(Re)Insurance contracts and investment contracts with discretionary participation features |
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| Insurance Reinsurance Contracts And Investment Contracts With Discretionary Participation Features [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (Re)Insurance contracts and investment contracts with discretionary participation features | 29 (Re)Insurance contracts and investment contracts with discretionary participation features 29.1 Contracts by measurement model The table below presents the asset and liability balances of insurance contracts and reinsurance contracts held, by measurement model. This includes contracts measured under Premium allocation approach (PAA) and contracts measured under the General model and Variable fee approach (i.e. Non-PAA).
All groups of investment contracts with discretionary participation features (DPF) were measured under Non-PAA and were in a liability position at the reporting date and comparative period. 29.2 Movements in carrying amounts on (re)insurance contracts and investment contracts with DPF The following tables present the reconciliation of the net carrying amounts of insurance contracts, reinsurance contracts held and investment contracts with DPF. 29.2.1 Movement schedules by type of liability (or asset)
29.2.2 Movement schedules by measurement component The following schedules presents the measurement components comprising the Best estimate liability (BEL), Risk adjustment (RA), and contractual Service Margin (CSM).
29.2.3 New contracts recognized
29.2.4 Contractual service margin maturity analysis
29.2.5 Movement schedules of contractual service margin by transition method The table below presents the reconciliation of the contractual service margin recognized for contracts in force as of the transition date. The transition methods applied to these contracts include the Modified retrospective approach (MRA), Fair value approach (FVA) and Other applicable method.
Transition Changes in accounting policies due to IFRS 17 adoption in 2023 were applied retrospectively where practicable. Aegon found the full retrospective approach impracticable when it required hindsight, such as setting historical assumptions, or when historical data was unavailable without significant effort. If retrospective application was impracticable, the modified retrospective approach or the fair value approach was used. The modified retrospective approach was applied only if reasonable and supportable information was available. For groups of contracts eligible for both approaches, the most appropriate method was chosen based on operational and financial considerations. Aegon applied the fair value approach to certain groups of contracts with direct participation features, to which it could have applied IFRS 17 fully retrospectively. These were groups of contracts for which Aegon had mitigated financial risk prior to transition using derivatives, other financial instruments classified as fair value through profit or loss, reinsurance contracts, and groups to which the risk mitigation option has been applied prospectively from the transition date. Fair value approach Under the fair value approach, the carrying amount of a group of insurance contracts at transition is determined in accordance with IFRS 13, excluding the guidance on demand features. The difference between the fair value and the fulfillment cash flows at the transaction date is recognized as the contractual service margin. To estimate the fair value of insurance contracts for IFRS 17 transition, Aegon adjusted estimated future cash flows for known differences between IFRS 17 and market valuation methodologies, such as investment expenses for all product types. The risk adjustment was recalculated at a higher confidence level to reflect additional compensation required by market participants for financial risk and remaining contractual services. Where possible, the results were compared to market-observable transactions, such as recent reinsurance transactions entered into by Aegon and sales transactions of insurance portfolios and businesses. For contracts that transitioned to IFRS 17 under the fair value approach, assessments were performed at the original contract inception date, with a limited number of products being assessed at the transition date. It was assessed whether an insurance contract met the definition of an insurance contract with direct participation features or that of an investment contract with DPF, and the discretionary cash flows for insurance contracts without DPF. At the transition date, contracts under the fair value approach were grouped into portfolios in accordance with IFRS 9 and IFRS 17. No contracts were deemed onerous at transition and these portfolios were not further segmented into cohorts based on issue date. Discount rates used to accrue interest to the contractual service margin and to recognize changes in non-financial assumptions for non-participating contracts were also set at the transition date. Modified retrospective approach The modified retrospective approach aims to achieve results closest to the full retrospective approach, using reasonable, supportable information without undue cost or effort. Aegon used this approach for groups of contracts for which the fair value approach was not preferred, and gathered the necessary information from the transition date back to the initial recognition date. Modifications were applied only when information could not be obtained without undue effort, as allowed under IFRS 17. For all contracts transitioned under this approach, sufficient information was available to classify them as of their original inception date. Contracts were grouped by the original inception date or, if information was lacking, by the transition date, into cohorts of no more 12 months. None of the contracts to which the modified retrospective approach was applied was identified as being onerous at inception. Modifications applied to contracts without direct participation features To determine the contractual service margin at transition for non-participating contracts, Aegon estimated the contractual service margin at the original inception date and then rolled it forward to the transition date, deducting the estimated amount that would have been released for services provided prior to transition. Previous calendar-year cash flows were attributed to issue year cohorts using allocation keys based on available information, such as accumulated premiums in force and first-year account values. Calculating fulfillment cash flows at inception and accruing interest to the contractual service margin required historical discount rates. Principally, Aegon determines IFRS 17 discount rates using a hybrid approach based on risk-free rates plus an illiquidity premium based on expected asset returns. If asset portfolio data were unavailable, an observable yield curve plus a spread adjustment was used. For cohorts that exceed 12 months, weighted-average historical discount rates were applied, based on sales volumes, or expected coverage units at inception. The modified retrospective calculations were based on the assumption that Aegon had not previously prepared interim financial statements, unless sufficient information existed to roll the contractual service margin forward with Aegon’s historical reporting frequency. Modifications applied to contracts with direct participation features To determine the contractual service margin at transition for a group of insurance contracts with direct participation features, Aegon first estimated the total contractual service margin for all services to be provided for that group of contracts. Then deducted the estimated amount that would have been released for services provided prior to the transition date. The total contractual service margin was estimated by taking the fair value of the underlying items at the transition date, minus the fulfillment cash flows at that date, and adjusting it for the amounts charged to policyholders prior to the transition date, the excess claims and expenses paid in this period (including acquisition costs), and the estimated change in the risk adjustment for non-financial risk caused by the release of risk before the transition date. Calendar year cash flows were attributed to issue years using allocation keys suitable for the cash flow types, based on available information (e.g. account value, excess claims paid and net amount at risk). The projected risk adjustment pattern for newly issued cohorts of similar products was used as a proxy for estimating changes in the risk adjustment for non-financial risk before the transition date. The amount released for services provided prior to transition was determined by multiplying the adjusted total contractual service margin by the ratio of the coverage units served prior to transition and the total coverage units expected to be provided over the lifetime of the group of contracts. Other comprehensive income Under IFRS 17, Aegon has elected to disaggregate the insurance finance income or expenses between profit or loss and OCI for certain groups of non-participating contracts issued in the Americas and Asia. The amount recognized in OCI has been determined retrospectively where possible, or set to nil at the transition date, such as for fixed deferred annuities, indexed universal life and other life insurance products with indirect participation features issued in the Americas. 29.2.6 Investments and other assets allocated to contracts that were not transitioned fully retrospectively On transition to IFRS 17, amounts were recognized in the revaluation reserve for insurance contracts, investment contracts with DPF and reinsurance contracts held using the modified retrospective approach and/or the fair value approach. Part of the assets backing these groups of insurance contracts are measured at fair value through other comprehensive income. The table below presents the movement in the cumulative amount recognized in OCI for these assets.
Of the gross revaluation, EUR 1,159 million was unrealized gain through equity (2024: loss of EUR 1,073 million). The Net gains/(losses) transferred to the income statement include a gain of EUR 174 million due to transfer/ disposal (2024: gain of EUR 56 million). 29.3 Critical judgments and estimates 29.3.1 Fulfilment cash flows The fulfillment cash flows include estimates of future cash flows, an adjustment to reflect time value of money and the financial risks not included in the estimates of future cash flows and a risk adjustment for non-financial risk. Measuring each abovementioned element requires significant judgment and estimates. 29.3.1.1 Valuation methods Aegon aims to estimate future cash flows by considering a range of likely scenarios, each specifying the amount and timing of cash flows and the probability of the outcomes. These cash flows are probability-weighted and discounted to derive an expected present value. The objective is to use all reasonable, supportable information available at no undue cost or effort, rather than identifying every possible scenario. Simple modeling may be sufficient for some cases, while more complex methods might be needed for others. For example, if cash flows involve interrelated (implicit or explicit) options and respond nonlinearly to economic changes, Aegon often uses stochastic modeling techniques to estimate expected present values and project future cash flows across various economic scenarios. Other methods include closed-form solutions and replicating portfolio techniques. 29.3.1.2 Actuarial assumptions When estimating future cash flows, Aegon sets actuarial assumptions for underwriting risk including policy claims (e.g. mortality, longevity, or morbidity), policyholder behavior (e.g. lapses, surrender of policies or partial withdrawals), and property & casualty loss ratios and expenses. These assumptions are reviewed annually, except for expense assumptions, which may be updated more frequently during quarterly expense monitoring. Underwriting assumptions Mortality tables are developed using a blend of company experience and industry studies, considering product characteristics, own-risk selection criteria, target market, and historical experience. Mortality experience is regularly monitored and used to price new products and calculate liabilities for in-force contracts. For contracts that insure against survivorship or mortality, allowances are made for further longevity or mortality improvements. Morbidity assumptions are based on claims severity and frequency, adjusted for industry information, with industry surveys used for judgment-based assumptions such as morbidity improvement and long-term care (LTC) inflation. Surrender and lapse rates depend on product features, policy duration, and external factors like interest rates and competitor behavior. Dynamic lapse assumptions reflect expected policyholder behavior under various scenarios. Assumptions are based on own experience and industry data, with lapse experience correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions. Policyholder benefits linked to asset performance are projected at rates consistent with the discount rates applied. Crediting rates for cash flows are determined using projected cash flows based on the group’s crediting policies. Other management actions are considered to the extent that they are part of Aegon’s regular policies and procedures. Given that Aegon applies the premium allocation approach to most of its non-life business, actuarial assumptions for loss ratios impact fulfillment cash flows only for onerous contracts with remaining coverage and for contracts with incurred claims. Aegon uses various loss reserving techniques, historical claims data, and market inputs to estimate claims ratios, with large claims assessed individually. Expense assumptions Expenses attributable to the fulfillment cash flows include acquisition, maintenance, and claims settlement costs, as well as unavoidable overhead costs. Investment expenses are included for contracts providing investment-related or investment-return services, or where Aegon’s investment activities enhance policyholder benefits from insurance coverage. Aegon’s expense assumptions are based on current expenses, adjusted for future expense inflation and the impact of known one-off projects (such as planned cost-saving initiatives or projects to implement additional regulatory reporting requirements). In smaller units, further adjustments are made to reflect the long-term scale of the business. When allocating the attributable expenses to groups of contracts, Aegon uses pricing or regulatory reporting approaches. Additional allocation keys are applied where IFRS requires more granularity. Inflation assumptions The expense inflation assumption is split into a financial component calibrated to market observables and a non-financial component set as an actuarial assumption. The non-financial component represents the difference between general market inflation and Aegon-specific expense inflation. Some inflation assumptions (such as LTC utilization and health inflation in the Americas) are entirely set as an actuarial assumption due to their weak correlation with general inflation indices and due to the lack of a hedge market for such rates. Discount rates and other financial assumptions Aegon adjusts the estimated future cash flows to reflect the time value of money and the financial risks not included in the cash flow estimates. The discount rates applied to the estimates of the future cash flows reflects the characteristics of the cash flows and the liquidity characteristics of the insurance contracts. They are consistent with observable market prices for financial instruments with similar cash flow characteristics. They exclude factors that influence market prices but do not impact the future cash flows of the insurance contracts. No implicit adjustments for non-financial risks are included in the discount rates, as the risk adjustment for non-financial risks is explicitly included in the fulfillment cash flows. At initial recognition of a group of contracts, Aegon uses weighted-average discount rates over the period when contracts in that group are issued. IFRS explicitly mentions two calibration options for the discount rate, namely the “top-down approach” and the “bottom-up” approach. Aegon has generalized both approaches into a direct discounting technique in which discount rates are determined as the sum of the risk-free rate plus a percentage of the illiquidity premium (ILP). The ILP is an additional spread an investor can earn by investing in a security that offers limited or no ability for the investor to exit the investment before maturity. If an insurance liability is illiquid (meaning that the policyholder has limited or no ability to cash it in prior to maturity or contingency-based payment), the liability is discounted at a rate that includes an ILP because illiquid assets (earning an illiquidity premium) may be purchased to back or replicate that liability. Risk-free yield curve Aegon has identified various rates available in the EUR, GBP and USD markets that can be used as a basis for the risk-free yield curve, including EURIBOR swap rates for EUR, reformed Sterling Overnight Index Average (SONIA) for GBP, and Secured Overnight Funding Rates (SOFR) and US Treasury rates for USD. EURIBOR rates are adjusted for credit risk by subtracting a credit risk allowance. No adjustment is made to overnight swap rates and US Treasury rates, as the credit risk of these instruments is deemed negligible. A full risk-free yield curve is derived by first interpolating between tenors for which market data are available, and then extrapolating the yield curve beyond market-observable maturities. Discount rates converge to an ultimate forward rate (linear grading over a 10-year period is assumed for the USD and EUR). A uniform last liquid point for EUR and USD is set at 30 years, while GBP is set at 50 years. The ultimate forward rates reflect a long-term view on nominal interest rates and are set by management for each currency, taking into account expected real interest rates and long-term inflation, together with the current market environment. The current ultimate forward rate assumption is 3.40% (December 31, 2024: 3.40%). Aegon reviews the risk-free last liquid point and ultimate forward rates quarterly which, although expected to be infrequent, may lead to assumption updates if there are significant changes in market conditions.
Illiquidity premium (ILP) Aegon sets ILPs at the level of the segment or major business unit, reflecting how it manages the investments and ALM risk for the given block of liabilities. For Americas, Aegon has set ILPs by lines of business, which has resulted in 11 ILP curves. For each unit, an ILP curve is constructed from market-observables returns on a reference portfolio of assets. The reference portfolio is based on the unit’s actual holdings or investment policy target mix of fixed-interest securities except for single premium products with the need to link returns to the actual asset mix, or products with needs of frequent hedging to cover guarantees where Aegon may choose to allow for short-term deviations from the target to be included. The reference portfolio excludes alternative investments (such as equities and real estate investments). To derive ILP curves, market spreads are adjusted for expected and unexpected default losses, and the ILP is calculated as the weighted average of these adjusted spreads, using the line of business reference portfolio. The full ILP curve is derived by interpolating between the observable tenors and then extrapolating the yield linearly beyond the ILP last liquid point to the ultimate forward ILP. The last liquid point can be set separately for each duration bucket or, as a single point in time for the entire reference portfolio. The ultimate forward spread is set based on the historical 50th percentile spread adjusted for expected and unexpected default losses. Aegon uses the expected default loss derived from historical default data, plus an adjustment for the default risk premium. The adjustment for the default risk premium or the unexpected default loss is calculated by applying 30% on top of the expected default, which is based on management’s judgment. Aegon updates the reference portfolio quarterly, and the ILP last liquid point and ILP ultimate forward rate are revised accordingly. The ILP curves of Aegon’s significant portfolios are presented below. These ILP curves are added to the risk-free yields of the currency in which the cash flows of the products are denominated.
Illiquidity factor The illiquidity factor reflects the liquidity characteristics of a certain group of insurance contracts. Groups of contracts whose cash flows are not dependent on the underlying assets are assigned an illiquidity factor of 100%. Groups of contracts for which the cash flows predominantly vary with the underlying assets are assigned an illiquidity factor of 0%. For example, Aegon UK does not apply an illiquidity factor to the Unit Linked products. For a few products that include both types of cash flows, such as US variable annuity products with guaranteed minimum withdrawal benefits, a combination of 100% and 0% ILP is used. Other significant financial assumptions Interest rate volatilities are modeled based on swaption prices, in line with current market pricing. Risk adjustment for non-financial risk The risk adjustment for non-financial risk is included explicitly as a separate component of the fulfillment cash flows. It reflects the compensation that Aegon requires for bearing the uncertainty about the amount and timing of the cash flows that arise from non-financial risk as it fulfils insurance contracts. These risks include mortality, morbidity, policyholder behavior, expense, and product-specific operational risk. Non-financial risks that do not arise from the insurance contracts, such as general operational risk, are not reflected in the risk adjustment. The risk adjustment reflects both the risk that actual experience differs from the best-estimate assumptions used to project future cash flows due to misestimation (parameter risk), and the risk of random fluctuations around the true estimates (contagion risk). Diversification benefits are recognized at the Group level. To align with market practice, Aegon only reflects the degree of diversification between non-financial risks, and contrary to its pricing methodology, ignores diversification benefits between financial and non-financial risks. Diversification effects include the impact of ceded reinsurance, and insurance contracts classified as held for sale. Aegon generally applies a simplified confidence-interval technique to estimates the risk adjustment for non-financial risk, using an 80th percentile confidence level. Under this approach, a probability distribution is assumed for each particular risk, and the amount above the expected present value of future cash flows is determined using a shock factor. The impacts for each risk are then aggregated using a correlation matrix, reflecting diversification between the various non-financial risk types. For some products, Aegon measures contagion risk using the Conditional Tail Expectation technique at the 75th percentile. Regardless of the technique applied, the confidence interval is computed across the entire product lifetime in order to fully reflect the risk. Changes in methods and inputs used to measure fulfillment cash flows Actuarial assumptions, excluding expenses, are reviewed in the second quarter for the United States and TLB, and in the fourth quarter for all other business units, while expense assumptions for all units are reviewed in the fourth quarter. These reviews are based on historical experience, observable market data, including transactions such as acquisitions and reinsurance, anticipated trends, and legislative changes. Similarly, the models and systems used to determine our liabilities and reinsurance assets are reviewed periodically and updated as needed. At the end of 2025, non-financial assumption changes mainly in Aegon’s business in Americas, United Kingdom, and TLB resulted in an adverse pre-tax impact of EUR 515 million. Of this amount, EUR 265 million was absorbed by the CSM, EUR 177 million was recognized in the income statement, and EUR 73 million was recognized in OCI. Of the total impact, Americas and TLB resulted in EUR 333 million, mainly due to strengthening of policyholder behavior assumptions to address adverse experience in Financial Assets, driven by the TLB Universal Life block reinsured to Transamerica, Variable Annuities and Fixed Annuities. In Protection Solutions, adverse assumption updates were driven by the workplace business, in part related to Medicare Supplement product addressing an industry-wide trend. These unfavorable underwriting assumptions was partly offset by favorable expense assumption updates in Individual Life. United Kingdom resulted in EUR 180 million, mainly from updated persistency assumptions, reflecting the ongoing commercial pressures in the Platform and Traditional Products business. Financial (economic) assumption updates resulted in a favorable impact of EUR 269 million, recognized in OCI, attributable to a periodic adjustment of the illiquidity premium to align with Aegon’s latest reinvestment strategy. Aegon did not make any significant changes to the contract boundaries in the current reporting period, nor did it update the approaches used to determine the discount rate or estimate the risk adjustment for non-financial risk. 29.3.2 Relevant other significant judgments In addition to the judgments and estimates made in measuring the fulfillment cash flows described above, other significant judgments are applied in determining the relative weighting of coverage units when multiple services are provided; the non-distinct investment component (excluded from insurance revenue); and the adjustment for non-performance risk that is applied to reinsurance contracts held. 29.3.2.1 Weighting of coverage units Often, a single metric can be defined that captures multiple services under one contract. Aegon uses different approaches to assess the relative weights of services benefits. In some cases, the weighting is determined directly from the composition of the benefits under the contract. For example, for a life insurance product with an account value that is surrendered, coverage units can be based on the total death benefit, as this amount comprises both the account value (investment service) and the excess death benefits (insurance service). In other cases, significant judgment is required. For example, for US long-term care insurance products, multiple drivers impact the maximum daily benefit to which a policyholder could be entitled. To reflect this, the coverage unit is computed using a combination of the initial allowed benefit, the benefit period, as well as adjustments for any inflation protection, and if the policy is paid-up on the contingent non-forfeiture option. 29.3.2.2 Investment component Aegon reports insurance revenue and insurance service expenses excluding non-distinct investment components which are the amounts repayable to policyholders, even if the insured event does not occur. Aegon determines the investment component when a claim is incurred as an amount is released from the liability for remaining coverage. When doing so it considers which payments would have been possible immediately prior to the claims date. For example, a payment might have needed to be made to the policyholder in light of policy surrender, the uptake of a policy loan, the partial withdrawal, or the transfer of an insurance policy to another insurer. The investment component is determined net of any penalty or similar charges. 29.3.2.3 Adjustment to reinsurance contracts held for non-performance risk The reinsurer’s nonperformance risk is based on Aegon’s credit exposure, net of collateral, and the perceived counterparty default risk. In assessing credit exposure, Aegon takes into account treaty provisions for non-performance, such as the automatic recapture of the reinsured business on the reinsurer’s default. When estimating a reinsurer’s default risk, Aegon considers the current financial condition and credit standing of the reinsurer, expert judgment specific to the local reinsurance market and historical data (such as Moody’s loss given default rates). The ultimate adjustment reflects the risk of potential reinsurance counterparty failure due to default (i.e. credit events), as well as disputes resulting in reduced payments and the potential for current conditions to change over time. 29.4 Underwriting risk Aegon’s earnings depend significantly on how actual claims experience compares with the assumptions used to price products and establish liabilities. If actual claims are less favorable than assumed, income would decrease. If higher claims become a persistent trend, Aegon may need to adjust its assumptions about future claims, increasing required reserves and reducing income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into the income statement over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write-offs if recoverability is doubtful. This could have a materially adverse effect on Aegon’s business, results of operations and financial condition. Sources of underwriting risk include policyholder behavior, policy claims and expenses. For some product lines, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recover upfront expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. There are also products where Aegon is at risk if lapses decrease; for example where this would result in a higher utilization rate of product guarantees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed beforehand by management and that were priced into the products. Aegon monitors and manages its underwriting risk by its type, by performing attribution analysis on earnings and reserve movements to identify the source of any material variation between actual results and expectations. Aegon’s units also conduct experience studies for underwriting risk assumptions, comparing Aegon’s experience to industry experience as well as combining Aegon’s experience and industry experience, based on the depth of the history of each source to Aegon’s underwriting assumptions. Where policy charges are flexible in products, Aegon uses these analyses to adjust them, with a view to maintaining a balance between policyholder and shareholder interests. Aegon can also reduce expense levels over time, thereby mitigating unfavorable expense variability. Another way to mitigate underwriting risk is through reinsurance. Aegon uses reinsurance primarily to manage and diversify risk, limit volatility, improve capital positions, limit maximum losses and gain access to reinsurer support. While objectives and use may vary by region due to local market conditions and product offerings, the use of reinsurance is coordinated and monitored globally. External reinsurance counterparties are, in general, major global reinsurers. At the same time, local reinsurers are used to balance local capacity and diversification. The key areas where reinsurance is used are to reduce our exposure to mortality and morbidity risk, primarily through a combination of quota-share and excess of loss reinsurance. Also, an excess-of-loss non-life business. In order to minimize its reinsurer default exposure, Aegon regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit, trust agreements and over-collateralization. For certain agreements, funds are withheld for investment rather than relying on the reinsurer to meet investment expectations. Default exposure is further reduced by using multiple reinsurers within certain reinsurance agreements. Concentration of underwriting risk by segments can be referred to in note 5 Segment information . Sensitivity analysis of net result, shareholders’ equity and CSM to changes in various underwriting risks Aegon’s best estimate assumptions already account for expected future developments, and the sensitivities reflect the estimated effects of these assumptions by considering probable changes in lapse, mortality, and morbidity rates. These sensitivities were applied as a permanent shock to all Aegon products, exposed to an increase or a decrease in the corresponding rates. Due to the nature of IFRS and how changes in assumptions are absorbed by the CSM while a contract is not onerous, but are reflected in the net result if it is onerous, it is possible that the results of opposite sensitivities seem counterintuitive. In 2025, changes in sensitivities were driven by the reinsurance of a block of Secondary Guarantee Universal Life (SGUL) contracts and by the annual assumption updates. Market movements, as well as changes in business mix from new business and exits, also influenced the sensitivities. The SGUL reinsurance reduced the exposure to increases in mortality and decreases in lapses for contracts without direct participation. For these contracts, the impact of sensitivities on the consequential Reinsurance Loss Recovery Calculation is floored for lapse-up and mortality-down scenarios, contributing to the asymmetric results observed for mortality and lapse sensitivities. Assumption updates for the workplace health business reduced overall morbidity sensitivities for contracts without direct participation. These updates also resulted in certain workplace health cohorts becoming onerous, which lowered the CSM sensitivities while increasing the sensitivities of the net result. Updated lapse assumptions for Individual Life contracts in the Protection Solutions business increased the exposure to lapse and mortality sensitivities for contracts without direct participation, affecting the CSM. There were also decreases in lapse sensitivities for other without direct participation contracts arose from an increase in onerous contracts within the Life portfolio of the Protection Solutions business, affecting the net result rather than the CSM. For direct participation contracts in the US, overall lapse sensitivities increased due to positive market movements. Changes in the mix of onerous and non-onerous blocks, driven by market movements for investment only Variable Annuities that became non-onerous, and by assumption updates for certain Living Benefits blocks that became onerous, also shifted the impact of sensitivities between the net result and the CSM. Updates to persistency assumptions in the UK reduced the sensitivity to lapse rates for direct participation contracts.
29.5 Risk mitigation Aegon has chosen to apply the risk mitigation option and recognize changes in the fulfillment value of products with direct participation features (for example variable annuity products issued in the Americas and UK) in the profit or loss and OCI, rather than adjusting the CSM. The adjustment to the CSM that would otherwise have been made on December 31, 2025, is EUR 836 million (2024: EUR 2,020 million). For more details on the change in the fulfillment cash flows relating to the hedged position, see note
20 Derivatives , and for the split between profit or loss and OCI, see note 9 Insurance net investment result . |
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