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Managing risk

Aegon’s risk management and control systems are designed to ensure that risks are managed effectively and efficiently in a way that supports our strategy.

Aegon's risk strategy provides direction for a risk profile that supports Aegon's business strategy. The risk profile is determined by customer needs, Aegon's competence to manage the risk, Aegon's preference for the risk and whether there is sufficient capacity to take the risk.

Aegon's willingness to accept a risk is determined by expected returns, alignment between Aegon, counterparty and customer interests, existing risk exposures and other risk characteristics such as diversification, the severity of the risk in an extreme market event and the speed at which risk can materialize in Aegon's capital position, liquidity position and IFRS net income.

Enterprise Risk Management Framework

Aegon has a strong culture of risk management, based on clear, well-defined risk governance; the goals of which are to:

  • Minimize ambiguity by clearly defining roles and responsibilities and risk reporting procedures for decision makers;
  • Institute a proper system of checks and balances, and ensure that senior management is aware of material risk exposure at all times;
  • Manage risk in line with the targeted risk profile, including the avoidance of an over-concentration of risk in particular areas;
  • Facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs; and
  • Reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.

Governance structure

Aegon's risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the Company.

Similarly, Aegon has a comprehensive range of company-wide risk policies that detail specific operating guidelines and limits. These policies are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers immediate remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or business units.

Aegon's risk management governance structure has four basic layers:

  • Regional Risk & Capital Committees at each of Aegon's reporting units

Group Risk

Group Risk is responsible for the development, maintenance and oversight of compliance with the ERM framework, including risk strategy, risk governance, risk tolerance, risk methodology and risk policies.

Group Risk also maintains oversight of material risk, balance sheet and commercial decisions taken throughout the Company.

Group Risk further identifies good risk management practices and facilitates implementation of these, in addition to ensuring that there is consistency in the application of these practices across the Company.

Furthermore, Group Risk prepares risk management information, including information about current risk exposures and issues, and additional sensitivity and scenario analyses, both at its own initiative and at the request of management.

Business unit CROs have either a direct reporting line to the Group's CRO or one of the regional CROs that reports directly to the Group's CRO.

Lines of defense

Aegon's risk management structure is organized along three 'lines of defense' to ensure conscious risk-return decisions, and to limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to the materialization of unidentified risks, or from losses that exceed predefined risk tolerance levels and related limit structures.

The Company's first line of defense, including the business and support functions, such as Regulatory Compliance, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerance and risk policies.

The second line of defense – the Risk Management department including the operational risk and conduct management function – facilitates and oversees the effectiveness and integrity of ERM across the Company.

The third line of defense – the audit function –provides independent assurance and challenge regarding the effectiveness and integrity of ERM across the Company.

Scenario analysis

As part of the Company's ERM Framework, Aegon undertakes regular sensitivity analyses to verify that the impact of different economic and business scenarios on earnings and the capital position are within the risk tolerances set.

These analyses cover a variety of extreme event scenarios that have been constructed to test Aegon's exposure to identified critical market events or conditions that would present an extraordinary business challenge. These scenarios include events such as economic depression and inflation.

updated July 14, 2016

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