THE HAGUE, Netherlands–(BUSINESS WIRE)–Net income declines to EUR 253 million reflecting unfavorable market
movements and other charges

• Underlying earnings decrease by 8% to EUR 1,010 million, as lower
  Retirement Plans earnings in the US more than offset business growth
  and higher margins in Europe, and expense savings
• Fair value losses of EUR 257 million mainly driven by unfavorable
  market movements in the US, which are partly offset by positive real
  estate revaluations and hedging gains in the Netherlands and the UK
• Other charges of EUR 581 million, mostly due to the previously
  announced legal settlement in the US and book loss on the divestment
  of the last block of US life reinsurance business as well as model &
  assumption changes in the Netherlands, and restructuring expenses
• Return on equity increases to 10.2% resulting from lower taxes, in
  part due to US tax reform. Internal definition of adjusted
  shareholders’ equity changed to align closer with that of peers and
  rating agencies

Lower net deposits and new life sales; positive trend in external
third-party asset management inflows

• Net outflows of EUR 8.5 billion mainly due to outflows in the US
  Retirement Plans business. In full-year 2018, Asset Management
  achieved another year of positive external third-party net inflows
• New life sales decline to EUR 398 million, impacted by lower indexed
  universal life and term life sales in the US. Lower new life sales in
  Asia due to reduced customer demand as short-term interest rates rose
• Accident & health and property & casualty insurance sales down 56% to
  EUR 155 million, mostly as a result of the previously announced
  strategic decision to exit travel and stop loss insurance in the
  United States

Increasing dividend to shareholders based on strong capital position
and normalized capital generation

• Proposed final 2018 dividend per share of EUR 0.15; full year dividend
  increases by 2 cents compared with 2017
• Solvency II ratio remains well above target range at 211% despite
  unfavorable market movements. Capital ratios of the main units remain
  at the upper end or above target zones
• Capital generation in the units of EUR 39 million, including
  unfavorable market impacts of EUR 1,040 million and favorable one-time
  items of EUR 106 million
• Holding excess cash remains within target range at EUR 1.3 billion
• Gross financial leverage ratio improves by 160 basis points to 29.2%
  in the second half year 2018 following
  EUR 700 million
  deleveraging, and based on a more conservative internal definition of
  adjusted shareholders’ equity

Statement of Alex Wynaendts, CEO

“The second half of 2018 was challenging, as we experienced a
significant decline in the markets towards the end of the year. This
impacted the value of our customers’ investments, and thereby the
results of our administration and services businesses. We have broad
initiatives in place to provide additional, value-added services and
drive sales growth in order to increase these results. Net income was
also affected by previously announced transactions such as the
divestment of the last block of life reinsurance in the United States.

“At the same time, we continue to simplify the organization,
strengthen relationships with our customers and advisors, and enhance
our service levels. This year’s extension of our partnership with Atos
in the UK and the new partnership with TCS in the US allow us to
modernize our administration systems, and provide faster and better
propositions to our customers. I am also pleased that the service levels
in our UK platform business returned to target levels following the
actions we have taken. These are the actions that allow us to fulfil our
purpose to help many more people achieve a lifetime of financial
security, and puts us in a strong position to grow our business.

“In the second half of 2018, we successfully maintained a strong
capital position despite adverse market movements and the impact of the
previously announced settlement in the United States. Together with our
confidence in our ability to grow capital generation in a sustainable
way, this allows us to raise our full year dividend per share by
2 cents, an increase of 7% compared with 2017.”

Note: All comparisons in this release are against 2H 2017, unless
stated otherwise. See page 2 of this press release for key performance
indicators.

Strategic highlights

• Aegon Americas is well-positioned for growth as highlighted at the
  Analyst & Investor conference
• Aegon Americas eliminates Variable Annuity captive leading to
  significant benefits to its capital position
• Aegon extends partnership with Atos in the UK for administration
  services
• Aegon and Banco Santander expand their successful partnership in
  Portugal
• Seventh consecutive full year of external third-party net inflows
  at Aegon Asset Management

Aegon’s strategy

Aegon’s purpose – to help people achieve a lifetime of financial
security – forms the basis of the company’s strategy. The central focus
of the strategy is to further transform Aegon from a product-based to a
customer needs-driven company. This means serving diverse and evolving
needs across the customer life cycle; being a trusted partner for
financial solutions that are relevant, simple, rewarding, and
convenient; and developing long-term customer relationships by providing
guidance and advice, and identifying additional financial security needs
at every stage of customers’ lives.

Aegon is focused on reducing complexity, eliminating duplication and
increasing automation in order to realize cost efficiencies, thereby
enabling it to invest and become a more digitally enabled and
customer-centric company. Furthermore, the company is dedicated to
driving scale and establishing strong positions in its current markets,
adhering to strict standards to ensure the efficient use of capital by
all of its businesses. Four key strategic objectives that enable the
company to execute its strategy are embedded in all of Aegon’s
businesses: Optimized portfolio, Operational excellence, Customer
loyalty and Empowered employees.

Americas

On December 6, 2018 Aegon hosted an Analyst & Investor conference
specifically focused on the US business. During the conference, the
management team of Aegon Americas highlighted to analysts and investors
how the organization is well-positioned to capture market opportunities
in the United States, and detailed broad actions to accelerate organic
growth. These actions include improving the company’s competitive
position, attracting new customers, strengthening existing customer
relationships and increasing customer retention.

As part of Aegon’s ongoing process to simplify the legal structure of
its business, Aegon eliminated its Variable Annuity captive in the US in
the second half of 2018. The rationale behind setting up the Variable
Annuity captive in 2015 was the need to manage the volatility of the US
RBC ratio as a consequence of misalignment between reserve movements and
hedging within the existing variable annuity capital framework.
Recently, the National Association of Insurance Commissioners (NAIC)
proposed improvements to the existing variable annuity capital
framework. These reduce the non-economic volatility of the RBC ratio,
and for this reason the use of a variable annuity captive was no longer
required. As a result of the merger of two legal entities, Aegon
realized a one-time benefit to capital generation of approximately USD 1
billion in the second half of 2018. This benefit was offset by the
impact of tax reform on the RBC ratio in the second half of 2018.

Europe

On September 11, 2018, Aegon closed the acquisition of Robidus, a
leading Dutch income protection service provider. This transaction fits
the company’s strategic objective to grow its fee-based businesses.
Aegon acquired approximately 95% of the company with the remainder being
retained by Robidus’ management team. Robidus continues to operate on a
standalone basis under its own brand name. The acquisition was financed
from holding excess cash.

In the United Kingdom, Aegon’s platform offering and omni-channel
distribution strategy have established Aegon as the leading platform
provider in the market with a personal and workplace pension,
investment, and protection offering. In the second half of 2018, assets
across Aegon UK’s platform business reached GBP 128 billion. The first
half of 2018 saw the migration of two portfolios of the Cofunds business
by moving GBP 57 billion of institutional assets to Aegon technology in
March, followed by GBP 28 billion of retail assets in May. A program was
established to address service issues associated with the retail
migration. Core trading and service levels have now returned to target
levels. The focus now is to continually improve the platform, further
increasing functionality and ease of use.

The final phase of the Cofunds integration will take place in the first
half of 2019 with the migration of assets related to Nationwide. To
date, Aegon has realized GBP 40 million annualized expense savings from
integrating the Cofunds business, a figure which will rise to GBP 60
million following the Nationwide integration.

The digitization of Aegon’s protection business in the United Kingdom in
the first half of 2018 has made it simpler and quicker for advisers to
apply for cover for their clients and has led to a significant uptick in
business, with new protection customer numbers up 36% in 2018 compared
with the previous year.

Aegon announced on November 20, 2018, that it had strengthened its
existing partnership with Atos, signing a 15-year contract to service
and administer its Existing Business (non-platform customers) in the
United Kingdom. The extension of the partnership will further improve
customer service for 1.4 million customers. Since 2016, Atos has
successfully serviced and administered Aegon’s 500,000 protection
customers in the UK, and has an excellent understanding of Aegon’s
business, culture and ways of working. The agreement, to be effective as
of mid-2019, is initially expected to lead to annual run-rate expense
savings for Aegon of approximately GBP 10 million, growing to
approximately GBP 30 million over time. Total transition and conversion
charges are estimated to amount to approximately GBP 130 million, and
are expected to be recorded over the first three years of the agreement.

Consistent with Aegon’s strategic objective to optimize its portfolio
and capital allocation across its businesses, Aegon has successfully
completed the sale of its businesses in the Czech Republic and Slovakia
for EUR 155 million on January 8, 2019. This is a further step in
rationalizing Aegon’s geographical footprint and focusing resources on
Aegon’s key markets.

On December 21, 2018, Aegon expanded its partnership with Banco
Santander in Portugal. The transaction with Banco Santander in Portugal
comprises the life and non-life in-force books owned by Banco Popular
within the scope of the partnership and generated by the Banco Popular
franchise as well as other channels (mainly agents and brokers). In
addition, it includes the life and non-life new business within the
scope of business of the partnership distributed through the former
Banco Popular franchise, which Banco Santander acquired in 2017. Aegon
has paid an upfront consideration for the expansion of the partnership
in Portugal of EUR 14 million and will pay an additional amount of up to
EUR 6 million, depending on the performance of the partnership.

Asia

In India, Aegon Life launched a new guaranteed return insurance plan,
called POS GRIP (Point of Sale Guaranteed Return Insurance Plan). The
product is in line with Aegon’s philosophy of launching simple, easy to
understand products. POS GRIP provides dual benefits of protection and
savings. The benefit which a customer will receive at the end of the
policy term is guaranteed and is stated up-front when buying the policy.
The guaranteed additions accrue at the end of every year throughout the
policy term and include a one-off loyalty booster payable at the end of
the policy term.

In China, Aegon THTF launched an upgrade of its award-winning platform
for agents that was unveiled in October last year. The platform features
professional marketing, smart recruitment, and differentiated service,
serving as the smart personal assistant to agents. Aegon THTF has been
increasing investments into digitalization in pursuit of its digital
development strategy.

Asset Management

Growing external third-party assets is an important element of the
growth strategy of Aegon Asset Management. 2018 was the seventh
consecutive full year of positive external third-party net inflows. This
reflects Aegon Asset Management’s competitive performance, together with
management’s ability to leverage scale and capabilities from the general
account and third-party affiliate businesses.

The continued strong commercial momentum in the Netherlands was
underlined by strong inflows into the Dutch Mortgage Funds, which grew
to EUR 16 billion of assets under management in the second half of 2018.

Operational highlights

Underlying earnings before tax

Aegon’s underlying earnings before tax decreased by 8% compared with the
second half of 2017 to EUR 1,010 million. Expense savings in all regions
and higher earnings in Spain & Portugal, the Netherlands and the UK
platform business from business growth and higher margins were more than
offset by the divestment of UMG in the Netherlands, and lower Retirement
Plans earnings and adverse claims experience in the United States.

Underlying earnings from the Americas decreased by 16% to EUR 614
million driven by lower Retirement Plans earnings and adverse claims
experience, which more than offset expense savings. The second half year
of 2018 included EUR 14 million unfavorable claims experience compared
with EUR 62 million favorable claims experience over the same period
last year. Unfavorable mortality experience in Life and Retirement Plans
was partly offset by favorable claims experience in Accident & Health.
Retirement Plans earnings decreased significantly, which was mainly
driven by lower fee income from lower asset balances, a lower investment
margin, and investments in operations and technology.

Underlying earnings before tax from Aegon’s operations in Europe
increased by 12% to EUR 404 million. This was the result of growth in
all regions, most notably in Spain & Portugal driven by better
underwriting results, and expense savings. Furthermore, earnings growth
was supported by a higher investment margin in the Netherlands from the
shift to higher-yielding assets, lower funding costs for the bank and
growth of the bank’s balance sheet, as well as growth of the Digital
Solutions business in the United Kingdom. This was partly offset by the
divestment of UMG in the Netherlands.

Aegon’s underlying earnings in Asia decreased by EUR 3 million to EUR 23
million driven by lower earnings from the joint-venture in China, as a
result of investments in growth, and lower earnings from the direct
marketing business, which is in run-off.

Underlying earnings before tax from Aegon Asset Management were up by 3%
to EUR 69 million in the second half of 2018. This increase was a result
of higher earnings in the Americas and in Europe driven by an increase
in management fees and lower expenses, which were partly offset by lower
performance fees from Aegon’s Chinese asset management joint venture
Aegon Industrial Fund Management Company (AIFMC).

The result from the Holding declined by EUR 17 million to a loss of EUR
100 million, as a result of interest expenses on USD 800 million Tier 2
securities issued in April 2018 to replace perpetual securities.
Interest expenses for these Tier 2 securities are taken through the P&L,
while the interest expenses for the perpetuals were recognized directly
through equity.

Net income

Net income declined to EUR 253 million in the second half of 2018, and
mainly reflects fair value losses as a result of market movements, and
an increase in Other charges.

Fair value items

The loss from fair value items amounted to EUR 257 million. Gains from
fair value items in Europe, Asia and at the Holding totaled EUR 281
million, and mainly resulted from hedging gains in addition to real
estate revaluations in the Netherlands. These were more than offset by
losses in the United States of EUR 538 million largely from
underperformance of alternative investments and the impact of declining
equity markets on reserve movements net of hedging. The loss was higher
than expected, mainly due to lower than anticipated gains as a result of
the lack of implied volatility movements during the equity market
decline.

Realized losses on investments

Realized losses on investments totaled EUR 10 million, as losses from
the sale of US treasuries more than offset gains as a result of
portfolio optimization in the United Kingdom.

Net impairments

Net impairments remained low at EUR 19 million and were driven by the
impairment of corporate bonds resulting from a bankruptcy filing in the
US.

Other charges

Other charges of EUR 581 million were mainly driven by a provision
related to the earlier announced settlement of class action litigation
with universal life policyholders and a book loss on the sale of life
reinsurance business in the United States; model & assumption changes in
the Netherlands; and restructuring expenses in the United Kingdom and
United States.

In the United States, Other charges of EUR 310 million were largely the
result of a provision of EUR 147 million related to the earlier
announced settlement of class action litigation with universal life
policyholders, a EUR 94 million book loss on the divestment of the last
remaining substantial block of life reinsurance, transition and
conversion charges of EUR 27 million related to the TCS partnership, and
a EUR 26 million addition to a provision for unclaimed property. In
January 2019, a court approved the aforementioned settlement with
universal life policyholders. Over 99% of affected policyholders
participated in the settlement. While less than 1% of policyholders
opted out of the settlement, they represented approximately 43% of the
value of the settlement fund. The settlement fund was reduced
proportionally for opt outs, although Aegon continues to hold a
provision for these policyholders.

In Europe, Other charges of EUR 230 million were caused by EUR 138
million charges from updated mortality and lapse assumptions in the
Netherlands, EUR 35 million integration expenses for Cofunds and
BlackRock’s defined contribution business, and EUR 19 million transition
and conversion charges related to the agreement with Atos for
administration services related to the Existing Business, both in the
United Kingdom.

Other charges at the Holding amounted to EUR 36 million and were driven
by IFRS 9 / 17 implementation expenses for the group.

Run-off businesses

The result from run-off businesses amounted to a loss of EUR 7 million,
which was in line with expectations following the divestment of the
majority of the remainder of these businesses in 2017.

Income tax

Income tax amounted to a benefit of EUR 117 million, while income before
tax amounted to EUR 136 million. The income tax included one-time tax
benefits of declining US and Dutch corporate income tax rates of EUR 84
million next to the regular tax exempt income items and tax credits. The
effective tax rate on underlying earnings declined from 26% in the
second half of 2017 to 12% in the second half of 2018, reflecting the
reduction of the nominal corporate tax rate in the United States from
35% to 21%. The effective tax rate on underlying earnings is below the
nominal tax rate as a result of tax exempt income and other tax benefits.

Return on equity

To align closer to definitions used by peers and rating agencies, Aegon
has retrospectively changed its internal definition of adjusted
shareholders’ equity used in calculating return on equity for the group,
return on capital for its units, and the gross financial leverage ratio.
As of the second half of 2018, shareholders’ equity will no longer be
adjusted for the remeasurement of defined benefit plans.

Contacts

Media relations
Dick Schiethart
+31 (0) 70 344 8821
gcc@aegon.com

Investor
relations
Jan Willem Weidema
+31 (0) 70 344 8028
ir@aegon.com

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