AEG Aegon Ltd

Following the closing of the transaction with a.s.r. on July 4th Aegon no longer has a regulated insurance activity in the Netherlands. At the same time, the combination with a.s.r. has resulted in a transformational shift in the geographical footprint of Aegon Group. While Aegon continues to have a part of its global asset management activities in the Netherlands, the overwhelming majority of its business activities (more than 99% of shareholders’ equity) is outside of the Netherlands. The reality is that Aegon today is an international insurance and asset management company and no longer a Dutch company.

The transaction also has had significant regulatory implications. As a consequence of the fact that Aegon no longer has a regulated insurance business in the Netherlands, there is no legal basis for the Dutch Central Bank to continue as Aegon’s group regulator. At the same time, as long as Aegon N.V. keeps its legal seat in the European Union (EU), Solvency II will apply to Aegon Group. Since over 99.5% of Aegon’s insurance businesses – as measured by total assets – are not located in the EU (where Solvency II is the governing capital framework), Aegon does not believe that it is appropriate to continue to be subject to group supervision under that framework.

If Aegon would not take action, according to Solvency II regulation the role of group supervisor would be allocated to Aegon’s largest business in the EU, i.e. Spain (DGSFP). For multiple reasons, we believe this alternative is not suitable. First, Aegon does not believe Solvency II is the appropriate framework for our group. Second, Spain (where Aegon’s activities represent less than 1% of Aegon’s balance sheet) is not appropriate as group supervisor. DGSFP has issued a clear statement, which you can find on our website, supporting supervision by the Bermuda Monetary Authority (BMA) and clarifying why it does not find itself suitable as group regulator. Third, in its statement DGSFP indicated it would revisit a number of key items of our capital management processes including the application of the internal model, which would lead to material uncertainty as to Aegon’s capital management approach.

It is for these reasons that, after intensive discussions with our college of supervisors and after exploring various alternatives, Aegon decided that moving our legal seat to Bermuda to facilitate group supervision by the BMA is the most appropriate way of enabling effective group supervision compatible with the geographic footprint of Aegon Group. Aegon has agreed transitional arrangements with the BMA providing shareholders with the necessary stability in Aegon’s capital management framework while setting Aegon up for continued future success. In this context, the Aegon boards have proposed what Aegon firmly believes is a robust governance framework befitting a company with the profile and geographic footprint of Aegon based on Bermuda.

Aegon has had intensive engagement regarding the proposed governance with its shareholders and representative organizations throughout the summer. This has resulted in Aegon making two meaningful adjustments in order to address the concerns of some of these organizations. The response from shareholders received so far has been positive.

Despite this transformational shift in the geographical footprint of Aegon Group, and the reality of the regulatory complexity Aegon has to navigate, Glass Lewis continues to measure the governance of Aegon Ltd against typical Dutch governance arrangements and uses that as the basis for its recommendation. This goes particularly for the remuneration policy of the board. First, Bermuda law does not provide for any shareholder vote on director remuneration. To further strengthen the position of shareholders in this respect, Aegon has voluntarily included that the remuneration policy of the board is to be adopted by its shareholders by simple majority. Glass Lewis however focuses on the provision in Dutch law that requires a 75% majority for the adoption of the remuneration policy. This supermajority requirement is unique for the Netherlands and is not applied internationally.¹ Aegon strongly disagrees with this approach as it is of the view that a more international governance standard is a better fit for the more international and less Dutch profile of Aegon.

The implied suggestion from Glass Lewis is to reverse all governance proposals that they view as detrimental and to apply the existing Dutch governance to a Bermuda based entity. In doing so, Glass Lewis does not appear to recognize the importance of the changes in the footprint of Aegon Group, nor the inability or impracticability to apply Dutch legal concepts in a Bermuda context. For example, Bermuda law is not familiar with the concept of annual discharge of board members and, accordingly, such vote would not have any effect as such vote is inapplicable under Bermuda law.

Therefore, Glass Lewis highlights a number of limited changes to shareholder rights as being negative, the totality of which, in Aegon’s view, do not warrant an “against” recommendation. This is especially true when balanced against the importance of continuity of and certainty around supervision and capital management for Aegon.

See for example the Glass Lewis report “SRD II – Say on Pay requirements – An overview of Key Changes and the Glass Lewis Approach”.