Aegon(AEG) - 2021 Q2 - Quarterly Report

Notes to the Condensed Consolidated Interim Financial Statements Company Information Aegon N.V. is a Dutch holding company with global operations in life insurance, pensions, savings, and asset management - Aegon N.V. is a Dutch holding company with global operations in life insurance, pensions, savings, and asset management across more than 20 countries, employing over 22,000 people[14] - Aegon Funding Company LLC (AFC), a wholly-owned subsidiary, raises funds for US subsidiaries, with Aegon N.V. providing full and unconditional guarantees for its debt securities[15] Basis of Presentation Interim financial statements are prepared under IAS 34 (IFRS), presented in EUR millions, and are unaudited - The interim financial statements are prepared under IAS 34 'Interim Financial Reporting' (IFRS) and are unaudited, presented in EUR millions[16][17] - Aegon applies IFRS-EU, which includes a 'carve out' for fair value hedge accounting for portfolio hedges of interest rate risk, differing from standard IFRS[19] IFRS vs. IFRS-EU Financial Metrics | Metric | June 30, 2021 (EUR millions) | December 31, 2020 (EUR millions) | First half 2021 (EUR millions) | First half 2020 (EUR millions) | | :------------------------------------- | :--------------------------- | :--------------------------- | :----------------------------- | :----------------------------- | | Shareholders' equity (IFRS) | 23,052 | 23,089 | - | - | | Adjustment of EU 'IAS 39' carve out | 758 | 1,051 | (296) | 277 | | Tax effect of the adjustment | (183) | (226) | 74 | (59) | | Effect of the adjustment after tax | 575 | 826 | (222) | 218 | | Shareholders' equity (IFRS-EU) | 23,627 | 23,914 | - | - | | Net result (IFRS) | - | - | 1,457 | (16) | | Net result (IFRS-EU) | - | - | 1,235 | 202 | Significant Accounting Policies Accounting policies remain consistent with 2020, with new IFRS standards having no material impact - Accounting policies and methods are consistent with 2020 financial statements; new IFRS standards effective from 2021, including 'Interest Rate Benchmark Reform – Phase 2', had no impact[22][23] - Aegon is assessing the impact of IASB amendments to IAS 1, IFRS Practice Statement 2, IAS 8 (effective Jan 1, 2023), and IFRS 16 (effective April 1, 2021), with the latter not expected to be significant[26][27] Judgments and Critical Accounting Estimates Financial statements rely on management judgments and estimates, with H1 2021 showing improved net result despite COVID-19 impacts - Financial statements rely on management judgments and estimates, which are subject to change[28] - COVID-19 continued to disrupt markets in H1 2021, but vaccination progress reduced its economic impact[29] Key Financial Performance and Sensitivity Metrics | Metric | YTD 2021 (EUR millions) | YTD 2020 (EUR millions) | Change (YoY) | | :-------------------------------- | :---------------------- | :---------------------- | :----------- | | Net result | 1,457 | (16) | Significant increase | | Adverse mortality (Americas) | 165 | - | - | | COVID-19 claims (Americas) | 103 | 34 | +203% | | Impairment charges | 3 | 246 | -98.8% | | Solvency II capital position | 208% | 196% | +12 percentage points | | Actuarial assumption updates charge | 86 | 850 | -89.9% | - Updated indexation assumption for Dutch pensions portfolio resulted in a EUR 75 million lower market value liability[33] - Variable Annuities GLWB surrender floor update in the Americas led to a EUR 123 million charge to income before tax[34] - A 10% increase in mortality assumption would reduce net result by approximately EUR 136 million (December 31, 2020: EUR 124 million); a relative 20% increase in the lapse rate assumption would increase net result by approximately EUR 58 million (December 31, 2020: EUR 89 million)[35] - The Liability Adequacy Test (LAT) deficit in Aegon the Netherlands improved by EUR 1.2 billion to EUR 1.3 billion (from EUR 2.5 billion at Dec 31, 2020), driven by market movements[37] - An increase of 100 bps in interest rate would result in a decrease in LAT deficit of approximately EUR 3.2 billion (December 31, 2020: EUR 3.9 billion); a decrease of 100 bps would result in an increase of approximately EUR 4.3 billion (December 31, 2020: EUR 5.2 billion)[39] Other Notes Income taxes are estimated using the full-year rate, and foreign currency translations follow specific rules - Income taxes for the period are calculated using the estimated full-year tax rate[40] - Foreign operations' assets/liabilities are translated at closing rates; income/expenses/capital transactions use average or prevailing transaction rates[41] Exchange Rates | Currency | June 30, 2021 (1 EUR =) | December 31, 2020 (1 EUR =) | YTD 2021 (1 EUR =) | YTD 2020 (1 EUR =) | | :------- | :---------------------- | :-------------------------- | :----------------- | :----------------- | | USD | 1.1859 | 1.2236 | 1.2052 | 1.1017 | | GBP | 0.8584 | 0.8951 | 0.8678 | 0.8737 | Segment Information Aegon renamed its primary performance measure to "Operating result" and introduced "Non-operating result" with specific measurement changes - Aegon renamed its primary performance measure to "Operating result" and introduced "Non-operating result" (Fair value items, Realized gains/losses, Net impairments)[44] - Measurement changes include: US macro hedge costs in Operating result; periodic intangibles unlocking in Fair value items; run-off businesses results in Operating result; CEE operations results in Other income/charges (prospectively)[45] - These changes increased H1 2020 consolidated operating result by EUR 5 million (EUR 1 million from fair value items, EUR 4 million from run-off businesses), with no impact on net result or shareholders' equity[46] Consolidated Segment Performance | Segment (EUR millions) | Operating Result YTD 2021 | Operating Result YTD 2020 | Fair Value Items YTD 2021 | Fair Value Items YTD 2020 | Net Result YTD 2021 | Net Result YTD 2020 | | :--------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | :------------------ | :------------------ | | Americas | 445 | 262 | 328 | (754) | 630 | (1,165) | | The Netherlands | 370 | 321 | 477 | 1,102 | 754 | 1,056 | | United Kingdom | 84 | 81 | (66) | 89 | 35 | 114 | | International | 62 | 82 | (2) | (8) | 73 | 91 | | Asset Management | 146 | 71 | (1) | (7) | 97 | 46 | | Holdings & Other | (112) | (113) | 31 | (21) | (133) | (159) | | Consolidated Total | 960 | 714 | 749 | 372 | 1,457 | (16) | Investments General account investments decreased due to higher interest rates, while policyholder investments increased from positive market movements - Total investments for general account decreased in H1 2021 due to fair value decreases from higher interest rates in US and NL, partially offset by positive foreign currency translations[66] - Investments for account of policyholders increased in H1 2021 due to positive market movements in US and UK and foreign currency translations[68] Investments by Type | Investment Type (EUR millions) | June 30, 2021 | December 31, 2020 | | :----------------------------- | :------------ | :---------------- | | Investments (General Account) | | | | Available-for-sale (AFS) | 100,777 | 99,580 | | Loans | 45,674 | 44,519 | | Financial assets at FVTPL | 6,977 | 10,057 | | Investments in real estate | 2,423 | 2,385 | | Total General Account | 155,851 | 156,541 | | Investments for Policyholders | | | | Shares | 27,620 | 25,288 | | Debt securities | 19,557 | 19,885 | | Unconsolidated investment funds | 184,459 | 168,777 | | Investments in real estate | 485 | 467 | | Total Policyholders | 241,693 | 224,172 | Premium Income and Premiums Paid to Reinsurers Total premium income decreased in H1 2021, driven by reductions in Dutch and UK life insurance portfolios - Premium income decreased in H1 2021, mainly due to reductions in the Individual Life portfolio in NL and upgraded Life insurance policies in the UK[54] Premium Income and Reinsurance Premiums | Metric (EUR millions) | YTD 2021 | YTD 2020 | Change (YoY) | | :-------------------- | :------- | :------- | :----------- | | Life insurance | 6,768 | 7,526 | -10.07% | | Non-life insurance | 1,099 | 1,217 | -9.69% | | Total premium income | 7,867 | 8,744 | -10.03% | | Premiums paid to reinsurers | 1,158 | 1,200 | -3.49% | Investment Income Total investment income decreased in H1 2021 across interest, dividend, and rental income for both general and policyholder accounts Investment Income Breakdown | Metric (EUR millions) | YTD 2021 | YTD 2020 | Change (YoY) | | :-------------------- | :------- | :------- | :----------- | | Interest income | 2,599 | 2,805 | -7.31% | | Dividend income | 1,086 | 1,165 | -6.80% | | Rental income | 49 | 64 | -23.34% | | Total investment income | 3,734 | 4,034 | -7.44% | | General account | 2,388 | 2,591 | -7.83% | | Policyholders account | 1,346 | 1,443 | -6.72% | Results from Financial Transactions Results from financial transactions significantly improved to a EUR 13.5 billion gain in H1 2021, driven by fair value changes on policyholder assets - Results from financial transactions significantly improved from a loss of EUR 4,962 million in H1 2020 to a gain of EUR 13,477 million in H1 2021[57] - The improvement was mainly driven by a net fair value change on policyholder financial assets at FVTPL, which increased by EUR 13,996 million (from EUR -4,294 million in H1 2020) due to positive equity markets[57] Results from Financial Transactions | Metric (EUR millions) | YTD 2021 | YTD 2020 | | :-------------------- | :------- | :------- | | Net fair value change of general account financial investments at FVTPL (other than derivatives) | 368 | (219) | | Realized gains /(losses) on financial investments | 209 | (3) | | Gains /(losses) on investments in real estate | 40 | 11 | | Net fair value change of derivatives | (1,269) | (405) | | Net fair value change on for account of policyholder financial assets at FVTPL | 13,996 | (4,294) | | Net foreign currency gains /(losses) | 123 | (22) | | Total | 13,477 | (4,962) | Benefits and Expenses Total benefits and expenses significantly increased in H1 2021, primarily due to higher claims and changes in liability valuations - Total benefits and expenses increased significantly by 145.5% from EUR 10,700 million in H1 2020 to EUR 26,268 million in H1 2021[59] - The increase was mainly due to a rise in "Claims and benefits" from EUR 8,726 million to EUR 24,475 million, driven by changes in valuation of liabilities for insurance and investment contracts[59][60] Total Benefits and Expenses | Metric (EUR millions) | YTD 2021 | YTD 2020 | Change (YoY) | | :-------------------- | :------- | :------- | :----------- | | Claims and benefits | 24,475 | 8,726 | +180.49% | | Employee expenses | 967 | 1,038 | -6.84% | | Administration expenses | 786 | 822 | -4.49% | | Deferred expenses | (305) | (400) | +23.75% | | Amortization charges | 345 | 513 | -32.75% | | Total | 26,268 | 10,700 | +145.49% | Claims and Benefits Breakdown | Claims and Benefits Breakdown (EUR millions) | YTD 2021 | YTD 2020 | | :------------------------------------------- | :------- | :------- | | Benefits and claims paid life | 10,628 | 6,246 | | Benefits and claims paid non-life | 691 | 779 | | Change in valuation of liabilities for insurance contracts | 8,816 | 1,465 | | Change in valuation of liabilities for investment contracts | 2,072 | (2,134) | | Policyholder claims and benefits | 22,185 | 6,362 | | Premium paid to reinsurers | 1,158 | 1,200 | | Commissions | 1,128 | 1,159 | Other Charges Other charges primarily relate to settlements concerning monthly deduction rate adjustments on universal life policies - Other charges are mainly related to settlements for monthly deduction rate adjustments on universal life policies[62] Income Tax Income tax includes recurring benefits from tax-exempt income and US tax credits, plus a one-off UK tax rate change benefit - Income tax includes recurring benefits from tax-exempt income (e.g., US dividend received deduction, NL participation exemption) and US tax credits (e.g., affordable housing investments)[63] - A one-off beneficial impact of EUR 34 million was recorded in H1 2021 due to the enacted UK corporate income tax rate change (19% to 25% effective April 1, 2023)[63] Fair Value Financial instruments are categorized into Level I, II, and III for fair value measurement, with total assets increasing in H1 2021 - Financial instruments are categorized into Level I (quoted prices), Level II (observable inputs), and Level III (unobservable inputs) for fair value measurement[70] Total Financial Assets and Liabilities at Fair Value | Metric (EUR millions) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Total financial assets at fair value | 360,463 | 347,327 | | Total financial liabilities at fair value | 80,750 | 74,242 | Level III Financial Instruments | Level III Financial Instruments (EUR millions) | Jan 1, 2021 | Total gains/losses in income statement (H1 2021) | June 30, 2021 | | :--------------------------------------------- | :---------- | :----------------------------------------------- | :------------ | | Total assets at fair value | 6,000 | 409 | 5,983 | | Total liabilities at fair value | 4,890 | 2,082 | 3,410 | - Transfers between fair value levels are identified based on transaction volume and frequency, indicating active market conditions[71] Financial Instruments Not Measured at Fair Value | Financial Instruments Not Measured at Fair Value (EUR millions) | Carrying Amount (June 30, 2021) | Fair Value (June 30, 2021) | Carrying Amount (Dec 31, 2020) | Fair Value (Dec 31, 2020) | | :-------------------------------------------------------------- | :------------------------------ | :------------------------- | :----------------------------- | :------------------------ | | Mortgage loans - held at amortized cost | 39,440 | 44,456 | 38,244 | 43,258 | | Private loans - held at amortized cost | 4,307 | 5,008 | 4,358 | 5,280 | | Borrowings – held at amortized cost | 9,303 | 9,806 | 8,524 | 9,165 | | Investment contracts - held at amortized cost | 22,207 | 21,582 | 20,889 | 20,382 | Share Capital Share capital remained stable, while share premium decreased due to a share dividend, and EPS significantly improved Share Capital and Share Premium | Metric (EUR millions) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Share capital | 320 | 320 | | Share premium | 7,106 | 7,160 | | Total share capital | 7,426 | 7,480 | Earnings Per Share | Metric (EUR per share) | YTD 2021 | YTD 2020 | | :--------------------- | :------- | :------- | | Basic EPS (common) | 0.69 | (0.02) | | Diluted EPS (common) | 0.69 | (0.02) | - A final dividend for 2020 of EUR 0.06 per common share was paid (total EUR 0.12 for 2020)[82] - An interim dividend for 2021 of EUR 0.08 per common share is planned, payable in cash or stock, with the dilutive effect to be neutralized in Q4 2021[85] Borrowings Total borrowings increased to EUR 9.3 billion, driven by mortgage securitization and FHLB advances Borrowings Breakdown | Metric (EUR millions) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Capital funding | 1,274 | 1,241 |\ | Operational funding | 8,029 | 7,283 |\ | Total borrowings | 9,303 | 8,524 | - Operational funding increased by EUR 0.7 billion due to "Saecure 20" mortgage securitization (EUR 0.7 billion) and Federal Home Loan Bank advances (EUR 0.5 billion), partly offset by other mortgage loan funding decrease (EUR 0.4 billion)[87] Financial Risks Aegon's interest rate risk sensitivity changed due to a US macro hedge and improved NL LAT deficit, while other sensitivities remained stable - Aegon's sensitivity to interest rate risk changed due to a US interest rate macro hedge and improved NL LAT deficit; other sensitivities (equity market, bond credit spreads, liquidity premium) were stable[88] Interest Rate Sensitivity | Yield Curve Movement | Estimated approximate effects on net result (June 30, 2021) | Estimated approximate effects on shareholders' equity (June 30, 2021) | Estimated approximate effects on net result (Dec 31, 2020) | Estimated approximate effects on shareholders' equity (Dec 31, 2020) | | :------------------- | :-------------------------------------------------------- | :-------------------------------------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------------------- | | Shift up 100 bps | 687 | (2,746) | 813 | (1,690) | | Shift down 100 bps | (947) | 1,826 | (1,174) | 1,352 | Capital Management and Solvency Aegon's estimated Group Solvency II ratio increased to 208% in H1 2021, driven by favorable market movements and management actions - Aegon's Group Solvency II ratio increased from 196% to 208% in H1 2021, driven by favorable market movements and one-time items[91][31] Group Solvency II Key Figures | Solvency II Key Figures (EUR millions) | June 30, 2021 | December 31, 2020 | | :------------------------------------- | :------------ | :---------------- | | Group Own Funds | 19,436 | 18,582 | | Group SCR | 9,353 | 9,473 | | Group Solvency II ratio | 208% | 196% | - Group Own Funds increased by EUR 854 million due to expected return on in-force business, market impacts, and management actions, partly offset by dividends[334] - Group SCR decreased by EUR 120 million due to framework, model, and assumption changes, and management actions, offset by market impacts[335] Available Own Funds | Available Own Funds (EUR millions) | June 30, 2021 | December 31, 2020 | | :--------------------------------- | :------------ | :---------------- | | Tier 1 - unrestricted | 13,918 | 12,971 | | Tier 1 - restricted | 2,572 | 2,571 | | Tier 2 | 2,305 | 2,340 | | Tier 3 | 641 | 700 | | Total Available Own Funds | 19,436 | 18,582 | Reconciliation of Shareholders' Equity to Own Funds | Reconciliation Shareholders' Equity - Own Funds (EUR millions) | June 30, 2021 | December 31, 2020 | | :------------------------------------------------------------- | :------------ | :---------------- | | IFRS Shareholders' Equity | 23,627 | 22,815 | | IFRS adjustments for Other Equity instruments and non controlling interests | 2,710 | 2,644 | | IFRS Group Equity | 26,338 | 25,459 | | Solvency II revaluations and reclassifications | (9,259) | (9,418) | | Transferability restrictions | (1,825) | (1,766) | | Excess of Assets over Liabilities | 15,254 | 14,274 | | Availability adjustments | 4,271 | 4,416 | | Fungibility adjustments | (89) | (108) | | Available Own Funds | 19,436 | 18,582 | Commitments and Contingencies Aegon faces class actions and litigation regarding monthly deduction rate increases, with appeals delaying a settlement implementation - Aegon subsidiaries are involved in class actions and individual litigation concerning increases in monthly deduction rates (MDR) on universal life products[96] - Settlements for two class actions were approved in 2019 and 2020, but appeals by opt-out policyholders have delayed implementation of the second settlement[96] - Aegon maintains a provision for remaining opt-outs, but an insufficient provision could negatively impact its financial position[96] Acquisitions/Divestments Aegon divested Stonebridge in the UK, while the acquisition of its Hungarian entities by VIG was unexpectedly denied - Aegon divested Stonebridge (UK accident insurance) for approximately GBP 60 million in February 2021, with no material impact on capital or results[97] - The Hungarian Ministry of the Interior denied the acquisition of Aegon's Hungarian entities by VIG, despite constructive talks, but VIG anticipates a positive resolution[98] Post Reporting Date Events Aegon announced a EUR 133 million common share repurchase program to neutralize dilutive effects of dividends and compensation plans - Aegon announced a EUR 133 million common share repurchase on July 8, 2021, to neutralize the dilutive effect of its 2020 final stock dividend and share-based compensation plans[99] Operating and Financial Review and Prospects Introduction Aegon provides transparent information on business drivers and financial performance, with critical accounting policies detailed in its 2020 Form 20-F - Aegon provides transparent information on business drivers and financial performance, with supplemental details in annual and semi-annual accounts[101] - Critical accounting policies and risk management methodologies are detailed in Aegon's 2020 Form 20-F[102] Application of Critical Accounting Policies - IFRS Accounting Policies Financial statements under IFRS require management judgments and estimates, particularly for life insurance contract valuations and liability adequacy testing - Financial statements are based on IFRS, requiring management judgments and estimates that are inherently subject to change[103] - Valuation of life insurance contract assets and liabilities uses complex models and assumptions (mortality, morbidity, investment return, expenses, surrender/lapse rates)[105][110] - Liability adequacy testing assesses insurance liabilities against fair value; deficiencies can impact the income statement or revaluation reserve in shareholders' equity[105] - Actuarial and economic assumption updates in H1 2021 resulted in a pre-tax charge of EUR 86 million (compared to EUR 850 million in H1 2020)[116] Deferred Expense Movements | Deferred Expense Type (EUR millions) | Jan 1, 2021 | Costs deferred (H1 2021) | Amortizations (H1 2021) | June 30, 2021 | | :----------------------------------- | :---------- | :----------------------- | :---------------------- | :------------ | | DPAC | 8,253 | 292 | (269) | 9,104 | | Deferred costs of reinsurance | 141 | - | (19) | 140 | | Deferred transaction costs | 404 | 13 | (12) | 418 | Value of Business Acquired (VOBA) | VOBA (EUR millions) | Jan 1, 2021 | Amortization/depreciation (H1 2021) | June 30, 2021 | | :------------------ | :---------- | :---------------------------------- | :------------ | | VOBA | 815 | (51) | 819 | Guarantees in Insurance Contracts Aegon categorizes minimum guarantees with specific accounting treatments, showing a decrease in liabilities due to market conditions - Aegon categorizes minimum guarantees into financial guarantees (derivatives), total return annuities, life contingent guarantees, and minimum investment return guarantees, each with specific accounting treatments[123] Liabilities for Financial Guarantees | Liabilities for Financial Guarantees for Minimum Benefits (EUR millions) | June 30, 2021 | December 31, 2020 | | :--------------------------------------------------------------------- | :------------ | :---------------- | | United States | 1,654 | 2,715 | | The Netherlands | 1,584 | 2,032 | | Total | 3,238 | 4,747 | - The decrease in incurred guarantee benefits in 2021 is mainly due to increasing interest rates and rising equity markets, partially offset by policyholder behavior assumption updates[128] - Guarantees valued at fair value contributed a net loss before tax of EUR 44 million for the six months ended June 30, 2021 (six months ended June 30, 2020: gain of EUR 275 million)[146] - This net loss was influenced by fair value loss on guarantee reserve hedges (EUR 3,410 million), positive results from increased risk-free rates (EUR 2,691 million), and gains from equity markets (EUR 777 million)[146] - Guarantee reserves decreased EUR 2,954 million in the first six months of 2021 (six months ended June 30, 2020: increase of EUR 4,830 million)[147] Additional Information on Credit Risk, Unrealized Losses and Impairments Aegon monitors debt securities for impairment, with unrealized losses increasing in H1 2021 due to rising US Treasury rates - Aegon monitors debt securities for impairment indicators, including market-to-book ratio, issuer financial condition, covenant violations, and credit rating downgrades[162][164] Gross Unrealized Gains and Losses | Metric (EUR millions) | June 30, 2021 | December 31, 2020 | | :-------------------- | :------------ | :---------------- | | Gross unrealized gains (AFS debt securities, money markets, other) | 12,152 | 14,938 | | Gross unrealized losses (AFS debt securities, money markets, other) | 405 | 249 | - The unrealized loss increased during the first half of 2021 mainly due to increasing US Treasury rates offset by credit spread tightening[192] Net Impairments and Recoveries | Net (impairments) and recoveries (EUR millions) | June 30, 2021 | June 30, 2020 | | :---------------------------------------------- | :------------ | :------------ |\ | Impairments: Other | (6) | (135) |\ | Recoveries: Total recoveries | 20 | 15 |\ | Net (impairments) and recoveries | 14 | (121) | - No impairment charges were recorded for equity instruments classified as available-for-sale in H1 2021 (vs. EUR 6 million in H1 2020)[202] Unrealized Gains and Losses on Shares | Unrealized Gains and Losses on Shares (EUR millions) | Cost basis | Carrying value | Net unrealized gains / (losses) | | :--------------------------------------------------- | :--------- | :------------- | :------------------------------ | | June 30, 2021 | 232 | 293 | 61 | | December 31, 2020 | 222 | 266 | 44 | Results of Operations – First Half 2021 Compared with First Half 2020 This section presents Aegon's results using non-IFRS financial measures, consolidating joint ventures proportionately for enhanced comparability - The report uses non-IFRS measures (operating result, net operating result) for segment reporting, consolidating joint ventures and associates proportionately[209] - These non-IFRS measures provide supplemental information for investors and align with senior management's performance evaluation, aiding comparability despite IFRS accounting policy alternatives[210] - Changes in segment reporting, including name convention and measurement of performance measures, were implemented from January 1, 2021[212] Results 2021 Worldwide Aegon's net result significantly improved to EUR 1.46 billion in H1 2021, driven by strong operating results and fair value gains Worldwide Financial Performance Summary | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 1,457 | (16) | n.m. | | Operating result | 993 | 705 | 41% | | Non-operating items | 991 | 224 | n.m. | | Other income / (charges) | (152) | (1,071) | 86% | | Result before tax | 1,832 | (143) | n.m. | | Income tax | (375) | 126 | n.m. | - Operating result increased by 41% due to better claims experience in the Americas, expense savings, and increased fee income, despite CEE reclassification[215][221] - Non-operating items included fair value gains on investments (private equity, real estate) and realized gains on debt securities sold for long-duration assets[215][216] - Other charges decreased significantly due to lower assumption updates in the Americas (EUR 126 million vs. EUR 834 million in H1 2020), mainly for Variable Annuities surrender rates[217] Worldwide Operating Metrics | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 1,916 | 1,985 | (4)% | | Addressable expenses | 1,398 | 1,643 | (15)% | | New life sales | 353 | 382 | (8)% | | Total net deposits | 1,718 | 952 | 80% | - Income tax was a charge of EUR 375 million, with an effective tax rate of 20% due to tax-exempt income and tax credits in the Americas[220] - New premium production for accident & health insurance decreased by 30% to EUR 83 million, and property & casualty decreased by 12% to EUR 52 million[227][228] - Total net deposits increased by 80% to EUR 1.7 billion, driven by Asset Management, partly offset by higher net outflows in the Americas (Retirement Plans, Variable Annuities)[229] - Shareholders' equity (excluding revaluation reserves) increased by EUR 2.0 billion to EUR 17.5 billion, and the gross financial leverage ratio improved by 210 basis points to 25.9%[230] - Cash Capital at the Holding increased from EUR 1,149 million at the end of 2020 to EUR 1,386 million on June 30, 2021, which is in the upper half of the operating range of EUR 0.5 billion to EUR 1.5 billion; free cash flow to the Holding of EUR 250 million resulted from EUR 390 million gross remittances and EUR 141 million holding expenses[232] Americas Americas businesses reported a net result of USD 760 million in H1 2021, driven by improved non-operating items and higher operating result Americas Financial Performance Summary | Metric (USD millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 760 | (1,284) | n.m. | | Operating result | 536 | 288 | 86% | | Non-operating items | 621 | (957) | n.m. | | Other income / (charges) | (263) | (1,034) | 75% | | Income tax | (134) | 419 | n.m. | - Operating result increased by 86% due to better morbidity claims experience (Long-Term Care), increased fees from higher equity markets, and lower addressable expenses[244] - Individual Solutions' operating result increased to USD 402 million, benefiting from favorable morbidity claims (USD 145 million), higher fee revenue, and lower employee expenses, despite adverse Life mortality (USD 184 million, largely COVID-19 related)[245] - Non-operating items included fair value gains (USD 395 million, from private equity, real estate, and hedge outperformance) and realized gains on debt securities (USD 206 million)[239] - Other charges included restructuring (USD 90 million), litigation provision (USD 68 million), and actuarial assumption updates (USD 152 million, mainly Variable Annuities surrender rates)[241] Americas Operating Metrics | Metric (USD millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 884 | 939 | (6)% | | Addressable expenses | 729 | 828 | (12)% | | New life sales | 256 | 204 | 25% | | Total net deposits | (8,719) | (2,501) | n.m. | - Total net outflows increased significantly to USD 8.7 billion, driven by Variable Annuities (decision to stop sales of interest-rate sensitive riders) and large-market Retirement Plans[251] The Netherlands Net result from Aegon's Netherlands businesses decreased by 29% in H1 2021, despite a higher operating result Netherlands Financial Performance Summary | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 754 | 1,056 | (29)% | | Operating result | 370 | 321 | 15% | | Non-operating items | 505 | 1,039 | (51)% | | Other income / (charges) | 126 | (48) | n.m. | | Income tax | (246) | (256) | 4% | - Operating result increased by 15% due to higher investment margin in Life, growth in Mortgages, and expense savings initiatives[257] - Non-operating items (EUR 505 million gain) were mainly fair value gains from interest rate hedges on mortgage portfolio, positive revaluations, and decreased Liability Adequacy Test deficit[255] - Other income (EUR 126 million) was driven by a technical provision release from a co-insurance contract settlement and favorable inflation assumption updates[256] Netherlands Operating Metrics | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 378 | 381 | (1)% | | Addressable expenses | 303 | 320 | (5)% | | New life sales | 37 | 47 | (22)% | | Total net deposits | 445 | 691 | (36)% | - New life sales declined by 22% following the decision to classify the Dutch Life business as a Financial Asset and close most products for new sales[261] - Total net deposits decreased by 36% due to increased outflows in Bank (after stopping savings products) partially offset by growth in Workplace Solutions (defined contribution pensions)[262] The United Kingdom Net result from Aegon's UK businesses decreased by 69% in H1 2021, primarily due to non-operating fair value losses United Kingdom Financial Performance Summary | Metric (GBP millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 31 | 100 | (69)% | | Operating result | 73 | 71 | 2% | | Non-operating items | (58) | 78 | n.m. | | Other income | 6 | (47) | n.m. | | Income tax | 10 | (2) | n.m. | - Operating result increased by 2% due to higher fee revenues from platform growth and favorable equity markets, and lower expenses, offsetting impacts from Stonebridge sale and adverse COVID-19 claims[268] - Non-operating items resulted in a GBP 58 million loss, reflecting fair value losses on hedges to protect solvency, driven by higher interest rates and equity markets[266] - Income tax was a GBP 10 million benefit, including a one-time GBP 28 million tax benefit from the UK corporate income tax rate increase (19% to 25% effective April 2023)[267] United Kingdom Operating Metrics | Metric (GBP millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 191 | 206 | (7)% | | Addressable expenses | 165 | 170 | (3)% | | New life sales | 13 | 17 | (21)% | | Total net deposits | 2,143 | 1,795 | 19% | - Net deposits increased by 19% to GBP 2.1 billion, driven by higher net deposits in Workplace (large scheme win) and lower net outflows in Retail, partly offset by higher outflows in Traditional products[270] International Net result from International operations decreased by 20% in H1 2021, primarily due to CEE reclassification and lower operating result International Financial Performance Summary | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 73 | 91 | (20)% | | Operating result | 62 | 82 | (25)% | | Non-operating items | 1 | (5) | n.m. | | Other income / (charges) | 29 | 25 | 17% | | Income tax | (18) | (11) | (71)% | - Operating result declined by 25% due to reclassification of CEE results to Other income; adjusted for CEE, operating result increased by EUR 37 million, driven by Spain & Portugal and TLB[276] - Spain & Portugal operating result increased by 27% to EUR 30 million due to growing portfolio and improved claims; TLB operating result increased by 15% to EUR 37 million from favorable claims and improved investment margin; China operating result increased by 21% to EUR 10 million from portfolio growth[276][277] - Other income (EUR 29 million) predominantly from CEE reclassification, partly offset by a one-time charge in India[275] International Operating Metrics | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 196 | 198 | (1)% | | Addressable expenses | 57 | 63 | (10)% | | New life sales | 89 | 131 | (32)% | | Total net deposits | 4 | 82 | (95)% | - New life sales declined by 32% due to CEE exclusion and strategic channel closures in India; Spain & Portugal sales increased by 14% and TLB by 18%[281][282] - Net deposits decreased by 95% to EUR 4 million, almost entirely due to the exclusion of CEE gross deposits[283] Asset Management Asset Management's net result increased by 113% in H1 2021, driven by higher management and performance fees Asset Management Financial Performance Summary | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Net result | 97 | 46 | 113% | | Operating result | 146 | 71 | 106% | | Other income / (charges) | (6) | - | n.m. | | Income tax | (44) | (18) | 141% | - Operating result increased by 106% due to higher management and performance fees in AIFMC and increased revenues from Global Platforms[290] - AIFMC's performance fees amounted to EUR 61 million, driven by strong performance of the New Horizons multi-asset retail fund and separate account mandates[291] Asset Management Operating Metrics | Metric (EUR millions) | First half 2021 | First half 2020 | % Change | | :-------------------- | :-------------- | :-------------- | :------- | | Operating expenses | 294 | 232 | 18% | | Addressable expenses | 180 | 179 | 1% | | Total net deposits | 1,735 | 8,316 | (79)% | - Total net deposits declined by 79% due to higher general account and affiliate net outflows, despite third-party net deposits increasing to EUR 6.0 billion[293] - Assets under management increased by EUR 29 billion to EUR 391 billion at June 30, 2021, driven by third-party net deposits and favorable market movements[295] Post Reporting Date Events Post reporting date events are detailed in Note 18 of the condensed consolidated interim financial statements - Post reporting date events are disclosed in Note 18 of the condensed consolidated interim financial statements[295] Capital and Liquidity Management Aegon's capital and liquidity management aims for strong capital adequacy, efficient structure, and adequate liquidity across its operations - Aegon's capital and liquidity management aims for strong capital adequacy, efficient capital structure, and adequate liquidity, guided by its ERM framework[296][297][298] - Operating units maintain capital at levels sufficient to absorb moderate shocks (150% SCR for Solvency II, 400% RBC CAL in US) and a minimum dividend payment level (135% SCR, 350% RBC CAL)[300][302] Operating Unit Capitalization Levels | Operating Unit | Capitalization Metric | Dec 31, 2020 | June 30, 2021 | | :------------- | :-------------------- | :----------- | :------------ | | US | RBC ratio | 432% | 444% | | NL Life | Solvency II ratio | 159% | 172% | | SE Plc | Solvency II ratio | 156% | 163% | - Aegon is reducing its US economic interest rate exposure by one-third to one-half, having executed three-quarters of the plan by H1 2021[312] - Transamerica launched a lump-sum buy-out program for Variable Annuities with GMIB riders to reduce economic exposure and hedge costs[313] - Aegon plans to expand its dynamic hedge program for US Variable Annuities to cover GMDB and remaining GMIB riders from Q4 2021[314] - Aegon redeemed USD 250 million floating rate perpetual capital securities, in line with its target to reduce leverage to EUR 5.0-5.5 billion by 2023[314] Guiding Principles Aegon's capital and liquidity management is guided by principles promoting strong capital adequacy, efficient structure, and adequate liquidity - Guiding principles include promoting strong capital adequacy, efficient capital structure, optimizing cost of capital, maintaining adequate liquidity, and ensuring access to international capital markets[297] - Capital and liquidity management is embedded in Aegon's Enterprise Risk Management (ERM) framework, aligning with its risk tolerance for capital generation, solvency, liquidity, and responsible business[298] Management of Capital Aegon's capital management framework focuses on operating unit capitalization, Cash Capital at Holding, and leverage, with units maintaining target and minimum levels - Aegon's capital management framework focuses on operating unit capitalization, Cash Capital at Holding, and leverage, with updated policies in 2020[299] - Operating units maintain capital at operating levels (150% SCR for Solvency II, 400% RBC CAL for US) to absorb moderate shocks and minimum dividend payment levels (135% SCR, 350% RBC CAL) for remittances[300][302] Operating Unit Capitalization Levels | Operating Unit | Regulatory Capital Requirement | Minimum Dividend Payment Level | Operating Level | Actual Capitalization (June 30, 2021) | | :------------- | :----------------------------- | :----------------------------- | :-------------- | :------------------------------------ | | United States | 100% RBC CAL | 350% | 400% | 444% | | Aegon Levensverzekering N.V. | 100% SII SCR | 135% | 150% | 172% | | Scottish Equitable Plc | 100% SII SCR | 135% | 150% | 163% | - Aegon Americas' RBC ratio increased from 432% at 4Q 2020 to 444% at 2Q 2021, driven by favorable equity market performance, higher interest rates, and positive morbidity experience, partly offset by negative mortality[306] - Aegon Levensverzekering N.V. (NL Life) Solvency II ratio increased from 159% at 4Q 2020 to 172% at 2Q 2021, driven by operating capital generation, model updates, and management actions[310] - Scottish Equitable Plc (SE Plc) Solvency ratio increased from 156% at 4Q 2020 to 163% at 2Q 2021, driven by operating capital generation, management actions, and corporate income tax changes[311] Cash Capital at Holding and Liquidity Management Aegon manages Cash Capital at Holding within a EUR 0.5-1.5 billion range and maintains a two-year liquidity projection policy - Aegon manages Cash Capital at Holding within an operating range of EUR 0.5 to EUR 1.5 billion to ensure liquidity, support units, and stabilize dividends[317] - Cash Capital at Holding increased to EUR 1.4 billion (from EUR 1.1 billion at Dec 31, 2020), reflecting net impact of remittances (EUR 390 million gross), divestitures (EUR 61 million), and holding expenses/capital injections (EUR 141 million expenses, EUR 67 million injections)[319][232][320] - Aegon's liquidity policy requires business units to project and assess liquidity sources and uses over a two-year period under normal and severe market scenarios[322] Leverage Aegon uses leverage to lower capital costs and aims to reduce its gross financial leverage to EUR 5.0-5.5 billion by 2023 - Aegon uses leverage to lower capital costs and aims to reduce gross financial leverage from EUR 6.1 billion to EUR 5.0-5.5 billion by 2023[324][325] - Gross financial leverage ratio improved by 210 basis points compared with December 31, 2020 to 25.9% on June 30, 2021, driven by retained earnings[230][325] - Operational leverage primarily finances mortgage portfolios through securitizations, warehouse facilities, covered bonds, and Federal Home Loan Bank (FHLB) facilities[328] - Aegon N.V. has access to international capital markets via a USD 6 billion debt issuance program and EUR 2.5 billion commercial paper programs, supported by backup credit and LOC facilities (EUR 2 billion revolving credit, USD 2.0 billion LOC)[329][330] Rating Agency Ratings Aegon aims for very strong financial strength ratings for operating units and a strong credit rating for Aegon N.V - Aegon aims to maintain very strong financial strength ratings for its main operating units and a strong credit rating for Aegon N.V[331] - Fitch Ratings withdrew its ratings for Aegon N.V., Aegon USA, and Aegon UK in December 2020, affirming strong ratings (e.g., A- for Aegon N.V. long-term issuer) prior to withdrawal[331] Rating Agency Ratings Overview | Rating Agency | Aegon N.V. | Aegon USA | Aegon the Netherlands | Aegon UK | | :------------ | :--------- | :-------- | :-------------------- | :------- | | S&P Global | | | | | | Financial strength | - | A+ | A+ | A+ | | Long-term issuer | A- | - | - | - | | Senior debt | A- | - | - | - | | Subordinated debt | BBB | - | - | - | | Commercial paper | A-2 | - | - | - | | Moody's Investors Service | | | | | | Financial strength | - | A1 | - | - | | Long-term issuer | A3 | - | - | - | | Senior debt | A3 | - | - | - | | Subordinated debt | Baa1 | - | - | - | | Commercial paper | P-2 | - | - | - | | A.M. Best | | | | | | Financial strength | - | A | - | - | Aegon Group Solvency Ratio Aegon's Group Solvency II ratio increased to 208% in H1 2021, driven by higher Own Funds and lower SCR, with limited interest rate sensitivity Group Solvency II Key Figures | Solvency II Key Figures (EUR millions) | June 30, 2021 | December 31, 2020 | | :------------------------------------- | :------------ | :---------------- | | Group Own Funds | 19,436 | 18,582 | | Group SCR | 9,353 | 9,473 | | Group Solvency II ratio | 208% | 196% | - Group Own Funds increased by EUR 854 million due to positive impact from expected return on in-force business, market impacts, and management actions, partly offset by dividends[334] - Group SCR decreased by EUR 120 million due to framework, model, and assumption changes and management actions, offset by market impacts[335] - The Group Solvency II ratio has limited sensitivity to interest rate movements driven by hedging programs in place[341] Solvency II Sensitivity Analysis | Sensitivity | Group (1H2021) | US (1H2021) | NL Life (1H2021) | SE Plc (1H2021) | | :---------- | :------------- | :---------- | :--------------- | :-------------- | | Equity -25% | -13% | -32% | -4% | -8% | | Equity +25% | 6% | 16% | 2% | 5% | | Interest Rates -50bps | -5% | -2% | 2% | -3% | | Interest Rates +50bps | 2% | 4% | -1% | 2% | - The Available Own Funds are equal to the Eligible Own Funds per June 30, 2021; no overflow from restricted Tier 1 to Tier 2 Own Funds is applied per half year 2021 and year end 2020[356] Available Own Funds Breakdown | Available Own Funds (EUR millions) | June 30, 2021 | December 31, 2020 | | :--------------------------------- | :------------ | :---------------- | | Tier 1 (Unrestricted + Restricted) | 16,489 | 15,542 | | Tier 2 | 2,305 | 2,340 | | Tier 3 | 641 | 700 | | Total Available Own Funds | 19,436 | 18,582 | Disclaimer This section contains cautionary notes on non-IFRS measures, forward-looking statements, and associated risks, with no obligation to update - The document includes non-IFRS financial measures (operating result, income tax, result before tax, addressable expenses) which are defined and explained as supplemental information for investors[359] - Forward-looking statements are not guarantees of future performance and involve risks and uncertainties related to economic/governmental conditions, financial markets, regulatory changes, catastrophic events, and operational risks[359] - 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[359] About Aegon Aegon is a global financial services organization with over 170 years of history, operating in more than 20 countries - Aegon is a global financial services organization with over 170 years of history, operating in more than 20 countries across the Americas, Europe, and Asia[360] - Aegon provides life insurance, pensions, and asset management services, aiming to help people take responsibility for their financial future[360]