Letter from our CEO

These initiatives stem from a clear purpose and culture — fundamentals which define why we exist and will continue to exist, and grow, long into the future. Our purpose is clear, to help people achieve a lifetime of financial security. That requires smart planning, promoting healthy lifestyles and offering the right solutions at every stage of our customers' lives.

We are clear in the responsibility we have for our customers. We have put forward a robust approach to securing the financial security of our customers' retirement and promoting healthy aging in our society.

Serving customers

Our services have never been more necessary than it is today. According to the World Health Organization, over 2 billion people will be over 60 years of age by 2050 – almost a quarter of the world's population. This demographic change poses far-reaching challenges for society, governments, business and Aegon. One of the key shifts will be who provides that financial security during retirement.

The responsibility is shifting fast from governments and employers to individuals. Though many people are neither equipped with the knowledge nor the resources to protect their financial futures. It is our responsibility to help customers make the right choices But it does not end there. There is a clear relationship between well-being and the environment we live in.

Toward the end of 2018, Aegon was entrusted to manage and administer more than EUR 800 billion of investments on behalf of our customers. We are doing so, fully integrating environmental, social and governance factors into our investment analysis. Further to that, we are actively engaging with companies in our investment portfolio to improve their sustainability performance.

Retirement Research

Our annual retirement research shows that there is a clear connection between wealth and health. We have therefore taken our commitment one step further, supporting people to achieve prosperity and health through all stages of their lives. We are a vocal participant in debates about the retirement  challenge and share our knowledge and expertise with the governments and international organizations we work with.

Meeting the dynamic needs of our customers and society, responding to new competition, technological and regulatory change, shapes our DNA. We strive to be future fit: by acting as one in an agile manner, being accountable, and above all, being customer centric.

This has led to considerable strategic, operational and financial changes across our company, enabling us to enhance our products and services to meet the evolving needs of our almost 29 million customers worldwide. 

There is more work to be done. Our Net Promoter Score (NPS), a measure that captures all aspects of our relationship with our customers, showed a decrease in 2018 compared with a strong increase the year before. The result only strengthens our commitment to continue to enrich the quality, solutions and support we provide to customers. 

Financial results

Financially, 2018 was challenging. Markets significantly declined toward the end of the year and this directly influenced the value of our customers' investments, which impacted results of our own administration and services businesses. Even so, we further strengthened our capital position. We raised our full year dividend per share based on our strong capital position and the confidence that we can continue the sustainable growth of capital  generation.

We have achieved two out of three financial targets for the period 2016-2018: realizing cost savings of EUR 355 million and returning EUR 2.1 billion of capital to shareholders. We made significant progress on our third target, a return on equity of 10%. We have focused on increasing capital generation across our units, providing sustainable and diversified remittances to the Group. This gives us the capacity to invest a significant portion back into existing businesses and to drive future growth. In addition, steps to significantly reduce our leverage ratio in recent years have lowered funding expenses and increased our financial flexibility.

We have announced new financial targets for the period 2019-2021. Building on the successes of the previous three year period, our focus remains on strong capital generation and providing shareholders with attractive returns. Our targets are underpinned by an active portfolio management of our various businesses, which can be grouped into three distinct strategic categories. These strategic categories are differentiated from each other based on the maturity of our businesses. This will allow us to unlock the full potential of our large customer base and market positions while leveraging our capabilities and propositions where they are most beneficial.

The first category 'Manage for Value' includes mature, at-scale businesses, which are important sources of capital and earnings for many years to come. We carefully manage their financial and operational risks to ensure that the important cash flows we generate from these businesses are optimized. In the 'Drive for growth' category, we have grouped businesses which are at scale and have strong market positions with attractive, profitable long-term growth potential. 

This is where the vast majority of our investments will be directed. Propositions in this category are mostly digital or platform-based, with an emphasis on fee income and protection coverage, while focusing on broader and longer relationships with our customers and advisors. Finally, we distinguish our 'Scale-up for the future' businesses with meaningful market opportunity, which help drive innovation. These businesses bring new platforms, new technology and new business models, which can be leveraged across the company.

Simplification and growth

We continue to simplify our portfolio of businesses and lay the foundations for sustained growth in the years ahead. Specific steps in 2018 included rationalizing our geographical footprint, entering partnership agreements, upgrading our technology and the consolidation of our administration systems. Actions like these have allowed us to remove expenses from our operations, while at the same time freeing up resources to focus on further improving customer experience and reduce time-to-market.

We finalized the sale of the Irish operation and divested our businesses in the Czech Republic and Slovakia. Rationalization helps to create the space to focus on higher-growth markets and business lines. In July, for instance, we expanded our successful partnership with Banco Santander in Spain. The new agreement gives Aegon access to an additional potential client base of four million customers. In September, Aegon the Netherlands acquired Robidus, consistent with our strategic objective to expand our position in income protection and grow our fee-based businesses.

In the US, Transamerica entered into an agreement with Tata Consultancy Services (TCS) to administer the company's US insurance and annuity business lines. Involving over 10 million policies, this transaction offers those customers a unique and enhanced digital platform. Transamerica will see a significant reduction in expenses, and an acceleration in growth through faster product development and state-of-the-art technology. The growth opportunities in the US are in three core areas: integrated solutions to customers in the workplace market, new innovative and fairly priced products for individuals and the level of advice and guidance we offer to our customers.

Offering a full suite of products gives us a distinctive competitive advantage. Supporting future growth through modernization and the emphasis on serving the customer has also been a feature of changes elsewhere. In the UK, we strengthened our existing partnership with Atos by signing a 15-year contract to service and administer existing business. This will further improve customer service for around 1.4 million people. In the Netherlands, we are consolidating the administration of pension products into the systems of our subsidiary TKP. 

On behalf of Aegon's Management Board, I would like to express my sincere thanks to everyone who has contributed to our success as a company over the last 12 months. In particular, I want to acknowledge and say thank you to our customers, for the trust they continue to place in us; our shareholders, for their support and confidence; and finally, our team of 26,000 colleagues whose dedication to serving our customers is second to none.