Path:

Risk Overview 2015

Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or changes in longevity or mortality trends, are external.

These risks, whether internal or external, may affect the Company’s operations, earnings, share price, value of its investments, or the sale of certain products and services.

Credit risk

In 2015, credit spreads increased moderately, and Aegon slightly reduced its exposure to credit risk. In the UK, callable bonds were sold and the proceeds and new business were invested largely in high-rated sovereign-linked paper. In the Netherlands, corporate bonds were sold and reinvested in highly-rated structured assets. In the general account investment portfolio, Aegon retained minimum exposure to peripheral European countries.

 

Equity market risk and other investment risks

Equity markets were volatile in 2015, with a sharp correction in the third quarter followed by a partial recovery in the fourth.

During the year, Aegon continued to progress its program of hedging equity risk at its UK pension business, variable annuities, and US and Dutch operations in order to protect the Company against a possible deterioration in equity markets.

The US business has a macro hedge in place to protect the business capital position of variable annuities from fluctuations in equity markets. As a result of a mismatch between US statutory and IFRS accounting, this hedge showed a negative impact on income before tax of EUR 372 million in 2015 (2014: EUR 251 million).

The Dutch operations further extended hedging of equity volatility risk in the existing equity hedge program.

 

Interest rate risk

In 2015, 30-year swap rates in the US and UK decreased by 8 bps and 13 bps to 2.72% and 2.17% respectively, compared with an increase in the 30-year swap rate in the eurozone by 15 bps to 1.67%.

In the US, additional interest rate hedges were put in place in the first half of 2015 by implementing forward-starting swaps.

The existing interest rate programs also remained in place in 2015 for hedging guarantees for Aegon's operations in the Netherlands, its long-term care business in the US, and for its variable annuities businesses in the US, Ireland and Asia.

 

Currency exchange rate risk

As an international company, Aegon is exposed to movements in currency exchange rates. Aegon does not, however, consider this exposure to be material from an asset liability management perspective. The Company holds its capital base in various currencies in amounts that correspond to the book value of individual business units.

 

Liquidity risk

Aegon has put a strong liquidity management strategy in place. The Company considers extreme liquidity stress scenarios, including the possibility of prolonged 'frozen' capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place.

In 2015, Aegon retained significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments.

Stress tests show that available liquidity would more than match the Company's liquidity requirements even if market conditions were to significantly deteriorate.

 

Underwriting risk

Aegon's earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities.

Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the Company's income. Assumptions used to price products and establish technical liabilities are reviewed on a regular basis.

In 2015, Aegon made several significant changes to assumptions and updates to models. These are explained in more detail on page 161 of our 2015 Annual Report.

 

Operational risk

Like other companies, Aegon faces operational risk resulting from operational failures or external events, such as processing errors, acts from personnel, and natural or man-made disasters.

Aegon's systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, business disruption, financial crime and breaches of information security. Aegon works on analyses on a continuous basis, studying such operational risks, and regularly develops contingency plans to deal with them.

Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature.

The most significant risk Aegon faces is that of changes in financial markets, particularly movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the Company's operations, earnings, share price, value of its investments, or the sale of certain products and services.

A description of risks relating to Aegon's businesses and risks relating to Aegon's common shares can be found on pages 331-351 of our 2015 Annual Report.

 

Credit risk

In 2015, credit spreads increased moderately, and Aegon slightly reduced its exposure to credit risk.

In the UK, callable bonds were sold and the proceeds and new business were invested largely in high-rated sovereign-linked paper.

In the Netherlands, corporate bonds were sold and reinvested in highly-rated structured assets.

In the general account investment portfolio, Aegon retained minimum exposure to peripheral European countries.

 

Equity market risk and other investment risks

Equity markets were volatile in 2015, with a sharp correction in the third quarter followed by a partial recovery in the fourth.

During the year, Aegon continued to progress its program of hedging equity risk at its UK pension business, variable annuities, and US and Dutch operations in order to protect the Company against a possible deterioration in equity markets.

The US business has a macro hedge in place to protect the business capital position of variable annuities from fluctuations in equity markets. As a result of a mismatch between US statutory and IFRS accounting, this hedge showed a negative impact on income before tax of EUR 372 million in 2015 (2014: EUR 251 million). The Dutch operations further extended hedging of equity volatility risk in the existing equity hedge program.

 

updated July 14, 2016

Please provide us with feedback on our website or ask us a question...

Feedback