Aegon has three main sources of revenue: fees and commissions, income from the investments we make and, by far the most important, premium payments from our policyholders.
Revenue
We have three main sources of revenue: fees and commissions, income from the investments we make and, by far the most important, premium payments from our policyholders. In addition, we have income from financial transactions, which vary from year to year depending on market conditions.
Costs
Alongside this income, we have costs. These include claims and benefits paid to our customers, which account for approximately 90% of the total. We have our own operating expenses, and the commissions we pay when brokers and other intermediaries sell products on our behalf. And we occasionally take impairments when we believe an investment has permanently lost value.
Before we get to our net income, there are two other factors to consider. First, under general accounting rules, we have to account for changes in the value of some of our investments – which may show a gain or a loss, depending on financial markets. Given the size of our investments, these fair value items may represent a very significant amount.
Tax
Equally, we pay corporate income tax on our earnings. Our annual profit & loss statement includes an estimate of the amount of tax relating to that year. This isn't the same as the amount we pay, which may include not only tax on that year's earnings, but also payments from other years. In addition, some tax items aren't recognized in our profit & loss statement, but directly in the company's equity.
Profit
Along with our net income, we also publish what we call underlying earnings before tax. This is an important measure of profitability for us (alongside other measures of profitability under IFRS, as reported in our Annual Report and Form 20-F), because it strips out factors such as tax, impairments, fair value items and any losses or gains we make on investments. We believe underlying earnings before tax gives a much clearer picture of how our businesses themselves are performing.
Customers
We develop products and services by first thinking about customer requirements. We assess what they'll need in the years ahead to achieve a lifetime of financial security. We price products and services by assessing potential risks and other factors such as movements in world financial markets, and changes in mortality and morbidity. Many of our products are designed to last a lifetime.
Sales and distribution
We sell our products either directly to our customers or via brokers, banks and other financial intermediaries. In exchange, these intermediaries generally receive a fee or commission either from us or the customer. As an insurance company, we underwrite our products and services, ensuring that we can assess and manage the risk and have enough in reserve to meet pay-out obligations
Pay-in phase
Customers normally make deposits or pay premiums on our products, which we invest, so that we can pay out the expected benefits when the time comes. For many of our products, the money we receive is spread over a number of years, whereas most marketing and sales costs are immediate. For that reason, these costs are included on our balance sheet and gradually written off, or amortized, over time.
Pay-out phase
Products such as pensions and annuities mature and enter a pay-out phase. With life insurance, this happens when a claim is made. Beneficiaries tend to receive either a lump sum or a series of regular payments over a specified period of time.