 A word of thanks 76 Remuneration report 2016 77 Remuneration policy 77 Governance of the remuneration policy 77 Remuneration received by Executive Board members 81 Remuneration of the Supervisory Board 93 Corporate governance 96 Corporate governance statement 104 EU directive on takeover bids 104 In control statement 106 Management statement under Financial Supervision Act 107 Reporting principles – About this report 108 Definitions 109 Financial statements 2016 111 Consolidated financial statements 111 Consolidated statement of financial position 112 Consolidated income statement 114 Consolidated statement of comprehensive income 115 Consolidated statement of changes in shareholders’ funds 117 Consolidated cash flow statement 120 Accounting policies 122 Financial impact of changes in accounting policies and reclassifications 125 Use of assumptions and estimates 126 Consolidation principles 128 Foreign currency translation 129 Product classification 130 Notes to the consolidated financial statements 132 (1) Risk management 132 (2) Capital management 160 (3) Segment information 162 (4) Subsidiaries 175 (5) Discontinued operations and assets and liabilities held for sale 175 Delta Lloyd Annual report 2016 Table of contents 2 (6) Details of income 177 (7) Details of expenses 182 (8) Employee information 184 (9) Goodwill 191 (10) AVIF and other intangible assets 194 (11) Deferred acquisition costs 195 (12) Property and equipment 196 (13) Investment property 197 (14) Associates 199 (15) Debt and equity securities 204 (16) Derivatives 209 (17) Loans and receivables 212 (18) Investments at policyholders’ risk 217 (19) Third party interests in consolidated investment funds 218 (20) Receivables and other financial assets 218 (21) Share capital 219 (22) Earnings per share 221 (23) Revaluation reserves 222 (24) Non-controlling interests 223 (25) Insurance liabilities 225 (26) Reinsurance assets 234 (27) Liabilities for investment contracts 237 (28) Effect of changes in assumptions and estimates on provisions for insurance and investment contracts 238 (29) Pension obligations 240 (30) Provisions for other liabilities 249 (31) Income taxes 250 (32) Borrowings 253 (33) Financial liabilities 257 (34) Other liabilities 257 (35) Contingent assets and liabilities 258 (36) Off-balance sheet positions 262 (37) Fair value of assets and liabilities 264 (38) Transferred financial assets 271 (39) Related party transactions 273 (40) Subsequent events 276 Separate financial statements 278 Notes to the separate financial statements 279 Accounting policies 279 Financial impact of changes in accounting policies and reclassifications 280 (I) Total expenses 280 (II) Total income 280 (III) Goodwill 280 (IV) Participating interests 280 (V) Investments 282 (VI) Receivables 282 (VII) Equity 284 (VIII) Provisions 287 (IX) Subordinated debt 287 (X) Long-term borrowings 288 (XI) Other liabilities 288 (XII) Related party transactions 289 (XIII) Off-balance sheet commitments 290 (XIV) Employee information 290 (XV) Audit fees 291 Delta Lloyd Annual report 2016 Table of contents 3 (XVI) Subsequent events 292 Other information 293 Profit appropriation 293 Combined independent auditor’s report 294 Non-financial appendix 308 Net promoter scores 308 Supply chain management 309 Sponsoring 310 Tax 311 Carbon footprint 313 Delta Lloyd Foundation 313 GRI table – Core 315 Abbreviations 321 Glossary 324 Disclaimer 333 Delta Lloyd Annual report 2016 Table of contents 4 Overview Highlights Solvency II ratio Shareholders' funds Dividend 143 % 3,185 Bn € 0.10 € + 12pp (2015: 131 %) + 24% (2015: 2,569 Bn €) - 51% (2015: 0.21 €) Net IFRS-result HoldCo net cash position COR 231 m € 510 m € 105.4 % + 80% (2015: 128 m €) + 260% (2015: -319 m €) + 9.2pp (2015: 96.2 %) Value of new business Operational expenses Net capital generation 27 m € 589 m € 172 m € - 5% (2015: 619 m €) IFA satisfaction* NPS Delta Lloyd** Number of employees #1 -13 4,579 (2015: #1) (2015: -18) (2015: 4,739) Employee engagement Assets under management Sustainable investments 69 % 71 Bn € 3.63 % - 6pp (2015: 75 %) + 1% (2015: 70 Bn €) (2015: 1.81 %) * For pension products. See our non-financial appendix for all IFA product ratings. ** For Delta Lloyd (consumers). See non-financial KPIs for all NPS scores. Delta Lloyd Annual report 2016 Overview 5 Message from the chairman Transition, adapting and strengthening characterised 2016. During the year, we successfully executed a range of actions to strengthen our capital and cash positions. We made good progress on initiatives to improve our client focus, business performance and reduce costs. However, we operate in a difficult environment, with margins consistently under pressure, interest rates at record lows and challenging regulatory developments. While we made good progress on implementing our Closer to the Customer strategy and management priorities, in October NN Group publicly announced their intention to make an offer for Delta Lloyd. We rejected the initial offer, but reached out to NN Group to discuss the possible combination of our two companies. At the same time, we investigated other strategic options, including a stand-alone scenario. On 22 December, NN Group improved its offer both in financial and non-financial terms. After due and careful consideration, our Executive and Supervisory Boards decided to recommend this improved offer to our shareholders. We believe it is in the best interest of Delta Lloyd and its stakeholders. It will create a leading insurance and pension company in the Dutch market, with a strong presence in Belgium and an attractive proposition in asset management and banking. NN Group’s offer provides a certain cash premium for our shareholders. We have decided not to pay a final dividend for 2016, as any dividend would reduce the purchase price of € 5.40 per ordinary share. Good progress on management priorities of capital, performance and customer Given these circumstances, 2016 was a year of mixed results. We successfully executed our capital plan and substantially improved our cash position. We were pleased that our shareholders supported the € 650 million rights issue in the first quarter. Additionally, we delivered on management actions including the sale of our shareholding in Van Lanschot and strengthening our balance sheet. We are well on track for the implementation of the Partial Internal Model (PIM). However, during the fourth quarter, our capital position was negatively impacted by adverse longevity development and DNB guidance on on the loss absorbing capacity of deferred taxes (LAC DT) to the industry. Consequently, at year-end our Solvency II ratio was towards the lower end of our target capital range. Our business performance continued to be a priority, with Life Insurance margins under pressure, although in Belgium our protection business delivered strong margins. A disappointing combined ratio in General Insurance reflected the impact of exceptional weather in June. Our asset management and banking business contributed modestly to the operational result. Our operational expenses were well below our target for 2016. We have lowered our 2018 expense target and have taken action to structurally improve the technical results in Life and GI. We expect to see the results of these actions in 2017. We aim to be the preferred insurer for our customers and business partners and in 2016 most of our Net Promoter (NPS) and customer satisfaction scores increased among individual and commercial customers. Intermediaries again chose Delta Lloyd as the best pensions provider in the Netherlands. This is the fifth consecutive year. We are very proud of this, especially given the challenges we have faced in recent years. Delta Lloyd Annual report 2016 Overview 6 The high level of our service was apparent in the days and weeks after exceptional rain and a hailstorm in the south of the Netherlands last summer. The damage to the area was enormous and companies and farmers were especially hard hit. After the storm, Delta Lloyd employees, often in cooperation with third parties, moved swiftly and decisively to help affected customers with personal attention and additional repair capacity. We were pleased to receive a licence for a general pension fund (APF) in 2016. This new activity in a sizeable market will help building profitable volume and create