Financial terminology

Financial terminology

Below you will find the most commonly used financial terminology in Aegon's press releases and presentations.

Capital generation
The movement in our capital position (on a Solvency II basis) during a period.

Normalized capital generation
Capital generation in the normal course of business net of market impacts (e.g. changes to interest rates, credit spreads, equity returns) and one-time effects.

Cash remittance
Is the amount of cash (dividend) the country units send to our Holding company Aegon N.V.

Fair value items
Fair value items include the over- or underperformance of investments and guarantees held at fair value compared to our expected long-term return. The expected long-term return is included in underlying earnings. Hedge ineffectiveness on hedge transactions, fair value changes on economic hedges without natural offset in underlying earnings and for which no hedge accounting is applied are also included in fair value items.

Gross Deposits
Gross deposits is a sales metric and reflect amounts paid by policyholders (inflows) on insurance and investment contracts to which deposit accounting is applied. Gross deposits can only be positive.

Net deposits
Net deposits is the difference between gross deposits and withdrawals. If gross deposits exceed withdrawals, the result is a net inflow of customer money. If withdrawals exceed gross deposits, the result is a net outflow.

Hedging
Hedging is an investment technique designed to offset a potential loss on one asset or liability by purchasing an investment that you expect to perform in the opposite way. For example, Aegon sells guarantees with its life insurance products which are sensitive to interest rate movements. To mitigate the risk (the value of the liability from the guarantee could increase), Aegon hedges the risk by taking an offsetting position in a related security, such as a swap or futures contract.

Liability Adequacy Test (LAT)
The LAT is used to evaluate the adequacy of provisioning for life insurance policies on our IFRS balance sheet. The test consists of comparing the amount of provisions on the balance sheet with the best estimate of provisions, arrived at on the basis of the present value of the best estimate of the future expected cash flows reflecting current market circumstances.

Market Consistent Value of New Business (MCVNB)
Calculates how much value the sale of new insurance policies is generating for the company. This value represents the present value of our best estimate of incoming premiums and outgoing claims, benefits and expenses related to these new sales.

Return on equity
The return on equity (ROE) measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on equity signifies how good the company is in generating returns on the investment it received from its shareholders. Aegon's ROE is calculated by dividing underlying earnings after tax by shareholders' equity excluding revaluation reserve.

Realized gains & realized losses
The difference as a result from selling an asset at a price higher/lower than the amount invested. In Aegon's income statement this reflects, the realized gains and losses on investments such as bonds, mortgages and other loan portfolios.

Revenue generating investments
All customer money on which Aegon generates revenues.

Solvency capital requirement (SCR)
A solvency capital requirement (SCR) is the amount of capital that insurance companies in the European Union are required to hold to reflect the risks they take. The SCR is set at a level that ensures that insurers can meet their obligations to policyholders and beneficiaries over the following 12 months with a 99.5 percent probability.

Underlying earnings
Underlying earnings reflects Aegon's IFRS profit from underlying business operations and excludes components that relate to accounting mismatches, that are dependent on market volatility, updates to best estimate actuarial and economic assumptions and model updates or events that are considered outside the normal course of business (e.g. results on disposal of businesses).