Most of Aegon’s financial leverage is issued by Aegon N.V., the parent company. A limited number of other Aegon companies have also issued debt securities, but for the most part these securities are guaranteed by Aegon N.V.
Aegon N.V. has regular access to international capital markets under a USD 6 billion debt issuance program. Access to the capital market in the United States is made possible by a separate shelf registration.
Aegon also has access to domestic and international money markets through its USD 4.5 billion commercial paper programs. On December 31, 2016, Aegon had EUR 128 million outstanding under these programs.
To support its commercial paper programs and need for Letters of Credit (LOCs), and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders.
The Company's principal arrangement is a EUR 2 billion syndicated revolving credit facility maturing in 2019, and an additional LOC facility of USD 2.6 billion, which matures in 2021.
In addition, Aegon also maintains various shorter-dated bilateral backup liquidity, and committed and uncommitted LOC facilities.
Although operational leverage is not considered part of Aegon's total capitalization, it is an important source of liquidity and funding. Operational leverage relates primarily to financing Aegon's mortgage portfolios through securitizations, warehouse facilities, covered bonds, and the funding of US Regulation XXX and Guideline AXXX redundant reserves.
Aegon enters into reinsurance agreements for risk and capital management purposes with several affiliated captive insurance companies (captives). All captives are fully consolidated for IFRS reporting and for Solvency II based on local valuations under equivalence.
The captives are utilized for a number of purposes that may include:
- Financing term life insurance (subject to Regulation XXX reserves) and universal life insurance with secondary guarantees (subject to Regulation AXXX reserves) to support lower-risk statutory reserves at a lower cost for policyholders and shareholders;
- Managing variable annuity hedging programs;
- Managing and segregating risks; and
- Monetizing embedded value.
All external financing provided to captives to support statutory reserves is disclosed in note 39 (Borrowings) to the consolidated financial statements (see 2016 Annual Report) to the extent to which it has been funded.
LOCs issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48 Commitments and contingencies (see 2016 Annual Report). These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured.