4 Financial risks

4.1 General

Insurance risks are described in note

As an insurance group, Aegon is exposed to various risks, primarily from financial market fluctuations (for example, foreign currency, interest rate, credit, and equity risks) that impact investment values and product liabilities. Additional risks include insurance-related factors such as changes in mortality, morbidity, bond credit spreads, and liquidity premiums, detailed in note

To manage financial market risks, products are priced using a market-consistent framework, and asset liability management (ALM) programs seek to ensure prudent long-term investment to policyholder. ALM techniques across the Group vary in complexity, from cash-flow matching (for traditional fixed annuities) to duration matching (for the Universal Life range of products) to derivative-based semi-static and dynamic hedges (to match variable annuities and indexed universal life).

To manage risk exposure, Aegon has both group-wide and specific local risk policies to handle the unique situation of local businesses. For ALM specifically, the Enterprise Risk Management (ERM) framework includes several risk policies that govern ALM strategies, such as the Investment and Counterparty Risk Policy (ICRP). The ICRP governs the management of investment risks associated with credit, equity, property, alternative asset classes, interest rate and currency risk in addition to option markets, implied volatility risk, interest rate options and swaptions. As well as product-level ALM programs, subsidiary businesses are required by the ICRP to maintain overarching entity-level ALM strategies that guide and set limits for the aggregated product-level programs. Significant or complex ALM strategies are approved at group level, and all programs are subject to Group Risk oversight.

Together with the ICRP, other ERM policies govern concentration risk, liquidity risk, the use of derivatives and securities lending and repos. Aegon’s extensive use of derivatives can lead to significant collateral calls depending on market conditions. Liquidity is managed at the legal entity, with central coordination by Aegon Ltd. Aegon US may use external market solutions to match projected liquidity requirements with funding.

Next to guidance, the Group level policies also provide limits to Aegon’s exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within Aegon’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including ALM processes and models and hedging programs (which are largely conducted via the use of financial derivative instruments). These risk management programs are in place in each country unit and are not only used to manage risk in each unit but are also part of the Aegon’s overall risk strategy.

Aegon’s Derivative Use Policy establishes the requirements for the control, authorization, execution and monitoring requirements of derivatives. It also stipulates the necessary mitigation of credit risk through derivatives management tools. For derivatives, counterparty credit risk is typically mitigated through collateral posting under credit support annexes or central clearing houses.

As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories and measures the sensitivity of net result and shareholders’ equity under both deterministic and stochastic scenarios. Models, scenarios, and assumptions are regularly reviewed and updated as needed.

 

 

Aegon’s sensitivity analyses are presented throughout this section to show the estimated impact of various scenarios on CSM, net result, and shareholders’ equity. It also shows how the tested shock could affect management’s key accounting estimates and judgments under Aegon’s policies. Management action is taken into account to the extent that it is part of Aegon’s regular policies and procedures, such as established hedging programs. However, incidental management actions that would require changes to policies and procedures are not considered.

Market-consistent assumptions underlying the measurement of assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to increased expected credit losses on debt investments. Although management’s short-term assumptions may change if a risk factor is reasonably likely to change, long-term assumptions will generally not be revised unless there is evidence that the change is permanent.

The sensitivities do not reflect what the net result would have been if risk variables had differed, as they are based on exposures on the reporting date, not actual events during the year. Nor are they intended to predict Aegon’s future shareholders’ equity or earnings, as the analysis excludes future new business and does not consider all potential management responses to financial environment changes, such as investment portfolio reallocations or changes to premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated or interpolated to wider variations, as effects do not tend to be linear.

Concentration risk for financial risks is measured and managed at the following levels:

As part of business planning, the resilience of Aegon’s business strategy is tested in several extreme event scenarios. In the Adverse Financial scenario, financial markets are stressed without assuming diversification across different market factors. Within the projection certain management actions may be implemented when management deems this necessary.

Aegon’s significant financial risks and related financial information are explained in note

4.2 Credit risk

Credit risk is the risk of financial loss to Aegon if a counterparty to a reinsurance contract or financial instrument fails to meet its contractual obligations, the risk of economic loss due to the deterioration in the financial condition of counterparties, either through fair value losses on traded securities or through defaults on traded securities, loans and mortgages.

Aegon has policies and procedures to manage credit, concentration, and counterparty risks across all material businesses with credit exposure, including bonds, loans, cash and equivalents, collateralized assets, reinsurance assets, and fair value assets. The Group uses risk gradings aligned with major credit rating agencies and applies internal gradings for specific portfolios, such as residential mortgages, to assess the probability of default.

Credit grades are calibrated so that default risk increases exponentially with each higher risk grade. For example, the difference in Probability of Default (PD) between the AAA and A rating grades is lower than between the BBB and B rating grades.

4.2.1 Aegon’s maximum exposure to credit risk

As premiums and deposits are received, Aegon invests these funds to meet future policyholder obligations. For assets backing insurance liabilities under the general model and the premium allocation approach, as well as other “free” assets, Aegon typically bears the investment risk, including principal and interest.

Aegon is exposed to credit risk on its fixed-income portfolio (debt securities, mortgages, private placements), derivatives, and reinsurance contracts. Some issuers have defaulted due to bankruptcy, liquidity issues, economic or real estate downturns, operational failure, or fraud. During financial downturns, Aegon can incur defaults or other value declines, which could materially impact Aegon’s business and financial results and condition adversely.

 

 

 

The estimates of best estimate liability for (re)insurance contract assets represent Aegon’s maximum exposure to credit risk from these assets. Please see the cash flow information in note

 

Debt securities

Money market and short-term investments

The collateral reported for money market and short-term investments relates to repurchase agreements (repos). Within repos, Aegon invests under short-term reverse repurchase agreements and the counterparty posts collateral to a third-party custodian. The collateral posted is typically high-quality, short-term securities and is only accessible for or available to Aegon in the event the counterparty defaults.

Loans

Financial assets designated at fair value through profit or loss

A significant portion of instruments have been designated as FVPL. On December 31, 2025, the maximum exposure to credit risk of these financial assets was their carrying amount of EUR 2,048 million (December 2024: EUR 2,337 million). The credit risk of these financial assets has not been hedged by the use of derivatives. The following table presents changes in fair value attributable to changes in credit risk, recognized for these investments:

 

 

The change in fair value attributable to changes in credit risk is determined as the total amount of the change in fair value that is not attributable to changes in the observable benchmark interest rate or in other market rates. This method reasonably approximates credit risk impact, as fixed income valuations are primarily influenced by interest rates and credit spreads. Thus, isolating factors allows for an estimate of credit-related fair value changes.

Derivatives

The master netting agreements column in the table pertains to derivative liability positions that are used in Aegon’s credit risk management. The offset in the master netting agreements column includes balances for which there is a legally enforceable right of offset, but no intention to settle them on a net basis under normal circumstances. As a result, there is a net exposure for credit risk management purposes. However, as there is no intention to settle these balances on a net basis, they do not qualify for net presentation for accounting purposes.

Reinsurance assets

The collateral for the reinsurance assets includes assets held in trust by the reinsurer for Aegon’s benefit. Trust assets can be accessed to pay policyholder benefits if reinsurers fail to perform under their contracts. Further information on the related reinsurance transactions is included in note

Collateral and other credit enhancements

Aegon employs a range of policies and practices to mitigate credit risk and the most common of these is accepting collateral for funds advanced. The Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation.

Collateral and other credit enhancements obtained

On December 31, 2025, the Group held no collateral that was obtained during the year (EUR 0 in 2024) by taking possession of collateral held as security against receivables. The Group’s policy is to pursue the timely realization of the collateral in an orderly manner. Aegon does not generally use collateral for its own operations.

4.2.2 Credit risk management

Aegon manages credit risk by counterparty, sector, and asset class, including cash. Credit risk in derivative contracts is typically mitigated through credit support agreements and ISDA master netting agreements across most of Aegon’s legal entities, enabling offsetting of exposures. Main counterparties are investment banks, generally rated “A” or higher. These agreements define collateral thresholds, with most collateralized transactions involving interest rate, equity, currency, and credit swaps. Collateral, mainly in USD and EUR cash, must meet high-quality standards. No derivative counterparty defaults occurred in the past three years. Credit risk under master netting agreements is offset only when liabilities are settled after asset realization. Eligible derivative transactions are traded via Central Clearing Houses as required by EMIR and the Dodd- Frank Act. Credit risk in these transactions is mitigated through the posting of initial and variation margins.

Aegon may also mitigate credit risk in reinsurance contracts by including downgrade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded, or requiring the reinsurer to hold assets in trust. For the resulting net credit risk exposure, Aegon employs deterministic and stochastic credit risk modeling in order to assess the Group’s credit risk profile, associated earnings, and capital implications due to various credit loss scenarios.

Aegon operates a Credit Name Limit Policy (CNLP) under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both the group level and the individual country units. If an exposure exceeds the stated limit, it must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits may be made only with explicit approval from Aegon’s Group Risk and Capital Committee (GRCC). The policy is reviewed regularly.

To hedge inflation risk in products offered to policyholders, Aegon invests in instruments linked to inflation, significantly reducing net exposure.

 

 

 

4.2.3 Credit rating

Since Aegon changed its policies in 2025, Group limits are denominated in US Dollar instead of Euro. Aegon group level long- term counterparty exposure limits are as follows:

 

The ratings distribution of Aegon’s general account portfolios – excluding reinsurance assets – is shown in the following table, categorized by rating and split by assets measured at fair value and amortized cost. Aegon applies a composite rating based on external ratings from S&P, Moody’s, Fitch, and the National Association of Insurance Commissioners (NAIC for U.S. assets), along with internal ratings. The lower of the external and internal ratings is used.

 

 

The following table shows the credit quality of the reinsurance contracts:

 

 

 

4.2.4 Credit risk concentration

The following tables present specific credit risk concentration information for general account financial assets.

 

 

 

 

 

 

 

 

 

 

4.2.5 Unconsolidated structured entities

Aegon’s investments in unconsolidated structured entities – such as RMBSs, CMBSs, ABSs, and investment funds – are reported under “Investments” on the statement of financial position. These interests are basic interests. Aegon holds no related loans, derivatives, guarantees, or other interests relating to these investments.

For RMBSs, CMBSs, and ABSs, Aegon’s maximum exposure to loss equals the carrying amount, as shown in the credit risk concentration table for debt securities and money market investments. To manage credit risk, Aegon primarily invests in senior notes of these instruments. The portfolios are broadly diversified by issuer, resulting in only interests in individual unconsolidated structured entities. Additionally, Aegon does not originate these investments.

As the collateral manager of collateralized loan obligations (CLOs) issued in Europe, to the extent that it acts as an originator-manager, Aegon is subject to risk retention requirements to hold investments in the CLOs it manages. Such risk retention is often in the form of participation in the subordinated tranches of the structure, which concentrate credit risk on the underlying assets of the CLO. Aegon’s maximum exposure to credit risk is the carrying amount of these investments, which was EUR 190,671 million on December 31, 2025 (2024: EUR 192,775 million).

Except for commitments, such as future purchases in investment funds, as disclosed in note

For RMBSs, CMBSs, and ABSs in which Aegon has an interest at the reporting date, the following table presents the total income received from those interests. The Investments column reflects the carrying values recognized in the statement of financial position of Aegon’s interests in RMBSs, CMBSs, and ABSs.

 

 

 

 

 

 

4.2.6 Expected credit losses

Measurement

Credit risk losses are inherent to fixed-income securities. The level of this risk and the compensation for bearing it are related. A key management measure to avoid excessive credit risk is to diversify and limit exposure to individual issuers.

Aegon measures credit risk in line with the IFRS 9 approach for Expected Credit Loss (ECL). ECL is calculated as the product of the projected probability of default (PD), the loss given default (LGD), and the exposure at default (EAD), discounted at an appropriate rate. ECL is then determined as the probability-weighted, discounted credit loss across multiple scenarios (for example, base, positive, adverse).

a)  Recognition of expected credit losses

Aegon uses the “three-stage” model for impairment as outlined in IFRS 9, based on relative changes in credit quality since initial recognition. The table below shows the characteristics of the three stages.

 

Following the staging of financial instruments, Aegon incorporates multiple, forward looking macro- scenarios to drive the ECL provision. Forward-looking inputs used to measure ECLs must align with those used to assess significant increases in credit risk.

The Group uses different models to calculate ECL across asset classes. The following sections outline the Group’s key judgments and assumptions for each model.

For bonds and private placements, the Group uses a global correlation model that links credit quality movements across asset classes to macroeconomic trends. This model determines conditional PD and LGD under specific macroeconomic scenarios. Unconditional PD and LGD curves are developed using distinct methods for sovereign debt, corporate bonds, and private placements.

For commercial mortgage loans and mortgage-backed securities, parameters are estimated using commercial mortgage metrics. These build on corporate bond PD and LGD estimates, adjusted for factors like debt service coverage and value ratios.

Asset-backed securities are modeled separately, with instruments pooled by collateral type, and credit-loss parameters estimated collectively. For collateralized debt (loan) obligations (CDOs and CLOs), different models are applied depending on the region of the exposure.

The following tables contain an analysis of Aegon’s credit risk exposure for debt instruments and loans for which an ECL allowance is recognized. All asset categories not presented here are determined to have credit risk or to be of a short-term nature (cash and cash equivalents, other receivables). The gross carrying amount of financial assets below also represents Aegon’s maximum exposure to credit risk on these assets.