Aegon Annual Report 2012

Annual Report 2012 37return based on the market performance of a published indexdesignated in the contract. Futures or swap contracts are usedto hedge the market risk on market-indexed contracts andeffectively convert such contracts to a floating-rate.Medium-term notesAegon USA utilized consolidated special purpose entities to issueMTNs that are backed by FAs. The proceeds of each note serieswere used to purchase a FA from an Aegon insurance company,which was used to secure that particular series of notes. Thepayment terms of any particular series substantially matched thepayment terms of the FA that secured that series.Payout annuitiesPayout annuities are a form of an immediate annuity. Aegon USAno longer issues these contracts, but continues to administerthe closed block of business. These contracts were typicallypurchased as a result of a lawsuit or a claim and the injuredparty receives special tax treatment. Rather than paying theinjured party a lump sum, the payments were structured as alifetime annuity with mortality risk, a period certain annuity,or a combination of both.BOLI/COLIAegon USA services life insurance products sold to the bankandcorporate-owned life insurance (BOLI/COLI) market in theUnited States. BOLI/COLI helps institutional customers fundlong-term employee benefits such as executive compensationand post-retirement medical plans. The corporation insureskey employees and is the owner and beneficiary of the policies.New sales of BOLI/COLI were discontinued in 2010.Clark Consulting specializes in the servicing and administrationof bank-owned life insurance. Clark Consulting’s relationshipsand service model help maintain strong persistency for the blockof business.Life reinsuranceIn August 2011, Aegon completed the divestment of its lifereinsurance business, Transamerica Reinsurance, to SCOR,a global reinsurance company based in France. Under theagreement, Aegon divested its global life reinsurance activitieswith the exception of select blocks of business. The retainedbusinesses comprise mainly variable annuity guarantee business.CompetitionCompetitors of the Aegon Americas’ companies include otherlarge and highly-rated insurance carriers, as well as certainbanks, securities brokerage firms, investment advisers and otherfinancial intermediaries marketing insurance products, annuitiesand mutual funds.In the United States, the Life & Protection division facescompetition from a variety of carriers. Top competitorsinclude AIG, Genworth, John Hancock, Hartford, USAA, LincolnNational, American General, and MetLife. In Canada, the primarycompetitors are Power Corporation (London Life, Canada Life,Great West Life), Sun Life Financial, Manulife Financial, andIndustrial-Alliance. The result is a highly competitive marketplaceand increasing commoditization in many product categories.Aegon believes the best and most enduring competitiveadvantages are relationships and service.Aegon USAAegon USA markets variable universal life, mutual funds,and variable annuities to middle-income clients withequity investment objectives. Sales are often driven by thecompetitiveness of the living benefits offered by competitors,with most product development focusing on guaranteed lifetimewithdrawal benefits, which guarantee lifetime withdrawals ofa certain amount under certain conditions.Aegon USA is able to leverage its long-term relationshipsbuilt with many institutions to offer them such product linesas variable annuities, life insurance, mutual funds, and 401(k)products.Maintaining an effective wholesaling force, focusing on strategicbusiness relationships and developing products with features,benefits and pricing believed to be attractive in that marketplace, Aegon USA actively competes in the variable annuitymarketplace. The market has shown a continued interest inguaranteed lifetime withdrawal products, and there is strongcompetition among providers. Aegon USA’s primary competitorsin the variable annuity market are MetLife, Prudential, LincolnNational, Nationwide and Jackson National.The top five competitors in the mutual fund market are generallyconsidered to be: American Funds, Fidelity, PIMCO, FranklinTempleton, and T. Rowe Price.The pension market continues to evolve rapidly and is facinggrowing regulatory compliance pressures, continuing demandfor technological innovation, pricing pressures, and providerconsolidation. Aegon USA’s ability to achieve greater economiesof scale in operations will be assisted if growth in key marketsegments continues, technology improves, and if processmanagement increases efficiency.In the defined contribution market, Aegon USA’s maincompetitors are Fidelity, T. Rowe Price, Vanguard, Schwab,Principal Financial, Mass Mutual and New York Life. AegonUSA’s main competitors in the defined benefit segment areMass Mutual, New York Life, Principal Financial, and Prudential.