Form 6-K
Table of Contents

 

 

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

February 2013

 

 

AEGON N.V.

 

 

AEGONplein 50

2591 TV THE HAGUE

The Netherlands

 

 

 

 

 


Table of Contents

Aegon’s condensed consolidated interim financial statements Q4 2012, is included as an exhibit and incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

     

AEGON N.V.

      (Registrant)
Date: February 14, 2013     By  

 /s/ E. Lagendijk

      E. Lagendijk
      Executive Vice President and General Counsel


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LOGO

Condensed consolidated

interim financial statements

Q4 2012

 

aegon.com    The Hague, February 15, 2013


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LOGO

 

Table of contents

 

Condensed consolidated income statement

     2   

Condensed consolidated statement of comprehensive income

     3   

Condensed consolidated statement of financial position

     4   

Condensed consolidated statement of changes in equity

     5   

Condensed consolidated cash flow statement

     6   

Notes to the condensed consolidated interim financial statements

     7   

 

 

 

 

Unaudited    1


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Condensed consolidated income statement

 

 
EUR millions (except per share data)   Notes     Q4 2012     Q4 2011     FY 2012     FY 2011  
     

Premium income

    4        4,667        4,437        19,526        19,521   

Investment income

    5        1,938        2,043        8,501        8,167   

Fee and commission income

      497        481        1,900        1,465   

Other revenues

            4        1        10        6   

Total revenues

      7,106        6,962        29,937        29,159   

Income from reinsurance ceded

    6        988        892        4,128        2,775   

Results from financial transactions

    7        2,265        5,873        13,048        (187

Other income

    8        149        5        151        39   

Total income

      10,508        13,732        47,264        31,786   
     

Benefits and expenses

    9        9,763        13,291        44,660        29,856   

Impairment charges / (reversals)

    10        69        176        206        483   

Interest charges and related fees

      94        130        467        491   

Other charges

    11        34        53        53        69   

Total charges

      9,960        13,650        45,386        30,899   
     

Share in net result of associates

            2        4        26        29   

Income before tax

      550        86        1,904        916   

Income tax (expense) / benefit

            (128     (5     (333     (44

Net income

            422        81        1,571        872   
     

Net income attributable to:

             

Equity holders of Aegon N.V.

      422        79        1,570        869   

Non-controlling interests

            -        2        1        3   
     

Earnings per share (EUR per share)

             

Basic earnings per share

      0.19        0.02        0.69        (0.06

Diluted earnings per share

    18        0.19        0.02        0.69        (0.06
     

Earnings per common share calculation

             

Net income attributable to equity holders of Aegon N.V.

      422        79        1,570        869   

Preferred dividend

      -        -        (59     (59

Coupons on other equity instruments

      (49     (45     (195     (177

Coupons and premium on convertible core capital securities

            -        -        -        (750

Earnings attributable to common shareholders

      373        34        1,316        (117
     

Weighted average number of common shares outstanding (in million)

            1,943        1,880        1,907        1,852   

 

2    Unaudited


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Condensed consolidated statement of comprehensive income

 

 
EUR millions   Q4 2012     Q4 2011     FY 2012     FY 2011  
     

Net income

    422        81        1,571        872   
     

Other comprehensive income:

           

Gains / (losses) on revaluation of available-for-sale investments

    593        1,265        4,221        3,113   

(Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments

    (166     (175     (465     (513

Changes in revaluation reserve real estate held for own use

    (8     -        (5     3   

Changes in cash flow hedging reserve

    (127     151        (92     1,058   

Movement in foreign currency translation and net foreign investment hedging reserve

    (457     550        (116     409   

Equity movements of associates

    -        (10     22        (18

Aggregate tax effect of items recognized in other comprehensive income

    (82     (377     (1,063     (1,167

Other

    1        -        (1     4   

Other comprehensive income for the period

    (246     1,404        2,501        2,889   

Total comprehensive income

    176        1,485        4,072        3,761   
     

Total comprehensive income attributable to:

           

Equity holders of Aegon N.V.

    177        1,483        4,073        3,758   

Non-controlling interests

    (1     2        (1     3   

 

Unaudited    3


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Condensed consolidated statement of financial position

 

 
            Dec. 31,
2012
    Dec. 31,
2011
 

EUR millions

    Notes                   
   

ASSETS

       

Intangible assets

    12        2,948        3,285   

Investments

    13        146,234        144,079   

Investments for account of policyholders

    14        153,670        142,529   

Derivatives

    15        21,154        15,504   

Investments in associates

      829        742   

Reinsurance assets

      11,987        11,517   

Deferred expenses and rebates

    16        11,687        11,432   

Other assets and receivables

      7,956        8,184   

Cash and cash equivalents

            9,653        8,104   

Total assets

      366,118        345,376   
   

EQUITY AND LIABILITIES

       

Shareholders’ equity

      24,669        21,000   

Other equity instruments

    19        5,018        4,720   

Issued capital and reserves attributable to equity holders of Aegon N.V.

      29,687        25,720   

Non-controlling interests

            13        14   

Group equity

      29,700        25,734   
   

Trust pass-through securities

      155        159   

Subordinated borrowings

    20        61        18   

Insurance contracts

      105,209        104,974   

Insurance contracts for account of policyholders

      76,871        73,425   

Investment contracts

      17,768        20,847   

Investment contracts for account of policyholders

      78,418        71,433   

Derivatives

    15        17,848        12,728   

Borrowings

    21        12,758        10,141   

Other liabilities

            27,330        25,917   

Total liabilities

 

            336,418        319,642   

Total equity and liabilities

            366,118        345,376   

 

4    Unaudited


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Condensed consolidated statement of changes in equity

 

 
EUR millions   Share
capital 1
    Retained
earnings
    Revaluation
reserves
    Other
reserves
    Convertible
core capital
securities
    Other equity
instruments
    Issued
capital and
reserves  2
   

Non-

controlling
interests

    Total  
       

Full year ended December 31, 2012

                       
       

At beginning of year

    9,097        9,403        3,464        (964     -        4,720        25,720        14        25,734   
       

Net income recognized in the income statement

    -        1,570        -        -        -        -        1,570        1        1,571   
       

Other comprehensive income:

                       

Gains / (losses) on revaluation of available-for-sale investments

    -        -        4,221        -        -        -        4,221        -        4,221   

(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments

    -        -        (465     -        -        -        (465     -        (465

Changes in revaluation reserve real estate held for own use

    -        -        (5     -        -        -        (5     -        (5

Changes in cash flow hedging reserve

    -        -        (92     -        -        -        (92     -        (92

Movement in foreign currency translation and net foreign investment hedging reserves

    -        -        -        (116     -        -        (116     -        (116

Equity movements of associates

    -        -        -        22        -        -        22        -        22   

Aggregate tax effect of items recognized in other comprehensive income

    -        (6     (1,060     3        -        -        (1,063     -        (1,063

Transfer from / to other headings

    -        (19     19        -        -        -        -        -        -   

Other

    -        1        -        -        -        -        1        (2     (1

Total other comprehensive income

    -        (24     2,618        (91     -        -        2,503        (2     2,501   

Total comprehensive income/ (loss) for 2012

    -        1,546        2,618        (91     -        -        4,073        (1     4,072   
       

Shares issued

    2        -        -        -        -        -        2        -        2   

Treasury shares

    -        3        -        -        -        -        3        -        3   

Dividends paid on common shares

    -        (148     -        -        -        -        (148     -        (148

Preferred dividend

    -        (59     -        -        -        -        (59     -        (59

Dividend withholding tax reduction

    -        3        -        -        -        -        3        -        3   

Issuance of non-cumulative subordinated loans

    -        -        -        -        -        271        271        -        271   

Coupons on non-cumulative subordinated notes

    -        (23     -        -        -        -        (23     -        (23

Cost of issuance of non-cumulative subordinated notes (net of tax)

    -        (10     -        -        -        -        (10     -        (10

Coupons on perpetual securities

    -        (172     -        -        -        -        (172     -        (172

Share options and incentive plans

    -        -        -        -        -        27        27        -        27   

At end of period

    9,099        10,543        6,082        (1,055     -        5,018        29,687        13        29,700   
       

Full year ended December 31, 2011

                       
       

At beginning of year

    8,184        9,529        958        (1,343     1,500        4,704        23,532        11        23,543   
       

Net income recognized in the income statement

    -        869        -        -        -        -        869        3        872   
       

Other comprehensive income:

                       

Gains / (losses) on revaluation of available-for-sale investments

    -        -        3,113        -        -        -        3,113        -        3,113   

(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments

    -        -        (513     -        -        -        (513     -        (513

Changes in revaluation reserve real estate held for own use

    -        -        3        -        -        -        3        -        3   

Changes in cash flow hedging reserve

    -        -        1,058        -        -        -        1,058        -        1,058   

Movement in foreign currency translation and net foreign investment hedging reserves

    -        -        -        409        -        -        409        -        409   

Equity movements of associates

    -        -        -        (18     -        -        (18     -        (18

Aggregate tax effect of items recognized in other comprehensive income

    -        -        (1,155     (12     -        -        (1,167     -        (1,167

Other

    -        4        -        -        -        -        4        -        4   

Total other comprehensive income

    -        4        2,506        379        -        -        2,889        -        2,889   

Total comprehensive income / (loss) for 2011

    -        873        2,506        379        -        -        3,758        3        3,761   
       

Shares issued

    913        -        -        -        -        -        913        -        913   

Cost of issuance of shares (net of tax)

    -        (13     -        -        -        -        (13     -        (13

Preferred dividend

    -        (59     -        -        -        -        (59     -        (59

Coupons on perpetual securities

    -        (177     -        -        -        -        (177     -        (177

Repurchase of convertible core capital securities

    -        -        -        -        (1,500     -        (1,500     -        (1,500

Coupons and premium on convertible core capital securities

    -        (750     -        -        -        -        (750     -        (750

Share options and incentive plans

    -        -        -        -        -        16        16        -        16   

At end of period

    9,097        9,403        3,464        (964     -        4,720        25,720        14        25,734   

1 For a breakdown of share capital please refer to note 18.

2 Issued capital and reserves attributable to equity holders of Aegon N.V.

 

Unaudited    5


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Condensed consolidated cash flow statement

 

 
EUR millions   FY 2012     FY 2011  
   

Cash flow from operating activities

    (966     2,266   
   

Purchases and disposals of intangible assets

    (37     (17

Purchases and disposals of equipment and other assets

    (49     (54

Purchases, disposals and dividends of subsidiaries and associates

    157        724   

Cash flow from investing activities

    71        653   
   

Issuance of share capital

    2        913   

Dividends paid

    (207     (59

Issuances, repurchases and coupons of convertible core capital securities

    -        (2,250

Issuances, repurchases and coupons of perpetuals

    (230     (237

Issuances, repurchases and coupons of non cumulative subordinated notes

    241        -   

Issuances and repayments of borrowings

    2,796        1,259   

Cash flow from financing activities

    2,602        (374
   

Net increase / (decrease) in cash and cash equivalents

    1,707        2,545   

Net cash and cash equivalents at January 1

    7,826        5,174   

Effects of changes in foreign exchange rates

    27        107   

Net cash and cash equivalents at end of period

    9,560        7,826   
   
     Dec. 31,
2012
    Dec. 31,
2011
 

Cash and cash equivalents

    9,653        8,104   

Bank overdrafts

    (93     (278

Net cash and cash equivalents

    9,560        7,826   

 

6    Unaudited


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Notes to the condensed consolidated interim financial statements

Amounts in EUR millions, unless otherwise stated

Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands. Aegon N.V. serves as the holding company for the Aegon Group and has listings of its common shares in Amsterdam and New York.

Aegon N.V. (or “the Company”), its subsidiaries and its proportionally consolidated joint ventures (“Aegon” or “the Group”) have life insurance and pensions operations in over twenty countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limit extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs approximately 24,500 people worldwide (2011: 25,000).

1. Basis of presentation

The condensed consolidated interim financial statements are no longer prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB), as Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ of IFRS as adopted by the EU (IFRS-EU). The methodology for fair value hedge accounting under the EU ‘carve out’ is not allowed by IFRS as issued by the IASB. This change in basis of presentation has to be applied retrospectively, however as Aegon started to use macro hedging under the EU ‘carve out’ as of October 1, 2012 no adjustments to the comparative information have been made. If Aegon would not have applied the EU ‘carve out’ for its macro fair value hedge accounting, net income of 2012 and shareholders’ equity per December 31, 2012 would have been EUR 39 million lower.

The condensed consolidated interim financial statements as at, and for the fourth quarter ended, December 31, 2012, have been prepared in accordance with IAS 34 ‘Interim financial reporting’, as adopted by the European Union (EU). They do not include all of the information required for a full set of financial statements prepared in accordance with IFRS-EU and should therefore be read together with the 2011 consolidated financial statements of Aegon N.V. as included in Aegon’s Annual Report for 2011. Aegon’s Annual Report for 2011 is available on its website (aegon.com).

The condensed consolidated interim financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. The condensed consolidated interim financial statements as at, and for the fourth quarter ended December 31, 2012, were approved by the Executive Board on February 14, 2013.

The published figures in these condensed consolidated interim financial statements are unaudited.

2. Significant accounting policies

All accounting policies and methods of computation applied in the condensed consolidated interim financial statements are the same as those applied in the 2011 consolidated financial statements, except for the policy of fair value hedge accounting and the policy for compound instruments:

 

Unaudited    7


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Fair value hedge accounting

Aegon applies fair value hedge accounting to portfolio hedges of interest rate risk (fair value macro hedging) under the EU ‘carve out’ of IFRS-EU. The EU ‘carve out’ macro hedging enables a group of derivatives (or proportions thereof) to be viewed in combination and jointly designated as the hedging instrument and removes some of the limitations in fair value hedge accounting. Under the IFRS-EU ‘carve out’, ineffectiveness in fair value hedge accounting only arises when the revised estimate of the amount of cash flows in scheduled time buckets falls below the designated amount of that bucket. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the EU ‘carve out’ to mortgage loans. The hedging activities are designated under a portfolio fair value hedge on these mortgage loans. Changes in the fair value of the derivatives are recognized in the profit and loss account, together with the fair value adjustment on the mortgages (hedged items) insofar as attributable to interest rate risk (the hedged risk).

Non-cumulative subordinated notes

Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components. The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and carried at amortized cost using the effective interest rate method. The liability component is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole.

Incremental external costs that are directly attributable to the issuing or buying back of the non-cumulative subordinated notes are recognized in either equity or income statement proportionately to the equity component and liability component, net of tax.

Coupon payments and other distributions to holders of the non-cumulative subordinated notes are recognized directly in equity, net of tax. A liability for non-cumulative dividends payable is not recognized until the coupon has been declared and approved.

New IFRS accounting standards effective

The following standards, interpretations, amendments to standards and interpretations became effective in 2012:

t  

Amendment to IFRS 1 First time adoption – Severe Hyperinflation and Removal of Fixed Dates for First Time Adopters.

t  

Amendment to IFRS 7 Disclosures – Transfers of Financial Assets.

t  

IAS 12 Income Taxes – Recovery of Tax Assets.

None of these new or revised standards and interpretations had a significant effect on the condensed consolidated interim financial statements for the period ended December 31, 2012.

Future adoption of new IFRS accounting standards

In June 2011, the revised standard IAS 19 Employee Benefits was issued. The amended standard applies to financial years beginning on, or after, January 1, 2013. The amendments eliminate the option to defer the recognition of actuarial gains and losses, known as the “corridor method”. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring actuarial gains and losses to be presented in other comprehensive income. The revised standard also requires the expected return on plan assets to be replaced by the discount rate used to determine the defined benefit liability. The discount rate shall be determined by reference to market yields at the end of the reporting period on high quality corporate bonds. And, furthermore, the revised standard enhances the disclosure requirements for defined benefit plans, providing information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans.

 

8    Unaudited


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As per December 31, 2012, Aegon estimates the adverse impact on equity of removing the corridor to be approximately EUR 1.0 billion (post tax), consisting of the unrecognized actuarial gains and losses as per that date. The improvement compared to the estimated impact as at September 30, 2012 of EUR 1.4 billion (post tax) is largely attributable to higher discount rates, improved return on plan assets and changes to indexation. However, Aegon did not yet finish the analysis of the financial impact of the revised standard, therefore the actual impact could change upon completion of the analysis. Aegon does not expect any changes in the classification of the employee plans resulting from the revised standard.

For a complete overview of IFRS standards, published before January 1, 2012, that will be applied in future years, but were not early adopted by the Group, refer to Aegon’s Annual Report for 2011.

Taxes

Taxes on income for the Q4 2012 interim period are accrued using the tax rate that would be applicable to expected total annual earnings.

Judgments and critical accounting estimates

Preparing the condensed consolidated interim financial statements requires management to make judgments, estimates and assumptions, including the likelihood, timing or amount of future transactions or events, that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from the estimates made.

In preparing the condensed consolidated interim financial statements, significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended December 31, 2011.

Exchange rates

Assets and liabilities are translated at the closing rates on the balance sheet date. Income, expenses and capital transactions (such as dividends) are translated at average exchange rates or at the prevailing rates on the transaction date, if more appropriate. The following exchange rates are applied for the condensed consolidated interim financial statements:

Closing exchange rates

 

                         USD         GBP   

December 31, 2012

     1         EUR         1.3184         0.8111   

December 31, 2011

     1         EUR         1.2982         0.8353   

Weighted average exchange rates

 

                         USD         GBP   

2012

     1         EUR         1.2849         0.8103   

2011

     1         EUR         1.3909         0.8667   

 

Unaudited    9


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3. Segment information

3.1 Income statement

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
   

New

Markets

   

Holding

and other
activities

    Eliminations     Segment
Total
    Associates
eliminations
    Consolidated  

Three months ended December 31, 2012

                   
     

Underlying earnings before tax geographically

    342        83        25        52        (53     (2     447        (2     445   

Fair value items

    (16     6        (11     5        (63     -        (79     -        (79

Realized gains / (losses) on investments

    43        70        36        -        -        -        149        -        149   

Impairment charges

    (44     (18     -        (17     -        -        (79     1        (78

Impairment reversals

    13        8        -        -        -        -        21        -        21   

Other income / (charges)

    (25     (7     -        139        (1     -        106        -        106   

Run-off businesses

    (14     -        -        -        -        -        (14     -        (14

Income before tax

    299        142        50        179        (117     (2     551        (1     550   

Income tax (expense) / benefit

    (60     (26     (13     (53     23        -        (129     1        (128

Net income

    239        116        37        126        (94     (2     422        -        422   

Inter-segment underlying earnings

    (49     (13     (15     71        6             
     

Revenues

                   

Life insurance gross premiums

    1,702        417        1,615        326        -        (21     4,039        (40     3,999   

Accident and health insurance

    457        34        -        41        2        (2     532        -        532   

General insurance

    -        100        -        36        -        -        136        -        136   

Total gross premiums

    2,159        551        1,615        403        2        (23     4,707        (40     4,667   

Investment income

    907        546        420        65        95        (93     1,940        (2     1,938   

Fee and commission income

    316        84        30        129        -        (62     497        -        497   

Other revenues

    2        -        -        1        1        -        4        -        4   

Total revenues

    3,384        1,181        2,065        598        98        (178     7,148        (42     7,106   

Inter-segment revenues

    8        1        -        77        92                                   

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
    New
Markets
    Holding
and other
activities
    Eliminations     Segment
Total
    Associates
eliminations
    Consolidated  

Three months ended December 31, 2011

                   
     

Underlying earnings before tax geographically

    316        75        (26     65        (84     -        346        (4     342   

Fair value items

    (139     189        3        (10     (63     -        (20     -        (20

Realized gains / (losses) on investments

    6        33        8        2        -        -        49        -        49   

Impairment charges

    (70     (5     -        (25     -        1        (99     2        (97

Impairment reversals

    6        -        -        -        -        (1     5        -        5   

Other income / (charges)

    (36     (84     (57     1        (18     -        (194     -        (194

Run-off businesses

    1        -        -        -        -        -        1        -        1   

Income before tax

    84        208        (72     33        (165     -        88        (2     86   

Income tax (expense) / benefit

    9        (60     (16     (10     70        -        (7     2        (5

Net income

    93        148        (88     23        (95     -        81        -        81   

Inter-segment underlying earnings

    (42     (62     (16     66        54             
     

Revenues

                   

Life insurance gross premiums

    1,571        379        1,490        452        -        (16     3,876        (71     3,805   

Accident and health insurance

    434        30        -        40        -        -        504        1        505   

General insurance

    -        94        -        33        -        -        127        -        127   

Total gross premiums

    2,005        503        1,490        525        -        (16     4,507        (70     4,437   

Investment income

    891        597        488        83        135        (133     2,061        (17     2,044   

Fee and commission income

    311        78        29        121        -        (59     480        -        480   

Other revenues

    -        -        -        (1     2        -        1        -        1   

Total revenues

    3,207        1,178        2,007        728        137        (208     7,049        (87     6,962   

Inter-segment revenues

    7        1        -        69        131                                   

As of the first quarter of 2012, Aegon has revised its financial reporting to reflect changes in its organization. Businesses in Asia, which were previously managed by Aegon Americas, are included in the Asia line of business within the “New Markets” segment. For the full year 2011, the underlying earnings before tax generated by the Asian operations totaling EUR 37 million were previously reported under the “Americas” segment.

 

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EUR millions   Americas     The
Netherlands
    United
Kingdom
    New
Markets
    Holding
and other
activities
    Eliminations     Segment
Total
    Associates
eliminations
    Consolidated  

Full year ended December 31, 2012

                   
     

Underlying earnings before tax geographically

    1,317        315        105        274        (220     (4     1,787        (7     1,780   

Fair value items

    (76     164        (31     (1     (4     -        52        -        52   

Realized gains / (losses) on investments

    175        138        84        10        -        -        407        -        407   

Impairment charges

    (181     (37     -        (26     (4     2        (246     1        (245

Impairment reversals

    64        8        -        -        -        (2     70        -        70   

Other income / (charges)

    (28     (279     34        113        (2     -        (162     -        (162

Run-off businesses

    2        -        -        -        -        -        2        -        2   

Income before tax

    1,273        309        192        370        (230     (4     1,910        (6     1,904   

Income tax (expense) / benefit

    (248     (18     (23     (121     71        -        (339     6        (333

Net income

    1,025        291        169        249        (159     (4     1,571        -        1,571   

Inter-segment underlying earnings

    (191     (60     (62     286        27             
     

Revenues

                   

Life insurance gross premiums

    6,541        3,004        6,047        1,374        -        (73     16,893        (227     16,666   

Accident and health insurance

    1,833        220        -        188        5        (5     2,241        -        2,241   

General insurance

    -        475        -        144        -        -        619        -        619   

Total gross premiums

    8,374        3,699        6,047        1,706        5        (78     19,753        (227     19,526   

Investment income

    3,654        2,212        2,337        319        374        (374     8,522        (21     8,501   

Fee and commission income

    1,177        329        133        524        -        (263     1,900        -        1,900   

Other revenues

    5        -        -        3        5        -        13        (3     10   

Total revenues

    13,210        6,240        8,517        2,552        384        (715     30,188        (251     29,937   

Inter-segment revenues

    31        2        1        310        371                                   

 

EUR millions   Americas     The
Netherlands
    United
Kingdom
    New
Markets
    Holding
and other
activities
    Eliminations     Segment
Total
    Associates
eliminations
    Consolidated  

Full year ended December 31, 2011

                   
     

Underlying earnings before tax geographically

    1,273        298        5        249        (306     3        1,522        (13     1,509   

Fair value items

    (477     156        (6     (30     (59     -        (416     -        (416

Realized gains / (losses) on investments

    119        269        51        7        -        -        446        -        446   

Impairment charges

    (306     (16     (62     (61     -        1        (444     4        (440

Impairment reversals

    56        1        -        -        -        (1     56        -        56   

Other income / (charges)

    (35     (164     (57     7        (18     -        (267     -        (267

Run-off businesses

    28        -        -        -        -        -        28        -        28   

Income before tax

    658        544        (69     172        (383     3        925        (9     916   

Income tax (expense) / benefit

    (15     (125     17        (61     131        -        (53     9        (44

Net income

    643        419        (52     111        (252     3        872        -        872   

Inter-segment underlying earnings

    (157     (105     (68     257        73             
     

Revenues

                   

Life insurance gross premiums

    6,004        3,213        6,474        1,600        -        (55     17,236        (383     16,853   

Accident and health insurance

    1,672        216        -        179        -        -        2,067        -        2,067   

General insurance

    -        452        -        149        -        -        601        -        601   

Total gross premiums

    7,676        3,881        6,474        1,928        -        (55     19,904        (383     19,521   

Investment income

    3,565        2,192        2,154        320        392        (385     8,238        (70     8,168   

Fee and commission income

    766        329        137        469        -        (237     1,464        -        1,464   

Other revenues

    1        -        -        1        4        -        6        -        6   

Total revenues

    12,008        6,402        8,765        2,718        396        (677     29,612        (453     29,159   

Inter-segment revenues

    28        2        2        270        375                                   

 

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Non-IFRS measures

For segment reporting purposes the following non-IFRS financial measures are included: underlying earnings before tax, income tax (including associated companies) and income before tax (including associated companies). These non-IFRS measures are calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s associated companies in Spain, India, Brazil and Mexico. Aegon believes that its non-IFRS measures provide meaningful information about the underlying operating results of Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business.

Among other things, Aegon’s senior management is compensated based in part on Aegon’s results against targets using the non-IFRS measures presented here. While many other insurers in Aegon’s peer group present substantially similar non-IFRS measures, the non-IFRS measures presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which Aegon and its peers present similar information before comparing them.

Aegon believes the non-IFRS measure shown herein, when read together with Aegon’s reported IFRS financial statements, provides meaningful supplemental information for the investing public to evaluate Aegon’s business after eliminating the impact of current IFRS accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (i.e. companies can use different local GAAPs to measure the insurance contract liability) and that can make the comparability from period to period difficult.

The reconciliation from underlying earnings before tax to income before tax, being the most comparable IFRS measure, is presented in the tables in this note.

Underlying earnings

Certain assets held by Aegon Americas, Aegon The Netherlands and Aegon United Kingdom are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate limited partnerships, convertible bonds and structured products. Underlying earnings exclude any over- or underperformance compared to management’s long-term expected return on assets.

Based on current holdings and asset returns, the long-term expected return on an annual basis is 8-10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable.

In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis, including the segregated funds offered by Aegon Canada and the total return annuities and guarantees on variable annuities of Aegon USA. The earnings on these products are impacted by movements in equity markets and risk-free interest rates. Short-term developments in the financial markets may therefore cause volatility in earnings. Included in underlying earnings is a long-term expected return on these products and excluded is any over- or underperformance compared to management’s expected return. The fair value movements of certain guarantees and the fair value change of derivatives that hedge certain risks on these guarantees of Aegon The Netherlands and Variable Annuities Europe (included in New Markets) are excluded from underlying earnings, and the long-term expected return for these guarantees is set at zero.

Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegon’s credit spread used in the valuation of these bonds are excluded from underlying earnings and reported under fair value items.

 

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Fair value items

Fair value items include the over- or underperformance of investments and guarantees held at fair value for which the expected long-term return is included in underlying earnings. Changes to these long-term return assumptions are also included in the fair value items.

In addition, hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in earnings and for which no hedge accounting is applied and fair value movements on real estate are included under fair value items.

Realized gains or losses on investments

Includes realized gains and losses on available-for-sale investments, mortgage loans and other loan portfolios.

Impairment charges / reversals

Includes impairments and reversals on available-for-sale debt securities and impairments on shares including the effect of deferred policyholder acquisition costs, mortgage loans and loan portfolios on amortized cost and associates respectively.

Other income or charges

Other income or charges is used to report any items which cannot be directly allocated to a specific line of business. Also items that are outside the normal course of business are reported under this heading.

Other charges include restructuring charges that are considered other charges for segment reporting purposes because they are outside the normal course of business. In the condensed consolidated income statement, these charges are included in operating expenses.

Run-off businesses

Includes underlying results of business units where management has decided to exit the market and to run off the existing block of business. Currently, this line includes the run-off of the institutional spread-based business, structured settlements blocks of business, Bank-Owned and Corporate-Owned Life Insurance (BOLI/COLI) business and life reinsurance business in the United States. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings.

Share in earnings of associates

Earnings from Aegon’s associates in insurance companies in Spain, India, Brazil and Mexico are reported on an underlying earnings basis. Other associates are included on a net income basis.

 

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3.2 Investments geographically

 

                                  amounts in million EUR (unless otherwise stated)  
Americas
USD
    United
Kingdom
GBP
     At December 31, 2012   Americas     The
Netherlands
    United
Kingdom
    New
Markets
    Holding
& other
activities
    Eliminations     Total
EUR
 
         Investments                  
  1,833        42       Shares     1,390        412        51        48        -        (2     1,899   
  83,964        8,975       Debt securities     63,686        19,256        11,066        4,000        -        -        98,008   
  11,748        4       Loans     8,910        21,024        5        693        -        -        30,632   
  15,434        175       Other financial assets     11,707        286        216        48        759        -        13,016   
  1,009        -       Investments in real estate     766        1,912        -        1        -        -        2,679   
  113,988        9,196       Investments general account     86,459        42,890        11,338        4,790        759        (2     146,234   
  -        23,017       Shares     -        8,406        28,378        3,720        -        (6     40,498   
  -        10,542       Debt securities     -        16,266        12,997        430        -        -        29,693   
  86,975        8,192       Separate accounts and investment funds     65,970        -        10,099        1,259        -        -        77,328   
  -        2,761       Other financial assets     -        422        3,404        1,317        -        -        5,143   
  -        817       Investments in real estate     -        -        1,008        -        -        -        1,008   
  86,975        45,329       Investments for account of policyholders     65,970        25,094        55,886        6,726        -        (6     153,670   
       
  200,963        54,525       Investments on balance sheet     152,429        67,984        67,224        11,516        759        (8     299,904   
  132,796        8       Off balance sheet investments third parties     100,725        -        10        57,217        -        -        157,952   
  333,759        54,533       Total revenue generating investments     253,154        67,984        67,234        68,733        759        (8     457,856   
       
         Investments                  
  95,282        9,155       Available-for-sale     72,271        19,717        11,287        3,808        19        -        107,102   
  11,748        4       Loans     8,910        21,024        5        693        -        -        30,632   
  -        -       Held-to-maturity     -        -        -        189        -        -        189   
  92,924        44,549       Financial assets at fair value through profit or loss     70,482        25,331        54,924        6,825        740        (8     158,294   
  1,009        817       Investments in real estate     766        1,912        1,008        1        -        -        3,687   
  200,963        54,525       Total investments on balance sheet     152,429        67,984        67,224        11,516        759        (8     299,904   
       
  119        6       Investments in associates     90        79        8        648        4        -        829   
  33,969        5,098       Other assets     25,765        27,487        6,284        3,992        39,106        (37,249     65,385   
  235,051        59,629       Consolidated total assets     178,284        95,550        73,516        16,156        39,869        (37,257     366,118   

 

                                  amounts in million EUR (unless otherwise stated)  
Americas
USD
    United
Kingdom
GBP
     At December 31, 2011   Americas     The
Netherlands
    United
Kingdom
    New
Markets
    Holding
& other
activities
    Eliminations     Total
EUR
 
         Investments                  
  1,570        45       Shares     1,209        505        54        60        11        (2     1,837   
  84,192        8,261       Debt securities     64,853        17,640        9,890        4,036        -        -        96,419   
  13,319        7       Loans     10,260        18,825        8        643        -        -        29,736   
  16,196        -       Other financial assets     12,476        40        -        43        744        -        13,303   
  1,006        -       Investments in real estate     775        2,009        -        -        -        -        2,784   
  116,283        8,313       Investments general account     89,573        39,019        9,952        4,782        755        (2     144,079   
  -        21,755       Shares     -        7,608        26,045        3,459        -        (4     37,108   
  -        10,003       Debt securities     -        15,124        11,975        277        -        -        27,376   
  80,137        7,095       Separate accounts and investment funds     61,729        -        8,495        1,060        -        -        71,284   
  -        2,940       Other financial assets     -        491        3,519        1,619        -        -        5,629   
  -        946       Investments in real estate     -        -        1,132        -        -        -        1,132   
  80,137        42,739       Investments for account of policyholders     61,729        23,223        51,166        6,415        -        (4     142,529   
       
  196,420        51,052       Investments on balance sheet     151,302        62,242        61,118        11,197        755        (6     286,608   
  119,371        -      

Off balance sheet investments third parties

    91,951        -        -        44,959        -        -        136,910   
  315,791        51,052       Total revenue generating investments     243,253        62,242        61,118        56,156        755        (6     423,518   
       
         Investments                  
  96,145        8,266       Available-for-sale     74,060        18,016        9,896        3,861        27        -        105,860   
  13,319        7       Loans     10,260        18,825        8        643        -        -        29,736   
  -        -       Held-to-maturity     -        -        -        168        -        -        168   
  85,950        41,833       Financial assets at fair value through profit or loss     66,207        23,392        50,082        6,525        728        (6     146,928   
  1,006        946       Investments in real estate     775        2,009        1,132        -        -        -        3,916   
  196,420        51,052       Total investments on balance sheet     151,302        62,242        61,118        11,197        755        (6     286,608   
       
  100        7       Investments in associates     77        52        9        600        4        -        742   
  33,562        5,919       Other assets     25,852        19,202        7,086        3,789        35,878        (33,781     58,026   
  230,082        56,978       Consolidated total assets     177,231        81,496        68,213        15,586        36,637        (33,787     345,376   

 

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4. Premium income and premium to reinsurers

 

                              

EUR millions

    Q4 2012        Q4 2011        FY 2012        FY 2011   
     

Gross

           

Life

    3,999        3,805        16,666        16,853   

Non-Life

    668        632        2,860        2,668   

Total

    4,667        4,437        19,526        19,521   
     

Reinsurance

           

Life

    866        891        3,324        3,042   

Non-Life

    99        93        411        365   

Total

    965        984        3,735        3,407   

5. Investment income

 

                              

EUR millions

    Q4 2012        Q4 2011        FY 2012        FY 2011   
     

Interest income

    1,717        1,818        7,367        7,256   

Dividend income

    187        186        983        745   

Rental income

    34        39        151        166   

Total investment income

    1,938        2,043        8,501        8,167   
     

Investment income related to general account

    1,465        1,494        5,956        5,823   

Investment income for account of policyholders

    473        549        2,545        2,344   

Total

    1,938        2,043        8,501        8,167   

6. Income from reinsurance ceded

The increase in Income from reinsurance ceded in 2012 compared to 2011 is mainly the result of the increased income from external reinsurance following the divestment of the life reinsurance business, Transamerica Reinsurance, to SCOR, completed on August 9, 2011.

7. Results from financial transactions

 

                              

EUR millions

    Q4 2012        Q4 2011        FY 2012        FY 2011   
     

Net fair value change of general account financial investments at FVTPL other than derivatives

    68        18        419        44   

Realized gains and (losses) on financial investments

    164        222        549        803   

Gains and (losses) on investments in real estate

    30        (13     (53     (49

Net fair value change of derivatives

    91        259        355        1,165   

Net fair value change on for account of policyholder financial assets at FVTPL

    1,938        5,401        11,855        (2,133

Net fair value change on investments in real estate for account of policyholders

    (15     7        (46     20   

Net foreign currency gains and (losses)

    (5     (6     10        (17

Net fair value change on borrowings and other financial liabilities

    (7     (15     (48     (24

Realized gains and (losses) on repurchased debt

    1        -        7        4   

Total

    2,265        5,873        13,048        (187

Net fair value changes on for account of policyholder financial assets at fair value through profit or loss are offset by amounts in Claims and benefits reported in the Benefits and expenses line (note 9).

8. Other income

Other income 2012 mainly includes the gain on the sale of our interest in Prisma Capital Partners LP (“Prisma”) of EUR 100 million and the gain following the ending of the life, health and pension partnership with Banca Cívica of EUR 35 million. For more details on these two transactions refer to Note 23 Acquisitions / Divestments. For 2011 other income mainly reflected a benefit related to a settlement of a legal claim.

 

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9. Benefits and expenses

 

                              

EUR millions

    Q4 2012        Q4 2011        FY 2012        FY 2011   
     

Claims and benefits

    8,966        12,322        41,711        26,358   

Employee expenses

    555        502        2,092        2,069   

Administration expenses

    282        355        1,096        1,315   

Deferred expenses

    (425     (353     (1,538     (1,458

Amortization charges

    385        465        1,299        1,572   

Total

    9,763        13,291        44,660        29,856   

Claims and benefits reflects the claims and benefits paid to policyholders, including claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. In addition, Claims and benefits includes commissions and expenses, as well as premium paid to reinsurers. Claims and benefits fluctuates mainly as a result of changes in technical provisions resulting from fair value changes on for account of policyholder financial assets included in Results from financial transactions (note 7).

In Q2 2012, Aegon The Netherlands increased the technical provisions related to unit-linked insurance policies with EUR 265 million. This addition to the technical provisions is included in Claims and benefits. Refer to note 22 Commitments and contingencies for more details.

10. Impairment charges / (reversals)

 

                              

EUR millions

    Q4 2012        Q4 2011        FY 2012        FY 2011   
     

Impairment charges / (reversals) comprise:

           

Impairment charges on financial assets, excluding receivables 1

    72        107        250        461   

Impairment reversals on financial assets, excluding receivables 1

    (22     (4     (70     (55

Impairment charges / (reversals) on non-financial assets and receivables

    19        73        26        77   

Total

    69        176        206        483   
     

Impairment charges on financial assets, excluding receivables, from:

           

Shares

    3        2        15        10   

Debt securities and money market instruments

    24        61        153        345   

Loans

    44        43        80        99   

Other

    -        -        1        6   

Investments in associates

    1        1        1        1   

Total

    72        107        250        461   
     

Impairment reversals on financial assets, excluding receivables, from:

           

Debt securities and money market instruments

    (20     (2     (54     (48

Loans

    (2     (2     (16     (7

Total

    (22     (4     (70     (55

1 Impairment charges / (reversals) on financial assets, excluding receivables, are excluded from underlying earnings before tax for segment reporting (refer to note 3).

11. Other charges

Other charges 2012 mainly include a charge of EUR 26 million related to a settlement in Q4 following the termination of a Bank-Owned Life Insurance contract in the United States.

Other charges in 2011 mainly include EUR 37 million related to increased reserves in connection with the company’s use of the Social Security administration’s death master file in the United States and a loss of EUR 7 million on the sale of the Guardian life and pension business in the United Kingdom. Full year charges in both years also include a charge related to the annual bank tax by the Hungarian Government (2012: EUR 16 million; 2011: EUR 17 million).

 

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12. Intangible assets

 

                

EUR millions

    Dec. 31, 2012        Dec. 31, 2011   
     

Goodwill

    638        753   

VOBA

    1,860        2,086   

Future servicing rights

    383        397   

Software

    58        36   

Other

    9        13   

Total intangible assets

    2,948        3,285   

The decrease in goodwill reflects the disposal of a business (partnership with Banca Civica), a decrease of an earn out provision resulting in a write off of goodwill and negative foreign currency effects, partly offset by an increase following an acquisition in Spain (Liberbank Vida). According to Aegon’s accounting policies, any changes in the estimated value of an earn out provision related to a business combination that dates prior to July 1, 2008, are recognized in goodwill.

The decrease in value of business acquired (VOBA) is mainly attributable to regular amortization and the impact of shadow accounting.

13. Investments

 

                                     

EUR millions

    Dec. 31, 2012        Dec. 31, 2011   
     

Available-for-sale (AFS)

    107,102        105,860   

Loans

    30,632        29,736   

Held-to-maturity (HTM)

    189        168   

Financial assets at fair value through profit or loss (FVTPL)

    5,632        5,531   

Financial assets, excluding derivatives

    143,555        141,295   

Investments in real estate

    2,679        2,784   

Total investments for general account

    146,234        144,079   
   

Total financial assets, excluding derivatives

           
      AFS        FVTPL        HTM        Loans        Total   
   

Shares

    856        1,043        -        -        1,899   

Debt securities

    96,319        1,500        189        -        98,008   

Money market and other short term investments

    8,713        1,084        -        -        9,797   

Mortgages

    -        -        -        27,129        27,129   

Private loans

    -        -        -        1,013        1,013   

Deposits with financial institutions

    -        -        -        217        217   

Policy loans

    -        -        -        2,110        2,110   

Receivables out of share lease agreements

    -        -        -        9        9   

Other

    1,214        2,005        -        154        3,373   

December 31, 2012

    107,102        5,632        189        30,632        143,555   
   
      AFS        FVTPL        HTM        Loans        Total   
   

Shares

    869        968        -        -        1,837   

Debt securities

    94,722        1,529        168        -        96,419   

Money market and other short term investments

    9,382        1,090        -        -        10,472   

Mortgages

    -        -        -        26,012        26,012   

Private loans

    -        -        -        927        927   

Deposits with financial institutions

    -        -        -        452        452   

Policy loans

    -        -        -        2,180        2,180   

Receivables out of share lease agreements

    -        -        -        19        19   

Other

    887        1,944        -        146        2,977   

December 31, 2011

    105,860        5,531        168        29,736        141,295   

 

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European peripheral countries exposure

Aegon’s exposure to central governments of European peripheral countries Portugal, Italy, Ireland, Greece and Spain amounts to EUR 964 million (December 31, 2011: EUR 1,112 million), of which EUR 695 million is included in the available-for-sale investments. The remainder of the exposure, amounting to EUR 269 million (December 31, 2011: EUR 214 million), relates to Aegon’s proportionate share in the investments of its associate CAM Aegon Holding Financiero (Spain).

The following table provides the amortized cost and fair value of Aegon’s exposure to European peripheral countries.

 

                                                                                      

EUR millions

Debt security exposure to:

    Dec. 31, 2012     Dec. 31, 2011  
     Central Government     Banks     RMBS     Corporates and other     Total     Total  
             
     Amortized
cost
    Fair value     Amortized
cost
    Fair value     Amortized
cost
    Fair value     Amortized
cost
    Fair value     Amortized
cost
    Fair value     Amortized
cost
    Fair value  
             

Portugal

    4        4        13        10        36        32        54        51        107        97        202        157   

Italy

    43        43        86        84        35        36        589        590        753        753        1,095        949   

Ireland

    20        20        -        -        160        140        295        324        475        484        582        584   

Greece

    -        -        -        -        4        2        23        25        27        27        34        32   

Spain

    897        875        198        188        686        638        707        725        2,488        2,426        3,194        2,965   

Total

    964        942        297        282        921        848        1,668        1,715        3,850        3,787        5,107        4,687   

14. Investments for account of policyholders

 

                
EUR millions   Dec. 31, 2012     Dec. 31, 2011  

Shares

    40,498        37,108   

Debt securities

    29,693        27,376   

Money market and short-term investments

    1,905        2,283   

Deposits with financial institutions

    2,799        2,813   

Separate accounts and unconsolidated investment funds

    77,328        71,284   

Other

    439        533   

Total investments for account of policyholders at fair value through profit or loss, excluding derivatives

    152,662        141,397   

Investment in real estate

    1,008        1,132   

Total investments for account of policyholders

    153,670        142,529   

15. Derivatives

The fair value of derivatives on both the asset and liability side of the condensed consolidated statement of financial position increased during 2012. This increase is mainly caused by decreases in market interest rates in combination with the practice of Aegon The Netherlands to buy swaps and swaptions to offset certain derivative positions rather than unwinding the positions as a whole. Although these new swaps create a full economic offset with existing swaps, the derivatives with a positive or negative fair value do not meet the IFRS criteria to be netted in the statement of financial position and hence increased both the asset and liability side.

16. Investments in associates

CAM and Aegon are still in an arbitration process to determine the occurrence of a change in control and the corresponding date, which determines the exit price. During the fourth quarter of 2012, the arbitration went into its final stages. A final verdict from the arbitrators is expected to be released in the first half of 2013.

 

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17. Deferred expenses and rebates

 

                
EUR millions   Dec. 31, 2012     Dec. 31, 2011  

DPAC for insurance contracts and investment contracts with discretionary participation features

    10,724        10,486   

Deferred cost of reinsurance

    558        541   

Deferred transaction costs for investment management services

    405        405   

Total deferred expenses and rebates

    11,687        11,432   

18. Share capital

 

                
EUR millions   Dec. 31, 2012     Dec. 31, 2011  
     

Share capital - par value

    319        310   

Share premium

    8,780        8,787   

Total share capital

    9,099        9,097   
     

Share capital - par value

       

Balance at January 1

    310        278   

Issuance

    2        32   

Share dividend

    7        -   

Balance

    319        310   
     

Share premium

       

Balance at January 1

    8,787        7,906   

Issuance

    -        881   

Share dividend

    (7     -   

Balance

    8,780        8,787   

Diluted earnings per share

Diluted earnings per share is calculated by adjusting the average number of shares outstanding for share options. In 2012 and 2011 the average share price did not exceed the exercise price of these options. As a result diluted earnings per share does not differ from basic earnings per share.

Dividend per common share

It will be proposed to the annual General Meeting of Shareholders on May 15, 2013, absent unforeseen circumstances, to pay a dividend for the year 2012 of EUR 0.21 per common share after taking into account the interim dividend of EUR 0.10 per common share, resulting in a final dividend of EUR 0.11 per common share. The 2012 interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 14, 2012. In the second quarter of 2012, a final dividend of EUR 0.10 per common share was paid relating to the second half year of 2011. The dividend per common share paid in 2011 (final 2010 and interim 2011) was nil.

19. Other equity instruments

On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the U.S. Securities and Exchange Commission. The subordinated notes bear interest at a fixed rate of 8.00% and are not cumulative and are priced at 100% of their principal amount. The proceeds from the issuance of the subordinated notes are used for general corporate purposes.

 

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The securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required cancellation of interest payments. The securities have a stated maturity of 30 years, however Aegon has the right to call the securities for redemption at par for the first time on the first coupon date in 2017, or on any coupon payment date thereafter.

The interest cash flows on substantially all of these securities have been swapped to a EURIBOR based interest rate to reduce the exposure to interest rate changes.

These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. At December 31, 2012 the equity component amount to EUR 271 million, subordinated borrowings amounts to EUR 42 million and a deferred tax liability (included in Other liabilities) amounts to EUR 89 million.

20. Subordinated borrowings

Subordinated borrowings include a liability of EUR 42 million relating to the non-cumulative subordinated notes issued on February 7, 2012. This liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes refer to note 19.

21. Borrowings

 

                
EUR millions   Dec. 31, 2012     Dec. 31, 2011  
     

Debentures and other loans

    12,235        9,199   

Commercial paper

    413        646   

Short term deposits

    17        18   

Bank overdrafts

    93        278   

Total borrowings

    12,758        10,141   

Debentures and other loans

On December 5, 2012, Aegon The Netherlands sold class A residential mortgage backed securities (RMBS) to a broad group of institutional investors amounting to EUR 1,365 million. These securities consist of two tranches:

t  

EUR 302 million of class A1 notes with an expected weighted average life of 1.9 years and priced at par with a coupon of three month Euribor plus 0.60%.

t  

EUR 1,063 million of class A2 notes with an expected weighted average life of 4.9 years and priced at par with a coupon of three month Euribor plus 1.15%.

The securities were issued under the Dutch SAECURE program. The net proceeds were used to refinance a part of the existing Dutch mortgage portfolio of Aegon The Netherlands.

On September 1, 2012 Aegon redeemed a USD 200 million Zero Coupon Bonds loan, which matured.

On July 18, 2012 Aegon issued EUR 500 million in senior unsecured notes, due July 18, 2017. The notes were issued under Aegon’s USD 6 billion debt issuance program at a price of 99.712%, and carry a coupon of 3.00%. Net proceeds from this issuance are used for general corporate purposes and the redemption of short-term debt.

 

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On May 23, 2012, Aegon USA sold asset backed securities (ABS) to institutional investors amounting to EUR 230 million. These securities consist of three tranches:

t  

USD 227.5 million of class A-1 notes with a legal final maturity date of April 15, 2023 and priced at 99.652% with a coupon of three month Libor plus 1.30%.

t  

USD 39.65 million of class A-2 notes with a legal final maturity date of April 15, 2023 and priced at 99.267% with a coupon of three month Libor plus 2.50%.

t  

USD 24.5 million of class B notes with a legal final maturity date of April 15, 2023 and priced at 90.289% with a coupon of three month Libor plus 3.00%.

The net proceeds are used to finance a part of the existing bank loan portfolio of Aegon USA.

On May 8, 2012, Aegon The Netherlands sold class A residential mortgage backed securities (RMBS) to a broad group of institutional investors amounting to EUR 685 million. These securities consist of two tranches:

t  

USD 600 million of class A1 notes with an expected weighted average life of 3 years and priced at par with a coupon of three month Libor plus 1.55%.

t  

EUR 212 million of class A1 notes with an expected weighted average life of 3 years and priced at par with a coupon of three month Euribor plus 1.35%.

The securities were issued under the Dutch SAECURE program. The net proceeds are used to refinance a part of the existing Dutch mortgage portfolio of Aegon The Netherlands.

On April 29, 2012 Aegon redeemed a EUR 1.0 billion senior loan, which matured.

On March 1, 2012, Aegon The Netherlands borrowed EUR 1.5 billion from the European Central Bank, under its Long Term Refinancing Operation (LTRO) program. The borrowing has a 3 year term. During Q3 2012 the interest per annum was lowered from 1% to 0.75%. The borrowing is fully collateralized. The funds are mainly used to fund the mortgage loan production of Aegon The Netherlands.

Included in Debentures and other loans is EUR 1,025 million relating to borrowings measured at fair value (2011: EUR 1,010 million).

Commercial paper, Short term deposits and Bank overdrafts vary with the normal course of business.

22. Commitments and contingencies

In the second quarter of 2012, Aegon The Netherlands decided to bring forward the measures related to the agreement announced on July 13, 2009 and reduce future costs for its customers with unit-linked insurance policies. With these measures, Aegon The Netherlands commited to ‘best of class’ principles of the Dutch Ministry of Finance. Previously, the approach was to settle compensation with clients when the policy expires. However, to comply with the Ministry’s principles, Aegon The Netherlands now settles compensation immediately by making direct additions to policy values before year-end 2012. As a result of this acceleration of previously announced measures, Aegon The Netherlands recorded a charge of EUR 265 million before tax in the second quarter of 2012 included in Claims and Benefits.

In addition, since the beginning of 2013 Aegon The Netherlands reduces future policy costs for the large majority of its unit-linked insurance policies. This will decrease income before tax over the remaining duration of the policies by approximately EUR 125 million, based on the current present value.

 

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As disclosed in the 2011 Annual Report, Aegon is involved in legal proceedings regarding a specific unit-linked product, the “Koersplan” product. Based on the latest available information, the Supreme Court will probably render a decision during the first half of 2013.

There have been no other material changes in contingent assets and liabilities as reported in the 2011 consolidated financial statements of Aegon.

23. Acquisitions / Divestments

On December 19, 2012 Aegon entered into an exclusive 25-year strategic partnership with Banco Santander. Under the terms of the agreement, Aegon will acquire a 51% stake in both a life insurance company as well as in a non-life insurance company for a consideration of EUR 220 million. Depending on the performance of the partnership, Aegon may pay an additional amount after five years. Furthermore, Aegon Spain will provide the back-office services to the joint venture companies. The transaction is expected to close in the first half of 2013, subject to regulatory approval and will be financed from existing resources.

On December 5, 2012 Aegon announced the acquisition of 100% of Fidem Life, a life insurance company in Ukraine. The transaction is expected to close in the first quarter of 2013, pending regulatory approval. Fidem Life will be rebranded “Aegon Ukraine” and will be integrated into the governance and management structure of Aegon CEE.

On October 1, 2012, Aegon closed the sale of its interest in Prisma Capital Partners LP (“Prisma”). Prisma, which is accounted for as an associate, served as an investment manager for certain of Aegon’s hedge fund investments as well as for other third parties. The final proceeds are subject to certain contingent arrangements which may lead to further payments in 2014 and 2017. The book gain amounted to EUR 100 million. The carrying value of Prisma at the transaction date was EUR 2 million. Aegon’s share in Prisma earnings from January 1, 2012 till October 1, 2012 amounted to EUR 10 million (full year 2011: EUR 13 million).

Following the announced merger between Banca Cívica and CaixaBank in Spain, Aegon reached an agreement, on August 3, 2012, with CaixaBank to end the life, health and pension partnership with Banca Cívica and sell its 50% interest in the joint ventures to CaixaBank for a total consideration of EUR 190 million. The transaction was closed on October 11, 2012 after obtaining regulatory approval. The sale resulted in a book gain of EUR 35 million before tax and was recorded in the fourth quarter of 2012. Aegon’s share in underlying earnings before tax of the joint venture totaled EUR 13 million for 2012 (full year 2011: EUR 16 million).

24. Events after the balance sheet date

After the acquisition of Unnim Banc by BBVA on July, 27 2012, Aegon has reached an agreement, on February 1, 2013, with BBVA to end the life, health and pension partnership with Unnim Banc and sell its 50% interest in the joint ventures to BBVA for a total consideration of EUR 353 million. The transaction is expected to be closed in Q2 2013 after obtaining regulatory approval. The sale is expected to result in a book gain of approximately EUR 105 million before tax. Aegon’s share in underlying earnings before tax of the joint venture totaled EUR 20 million in 2012.

On January 29, 2013 Aegon announced that it will take over Eureko’s life insurance and pension business in Romania. The transaction is expected to close in the second half of 2013, pending regulatory approval. Eureko’s Romanian life insurance portfolio and pension fund business will be integrated into the operations of Aegon Romania and into the governance and management structure of Aegon CEE.

 

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Disclaimers

Cautionary note regarding non-GAAP measures

This document includes a non-GAAP financial measure: underlying earnings before tax. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note 3 “Segment information” of Aegon’s Condensed consolidated interim financial statements. Aegon believes that this non-GAAP measure, together with the IFRS information, provides meaningful supplemental information that Aegon’s management uses to run its business as well as useful information for the investment community to evaluate Aegon ’s business relative to the businesses of its peers.

Local currencies and constant currency exchange rates

This document contains certain information about Aegon presented in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon’s primary financial statements.

Forward-looking statements

The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to Aegon. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Aegon undertakes no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:

 

t  

Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;

t  

Changes in the performance of financial markets, including emerging markets, such as with regard to:

  The frequency and severity of defaults by issuers in Aegon’s fixed income investment portfolios;
  The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities Aegon holds; and
  The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of sovereign exposure that Aegon holds;
t  

Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties;

t  

Consequences of a potential (partial) break-up of the euro;

t  

The frequency and severity of insured loss events;

t  

Changes affecting mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products;

t  

Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations;

t  

Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels; changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;

t  

Changes in the availability of, and costs associated with, liquidity sources such as bank and capital markets funding, as well as conditions in the credit markets in general such as changes in borrower and counterparty creditworthiness;

t  

Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;

t  

Changes in laws and regulations, particularly those affecting Aegon’s operations, ability to hire and retain key personnel, the products Aegon sells, and the attractiveness of certain products to its consumers;

t  

Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates;

t  

Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations;

t  

Acts of God, acts of terrorism, acts of war and pandemics;

t  

Changes in the policies of central banks and/or governments;

t  

Lowering of one or more of Aegon’s debt ratings issued by recognized rating organizations and the adverse impact such action may have on Aegon’s ability to raise capital and on its liquidity and financial condition;

t  

Lowering of one or more of insurer financial strength ratings of Aegon’s insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries;

t  

The effect of the European Union’s Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain;

t  

Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business;

t  

As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows;

t  

Customer responsiveness to both new products and distribution channels;

t  

Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products;

t  

Changes in accounting regulations and policies may affect Aegon’s reported results and shareholders’ equity;

t  

The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including Aegon’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;

t  

Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon’s business; and

t  

Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives.

Further details of potential risks and uncertainties affecting Aegon are described in its filings with the Netherlands Authority for the Financial Markets and the US Securities and Exchange Commission, including the Annual Report. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, Aegon expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Aegon ‘s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

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Corporate and shareholder information

 

Headquarters      
Aegon N.V.      
P.O. Box 85      
2501 CB The Hague      
The Netherlands      
Telephone    +31(0) 70 344 32 10   
aegon.com      

Group Corporate Communications & Investor Relations

 

Media relations      
Telephone    +31(0) 70 344 89 56   
E-mail    gcc@aegon.com   
Investor relations      
Telephone    +31(0) 70 344 83 05   
or    877 548 96 68 - toll free, USA only   
E-mail    ir@aegon.com   

Publication dates quarterly results

Wednesday, May 8, 2013    Results first quarter 2013   
Thursday, August 8, 2013    Results second quarter 2013   
Thursday, November 7, 2013    Results third quarter 2013   

Aegon’s Q4 2012 press release and Financial supplement are available on aegon.com.

 

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About Aegon

As an international life insurance, pensions and asset management company based in The Hague, Aegon has businesses in over 20 markets in the Americas, Europe and Asia. Aegon companies employ approximately 24,000 people and have nearly 47 million customers across the globe. Further information: aegon.com.