Corporate Governance the Insurers Code During 2011, AEGON Nederland made major progress in implementing the Insurers Code ( the Code ). In the Report of the Executive Board of 2011 several areas for improvement were identified and these were tackled and implemented in 2012. The main improvements are summarized below along with some other notable developments. We also explain where AEGON Nederland departs from the principles in the Code. In all of this, our basic position is unchanged: we want to make a proactive contribution to restoring trust in the financial sector and for years these principles have formed a major part of our vision, core values, strategy and the AEGON Code of Conduct. Focus on customers interests As in 2011, AEGON regards the theme of focus on customers interests as a priority that is, therefore, part of our vision, strategy and core values. This is not a check-box exercise for AEGON but an integral part of all our thinking and operating, in every layer of the company. This means that AEGON involves employees with customer contacts closely in this theme, there are extensive training programs and the theme is part of the recruitment policy. We explain below how we are putting this theme into practice. Vision Focus on customers interests is the heart of our vision: AEGON believes it has a responsibility for people s financial awareness and development. AEGON wants to offer comprehensible solutions in a genuine dialogue to enable customers to make deliberate choices for their financial future. AEGON does not want to present matters more attractively than they are. We offer comprehensible solutions in a genuine dialogue. We believe it is our responsibility to assist customers and explain things in a simple way. There are detailed notes on our vision on the website (www.aegon.nl). Strategy The AEGON s strategy also focuses on the the customers and their interests To this end, AEGON developed the Fan strategy in 2008. But the AEGON Fan strategy goes further, not only aiming to carefully balance the interests of customers, but also those of all AEGON stakeholders, including our employees. AEGON believes that attention to the interests of all stakeholders is in the interests of customers. In respect of customers interests, the strategy focuses on exceeding expectations and restoring trust. We do this by listening closely and in an organized way to our customers and learning from this. We also do it by communicating clearly and transparently, which is something AEGON wants to achieve through the AEGON-wide Real contact project. Part of this is training on writing clear and comprehensible letters and on better telephone communications with customers. In 2012, the AFM recommended our Real contact project as good practice at a meeting of the Insurers Governance Principles Monitoring Committee. In 2012 we again organized customer arenas and customer contact surveys during which we ask customers what they think of our service and how we can improve it. This project provided valuable experience that we appreciate and use to make improvements for customers. Customer initiatives In 2012, we deployed other customer initiatives, some of which are described below. We improved our speeljetoekomst.nu website following feedback from customers. This is a playful way of discovering the consequences of certain life events for your pension, so that you can take action now with a view to the future. You can also check whether you have a realistic idea of your pension. The website is open to anyone, not just AEGON customers.
During the year, we organized another AEGON Pension Week for customers. This is a week focusing on customers and developments in the pension landscape. A week of debates, workshops and knowledge-sessions on the future of pensions. This year, the theme was 'On the path to tomorrow s pension' and it addressed the impact of an ageing population, the rise in the state retirement age to 67, and the affordability of our pensions: subjects with a huge impact on tomorrow s pensions. Each day the focus was on a different customer group, with a program tailored entirely to them. In 2012 we also launched the new retail bank Knab. Knab wants to make banking easier and more personalized and offers customers an overview and information on their financial situation. Knab wants its customers to have the experience that they, rather than the bank s products, are key. For example, Knab presents all of a customer s finances, including those held at other banks, in a single financial dashboard. For the first time, this complete overview gives customers a very simple way of making their own financial plan online. Customers can see their current financial situation but also their financial future. In short, AEGON continued to take further steps towards achieving its vision during 2012. The way each section of the Code was applied in 2012 and the improvements made during the year are set out below. Supervisory Board Membership and expertise AEGON Nederland s Supervisory Board operates independently, in accordance with the Code and the requirements of DNB s Expertise Policy Rule 2012. With the appointment of a fifth member on September 1, 2012, the vacant position was filled. AEGON believes this number of members is appropriate to the nature, size and complexity of AEGON Nederland and the insurers in the group. One member was reappointed in 2012 after consideration of the functioning of the person concerned, his period of office and evaluation interviews. We ensure complementarity and diversity in the Supervisory Board through the members different backgrounds, types of personality and range of knowledge and experience. The members of the Supervisory Board of are also the members of the supervisory boards of the licensed insurers (AEGON Levensverzekering N.V., AEGON Schadeverzekering N.V., AEGON Spaarkas N.V. and OPTAS Pensioenen N.V.). In 2012 the Supervisory Board updated its profile, bringing it into line with the Code. The profile addresses at length the knowledge, experience and competences that the Supervisory Board believes are necessary for the proper supervision of AEGON Nederland and the insurers in the group. DNB s expertise matrix was used as the basis for writing the profile. The Rules of the Supervisory Board were also updated and brought into line with the Code during the year. AEGON Nederland also incorporated many of the principles in the AEGON Nederland Governance Guide which applies to its activities. The Rules and the Guide help ensure that the Supervisory Board carefully balances the interests of AEGON s stakeholders, such as its customers, shareholders and employees. The Guide also states, for example, that AEGON must draw up a profile for any new vacancy on the Supervisory Board based on the general profile. The permanent education program for the members of the Supervisory and Executive Boards (see below) was developed and brought into line with the Code in 2012. The program covers national and international developments in the financial sector and in corporate governance in general and in the financial sector in particular, the duty of care towards the customer and putting the customer first, integrity, risk management, financial reporting and audit. In 2012 the focus was on the following subjects: (i) Current developments and essentials of the financial sector in general and the insurance sector in particular, (ii) Corporate governance in the financial and insurance sectors, (iii) Developments in supervision (EU/World) and financial frameworks (Solvency II, Financial Supervision Act and Basel), (iv) Management control, risk management
and compliance, (v) Strategy, ethics, culture, product approval and duty of care towards the customer, (vi) Financial frameworks (Solvency II and Financial Supervision Act) and Asset and Liability Management (ALM) and (vii) Integrity, soft controls, values and financial behavior. Three members of the Supervisory Board took the modules on these subjects. The other two followed different types of permanent education within their own environment at AEGON N.V. Participation was recorded by the HR Learning & Development department of the Human Resources business unit. As well as evaluating its own functioning, the Supervisory Board also evaluated the permanent education program in 2012. Both evaluations gave satisfactory results. The members of the Supervisory Board receive suitable remuneration that is not dependent on the result of AEGON Nederland or the insurers in the group. The remuneration is set by the general meeting. In 2012, the members of the Supervisory Board were sufficiently available and contactable, as required by the Code. Duties and working methods The Rules of the Supervisory Board and the AEGON Nederland Governance Guide comply with the Code and give the appropriate attention to risk management and audit. The Supervisory Board s decisions on risk management are prepared in the Risk & Audit Committee. The members of the committee have sufficient knowledge, experience and/or competences needed for thorough supervision of the financial aspects of risk management, financial reporting, internal control and audit. The Supervisory Board gives particular attention to risk management and in this context again approved AEGON Nederland s risk appetite in 2012. The Rules of the Supervisory Board s committees, including those of the Risk & Audit Committee, are being updated in 2013. Executive Board Membership and expertise At AEGON Nederland and the insurers in the group, complementarity and diversity of the Executive Board are ensured by the members different backgrounds, types of personality and range of knowledge and experience. In addition, each member of the Executive Board has the knowledge required by the Code and can form a balanced opinion of the risks of the policy. This knowledge is kept up to standard and improved by AEGON Nederland s permanent education program, which is managed by the HR Learning & Development department which also records participation. The program covers the subjects listed in the Code and focused on the following subjects in 2012: (i) Current developments and essentials of the insurance sector, (ii) Integrity, soft controls, values and financial behavior, (iii) Strategy, ethics, culture, product approval and duty of care towards the customer, (iv) Financial reporting, performance measurement, and (v) Management control, risk management and compliance. All members of the Executive Board took the modules on these subjects and some took additional relevant courses. A permanent education program is also being developed for senior management. AEGON also encourages other employees to follow useful training courses. AEGON is organized according to a three lines of defense model. The first line is primarily responsible for managing all risks. The risk management function is organized as the second line, operates from an independent position and has a monitoring role. The CRO reports hierarchically to the CFO and also has a direct reporting line to the chairman of the Supervisory Board. In practice, the CRO is closely involved in all decisions that could have a material impact on AEGON s risk profile. In accordance with the Code, the CFO (who prepares decisions on risk management) has no individual commercial responsibility and functions independently from the other commercial areas of work. The third line of defense is formed by the Internal Audit Nederland department.
Duties and working methods In accordance with the vision and strategy outlined above, the Executive Board not only balances customers interests and those of the shareholder but all other relevant interests, including those of the employees. Naturally, we take into account the continuity of the insurers and the relevant legislation and regulations and we are also taking our social environment into consideration. In 2011 the members of the Executive Board signed the ethics statement required by the Code. The statement has been placed on www.aegon.nl and is applied in the AEGON Code of Conduct for all AEGON employees. Since 2012, contracts of employment have included a clear reference to the AEGON Code of Conduct. Shortly after their appointment, all new recruits go through an e- learning module that introduces the AEGON Code of Conduct by means of questions and answers. The Executive Board profile will be developed further in 2013. As of January 1, 2013 new legislation came into place which prescribes the gender diversity in the Executive Board en Supervisory Board. Currently the gender diversity in these Boards is not in line with the recommendations in this legislation. In 2013 AEGON Nederland will investigate whether this legislation will have consequences for the policies regarding the composition of the Boards and disclosure requirements. Risk management Within the Executive Board, the CEO has primary responsibility for adopting, implementing and monitoring the overall risk policy. Our risk policy and its management complied with the principles in the Code in 2012. During the year, the overall risk policy was formalized by merging the Risk Appetite and Risk Tolerance statements into a single document. The risk appetite was submitted to the Supervisory Board in 2012. The Supervisory Board supervises the risk appetite and assesses at strategic level (among other things) whether the capital allocation and liquidity requirements are generally in line with the risk appetite it has approved. The Supervisory Board is advised in this by the Risk & Audit Committee. The independent and autonomous Risk Management department is organized centrally at the level of To best safeguard the customers interests, AEGON does not introduce simply any product on the market. Every new and updated product undergoes the product approval process. This was set up in 2010 and has been in line with the Code since 2011. In this process, we carefully balance the risks in a product and test it against the duty of care towards the customer, financial sustainability and suitability within AEGON s vision, strategy and objectives. A product is not put on the market until the approval process has been successfully completed. As well as the product approval process, AEGON uses a product assessment process for existing products. Existing products selected using pre-defined risk indicators go through this process to optimally ensure the customers interests. Both processes determine whether a product meets AEGON s current standards, which incorporate statutory standards, and consider whether it is cost efficient, useful, secure and understandable to the target group and fits AEGON s objectives, vision, strategy and core values. AEGON adjusts the approval process where the customers interest or the Code requires and this is a point of ongoing attention. Internal Audit Netherlands (the internal audit department) carried out an audit of the product approval process in 2012. Audit Internal Audit Nederland is an independent central department at the level of AEGON Nederland N.V. The Internal Audit Nederland Audit Manual and the AEGON Nederland Governance Guide help ensure that the internal audit function meets the principles in the Code. The Manual states that auditors may not have any operational responsibilities or offer services other than auditing the AEGON organization. It also states that the director of Internal Audit Nederland reports to the CEO and has a reporting line to the chairman of the Supervisory Board s Risk & Audit Committee. Finally, Internal Audit Nederland has regular contact and consultations with the Supervisory Board s Risk & Audit Committee and the external auditor to discuss the risk analysis and Internal
Audit Nederland s audit plan. Internal Audit Nederland also initiates regular contact with DNB to discuss their risk analyses, findings and audit plans. Remuneration policy We pursue a careful, controlled and sustainable remuneration policy that meets social standards and national and international regulations and codes. The remuneration policy covers the members of the Executive Board, senior management and other employees. AEGON revised its remuneration policy in 2011 in line with the Regulation on Sound Remuneration Policies and in close co-operation with DNB. The remuneration policy is in line with the AEGON Fan strategy and its vision, core values and risk appetite. This means, among other things, that the highest variable incomes for employees are discussed by the Supervisory Board, the financial performance criteria that apply to the variable remuneration are adjusted for the estimated risks and cost of capital, the variable remuneration components are in line with AEGON s long-term targets and that variable remuneration is capped at 100% of fixed income. The Supervisory Board has approved the remuneration policy for senior management and there is a policy on retention, exit and welcome packages. Part of the payment of variable remuneration to Identified Staff (members of the Executive Board, certain senior managers and a number of other employees) is deferred and is partly paid in shares. The Supervisory Board is authorized, if AEGON Nederland s financial results and situation so require, to suspend or cancel all or part of the variable remuneration for all recipients (Executive Board, senior management and other employees). Here too, AEGON Nederland is following the Regulation on Controlled Remuneration Policies. In accordance with the comply or explain principle on the application of the Insurers Code, the following explanation applies to Principle 6.3.2: In the event of dismissal, of an executive board member remuneration may not exceed one year s salary (the fixed remuneration component). If the maximum of one year s salary would be manifestly unreasonable for an executive board member who is dismissed during his or her first term of office, such board member shall be eligible for severance pay not exceeding twice the annual salary. The 2011 AEGON Remuneration policy states that it meets social standards and national and international regulations and codes and so our remuneration policy takes these standards in the Insurers Code into account. The contracts of employment of the current Executive Board do not, however, include a clause on maximum severance pay. AEGON Nederland is respecting existing contracts of employment but in future we will apply these clauses under our remuneration policy and incorporate them in the contracts of employment when new members of the Executive Board are appointed.