Aegon Annual Report 2012

Annual Report 20129of the crisis. The euro ended the year at approximately the samelevel against the US dollar as at the beginning of 2012.Despite the difficult economic environment and a drop over thesecond quarter of 2012, the main equity markets ended the yearhigher than at the beginning of the year.The easing of financial market conditions is a welcomedevelopment. However, the continuing fragile economicenvironment, the large degree of uncertainty and, especiallythe low interest rate environment, remain challenges goingforward. It would be helpful if, in 2013, further progressis made in resolving the broad range of macroeconomicdifficulties and the outlook for economic growth improves.Long-term industry trendsThe life insurance and pensions industry is still going througha period of significant change, with increasing and changingcustomer demands and the resulting impact of new digitaltechnologies. Moreover, the industry will continue to facefurther regulatory reforms and changing capital requirementsunder Solvency II.These conditions notwithstanding, there are several factorscreating significant growth potential for Aegon’s businesses: People are living longer, healthier lives. In many countries,people are spending longer in retirement than before, andthere is a growing demand for life insurance, private pensionsand long-term investment products. Reduced safety net. Fewer economically active peoplefund the traditional safety net of pay-as-you-go statepensions. As a result, governments, particularly in Europe,are under pressure to reform pension systems. At the sametime, individuals increasingly rely on private sector providersto help them finance their retirement. The private sectorproviders are well-positioned to offer this service, whilefacing the challenge of low interest rates and volatile equitymarket returns. Customer behavior is changing. Customers are more awareof financial risk and consequently demand simpler, moretransparent products with clear financial guarantees. At thesame time, public trust in the financial sector has diminished.Governments are introducing new regulations to protectconsumers while there is increasing pressure for the industryto become more customer-centric. Distribution patterns are changing due to new technologyand changes in the regulatory environment. Customers areincreasingly using the internet and social media to identify,research and purchase financial products. In some countries,this has led to the emergence of new competitors usingonline distribution models, or non-traditional suppliers suchas supermarkets and retailers. Established providers areunder increasing pressure to reduce costs and adapt theirdistribution mix. Tighter government regulation to reducecommission-based selling (for example the Retail DistributionReview in the United Kingdom, new regulation in theNetherlands) will lead to changes in business models acrossthe industry. Emerging markets are becoming more important.Economic growth and political reform have opened up newmarkets in Central & Eastern Europe, Asia and Latin America.In these markets, a new and ambitious middle class isemerging, creating an increased demand for life insurance,pensions and asset management products and services.Given that these fast-growing markets have the lowestlife insurance penetration, the potential in these marketsis substantial. China and India account for 40% of theworld’s population, but currently only 8% of the global lifeinsurance market.Aegon’s strategyAegon’s purpose is to help people take responsibilityfor their financial future. The company focuses on offeringunderstandable products and services in the protection, savingsand retirement market. Aegon has successfully transformed itsrisk profile, strengthened its capital base and simultaneouslyreduced its overall cost base. As a result, Aegon is now wellpositionedto meet the rapidly changing demands of agingpopulations and an increasingly affluent developing world.Aegon’s services have never been more needed, yet it isstill adapting to the new reality. The company is activelyidentifying new and growing market opportunities, as well asworking to better understand the essential financial needs of allits customers, while adjusting products and services accordingly.Simultaneously, it is transforming itself further to compete inthe new environment and respond effectively to new competitorsand regulation.Aegon has to get much closer to the people who depend onits products and services. A key element of Aegon’s strategyis to get closer to its customers by utilizing technology andinvesting in innovative capabilities to address customer needsat every stage of the life cycle. Bringing established protectionand saving products to new and emerging markets in Central &Eastern Europe, Asia and Latin America, as well as continuingto develop Aegon’s products to meet changing customer needsremains to be one of the company’s most immediate andimportant goals.Aegon is pursuing these objectives by: Reshaping its businesses, Forging new direct relationships and Earning customers’ trust by putting them first in everythingit does.