The Residential Mortgage Business - Global ABS Conference Barcelona, 5-7 June 2018
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The Residential Mortgage Business Global ABS Conference Barcelona, 5-7 June 2018 Helping people achieve a lifetime of financial security
The Residential Mortgage Business 2 Disclaimer This presentation was prepared by Aegon Levensverzekering N.V. (“Aegon Leven”) and Aegon Hypotheken B.V. (together “Aegon” or the “Company”). Although the information in this presentation has been obtained from sources which the Company believes to be reliable, the Company does not represent or warrant its accuracy or completeness, and such information may be incomplete or condensed. The Company will not be responsible for the consequences of reliance upon any opinion or statement contained herein or for any omission. In preparing this presentation, the Company has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from various sources. This presentation may be subject to variation to the extent that any assumptions contained herein prove to be incorrect, or in the light of future information or developments relating to the transaction or following discussions with relevant transaction parties. No assurance can be or is given that the assumptions on which the information is made will prove correct. Information of this kind must be viewed with caution. Any historical information is not indicative of future performance. Opinions and estimates may be changed without notice and involve a number of assumptions which may not prove valid. Average lives of and potential yields on any securities cannot be predicted as the actual rate of repayment as well as other relevant factors cannot be determined precisely. No assurance can be or is given that the assumptions on which such information are made will prove correct. Information of this kind must be viewed with caution. This presentation contains “forward-looking statements”. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company's present and future business strategies and the environment in which the Company will operate in the future. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The Company accepts no obligation to update the forward-looking statements contained herein to reflect actual results, changes in assumptions, or changes in factors affecting these statements. This presentation is provided for discussion purposes only, does not constitute an offer or invitation for the sale, purchase, exchange or transfer of any securities or a recommendation to enter into transactions hereby contemplated and it does not constitute a prospectus or offering document in whole or in part. The structure and facilities described in this presentation are indicative, are meant to develop over time and serve only as examples. The recipient of this information acknowledges that the Company does not owe or assume any duty of care or responsibility to the recipient. None of the Company or any of its subsidiaries or any of their respective directors, officers, employees or agents shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this presentation or its contents or otherwise arising in connection with the presentation and any and all such liability is expressly disclaimed. No representation, warranty or undertaking, express or implied, is made as to and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or the opinions contained herein. This presentation is not to be relied upon in any manner as legal, tax, regulatory, accounting or any other advice and shall not be used in substitution for the exercise of independent judgment and each person made aware of the information set-forth hereof shall be responsible for conducting its own investigation and analysis of the information contained herein. The Company does not accept any obligation to update or otherwise revise any information contained in this presentation to reflect information that subsequently becomes available after the date hereof. The information contained herein is confidential and is intended for use only by the intended recipient. This presentation is not intended for U.S investors. The presentation nor any copy of it may be taken or transmitted into the United States of America, its territories or possessions (collectively, the “United States”) directly or indirectly. Any failure to comply with these restrictions may constitute a violation of U.S. or other securities laws, as applicable. The information contained herein may not be reproduced or redistributed (in whole or in part) in any format without the express written approval of the Company. Aegon Leven is supervised by the Dutch Central Bank. Aegon is regulated by the Netherlands Authority for the Financial Markets in the Netherlands.
The Residential Mortgage Business 3
Content
01 Executive Summary
04 Aegon’s Residential
Mortgage Loan Origination, 07 Contact details
Underwriting & Servicing
Slides 4-5 Slides 16-23
Slides 38
02 Aegon Highlights
05 The Dutch Residential
Mortgage Market
Slides 6-10 Slides 24-30
03 The Aegon SAECURE
Program 06 The Dutch Economy and
Housing Market
Slides 11-15 Slides 31-37Executive summary 4 Executive summary
Executive summary 5
Executive Summary
Aegon’s profile and funding structures Aegon mortgage loan portfolio
Source: Aegon
► Aegon is one of the top 4 lenders in the Dutch residential
mortgage market and has demonstrated the flexibility to adjust
to changing market conditions
Mortgage loan Diversified funding
Aegon Netherlands The activities of Aegon in The Netherlands are strongly tied to
N.V.
►
the global Aegon Group
Portfolio
8% Covered Bond
► The historical performance of Aegon's total residential 8%
mortgage loan portfolio has been stable over the last ten years Total EUR 41.3bn SAECURE
(FY 2017) 48%
► 15 SAECURE programs issued since 2000, SAECURE 14 and
36% Fee business
The SAECURE 15 still outstanding
program ► SAECURE portfolios are representative of Aegon’s total
Internal
portfolio with stable strong performance
Portfolio development
► Registered Conditional Pass-Through Covered Bond Source: Aegon
programme with DNB since 2015
Conditional Pass- 45 NHG Mortgage Loans (LHS) 40%
Through Covered ► Covered Bonds are rated AAA/AAA (S&P/Fitch), dual recourse 40
Non NHG Mortgage Loans (LHS)
Bond programme ► Aegon Bank launched four successful Covered Bonds in Q4 35
30%
2015, Q2 2016 and Q2 and Q4 2017 30 Fee business as % of total portfolio (RHS)
25
20%
20
15
► Aegon’s successful Dutch Mortgage Fund has grown to over 10%
Dutch Mortgage 12bn
10
Fund and Whole 5
loans
► Aegon has also provided whole loan solutions tailored to 0 0%
investors’ specific requirements
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Aegon Highlights 6 Aegon Highlights
Aegon Highlights 7
Aegon at a glance
Focus Sales
Asia Life insurance, pensions & Total sales of
asset management for over € 16bn
2% 26 million customers (FY 2017)
Europe
Americas 31%
61% History Employees
Our roots date back to the Over 28,000 employees
6%
first half of the 19th century (December 31, 2017)
AAM
Earnings Investments
Underlying earnings Revenue-generating
before tax of € 2.1bn investments € 817bn
(FY 2017) (December 31, 2017)Aegon Highlights 8
Aegon Netherlands N.V. (“Aegon NL”)
Underlying earnings before tax Overview
• Aegon NL is wholly owned by Aegon N.V. and a core member of the Aegon group
EUR millions FY 2017
• Aegon NL offers a wide range of financial products and services to its clients,
Life and Savings 301 including pensions, insurance (life and non-life), mortgage loans, savings and
investment products
Pensions 172 • All new originated mortgage loans are underwritten by Aegon Hypotheken B.V., a
100% subsidiary of Aegon Netherlands N.V.; mortgage loan servicing continues to
Non-life 30 be performed by Aegon Leven
• Through 2017, Aegon NL represented 23% of Aegon’s total underlying earnings
Distribution & associates 17 before tax. Aegon Hypotheken & Aegon Bank account for EUR 139 million
underlying earnings
Underlying earnings before tax 520
• Aegon Leven has a AA- (Negative) Insurer Financial Strength Rating from S&P
Global
Aegon NL FY 2017 results as a % of total Simplified Aegon NL Structure
Aegon NL Other Entities
Aegon N.V.
Employees 11% 89%
Aegon
Europe Holding B.V.
Market consistent VNB 11% 89%
Aegon Netherlands N.V.
100% 100% 100% 100%
Underlying earnings before tax* 23% 77%
Aegon Hypotheken Aegon Levens- Aegon Schade-
Aegon Bank N.V.
B.V. verzekering N.V. verzekering N.V.
0% 20% 40% 60% 80% 100%
*Excludes negative contribution from HoldingsAegon Highlights 9
Aegon in the Dutch mortgage market
Mortgage debt outstanding Mortgage lending market share in the Netherlands
Source: Dutch Central Bank (FY 2017); Source: Land Registry (Kadaster)
EUR bn Total mortgage debt outstanding (LHS) EUR bn
Rabobank 22,2%
800 70 ABN AMRO 21,2%
Thousands
Thousands
700 Year-on-year change (RHS) 60
ING 10,1%
50
600
40 Aegon 8,6%
500 30 de Volksbank 6,4%
400 20 Achmea 4,3%
300 10
MUNT 4,2%
0
200 Nationale Nederlanden 3,8%
-10
100 -20 ASR 2,4%
0 -30 Other Other 16,8%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
0% 5% 10% 15% 20% 25%
Overview of the Dutch mortgage market Mortgage loan portfolio Aegon NL
Source: DNB, Land Registry (Kadaster) Source: Aegon (2006 – 2017)
• Per FY 2017 the total outstanding residential mortgage debt in the Netherlands EUR bn
was EUR 672 billion 45 40%
NHG Mortgage Loans (LHS) Non NHG Mortgage Loans (LHS)
40
• New mortgage lending through 2017 was EUR 100 billion Fee business as % of total portfolio (RHS)
35
30%
• Mortgage originators in the Netherlands include banks, insurance companies 30
25
and specialized mortgage originators 20%
20
• The mortgage loan portfolio of Aegon NL grew significantly over the last years. 15
Aegon views mortgage loans as an attractive asset class for its balance sheet, 10 10%
which offer a good risk and return profile 5
0 0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Aegon Highlights 10
Diversified funding
…supports strong mortgage origination capabilities
Competitive advantages Nominal mortgage amounts per FY 2017 Comments
( (in EUR bn) (
• Strong position with Independent
Financial Advisors RMBS – • Funding diversification
3
SAECURE programme • Low spreads
• Straight through processing
• Leading mid-office capabilities • Registered Conditional Pass-Through Covered Bond
programme with DNB since 2015
• Active in all maturities 3 Covered Bond • Covered Bonds are rated AAA/AAA (S&P/Fitch), dual
• One IT platform recourse. Total amount issued amounts to EUR 2.25bn
• Mostly short interest rate reset periods
Bank
6⃰ • Offering products to clients on both sides of the
Origination vehicle balance sheet
Aegon Hypotheken**
• Full risk transfer
15 • Attractive fund solutions (DMF I and DMF II) and
Mortgage allocation Fee business tailored whole loan solutions
• Vertical slice allocation
• Long-dated assets
15 Life & Pension • Good match against liabilities
• Mostly variable rate mortgagesThe Aegon SAECURE Program 11 The Aegon SAECURE Program
The Aegon SAECURE Program 12
SAECURE transactions
Outstanding net balance
SAECURE 1 - 15
Source: Investor Reports (2006 – Q1 2018)
12 SAECURE 1* SAECURE 2* SAECURE 3* SAECURE 4* SAECURE 5*
SAECURE 6 NHG* SAECURE 7* SAECURE 8 NHG* SAECURE 9* SAECURE 10*
SAECURE 11* SAECURE 12* SAECURE 13 NHG* SAECURE 14 NHG SAECURE 15
10
EUR (Billions)
8
6
4
2
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
* Redeemed at FORD
Note: Historical Performance is not an indicator of future performance which may vary materiallyThe Aegon SAECURE Program 13
Performance of SAECURE transactions
Overview Arrears (>=2months) across all SAECURE transactions
Source: Investor Reports, (bps of curr. balance) (2006 – Q1 2018)
• The performance of the SAECURE transactions is strong 3,0 2The Aegon SAECURE Program 14
Performance of SAECURE transactions (ctd)
Nr. of defaulted loans across SAECURE transactions Recovery rates
Source: Investor Reports (2006 – 2017)
250 • Recovery Rate on NHG SAECURE transactions remained stable at 98.4%
at the end of 2017 compared to 98.6% at the end of 2016
200 NHG RMBS RMBS (non 100% NHG)
• Recovery Rate on regular SAECURE transactions remained stable at
150 111 95.4% at the end of 2017 compared to 95.7% at the end of 2016
83
100 76 • Due to improved housing market conditions a great number of voluntary
48 sales were completed in 2013 and 2014 causing an increase of the net
50 98 92 26 losses. After this peak, defaults and voluntary sales returned to regular
41 29 31 26 55 20
35 26 46 30 levels while the increased house prices resulted in lower net losses from
0 15 14 22
7 7 10 2016 onward
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Loss statistics across SAECURE transactions Loss statistics across NHG SAECURE transactions
Source: Investor Reports (2006 – 2017) Source: Investor Reports (2006 – 2017)
SAECURE - Net losses SAECURE - Net losses (100% NHG RMBS)
Outstanding net balance Total net losses Total net losses Outstanding net balance Total net losses Total net losses
(EUR mln) (EUR mln) (bps of net balance) (EUR mln) (EUR mln) (bps of net balance)
Year Year
2006 5,463 1.51 2.76 2006 2,000 - -
2007 4,339 1.61 3.71 2007 1,905 0.10 0.54
2008 3,714 1.37 3.68 2008 1,748 0.12 0.68
2009 3,356 1.18 3.51 2009 1,590 0.08 0.53
2010 6,148 1.91 3.11 2010 2,916 0.05 0.18
2011 6,580 0.90 1.37 2011 2,727 0.03 0.12
2012 6,532 1.14 1.74 2012 2,559 0.19 0.75
2013 7,523 1.50 1.99 2013 2,437 0.06 0.24
2014 8,975 3.83 4.27 2014 2,609 0.62 2.38
2015 6,996 2.79 3.99 2015 2,440 0.18 0.73
2016 4,773 0.91 1.91 2016 2,244 0.12 0.55
2017 3,177 0.43 1.37 2017 1,939 0.15 0.77The Aegon SAECURE Program 15
Successful Dutch mortgage loan operation
Mortgage loan portfolio Funding tools
Source: Aegon (2006 – 2017) Source: Aegon
(EUR bn) (% of total book) • The mortgage lending business offers Aegon substantial cross-selling
NHG Mortgage Loans (LHS) Non NHG Mortgage Loans (LHS) opportunities and synergies.
45 50%
40 SAECURE program (RHS)* Covered Bond program (RHS)* - Cross-selling of Aegon insurance products
35 40%
30 - Natural investment for the life and pension book of Aegon
30%
25
20
• Aegon’s portfolio of prime residential mortgage loans amounted to
20% EUR 41.3bn (including fee business) at ultimo 2017
15
10 10% • Through 2017, Aegon increased its portfolio by EUR 7bn
5
0 0% • 16% of the mortgage loan portfolio has been funded by
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 the SAECURE program and Covered Bond issuances. The SAECURE
program has decreased in the last three years, though still remains an
Fee business development important funding tool for Aegon NL’s mortgage business. Covered
Source: Aegon (2006 – 2017) Bond issuances have grown rapidly since Aegon’s initial issuance in
(EUR bn) (% of total book)
2015
16 Fee business outstanding at year end 40% • 36% of the mortgage loan portfolio is owned by Aegon’s Dutch
14 Mortgage Fund and private placements partners
12 Fee business as % of total portfolio (RHS) 30%
10 • Fee business is growing rapidly mainly due to the success of Aegon’s
8 20% Dutch Mortgage Fund, by taking over a large share of Aegon’s new
6
originated mortgage loans
4 10%
2
0 0%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Organization, Underwriting & Servicing 16 Aegon’s Residential Mortgage Loan Origination, Underwriting & Servicing
Organization, Underwriting & Servicing 17
Aegon NL mortgage lending organization
Entities Distribution Funding Trusted
(
Aegon NL has two entities for its Nearly all mortgages are sold Due to its long history in secured Aegon Hypotheken B.V. is a 100%
mortgage lending business, Aegon through intermediaries, which are funding, Aegon has good access to subsidiary of Aegon Nederland N.V.
Hypotheken B.V. and Aegon professional parties, adhering to funding markets
Levensverzekering N.V. Aegon’s strict standards and Origination is done by
requirements intermediaries, but all underwriting
Since April 1st 2011 all newly The relatively long duration of its decisions are made by Aegon’s
originated loans are underwritten by Aegon uses a wide range of funding makes Aegon less underwriting team in Leeuwarden
Aegon Hypotheken B.V. intermediaries, with strong local vulnerable to refinancing risk
knowledge, who are paid by the All mortgage related processes are
client, not through commissions periodically reviewed and are
Aegon offers the full spectrum of regularly audited (including SOX
Origination and underwriting interest rates from 1-month for
activities are outsourced to Aegon compliance)
Mortgage loans are offered mainly floating rate mortgage loans to up to
Leven. Capital management and to Dutch citizens with collateral only 30 years for fixed rate mortgages
Funding are performed by Aegon in The Netherlands. Loans are
Capital Management & Policies. distributed over the whole of the
Risk activities are performed by Netherlands and are also well
Aegon Risk Management diversified by borrower ageOrganization, Underwriting & Servicing 18
Residential mortgage loan production
Aegon mortgage loan part production – by interest reset period
Source: Aegon (%) FY 2017
Total production in 2017
amounted to just over
19% 8% 5%
EUR 9.0bn
0-5 year
6-15 year
16-20 year
Aegon customers are risk- 21-30 year
averse, in 2017 ~ 87% have 68%
opted for interest reset dates
in excess of 15 years
Aegon mortgage loan part production – by product type
Source: Aegon (%) FY 2017
Aegon’s customers are
increasingly switching to Annuity
6%
(longer term) fixed interest 4%
Interest Only
5%
rates (especially 20-year Savings
interest reset terms) due to
Linear
the low absolute long term 55%
Other
interest rates 30%Organization, Underwriting & Servicing 19
Aegon underwriting process
Overview
Governance & Policies
Process
Product
Marketing & Structuring &
development & Distribution Operations Special Servicing Capital Management Master Servicing
Communication Arranging
Pricing
Develop mortgage Develop and Distribution/sales Offer Arrears servicing Determine funding Expand or adapt Payment to investors
credit products maintain marketing mortgage credit needs existing funding
Underwrite Residual debt Reporting to
material mortgages products agreements
Determine price servicing Determine funding investors
Administer and
mortgage credit Sponsorship, press Advise with strategy Securitization of
Activities
service Mangement of the
products releases and brand development of mortgage loans
Customer
Execute funding SPV
Investor
advertising mortgage credit Complaint handling
strategy Issuing of Covered
products Administrative
Payments Bonds
handling of received
Structuring of whole loans
loan transactions
Financial Risk Management
Operational Risk Management & Compliance
Audit
Legal
Finance
ICT
Other secondary processes
Source: AegonOrganization, Underwriting & Servicing 20
Aegon underwriting process
Operations
Underwriting Servicing
Aegon Aegon Aegon
Mortgage broker
front office mid office back office
• Preparation of • Reviewing of proposals • Receipt of signed • Receipt of signed deeds • Handling of mortgage
proposals proposals loan changes
• Preparation and • Transferring mortgage
sending • Verification of docs loans to the backoffice • Insurance policy
(customer ID etc) system changes
• Sending documents to • Transferring insurance • 98% of all customers
the notary policies to the pay via direct debit, 2%
backoffice system by bank transfer
• Receiving preliminary
deeds & settlements
Source: AegonOrganization, Underwriting & Servicing 21
Underwriting criteria & credit process
Aegon Leven’s underwriting team 25% of the team has more than 10 Approximately 20% of applications Aegon Hypotheken’s average
consists of 101 professionals years experience. All underwriters are declined immediately, mostly acceptance rate is approximately
(88 FTE) are WFT* certified due to bad credit references (BKR) 75%
and high loan to income ratios
• Underwriting criteria based on Code of Conduct criteria
Borrower • Credit searches with BKR (National Credit Register), BKR VIS (Identity documents) and
SFH (Fraud Register)
• Owner occupied properties
• Mandatory valuation of the property (performed by NWWI** approved real estate agent)
Collateral
• Mandatory damage and fire insurance
• Additional forms of collateral: life insurance and equity portfolios
Loan • Underwriting criteria based on Code of Conduct criteria (LTVs, DTIs etc)
* ‘Wet op Financieel Toezicht’ is a Dutch law that serves to protect consumers and obliges financial service providers to meet criteria with regard to
professional competence, financial security and clear and fitting advice.
** NWWI: Dutch Housing Valuation Institute (Nederlands Woning Waarde Instituut) is a Stichting WEW (NHG) approved valuation institute.Organization, Underwriting & Servicing 22
Focus on foreclosure
In The Netherlands
Foreclosure Further recourse to other wealth including salary
A mortgage loan lender can repossess and sell a property Full recourse to the borrower
by public auction without court order • After foreclosure, any remaining debt remains enforceable until discharged in full
• A lender only needs to adhere to appropriate notice periods and have process run • A lender can attach to the borrower’s salary simply by informing the employer via
by a public notary bailiff
• In insolvency, the maximum stay that a court can impose is 4 months (court can still
allow repossession during this period) In insolvency, a debt rescheduling for private individuals (“Wsnp”)*
• If a lender wants to proceed by private sale rather than auction, the consent of the can limit recoveries after repossession
court needs to be requested • Covers a period of 3 years, may be extended to 5 years. A court may at the end
render remaining debt unenforceable (“clean sheet”)
• In Aegon’s experience, Wsnp and personal insolvencies are rare in the Netherlands
due to the onerous requirements
Aegon’s collection procedures
Stage 5: Day 120
Action: Entire loan declared immediately due and payable
a) Induce a final attempt for voluntary payment
b) Allow time for drafting of legal documents
Stage 1: Day 15 Stage 3: Day 60 c) Begin foreclosure process Stage 7: Post Sale
Action: Automatic reminder Action: Telephone collection list d) BKR registration (National credit register) Action: Post sale review
Days
DaysininArrears
Arrears 6 Months6 Months
60 120
Stage 2: Day 45 Stage 4: Day 90
Stage 6: Foreclosure Process Continued on next page
Action: Formal written demand Action: Urgent arrears list
Action: Repossession and sale
Source: Aegon
* Wet schuldsanering natuurlijke personen – Law for debt of individualsOrganization, Underwriting & Servicing 23
Repossession & Sale process
Continued from previous page
In The Netherlands
Stage 5c Stage 6 Up to 1 Year* Stage 7
Action to receive payment Sale process Post sale
Letter of lien of salary
Third party guarantor
Successful
Bailiff appointed to collect any
Yes Joint voluntary sale
remaing debts**
Borrower
cooperation Unsuccessful
Private sale
decision
No Sale type
Foreclosure begins Notary appointed decision Auction
Source: Aegon
* This is the average total time from the first missed payment until the actual foreclosure date
** The bailiff works on a no cure no pay arrangement. Extra expenses incurred are added to the default amount as are penalty interestsThe Dutch Residential Mortgage Market 24 The Dutch Residential Mortgage Market
The Dutch Residential Mortgage Market 25
Key characteristics of the Dutch residential
mortgage market
• Predominantly prime, owner occupied
Products • Virtually no buy-to-let, non-conforming and sub-prime
• Mainly fixed rate mortgage loans
• Mortgage loans are provided predominantly on the basis of income (LTMV’s are a less significant basis due to tax incentives)
Underwriting • “Full-doc” underwriting, no self certification of income
• Industry wide credit database (BKR) and Fraud Register (SFH)
Code of • The Code of Conduct aims lenders to compete on service and price rather than aggressive lending practices
Conduct • Affordability calculation assuming 30 year amortizing loan regardless of product and interest rate risk
• The NHG programme is the public mortgage loan guarantee scheme supporting home ownership in The Netherlands
NHG • All Dutch citizens can obtain a guarantee from the Dutch State guaranteed non-profit organization
(Stichting WEW) subject to the applicable terms and conditions
• Lenders can repossess and sell properties by public auction without a court order
Framework • Full recourse to the borrower. After foreclosure, any remaining debt remains enforceable until discharged in full
• Strong social support and pension systemThe Dutch Residential Mortgage Market 26
Key mortgage loan products
Redemption Types for New Origination of
Main mortgage
products since
Annuity mortgage loans
Mortgage Loans of Aegon Portfolio
January
1st 2013
• Fixed monthly payments
Repayment Source: Aegon (2006 – 2017)
mortgage loans Linear mortgage loans
100%
• Principal component comprising an equal, fixed amount each month
90%
80%
Interest Only
Interest-only mortgage loans 70%
Interest-only Life Insurance
• Borrowers do not make any principal repayments until maturity 60%
mortgage loans Savings
Main mortgage products prior to January
50%
40% Investment
30% Lineair
Savings mortgage loans Annuity
20%
• Borrowers do not make any principal repayments but instead make 10% Other
payments into a savings account with an insurance company bank
1st 2013
0%
Life mortgage loans
• Borrowers do not make any principal repayments but have an
insurance policy, into which they pay a monthly premium, which is
Savings mortgage • Aegon offers several mortgage loan products. Since
loans either expected or guaranteed to repay the mortgage loan at
maturity
January 1st 2013 only amortizing mortgage loans are
eligible for tax deductibility, resulting in a steep
Investment mortgage loans increase in the volume of annuity mortgage loans
• Borrowers do not make any principal repayments but select an being originated.
investment policy, into which they pay a monthly premium, which is
expected (however not guaranteed) to repay the mortgage loan at
• Tax deductibility on outstanding mortgage loan
maturity products are grandfathered by the tax authorities.The Dutch Residential Mortgage Market 27
Mortgage loan structure
Costs
@ 4% = 4
Transfer Tax
@ 2% = 2
Savings
Mortgage
Loan Part
= 56
Taxes and other Additional
costs related to protection
the property Required through
purchase can also for Annuity The total disability /
be funded by the property Mortgage Annuity mortgage loan term life /
Mortgage Annuity
mortgage loan purchase Loan may consist of accidental
Loan Mortgage Annuity
Market = 106 = 105 Annuity multiple loan death /
= 104 Loan Mortgage
Value Mortgage Annuity parts household
= 103 Loan
Property Loan Mortgage insurance
= 102 Loan
= 100 = 101 policies
= 100
Interest
Only
Mortgage
Loan Part
= 50*
Before From From From From From From
1-1-2013 1-1-2013 1-1-2014 1-1-2015 1-1-2016 1-1-2017 1-1-2018
LTMV = 106 / 100 = 106%
* As of Aug 2011 a maximum of 50% of market value is allowed to be interest only, remainder needs some form of repayment or capital savingsThe Dutch Residential Mortgage Market 28
Aegon’s mortgage loan pricing
Overview Mortgage loan pricing components
• Mortgage loans are priced using the following components: Cost of fund spread
- Reference rate (i.e. swap rate or risk free rate) Credit risk spread
- Cost of funds Prepayment risk spread
Risk spreads
- Spreads to cover various risks related to mortgage loans (prepayment risk, credit Offer risk spread
risk, offer risk) Liquidity spread
- Spreads to cover the various costs related to mortgage loans (regulatory capital Client coupon Economic capital charge
requirements, back office, foreclosure department)
Service cost spread
- Mark-ups or discounts to reflect marketing and other commercial decisions
• When setting mortgage loan prices, Aegon NL will carefully consider all of the above Costs Discount spread
components to populate a two-dimensional pricing grid (LTMV versus interest rate duration)
Product spread
• Aegon’s mortgage loan interest rates are reviewed and if necessary adjusted on a weekly
basis in a mortgage loan pricing committee
Reference rate
Spreads over the Euro-swap curve Mortgage loan pricing grid
Source: Aegon Asset Management Source: www.aegon.nl (May 2nd 2018)
NHG Non NHG
5,0%
4,5% NHG Non-NHG Interest Reset Period < 67,5% LTMV < 81% LTMV > 81% LTMV*
4,0% Floating 1,90% 2,00% 2,10% 2,55%
3,5% 1-2Y fixed 1,54% 1,64% 1,74% 2,19%
3,0% 3-5Y fixed 1,84% 1,89% 1,99% 2,39%
2,5% 6-10Y fixed 2,04% 2,09% 2,19% 2,49%
2,0% 11-15Y fixed 2,39% 2,49% 2,54% 2,69%
1,5% 16-20Y fixed 2,49% 2,59% 2,64% 2,79%
1,0% 21-25Y fixed 2,64% 2,69% 2,79% 3,04%
0,5% 26-30Y fixed 2,64% 2,69% 2,79% 3,04%
0,0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
*A 25bps surcharge is added to the > 81% LTMV rate for mortgages with an LTMV of
112,5% or higher. Such LTMV limits are only allowed for existing mortgage loans.The Dutch Residential Mortgage Market 29
Recent policy developments impacting the
Dutch housing market
Legal maturity date IO Outstanding IO loans
Aegon specific loans max. 30 years Penalty-free prepayment Specific offers for flex
Introduction of Bank can be refinanced to a Interest Rate Averaging
up to the WOZ value of workers and self
developments Savings Mortgage Loans Loans for recreational the collateral
maximum of 50% of the
employed clients
offered to clients
homes discontinued property market value
LTV: 105% LTV: 100%*
LTV: 104% LTV: 103% LTV: 102% LTV: 101%
Interest deductibility:
LTV & Interest Interest deductibility:
LTV: 106% Interest deductibility: Interest deductibility: Interest deductibility: Interest deductibility: 49,5%*
deductability Reduction from 52% to
Proposed decrease by
51.50% 51% 50.50% 50%
38% by 0.5% per year 3% per year**
Transaction tax from 6% New loans need to be Restructured income tax,
to 2%; Residual debt Annuity & Linear. Tax-free endowment of Residual debt remains abolish dividend tax,
Tax regulations remains deductible for Grandfathering on EUR 100,000 deductible (15yr) decrease property tax
max 10 yrs existing loans. for residential houses**
Max € 290k (July 1); Max amount based on
Max amount based on
Only amortizing average house price.
NHG Max € 350k (July 1) Max € 320k (July 1) Max € 265k (July 1) Max € 245k (July 1) Max € 245k average house price.
mortgage loans are Estimated at Max
Remains at Max € 245k
eligible for NHG €265k*
Phase out ‘Hillen-
Facility for starters of the
Other Lower loan size due to arrangement’ (tax relief
Stichting
stricter affordability for nearly repaid
Regulations Volkshuisvesting NL
calculations (Nibud) mortgages) over 30
expanded to € 100mn
years**
2011 2012 2013 2014 2015 2016 2017 2018
* Established policy
** Proposal of the new government agreement (October 2017), effective date to be determined.The Dutch Residential Mortgage Market 30
NHG mortgage loan guarantee
NHG
• NHG (Nationale Hypotheek Garantie) refers to the public mortgage loan insurance scheme supporting home ownership in the Netherlands
• WEW (Stichting Waarborgfonds Eigen Woningen) is the foundation responsible for granting NHG guarantees
• All people in the Netherlands can apply for an NHG guarantee over an amortizing residential mortgage loan up to an amount of EUR 265k (281k for
properties for which energy saving investments are made) and by paying an upfront premium of 100bps over the loan amount.
• Mortgagors that benefit from an NHG guarantee will:
- receive an interest rate discount varying between 5 - 65bps depending on LTMV
- receive full or partial compensation for a mortgage loss caused by a divorce, unemployment, occupational disability, decease or a non culpable drop in income
• Mortgage lenders that apply for an NHG guarantee on behalf of their clients are responsible for ensuring that the guarantee application meets NHG
conditions:
- If the NHG conditions are not satisfied, the mortgage lender may not be fully covered by the guarantee
- NHG conditions may change over time:
• Starting January 1st 2017 the maximum NHG mortgage loan amount will be determined on a yearly basis, based on the national average house price. For 2018 the amount
increases to 265k.
• Starting July 1st 2015 the maximum NHG mortgage loan was reduced from EUR 265k to EUR 245k and was scheduled to be reduced further in 2016. This second reduction
has been put on hold due the recovering housing market and rising house prices and subsequently replaced by following the national average house price.
• Starting January 1st 2014 the mortgage lender is accountable for 10% of the realized loss
• Starting January 1st 2013 NHG guarantee is only available for amortizing mortgage loans
WEW
Source: NHG Quarterly Report Q4 2017
• Fitch and Moody’s have both confirmed Stichting WEW ‘s Aaa/AAA rating and stable outlook in 2016 and 2017 respectively.
• Since January 1st 2011 the Dutch State is providing a full back stop for all new guarantees granted by Stichting WEW, before 2011 this back-stop was
provided by the Dutch State (50%) and Dutch Municipalities (50%)
• In Q4 2017 the guaranteed amount increased to EUR 197bn while the WEW’s capital position increased to EUR 1.11bn,
• resulting in a capital ratio of 0.56%The Dutch Economy and Housing Market 31 The Dutch Economy and Housing Market
The Dutch Economy and Housing Market 32
The Dutch economy
Highlights of the Dutch economy Unemployment rate comparison
Source: Eurostat, CPB Source: Eurostat
• One of the most stable and open economies in Europe with one of the 14% Netherlands UK Eurozone US
highest GDP per capita 12%
► Y-o-Y real GDP growth rate 3.2% (2017, provisional) 10%
► Unemployment rate at 3.9% as of March 2018
8%
► Expected Sovereign debt of 58.5% of GDP and budget surplus of 0.5% in 2017
6%
► International trade is key driver of economy and future economic growth
4%
2%
0%
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Evolution of Y-o-Y real GDP growth rate Trade balance (% of GDP)
Source: Eurostat Source: OECD
8 Netherlands UK Eurozone US Japan 12 Netherlands UK Eurozone US
6 10
8
4
6
2 4
0 2
-2 0
-2
-4
-4
-6 -6
-8 -8
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017The Dutch Economy and Housing Market 33
The Dutch economy (cont’d)
Sovereign debt (% of GDP) Deficit (% of GDP)
Source: Bloomberg, IMF Source: Bloomberg
120 Netherlands UK Germany France US 12 Netherlands UK Germany France US
10
100
8
80
6
60 4
2
40
-
20
(2)
- (4)
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Gross national savings* (% of GDP) 5 Year CDS Sovereign Spread (in USD - bps)
Source: Bloomberg, CIA Source: Bloomberg
35 Netherlands UK Germany France US 300 Netherlands UK Germany France US
30 250
25
200
20
150
15
100
10
5 50
- 0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Note: Historical performance is not an indicator of future performance which may differ materially
* GNS = GDP – Consumption – Gov SpendingThe Dutch Economy and Housing Market 34
Dutch household financials
Overview
Source: Dutch Central Bank (DNB), Statistics Netherlands (CBS)
• The vast majority of household debt in the Netherlands is residential mortgage debt (EUR 672bn as per FY 2017) vs remaining consumer credit (EUR
30bn as per FY 2017)
• The tax incentive for consumers to maximize their mortgage debt results in relatively high gross debt to income levels compared to other European
countries. These incentives have been gradually reduced since 2001.
• Dutch household wealth including pension assets far exceeds mortgage debt.
Dutch household debt and wealth composition
Source: Dutch Central Bank (DNB), Statistics Netherlands (CBS)
88 95
86
71 Consumer Credit
357 358
53 62 352 Residential Mortgage Debt
47 347
Investments
338 341
320
Savings & Deposits
Life insurance & Pension assets
50 1607 1586
48 44 37 1468 38 32 30
1403
1126 1210 1178
667 656
670 652 650 664 672
2011 2012 2013 2014 2015 2016 2017The Dutch Economy and Housing Market 35
The Dutch housing market: HPI comparison
House price development (2000 values rebased at 100)
Source: ECB, S&P/Case-Shiller, Nationwide
150,0
Euro Area Ireland Spain Netherlands United Kingdom United States
140,0
130,0
120,0
110,0
100,0
90,0
80,0
70,0
60,0
2010 2011 2012 2013 2014 2015 2016 2017
Moody’s expects that house prices will continue to rise and forecast an increase of up to 5% for 2017, thereby further improving recoveries and thus lower loan loss severities in
2017-18. Boosted by the recovery of the Dutch economy (2017F: 2.0%), the positive house price trend that started mid-2013 resulted in a 7.3% annual increase (a three-month
rolling average),
Fitch Ratings says in Q3 2017 that the total number of Dutch property sales increased 16% year-on-year (yoy) in 2Q17, continuing its positive trend for 16 consecutive quarters.
In its 1H17 Dutch Mortgage Market Index report, Fitch says home prices increased 4% in 1H17. Loans in arrears by more than three months as a percentage of the current
Fitch-rated RMBS portfolio balance fell to 24bp in June 2017, from 44bp a year earlier. The volume of loans in arrears by between one and two months in June 2017 was 18bp,
compared with 25bp a year ago, suggesting the pipeline of new arrears has also slowed significantly. The decrease is due to an improved economic environment and proactive
servicing by lenders. Mortgage rates have been on a downward trend since mid-2012, stabilizing at 2.4%. The stabilization and potential increase in the near term has been
supported by recent comments from members of the Executive Board of the ECB, indicating the possibility of a less accommodating monetary policy in 2018.
Sources: Moody’s Sector comment March 21st 2017 Loan Loss Severities Will Continue to Decline and Regional Disparities Will Remain;
Fitch; Reuters ‘Dutch Property Sales Up in 2Q17; Extend Growth Trend for 4th Year’ August 24 2017.
Note: Historical performance is not an indicator of future performance which may differ materiallyThe Dutch housing market: The Dutch Economy and Housing Market 36
supply and demand
Regional house price development House price development in The Netherlands
Source: CBS, rebased at 2010 = 100 Source: CBS, Ministry of Housing, VROM. Per FY 2017.
Netherlands
116
Groningen
111 Friesland
Drenthe
106 Overijssel 6%
Flevoland
101 6%
Gelderland
96 Utrecht
Noord-Holland
91 5%
Zuid-Holland
Zeeland
86
Noord-Brabant
81 Limburg
11% 8% 6%
2010 2011 2012 2013 2014 2015 2016 2017
9% 7%
Regional population development 8%
Source: CBS, rebased at 2002 = 100
Netherlands
1,18 Groningen 6%
Friesland 3%
1,13 Drenthe
Overijssel 5%
1,08 Flevoland
Gelderland
1,03 Utrecht
Noord-Holland
0,98 Zuid-Holland
Zeeland House price development per province; increase or decrease throughout 2017
Noord-Brabant
Limburg Increase > average (7.5%) Decrease > average (7.5 %)
IncreaseThe Dutch housing market: The Dutch Economy and Housing Market 37
supply and demand
Supply dynamics Building permits and newly built homes
Source: CBS, Ministry of Housing, VROM, ABF Research Source: CBS
x 1000
• Supply in the Dutch housing market is relatively inelastic Dwelllings completed
120
Limited land available for housing Dwellings building permits issued
-
100
- Regulations and planning permissions 80
• The Dutch Ministry of Housing estimated that from 2018 onward at least 75,000 new 60
homes are required annually* 40
• The number of completed homes reached its lowest point since 1953. Given the Annual new house requirement according
20
growing demand for new homes and increased number of granted building permits, it is to Ministry of Housing
0
to be expected that the number of completed homes will increase in the coming years
Dutch population and housing occupation Dutch housing prices development
Source: CBS Source: Eurostat, S&P Case Schiller
17,5 2,55 150,0 Euro Area Ireland
Millions
Population (LHS) Inhabitants per dwelling (RHS)
2,5 140,0 Spain Netherlands
17,0 United Kingdom United States
130,0
2,45
16,5 120,0
2,4 110,0
16,0
2,35 100,0
15,5 90,0
2,3
80,0
15,0 2,25 70,0
14,5 2,2 60,0
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2010 2011 2012 2013 2014 2015 2016 2017
* Dutch National Housing agenda (‘Woonagenda’) 2018-2021 (https://www.rijksoverheid.nl/documenten/publicaties/2018/05/23/nationale-woonagenda-2018-2021)For further questions please contact:
Niels Roek Tom Hoefakker
Manager Funding Vice President Corporate Treasury
T: +31 58 244 34 91 T: +31 70 344 49 97
E: nroek@aegon.nl E: tom.hoefakker@aegon.com
Jeroen Dekkers
Senior Strategic Analyst
T: +31 6 119 11 447
E: jeroen.dekkers@aegon.nl
For questions relating to Aegon please contact:
Aegon Investor Relations
T: +31 70 344 8305
E: ir@AEGON.com
WWW.AEGON.COM39 Thank you! Aegonplein 50, 2591 TV the Hague Telephone: +31 (0)70 344 3210 Postbus 202 2501 CE the Hague The Netherlands
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