20 Derivatives 

 

Where Aegon hedges minimum guarantees embedded in VFA products, the change in the fulfillment cash flows relating to the hedged position is recognized in income rather than in the Contractual Service Margin. For more details see note

 

 

 

 

 

 

Use of derivatives

 

Aegon uses derivative instruments as part of its asset-liability risk management. These derivatives are classified as economic hedges when they do not qualify for hedge accounting or when Aegon opts not to apply it. Economic hedges address risks related to existing assets, liabilities, or future reinvestments. All hedges follow internal risk guidelines and are closely monitored for compliance. Derivatives embedded in financial liabilities (various institutional products) that are not closely related to the host contracts have been bifurcated and recorded at fair value.

Credit Default Swaps

Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were:

 

Aegon uses credit default swaps (CDS) to synthetically create bonds via Replication (Synthetic Asset) Transactions (RSAT). This regulatory concept allows insurance companies to use a derivative alongside a cash investment to replicate the characteristics of an otherwise permissible investment. There are three main types of RSAT transactions used by Aegon: single-asset replications, RSATs involving indices, and RSATs involving asset baskets.

Derivatives designated as fair value hedges

Aegon has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis. These hedges are used for portfolio management to better match assets to liabilities or to protect the value of the hedged item from interest rate movements. No underlying principal amounts are exchanged.

Aegon has also entered into cross-currency interest rate swap agreements that convert certain foreign-currency fixed- and floating-rate assets and liabilities into floating-rate assets and liabilities. These agreements include exchanging underlying principal amounts.

Derivatives designated as cash flow hedges

Aegon has primarily entered into interest rate swap agreements that convert certain variable-rate assets and liabilities to a fixed-rate basis to more closely match the cash flows of assets and liabilities within Aegon’s portfolio. No underlying principal amounts are exchanged. Aegon hedges its exposure to future cash flow variability from interest rate movements for hedges converting existing floating-rate assets and liabilities to fixed-rate assets, with maturities up to 19 years.

Aegon uses forward-starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction. Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the forecasted transaction occurs, at which time the swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to future cash flow variability from interest rate movements for terms up to 18 years. The cash flows from these hedging instruments are expected to affect the profit or loss for approximately the next 37 years. For the year ended December 31, 2025, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 73 million (2024:

 

 

 

 

 

EUR 55 million), recognized directly in equity to be reclassified as net result during the period when the cash flows of the underlying hedged items occur. In 2025, none of Aegon’s active cash flow hedges were discontinued as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. All reported discontinued cash flow hedges are a product of completed forecast transactions, at which point the hedges were unwound.

In addition, Aegon uses cross-currency swaps to convert variable or fixed foreign-currency cash flows into fixed local- currency cash flows. The cash flows from these hedging instruments are expected to occur over the next 31 years. These agreements include exchanging underlying principal amounts.

 

The periods when the contractual, undiscounted cash flows are expected to occur are as follows:

 

Net foreign investment hedges

Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the Eurozone, the United States and the United Kingdom are funded in euros. When the debt funding of investments is not in the functional currency of the investment, Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital reflects currency movements without distorting shareholders’ equity ratios. Aegon utilizes various financial instruments as the designated hedging instruments of its foreign investments. These instruments include long-term and short-term borrowings, short-term debts to credit institutions, cross- currency swap contracts, and forward foreign exchange contracts.

 

 

 

 

 

 

Terms and conditions of hedging instruments

 

Impacts of hedge accounting in the financial statements

Hedging instruments recorded as “Derivatives” in the consolidated statement of financial position:

 

 

Hedged exposures covered by the above-described hedging instruments in the consolidated statement of financial position:

 

 

 

 

 

 

 

 

Potential sources of hedge ineffectiveness

Life & Health liability investment risk hedge

Long Term Care (LTC) liability hedge

Synthetic asset cash flow hedge

The counterpart default sources listed above indicate that if the counterparty fails to fulfill the contract, the hedge will not be highly effective. All derivatives in this program are collateralized or cleared, so the impact from this credit risk will not dominate the hedge relationship.

Regarding Fair value hedges, hedge ineffectiveness recognized in the profit or loss on Interest rate contracts was EUR 0 million in 2025 (2024: EUR (2) million). The amount recognized in the profit or loss as ineffectiveness of cash flow and net investment hedges was 0 in 2025 (2024: 0).

Aegon recognizes the separate line items, “Changes in cash flow hedging reserve” and “Movement in foreign currency translation and net foreign investment hedging reserves” in the statement of comprehensive income related to hedges of net position gains and losses. Refer to note

Financial instruments designated and measured at FVPL

The following table shows the reconciliation of nominal amount and fair value of credit derivatives that have been used to manage the credit risk of financial instruments designated as FVPL: