AEGOF Aegon Ltd (PK)

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 2019

AEGON N.V.

Aegonplein 50

2591 TV THE HAGUE

The Netherlands

Aegon’s 2018 Solvency and Financial Condition Report, dated May 13, 2019, are included as appendix and incorporated herein by reference.

Table of contents

		Solvency and Financial Condition Report 2018

3     Introduction Scope of the report

Scope of the report

This report is Aegon N.V.’s Group Solvency and Financial Condition Report (SFCR) for the year 2018. This report informs Aegon N.V.’s stakeholders about its:

The valuation differences between the scope of Aegon Group used for the consolidated financial statements based on IFRS-EU and the scope of Aegon Group for the consolidated data determined in accordance with Article 335 of the Delegated Regulation Solvency II, are discussed in more detail in section D. Valuation for solvency purposes.

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 359 – 371 and articles 290-298 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.

The figures reflecting monetary amounts in the SFCR are presented in euro (unless stated otherwise). Aegon discloses monetary amounts in millions of units for disclosing purposes. All values are rounded to the nearest million unless otherwise stated. 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 cases in which IFRS figures are disclosed, the figures are prepared in accordance with the International Financial Reporting Standards as adopted by the European Union (IFRS-EU).

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

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

The 2018 SFCR of Aegon Group has been prepared and disclosed under the responsibility of Aegon’s Executive Board. This document was approved on May 13, 2019 by the Executive Board.

		Solvency and Financial Condition Report 2018

4     Introduction Summary

Summary

The 2018 Solvency Financial Condition Report provides Aegon’s stakeholders insight in:

A. Business and performance

Aegon is an international financial services group. We provide life insurance, pensions and asset management. Its listed holding company, Aegon N.V., is a public limited liability company with its corporate seat and head office in the Netherlands.

Through its subsidiaries and joint ventures, Aegon employs over 26,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). Aegon’s main operating units are separate legal entities that operate under the laws of their respective countries and are directly or indirectly held by three intermediate holding companies incorporated under Dutch law. These legal entities are directly or indirectly held by 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 has the following operating segments: the Americas, which includes the United States, Mexico and Brazil; the Netherlands; the United Kingdom; Central & Eastern Europe; Spain & Portugal; Asia; Aegon Asset Management and Holdings.

Aegon exists to help people achieve a lifetime of financial security. It uses a multi-brand, multichannel distribution approach to meet its customers’ needs, and fosters an entrepreneurial spirit within its businesses, encouraging the development of innovative products and services.

Aegon’s business model focuses on the following items:

For more information on Aegon’s strategy, please see the Integrated Annual Report 2018 of Aegon Grou p .

Key events in 2018:

		Solvency and Financial Condition Report 2018

5     Introduction Summary

Net income amounted to EUR 744 million in 2018, as underlying earnings before tax of EUR 2,074 million were partly offset by fair value losses and other charges.

From an underlying earnings perspective, Aegon’s underlying earnings before tax decreased to EUR 2,074 million in 2018 (EUR 2,140 million in 2017). This was mainly driven by lower fee revenue due to declining equity markets and net outflows of revenue generating investments, and unfavorable mortality experience in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.

Investment income amounted to EUR 7.0 billion in 2018 compared to EUR 7.3 billion in 2017. Aegon Americas is the largest contributor to the investment income with EUR 3.1 billion, followed by Aegon the Netherlands, EUR 2.3 billion, and Aegon UK with EUR 1.3 billion.

Premium income amounted to EUR 19.3 billion, down by 15% from 2017 (EUR 22.8 billion). This decrease was mostly driven by lower premium income in Aegon UK affected by a reduction of upgraded Life insurance policies to the platform in the UK, and a decrease in Non-life premiums mainly from product exits and currency translation adjustments in the Americas.

Commissions and expenses increased by 5% compared with 2017 to EUR 6,224 billion in 2018 mainly driven by increased amortization of intangible assets in Americas.

Total policyholder claims and benefits amounted to EUR 10.6 billion in 2018 compared to EUR 45.6 billion in 2017. The decrease of EUR 35.0 billion is mainly attributable to changes in the valuation of liabilities of insurance contracts and investment contracts. The changes in valuation of liabilities for insurance contracts and investment contracts reflect changes in technical provisions resulting from net fair value changes on financial assets for account of policyholder included in results from financial transactions.

Results from financial transactions amounted to EUR (11.7) billion in 2018 compared to EUR 20.1 billion in 2017. The main contributor is the net fair value change on for account of policyholder financial assets of EUR (11.3) billion in 2018 and is mainly driven by unfavorable credit markets and equity markets.

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

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6     Introduction Summary

B. System of governance

General governance

Aegon is incorporated and established in the Netherlands and therefore must comply with Dutch law, such as the provisions of Book 2 of the Dutch Civil Code. In addition, Aegon 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. The Executive Board is assisted in its work by the Management Board which provides vital support and expertise in safeguarding Aegon’s strategic goals. There were no material changes in the system of governance during the reporting period.

Aegon’s Executive Board is charged with the overall management of the Company and is therefore responsible for achieving Aegon’s aims and developing the strategy and its associated risk profile. In addition, it oversees any relevant sustainability issues and the development of Aegon’s earnings. 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.

Aegon’s Management Board is comprised of the members of the Executive Board, the Chief Executive Officers (CEOs) of the Americas, United Kingdom, Continental Europe, Asset Management and the following global functions: Group Chief Risk Officer, Group General Counsel, Global Head of HR and the Global Chief Technology Officer.

Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board members, comprising seven members as per December 31, 2018, are appointed by the shareholders at the General Meeting of Shareholders. Aegon aims for the Supervisory Board to be well-balanced in terms of professional background, geography and gender. The Supervisory Board has the following committees:

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’.

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 material 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:

Control environment

In addition to risk management, Aegon’s Solvency II control environment consists of an internal control system, which includes a compliance function, an actuarial 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 has end-to-end accountability for the adequacy and reliability of reported technical provisions, including policy setting and monitoring of compliance regarding actuarial risk tolerances. Aegon’s internal audit function is independent and objective 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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7     Introduction Summary

C. Risk profile

As an insurance group, Aegon accepts and manages risk 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 risk, 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. 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.

Material movements in risk profile during 2018 mainly include the following:

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:

		Solvency and Financial Condition Report 2018

8     Introduction Summary

Aegon Group’s net Partial Internal Model (PIM) SCR amounted to EUR 8,349 million on December 31, 2018, which was an increase of EUR 575 million compared to the SCR on December 31, 2017 of EUR 7,774 million. This net SCR increase was mainly driven by the following movements in gross SCR risks:

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

D. Valuation for solvency purposes

Aegon values its Solvency II balance sheet items on a basis that reflects their economic value. Where the IFRS-EU fair value is consistent with Solvency II requirements, Aegon follows IFRS-EU for valuing assets and liabilities.

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

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

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9      Introduction Summary

E. Capital management

Aegon’s target Solvency II capital ratio is between 150%—200%. At December 31, 2018, the Solvency II ratio of 211% was in excess of this target range.

In the following table the Solvency II key figures for Aegon are presented as at December 31, 2018:

Aegon uses a combination of Accounting Consolidation (method 1) and Deduction & Aggregation (method 2) for the calculation of the Solvency II Group Solvency. In addition, Aegon uses a Partial Internal Model (PIM) to calculate the solvency position of Aegon Levensverzekering N.V, Scottish Equitable Plc, Aegon Spaarkas N.V., Optas Pensioenen N.V, and Aegon N.V. (which is a mixed financial holding company). Other entities included via the Accounting Consolidation method, excluding Other Financial Sector entities, use the Solvency II determined Standard Formula approach. The capital requirements of Other Financial Sector entities are based on relevant sectoral capital requirements. Aegon Bank is excluded from the Group Solvency II ratio, as required by the Group Solvency II supervisor, DNB.

In Aegon’s Non-EEA regions, (re)insurance entities domiciled in third countries deemed (provisional) equivalent (US life insurance entities, Bermuda, Japan, Mexico and Brazil), the capital requirement is based on local capital requirements.

Aegon’s internal model was approved by the College of Supervisors as part of the Internal Model Application Process. Aegon is of the opinion a (partial) internal model is a better representation of the actual risk, since this contains Company specific modelling and sensitivities as opposed to industry-wide approximations included in the standard formula methodology.

Aegon has applied a method to allocate centrally issued subordinated debt between the AC and D&A parts of the group on an available Own Funds basis. The Solvency II contribution of the Aegon Americas insurance and reinsurance entities (US regulated entities) under Deduction & Aggregation (D&A) involves converting 150% Risk-Based Capital Company Action Level into Solvency Required Capital (SCR) and reducing own funds by a 100% RBC Company Action Level requirement to reflect transferability restrictions. The methodology is subject to annual review.

		Solvency and Financial Condition Report 2018

10     Introduction Summary

The LAC-DT is calculated after diversification and lowered the net PIM SCR by EUR 756 million (2017: EUR 714 million).

The LAC-DT benefit mainly stemmed from Aegon the Netherlands. Aegon has applied a LAC-DT factor in the Netherlands of 75% as of December 31, 2018 (2017: 75%), while taking into account the impact of the reduction of announced Corporate Income Tax (CIT) (decrease from 25.00% in 2019 to 22.55% in 2020 and to 20.5% from 2021 onwards). The LAC-DT factor is recalibrated on a quarterly basis.

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

Aegon applies the matching adjustment, in Aegon UK and Aegon Spain, which has a positive impact to the Group own funds of EUR 32 million as of December 31, 2018 (2017: EUR 55 million) and an impact of EUR (46) million (2017: EUR (65) million) on the Group solvency capital requirement. The matching adjustment methodology has been approved by local regulators. In addition, Aegon applies a volatility adjustment in Aegon the Netherlands, Aegon UK and Aegon Spain, which has a positive impact to the Group own funds of EUR 1,284 million (2017: EUR 205 million) and an impact of EUR (930) million (2017: EUR (1,273) million) on the Group solvency capital requirement.

The combined positive impact of the matching adjustment, volatility adjustment and transitional measures on the Group Solvency II ratio is 37% (2017: 33%).

Aegon Group and all of the EEA (re)insurance entities subject to the Solvency II regulation did not face any form of non-compliance with the Minimum Capital Requirement or significant non-compliance with the Group solvency capital requirement during the reporting period.

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.

		Solvency and Financial Condition Report 2018

11      Business and performance Business

A. Business and performance

A.1 Business

A.1.1 Overview

Aegon is an international financial services group. We provide life insurance, pensions and asset management. Our main operations are in the US, the Netherlands and the UK. We also have significant businesses in Southern & Eastern Europe, Asia and Latin America. Aegon can trace its roots back to the first half of the 19th century. Nearly 175 years later, we have businesses in more than 20 countries, serving 28.5 million customers and managing more than EUR 800 billion in assets.

Aegon is headquartered in the Netherlands, and through its subsidiaries and joint ventures it employs over 26,000 people worldwide. Aegon’s common shares are listed on stock exchanges in Amsterdam (Euronext) and New York (NYSE). 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.As a company, our purpose is to help people achieve a lifetime of financial security. This purpose is particularly relevant in today’s world, as people live longer, healthier lives, new technologies are transforming the way we work, and it is clear that in many countries state and company pensions are no longer enough to maintain living standards.

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 action 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 on page 5.

A.1.2 Regulators and auditor

The supervisory authority responsible for Solvency II group supervision on the 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: Westeinde 1, 1017 ZN, Amsterdam

Telephone: +31(0)20 524 91 11

Aegon’s external auditor is PricewaterhouseCoopers Accountants N.V. The external auditor’s mandate does not cover an audit on the information disclosed in this SFCR. Their contact details are:

PricewaterhouseCoopers Accountants N.V.

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

Telephone: +31 (0)88 792 00 20

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12     Business and performance Business

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, 2018 Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 571,165,680 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, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months. Accordingly, at December 31, 2018, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.33%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, currently to 32.6%, for up to six months.

A.1.4 Aegon’s Group structure

We have four main reporting segments: Americas, Europe, Asia and Asset Management. Of these, the Americas is by far the largest, accounting for nearly 60% of our annual earnings. Our holding company, Aegon N.V., is headquartered in The Hague, the Netherlands. Aegon Asset Management manages assets on behalf of third parties and Aegon’s own businesses, covering all major asset classes, including fixed income, equity and real estate. Our reporting segments include businesses, associates and joint ventures in:

Our businesses operate locally through two main brands: Aegon (mainly in Europe and Asia) and Transamerica (mainly in the US).

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 undertakings 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 undertakings held by Aegon is equal to the shareholdings unless otherwise specified.

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 IFRS-EU shareholders’ equity”.

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13     Business and performance Business

Americas

Europe

The Netherlands

Central & Eastern Europe

Spain & Portugal

United Kingdom

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14     Business and performance Business

Asia

Asset Management

For a complete list of related undertakings, please refer to QRT S.32.01.22 - Undertakings in scope of the group. A list of Aegon’s branches is provided below:

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15     Business and performance Business

A.1.6 Material lines of business and material geographical areas

Below is an overview, region by region, of Aegon’s different business units and the material lines of business that they provide.

Americas

Life

Aegon Americas offers a comprehensive portfolio of protection solutions to customers in a broad range of market segments. Products offered include term life, universal life, variable universal life, index universal life and whole life insurance.

Accident & health

Aegon Americas offers supplemental health insurance and long-term care insurance.

Mutual funds

Mutual funds are professionally managed investment vehicles comprised of pooled money invested by numerous and different individuals or institutions. Such funds are invested in various underlying security types such as stocks, bonds, money market instruments and other securities.

Variable annuities

Variable annuities 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, also referred to as riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits (GLBs).

Fixed annuities

Fixed annuities allow the policyholder to accumulate assets for retirement on a tax-deferred basis through periodic interest crediting and principal protection.

Retirement plans and IRAs

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

Stable value solutions

Synthetic Guaranteed Investment Contracts (GICs) are offered primarily to tax-qualified institutional entities such as 401(k) plans and other retirement 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.

Latin America

Aegon’s businesses in Latin America are comprised of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a joint venture with Administradora Akaan S.A. de C.V., which created and operates Akaan Transamerica in Mexico.

Europe

The Netherlands

Life

Products with mortality, morbidity, and longevity risks, including traditional and universal life, in addition to employer, endowment, term, whole life insurance products; mortgages; annuity products; and banking products, including saving deposits.

Non-life

General insurance, consisting mainly of automotive, liability, disability, household insurance, and fire protection.

Banking

Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.

Services Business

Services business consist of offering mortgage loans, PPI, Knab Advies & Bemiddeling, TKP, Robidus and Nedasco.

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16     Business and performance Business

Central & Eastern Europe

Activities in the Czech Republic (till 8 January 2019), Hungary, Poland, Romania, Slovakia (till 8 January 2019) and Turkey includes life insurance, individual and group pension products, savings and investments, in addition to general insurance.

Spain & Portugal

Aegon Spain focuses primarily on retail customers. It offers individual life, pensions, general insurance, accident and health products through different distribution channels, including its own channels (agents, brokers and direct), together with bancassurance products through its joint venture partnerships with Liberbank S.A. and Banco Santander Group, the latter of which in both Spain & Portugal.

United Kingdom

Aegon UK is organized into Digital Solutions and Existing Business:

Asia

High-net-worth businesses

TLB’s main products consist of USD denominated Universal Life and USD denominated Term Life Insurance plans for the high-net-worth market segment. Universal Life products are TLB’s key products to meet the needs of high-net-worth individuals, supporting estate planning by providing life protection, while also helping to preserve and accumulate wealth. In addition to the Universal Life products, Term Life products are also offered with financial protection at a guaranteed level rate for up to 30 years.

Aegon Insights

Aegon Insights primarily worked with local insurers to develop marketing, distribution and administration solutions tailored to the needs of specific markets and customers. With changes in consumer preferences, the ongoing focus is on exploring opportunities in the emerging digital distribution landscape, in addition to continuing to provide services to existing customers. Revenue is primarily generated through reinsurance arrangements and fee income from marketing services, product distribution and administration. During 2017, Aegon made the strategic decision to discontinue Aegon Insights’ outbound telemarketing businesses.

Strategic partnerships

In China and India, Aegon provides a broad range of life insurance products including unit-linked, universal life, and traditional life products. Aegon also offers variable annuities in Japan through Aegon Sony Life.

Aegon Asset Management

Aegon Asset Management has three distinct business lines.

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17     Business and performance Business

A.1.7 Results of operations    

Results 2018 (IFRS-EU)    

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18     Business and performance Business

Net income

Net income amounted to EUR 744 million in 2018, as underlying earnings before tax of EUR 2,074 million were partly offset by fair value losses and other charges.

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19      Business and performance Business

Underlying earnings before tax

Aegon’s underlying earnings before tax decreased compared with 2017 to EUR 2,074 million in 2018. This was mainly driven by lower fee revenue due to declining equity markets and net outflows, and unfavorable mortality experience in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.

Fair value items

The loss from fair value items amounted to EUR 260 million in 2018. Fair value losses in the Americas amounted to EUR 613 million in 2018, which was primarily related to hedge losses, reflecting the equity market decline at the end of the year, and losses on fair value investments. Fair value gains in Europe amounted to EUR 346 million, as a result of real estate investments in the Netherlands and gains on equity hedges in the United Kingdom. Gains on fair value items in Asia and at the Holding totalled EUR 8 million.

Realized gains on investments

Realized losses on investments amounted to EUR 77 million in 2018, as losses on the sale of US treasuries as part of normal trading activity were more than offset by realized gains on investments in the Netherlands and the United Kingdom

Impairment charges

Net impairments of EUR 19 million in 2018 primarily related to an impairment of corporate bonds caused by a bankruptcy filing in the US.

Other income/charges

Other charges amounted to EUR 875 million in 2018. Other charges in the Americas of EUR 397 million in 2018 mainly related to EUR 127 million transition and conversion charges for the TCS partnership, a EUR 140 million charge for a class action litigation settlement with universal life policyholders, a EUR 93 million book loss on the divestment of the last remaining substantial block of life reinsurance business, EUR 33 million impact from assumption updates, and a EUR 27 million addition to the provision for unclaimed property. Other charges in Europe of EUR 409 million in 2018 reflect EUR 111 million model & assumption changes in the Netherlands, EUR 93 million loss on the sale of Aegon Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business, and a EUR 49 million reserve strengthening related to the residual annuity book. Other charges at the Holdings amounted to EUR 57 million in 2018 and were driven by IFRS 9 / 17 implementation expenses for the Group.

Run-off businesses

The results of run-off businesses declined compared with 2017 to a loss of EUR 14 million in 2018, which is in line with expectations following the divestment of the majority of the remainder of these businesses in 2017.

Income tax

The effective tax rate amounted to 10% as a result of one-time tax benefits of declining US and Dutch corporate income tax rates next to the regular tax exempt income items and tax credits. The effective tax rate on underlying earnings before tax amounted to 15%, reflecting the lowering of the US tax rate.

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20      Business and performance Business

Commissions and expenses

Commissions and expenses increased by 6% compared with 2017 to EUR 6.7 billion in 2018. Operating expenses decreased by 2% compared with 2017 to EUR 3.8 billion in 2018. Expense savings and the divestment of UMG were more than offset by restructuring expenses associated with the acquisitions of Cofunds and BlackRock’s defined contribution business in the United Kingdom as well as the partnership with TCS in the United States.

Production

Compared with 2017, gross deposits were down by 3% to EUR 121.7 billion in 2018, driven by lower platform deposits in the United Kingdom and lower Asset Management deposits. Net outflows amounted to EUR 4.7 billion as inflows in Asset Management, the United Kingdom platform and the Dutch banking business were more than offset by outflows in the United States mainly caused by Retirement Plans due to a small number of large contract discontinuances and higher participant withdrawals. New life sales declined by 9% compared with 2017 to EUR 820 million in 2018, mostly driven by lower indexed universal life and term life production in the United States. New premium production for accident & health and property & casual insurance decreased by 52% compared with 2017 to EUR 429 million in 2018, caused by the strategic decision to exit the travel insurance, affinity and stop loss insurance segments.

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.

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 year 2018 were:

Material transactions with persons who exercise a significant influence on the undertaking

The transactions during 2018 that classify as being transactions with members of the Executive, Management and Supervisory Board consist of transactions related to the remuneration (fixed compensation / conditional variable compensation) of the members of the Executive and Management Board and the remuneration of active and retired members of the Supervisory Board.

Executive Board

Through 2018, the Executive Board consisted of Mr. Wynaendts and Mr. Rider. The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2018 was EUR 5,015 thousand and for Mr. Rider EUR 2,091 thousand. At the reporting date, Mr. Wynaendts and Mr. Rider had no loans with Aegon. No other outstanding balances such as guarantees or advanced payments exist.

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21      Business and performance Business

Management Board

The total remuneration for the members of the Management Board over 2018 was EUR 22.6 million, consisting of EUR 8.4 million fixed compensation, EUR 8.7 million variable compensation awards, EUR 0.9 million other benefits and EUR 4.5 million pension benefits.

Supervisory Board

The total remuneration in 2018 of active and retired members of the Supervisory Board amounted to EUR 809 thousand excluding VAT.

Members of the Supervisory Board are entitled to the following:

Each of these fees is a fixed amount. Members of Aegon’s Supervisory Board do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory Board members and to strengthen the overall effectiveness of Aegon’s corporate governance. There are no outstanding balances such as loans, guarantees or advanced payments.

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, internal reinsurance and capital injections. Aegon’s IGT Policy establishes definitions, governance, reporting and monitoring of IGTs ensuring a consistent standard of IGT 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:

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 UK domiciled entities), make use of Aegon Derivatives N.V. In addition, foreign exchange derivatives are centrally managed within Aegon N.V. ensuring netting advantages. As of December 31, 2018, the net (credit) exposure on the abovementioned internal arrangements was limited as most of these are supported by collateral arrangements.

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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, the reinsurance is supported by trusts, funds withheld and / or letters of credit. Any exposure above these amounts are assessed based on Aegon N.V.’s IGT policy to ensure the exposure is within policy limits. As of December 31, 2018, there are no exposures greater than the policy levels set for affiliated reinsurance.

Capital injections

Capital injections are done to strengthen the capital position of the legal entities making the request, if deemed necessary, and are typically provided by the centrally-managed Dutch holding companies.

A.2 Underwriting performance

Premium income

Aegon Americas’ total premium income for the year 2018 amounted to EUR 8.4 billion (2017: EUR 9.4 billion) and is comprised of recurring premiums for an amount of EUR 8.1 billion (2017: EUR 8.8 billion) and single premiums for an amount of EUR 0.3 billion (2017: EUR 0.6 billion). The main lines of businesses contributing to Aegon Americas’ total premium income are Life for EUR 6.8 billion (2017: EUR 7.3 billion) and Non-life (Accident & Health) for EUR 1.6 billion (2017: EUR 2.1 billion). The decrease in Non-life premiums is mainly from product exits in the US and currency translation adjustments.

Total premium income of Aegon the Netherlands amounted to EUR 2.0 billion (2017: EUR 2.2 billion) of which EUR 1.3 billion relates to recurring premiums and EUR 0.7 billion to single premiums. Most of Aegon the Netherlands’ premium income relates to the Life EUR 1.6 billion (2017: EUR 1.9 billion), and the Non-life segment with EUR 0.4 billion (2017: EUR 0.4 billion). The decrease in premium income compared to 2017 is mainly due to shrinking individual life portfolio and shifts in traditional pension portfolio from defined benefit towards defined contribution solutions.

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23     Business and performance Underwriting performance

Total premium income of Aegon UK amounted to EUR 7.5 billion (2017: EUR 9.6 billion) of which EUR 2.2 billion (2017: EUR 2.5 billion) related to recurring premiums and EUR 5.3 billion (2017: EUR 7.1 billion) to single premiums (including premiums related to insurance policies upgraded to the retirement platform in the UK). The decrease in single premium income compared to 2017 is driven by a reduction of upgraded Life insurance policies to the platform in Aegon UK. Most of Aegon UK’s premium income relates to the Life and Pensions business (2018: EUR 7.5 billion, 2017: EUR 9.6 billion).

Commissions and expenses

In 2018, commissions and expenses in Aegon Americas increased by 12% compared with 2017 to EUR 3.9 billion (2017: EUR 3.5 billion) mainly driven by increased amortization of intangible assets. Operating expenses in Aegon Americas decreased by 2% compared with 2017 to EUR 1.5 billion in 2018 (2017: EUR 1.5 billion) as a result of expense savings, which were largely offset by investments in business transformation and project expenses.

Commissions and expenses in Aegon the Netherlands decreased by 13% compared with 2017 to EUR 826 million (2017: EUR 944 million) in 2018. Operating expenses in Aegon the Netherlands were down by 14% compared with 2017 to EUR 703 million (2017: EUR 818 million) in 2018, reflecting the sale of UMG in the fourth quarter of 2017 and expense savings in the insurance businesses. This was partly offset by investments in new digital propositions.

Commissions and expenses in Aegon UK decreased by 7% compared with 2017 to EUR 704 million (2017: EUR 757 million) in 2018. Operating expenses in Aegon UK decreased by 5% compared with 2017 to EUR 521 million (2017: EUR 546 million) in 2018, as higher restructuring expenses were more than offset by the realization of cost synergies and the sale of Aegon Ireland.

Policyholder claims and benefits

Total policyholder claims and benefits amounted to EUR 10.6 billion in 2018 compared to EUR 45.6 billion in 2017. The decrease of EUR 35.0 billion is mainly attributable to changes in the valuation of liabilities of insurance contracts (2018: EUR (2.6) billion and 2017: EUR 22.7 billion) and investment contracts (2018: EUR (8.1) billion) and (2017: EUR (2.6) billion).

The changes in valuation of liabilities for insurance contracts and investment contracts reflect changes in technical provisions resulting from net fair value changes on financial assets for account of policyholders included in results from financial transactions of EUR 11.3 billion negative (2017: EUR 20.5 billion positive) (please see section A.3.2 Investment related results and impairments). In addition, the change in valuation of liabilities for insurance contracts includes an increase in technical provisions for life insurance contracts of EUR 1.4 billion (2017: increase of EUR 0.6 billion).

Total claims and benefits paid amounted to EUR 21.3 billion (2017: EUR 25.5 billion) and is comprised of claims and benefits paid for Aegon’s life business amounting to EUR 19.7 billion (2017: EUR 23.6 billion) and claims and benefits paid for Aegon’s non-life business amounting to EUR 1.7 billion (2017: EUR 1.9 billion).

Of the total policyholder claims and benefits of EUR 10.6 billion (2017: EUR 45.6 billion), EUR 4.6 billion (2017: EUR 25.4 billion) relates to Aegon Americas, EUR 2.3 billion (2017: EUR 3.1 billion) to Aegon the Netherlands and EUR 2.5 billion (2017: EUR 15.6 billion) to Aegon UK.

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24     Business and performance Investment performance

A.3 Investment performance

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 3,125 million (2017: EUR 3,368 million) followed by Aegon the Netherlands with EUR 2,265 million (2017: EUR 2,172 million), and Aegon UK with EUR 1,346 million (2017: EUR 1,517 million).

Most of Aegon’s investment income relates to investment income related to general account investments for an amount of EUR 5,268 million (2017: EUR 5,394 million), while the investment income for account of policyholders amounted to EUR 1,767 million (2017: EUR 1,944 million), mainly due to the fact that the investments for account of policyholders are on a fair value through profit or loss (FVtPL) basis.

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.