The Residential Mortgage Business - Aegon · • The mortgage loan portfolio of Aegon NL grew...

Helping people achieve a lifetime of financial security

The Residential Mortgage Business

Global ABS Conference Barcelona, 5-7 June 2018

2

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 facil ities 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.


Disclaimer

3

Executive Summary

Slides 4-5

01

Aegon Highlights

Slides 6-10

02

The Aegon SAECURE

Program

Slides 11-15

03

Aegon’s Residential

Mortgage Loan Origination,

Underwriting & Servicing

Slides 16-23

04

The Dutch Residential

Mortgage Market

Slides 24-30

05

The Dutch Economy and

Housing Market

Slides 31-37

06


Content

Contact details

Slides 38

07

4

Executive summary

Executive summary

5Executive summary

Executive Summary

Mortgage loan

Portfolio

Total EUR 41.3bn(FY 2017)

Dutch Mortgage

Fund and Whole

loans

► Aegon’s successful Dutch Mortgage Fund has grown to over

12bn

► Aegon has also provided whole loan solutions tailored to

investors’ specific requirements

Conditional Pass-

Through Covered

Bond programme

► Registered Conditional Pass-Through Covered Bond

programme with DNB since 2015

► Covered Bonds are rated AAA/AAA (S&P/Fitch), dual recourse

► Aegon Bank launched four successful Covered Bonds in Q4

2015, Q2 2016 and Q2 and Q4 2017

Aegon Netherlands

N.V.

► 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

► The activities of Aegon in The Netherlands are strongly tied to

the global Aegon Group

► The historical performance of Aegon's total residential

mortgage loan portfolio has been stable over the last ten years

Aegon’s profile and funding structures

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NHG Mortgage Loans (LHS)

Non NHG Mortgage Loans (LHS)

Fee business as % of total portfolio (RHS)

Portfolio developmentSource: Aegon

8%8%

36%

48%

Diversified funding

Covered Bond

SAECURE

Fee business

Internal

The SAECURE

program

► 15 SAECURE programs issued since 2000, SAECURE 14 and

15 still outstanding

► SAECURE portfolios are representative of Aegon’s total

portfolio with stable strong performance

Aegon mortgage loan portfolioSource: Aegon

66

Aegon Highlights

Aegon Highlights

7Aegon Highlights

Aegon at a glance

6%

61%

31%

2%

FocusLife insurance, pensions &

asset management for over

26 million customers

HistoryOur roots date back to the

first half of the 19th century

EmployeesOver 28,000 employees(December 31, 2017)

EarningsUnderlying earnings

before tax of € 2.1bn(FY 2017)

InvestmentsRevenue-generating

investments € 817bn(December 31, 2017)

Americas

Europe

AAM

SalesTotal sales of

€ 16bn(FY 2017)

Asia

8

Aegon Netherlands N.V. (“Aegon NL”)

Aegon Highlights

Underlying earnings before tax

Aegon NL FY 2017 results as a % of total

Aegon NL Other Entities

• Aegon NL is wholly owned by Aegon N.V. and a core member of the Aegon group

• Aegon NL offers a wide range of financial products and services to its clients, including pensions, insurance (life and non-life), mortgage loans, savings and investment products

• 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 be performed by Aegon Leven

• Through 2017, Aegon NL represented 23% of Aegon’s total underlying earnings before tax. Aegon Hypotheken & Aegon Bank account for EUR 139 million underlying earnings

• Aegon Leven has a AA- (Negative) Insurer Financial Strength Rating from S&P Global

Simplified Aegon NL Structure

100% 100%100%

Aegon N.V.

Aegon Netherlands N.V.

Aegon Bank N.V.Aegon Schade-

verzekering N.V.

Aegon Levens-

verzekering N.V.

Aegon Hypotheken

B.V.

100%

EUR millions FY 2017

Life and Savings 301

Pensions 172

Non-life 30

Distribution & associates 17

Underlying earnings before tax 520

*Excludes negative contribution from Holdings

Aegon

Europe Holding B.V.

Overview

23%

11%

11%

77%

89%

89%

0% 20% 40% 60% 80% 100%

Underlying earnings before tax*

Market consistent VNB

Employees

9

-30

-20

-10

0

10

20

30

40

50

60

70

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Thousands

Thousands

Total mortgage debt outstanding (LHS)

Year-on-year change (RHS)

Aegon Highlights

Aegon in the Dutch mortgage market

Mortgage debt outstandingSource: Dutch Central Bank

Mortgage loan portfolio Aegon NLSource: Aegon (2006 – 2017)

Mortgage lending market share in the Netherlands(FY 2017); Source: Land Registry (Kadaster)

Overview of the Dutch mortgage marketSource: DNB, Land Registry (Kadaster)

Other

• Per FY 2017 the total outstanding residential mortgage debt in the Netherlands

was EUR 672 billion

• New mortgage lending through 2017 was EUR 100 billion

• Mortgage originators in the Netherlands include banks, insurance companies

and specialized mortgage originators

• The mortgage loan portfolio of Aegon NL grew significantly over the last years.

Aegon views mortgage loans as an attractive asset class for its balance sheet,

which offer a good risk and return profile

EUR bn

EUR bn

16,8%

2,4%

3,8%

4,2%

4,3%

6,4%

8,6%

10,1%

21,2%

22,2%

0% 5% 10% 15% 20% 25%

Other

ASR

Nationale Nederlanden

MUNT

Achmea

de Volksbank

Aegon

ING

ABN AMRO

Rabobank

0%

10%

20%

30%

40%

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NHG Mortgage Loans (LHS) Non NHG Mortgage Loans (LHS)


EUR bn

10Aegon Highlights

Diversified funding

* Bank includes RMBS (SAECURE 13 NHG)

** Aegon Hypotheken B.V. is the current origination vehicle. Loans originated before April 1st 2011 were originated by Aegon Levensverzekering N.V.

• Strong position with Independent Financial Advisors

• Straight through processing

• Leading mid-office capabilities

• Active in all maturities

• One IT platform

Life & Pension

Nominal mortgage amounts per FY 2017(in EUR bn)

Origination vehicle

Aegon Hypotheken**

Competitive advantages(

Comments(

• Mostly variable rate mortgages

• Supports investment incomeNon-life<1 =

• Full risk transfer

• Attractive fund solutions (DMF I and DMF II) and

tailored whole loan solutionsFee business15

• Mostly short interest rate reset periods

• Offering products to clients on both sides of the

balance sheet

Bank6 ⃰

Mortgage allocation

• Vertical slice allocation

…supports strong mortgage origination capabilities

• Long-dated assets

• Good match against liabilities15

• Funding diversification

• Low spreads

RMBS –

SAECURE programme3

Covered Bond3

• Registered Conditional Pass-Through Covered Bond

programme with DNB since 2015

• Covered Bonds are rated AAA/AAA (S&P/Fitch), dual

recourse. Total amount issued amounts to EUR 2.25bn

1111

The AegonSAECURE Program

The Aegon SAECURE Program

12The Aegon SAECURE Program

SAECURE transactions

SAECURE 1 - 15Source: Investor Reports (2006 – Q1 2018)

* Redeemed at FORDNote: Historical Performance is not an indicator of future performance which may vary materially

0

2

4

6

8

10

12

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

EU

R (

Billio

ns)

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

Outstanding net balance


Note: Historical performance is not an indicator of future performance which may differ materiallyNote: Percentages shown in the table are rounded to 2 decimal places. As such, the total arrears percentage may differ from the sum of all arrears bucketsNote: SAECURE 1 – 13 called at respective FORD’s. Values shown in the table above for these transactions are as per FORD

Performance of SAECURE transactions

Arrears across all SAECURE transactionsSource: AEGON (Q1 2018)

Overview Arrears (>=2months) across all SAECURE transactionsSource: Investor Reports, (bps of curr. balance) (2006 – Q1 2018)

• The performance of the SAECURE transactions is strong

• The portfolios securitised in SAECURE transactions are

representative of Aegon’s total portfolio of mortgage loans

• The post crisis SAECURE issuance volumes (2010 -2011) resulted in

a steep decline in the relative volume of arrears

• Arrears in the >6 month bucket have declined due to successfully

completed voluntary sales resulting in minimal losses and arrears

being cured

Total arrears amount

(in bps of net

current balance)

SAECURE

15

SAECURE

14 NHG

SAECURE

13 NHG

SAECURE

12

SAECURE

11

SAECURE

10

SAECURE

9

SAECURE

8 NHG

SAECURE

7

SAECURE

6 NHG

SAECURE

5

SAECURE

4

SAECURE

3

SAECURE

2

SAECURE

1

<= 1 monthly payment 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.3 0.7 1.4 0.6 0.7 0.6

1 <= 2 monthly payments 0.1 0.1 0.1 0.1 0.4 0.1 0.1 0.3 0.2 0.3 0.5 1.1 0.7 0.4 0.1

2 <= 3 monthly payments 0.0 0.1 0.1 0.1 - 0.1 0.1 0.3 0.3 0.2 0.5 1.0 0.6 0.4 0.1

3 <= 4 monthly payments 0.1 0.1 0.0 0.0 0.1 0.1 0.1 0.2 0.3 0.2 0.2 0.5 0.5 0.4 -

4 <= 6 monthly payments 0.0 0.0 0.0 0.0 0.2 0.2 0.8 0.2 0.5 0.4 0.3 0.6 0.5 1.0 0.2

> 6 monthly payments 0.0 0.2 0.3 0.2 0.7 1.1 0.9 1.6 1.0 1.5 1.9 0.9 0.5 0.6 -

Total arrears amount 0.4 0.6 0.7 0.7 1.6 1.8 2.3 2.9 2.4 3.0 4.1 5.4 3.4 3.5 0.9

Total Portfolio

(net principal) (in mln €) 1,207 1,060 834 1,046 614 1,202 606 1,175 820 1,176 397 333 453 375 350

0,0

0,5

1,0

1,5

2,0

2,5

3,0 2 <= 3 monthly payments 3 <= 4 monthly payments

4 <= 6 monthly payments > 6 monthly payments


Performance of SAECURE transactions (ctd)

Recovery rates

Loss statistics across SAECURE transactions

Source: Investor Reports (2006 – 2017)

Loss statistics across NHG SAECURE transactions


Nr. of defaulted loans across SAECURE transactions


• 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

• Recovery Rate on regular SAECURE transactions remained stable at 95.4% at the end of 2017 compared to 95.7% at the end of 2016

• Due to improved housing market conditions a great number of voluntary sales were completed in 2013 and 2014 causing an increase of the net losses. After this peak, defaults and voluntary sales returned to regular levels while the increased house prices resulted in lower net losses from 2016 onward

SAECURE - Net losses

Year


(EUR mln)

Total net losses

(EUR mln)

Total net losses

(bps of net balance)

2006 5,463 1.51 2.76

2007 4,339 1.61 3.71

2008 3,714 1.37 3.68

2009 3,356 1.18 3.51

2010 6,148 1.91 3.11

2011 6,580 0.90 1.37

2012 6,532 1.14 1.74

2013 7,523 1.50 1.99

2014 8,975 3.83 4.27

2015 6,996 2.79 3.99

2016 4,773 0.91 1.91

2017 3,177 0.43 1.37

SAECURE - Net losses (100% NHG RMBS)

Year


(EUR mln)

Total net losses

(EUR mln)

Total net losses

(bps of net balance)

2006 2,000 - -

2007 1,905 0.10 0.54

2008 1,748 0.12 0.68

2009 1,590 0.08 0.53

2010 2,916 0.05 0.18

2011 2,727 0.03 0.12

2012 2,559 0.19 0.75

2013 2,437 0.06 0.24

2014 2,609 0.62 2.38

2015 2,440 0.18 0.73

2016 2,244 0.12 0.55

2017 1,939 0.15 0.77

715

7 1014

46

98 9255

30 2235 41 29 26 31 26

48

83 111

76

26 20

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NHG RMBS RMBS (non 100% NHG)

15

0%

10%

20%

30%

40%

02468

10121416

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Fee business outstanding at year end


0%

10%

20%

30%

40%

50%

0

5

10

15

20

25

30

35

40

45

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NHG Mortgage Loans (LHS) Non NHG Mortgage Loans (LHS)

SAECURE program (RHS)* Covered Bond program (RHS)*

The Aegon SAECURE Program

Successful Dutch mortgage loan operation

Mortgage loan portfolioSource: Aegon (2006 – 2017)

(EUR bn)

Fee business development Source: Aegon (2006 – 2017)

• The mortgage lending business offers Aegon substantial cross-selling opportunities and synergies.

- Cross-selling of Aegon insurance products

- Natural investment for the life and pension book of Aegon

• Aegon’s portfolio of prime residential mortgage loans amounted to EUR 41.3bn (including fee business) at ultimo 2017

• Through 2017, Aegon increased its portfolio by EUR 7bn

• 16% of the mortgage loan portfolio has been funded by the SAECURE program and Covered Bond issuances. The SAECURE program has decreased in the last three years, though still remains an important funding tool for Aegon NL’s mortgage business. Covered Bond issuances have grown rapidly since Aegon’s initial issuance in 2015

• 36% of the mortgage loan portfolio is owned by Aegon’s Dutch Mortgage Fund and private placements partners

• Fee business is growing rapidly mainly due to the success of Aegon’s Dutch Mortgage Fund, by taking over a large share of Aegon’s new originated mortgage loans

(% of total book)(EUR bn)

(% of total book)

Funding toolsSource: Aegon

1616

Aegon’s Residential Mortgage Loan Origination, Underwriting & Servicing

Organization, Underwriting & Servicing

17Organization, Underwriting & Servicing

Aegon NL mortgage lending organization

Entities(

Distribution Funding

Aegon NL has two entities for its

mortgage lending business, Aegon

Hypotheken B.V. and Aegon

Levensverzekering N.V.

Since April 1st 2011 all newly

originated loans are underwritten by

Aegon Hypotheken B.V.

Origination and underwriting

activities are outsourced to Aegon

Leven. Capital management and

Funding are performed by Aegon

Capital Management & Policies.

Risk activities are performed by

Aegon Risk Management

Nearly all mortgages are sold

through intermediaries, which are

professional parties, adhering to

Aegon’s strict standards and

requirements

Aegon uses a wide range of

intermediaries, with strong local

knowledge, who are paid by the

client, not through commissions

Mortgage loans are offered mainly

to Dutch citizens with collateral only

in The Netherlands. Loans are

distributed over the whole of the

Netherlands and are also well

diversified by borrower age

Due to its long history in secured

funding, Aegon has good access to

funding markets

The relatively long duration of its

funding makes Aegon less

vulnerable to refinancing risk

Aegon offers the full spectrum of

interest rates from 1-month for

floating rate mortgage loans to up to

30 years for fixed rate mortgages

Trusted

Aegon Hypotheken B.V. is a 100%

subsidiary of Aegon Nederland N.V.

Origination is done by

intermediaries, but all underwriting

decisions are made by Aegon’s

underwriting team in Leeuwarden

All mortgage related processes are

periodically reviewed and are

regularly audited (including SOX

compliance)


Residential mortgage loan production

Aegon mortgage loan part production – by interest reset periodSource: Aegon (%) FY 2017

Aegon mortgage loan part production – by product typeSource: Aegon (%) FY 2017

55%

30%

5%4%

6% Annuity

Interest Only

Savings

Linear

Other

8% 5%

68%

19%

0-5 year

6-15 year

16-20 year

21-30 year

Total production in 2017

amounted to just over

EUR 9.0bn

Aegon’s customers are

increasingly switching to

(longer term) fixed interest

rates (especially 20-year

interest reset terms) due to

the low absolute long term

interest rates

Aegon customers are risk-

averse, in 2017 ~ 87% have

opted for interest reset dates

in excess of 15 years

19

Product

development &

Pricing

Cu

sto

me

r

Inve

sto

r

Financial Risk Management

Operational Risk Management & Compliance

Audit

Legal

Finance

ICT

Other secondary processes

Governance & Policies

Marketing &

CommunicationDistribution Operations Special Servicing Capital Management

Structuring &

ArrangingMaster Servicing

Acti

vit

ies

Pro

cess

Develop mortgage

credit products

Determine price

mortgage credit

products

Develop and

maintain marketing

material mortgages

Sponsorship, press

releases and brand

advertising

Distribution/sales

mortgage credit

products

Advise with

development of

mortgage credit

products

Offer

Underwrite

Administer and

service

Complaint handling

Payments

Arrears servicing

Residual debt

servicing

Determine funding

needs

Determine funding

strategy

Execute funding

strategy

Expand or adapt

existing funding

agreements

Securitization of

mortgage loans

Issuing of Covered

Bonds

Structuring of whole

loan transactions

Payment to investors

Reporting to

investors

Mangement of the

SPV

Administrative

handling of received

loans

Organization, Underwriting & Servicing

Aegon underwriting process

Source: Aegon

Overview


Aegon underwriting process

Source: Aegon

Operations

• Preparation of

proposals

Underwriting

Mortgage broker

Servicing

• Reviewing of proposals

• Preparation and

sending

Aegon

front office

• Receipt of signed

proposals

• Verification of docs

(customer ID etc)

• Sending documents to

the notary

• Receiving preliminary

deeds & settlements

Aegon

mid office

• Receipt of signed deeds

• Transferring mortgage

loans to the backoffice

system

• Transferring insurance

policies to the

backoffice system

Aegon

back office

• Handling of mortgage

loan changes

• Insurance policy

changes

• 98% of all customers

pay via direct debit, 2%

by bank transfer


Underwriting criteria & credit process

* ‘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.

• Underwriting criteria based on Code of Conduct criteria

• 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)

• Mandatory damage and fire insurance

• Additional forms of collateral: life insurance and equity portfolios

• Underwriting criteria based on Code of Conduct criteria (LTVs, DTIs etc)

Aegon Leven’s underwriting team

consists of 101 professionals

(88 FTE)

25% of the team has more than 10

years experience. All underwriters

are WFT* certified

Approximately 20% of applications

are declined immediately, mostly

due to bad credit references (BKR)

and high loan to income ratios

Aegon Hypotheken’s average

acceptance rate is approximately

75%

Borrower

Collateral

Loan


Source: Aegon

* Wet schuldsanering natuurlijke personen – Law for debt of individuals

Focus on foreclosure

Aegon’s collection procedures

Foreclosure Further recourse to other wealth including salary

Stage 4: Day 90

Action: Urgent arrears list Stage 6: Foreclosure Process

Action: Repossession and sale

Stage 1: Day 15

Action: Automatic reminder

Stage 3: Day 60

Action: Telephone collection list

Stage 5: Day 120

Action: Entire loan declared immediately due and payable

a) Induce a final attempt for voluntary paymentb) Allow time for drafting of legal documentsc) Begin foreclosure processd) BKR registration (National credit register)

60 120

Days in Arrears 6 Months

Stage 2: Day 45

Action: Formal written demand

Stage 7: Post Sale

Action: Post sale review

Continued on next page

A mortgage loan lender can repossess and sell a property

by public auction without court order

• A lender only needs to adhere to appropriate notice periods and have process run

by a public notary

• In insolvency, the maximum stay that a court can impose is 4 months (court can still

allow repossession during this period)

• If a lender wants to proceed by private sale rather than auction, the consent of the

court needs to be requested

Full recourse to the borrower

• After foreclosure, any remaining debt remains enforceable until discharged in full

• A lender can attach to the borrower’s salary simply by informing the employer via

bailiff

In insolvency, a debt rescheduling for private individuals (“Wsnp”)*

can limit recoveries after repossession

• 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

In The Netherlands

Days in Arrears 6 Months


Repossession & Sale process

In The NetherlandsContinued from previous page

Stage 5c

Action to receive payment

Letter of lien of salary

Third party guarantor

Stage 6

Sale process

Stage 7

Post saleUp to 1 Year*

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 interests

Borrower

cooperation

decision

Joint voluntary sale

Foreclosure begins Notary appointedSale type

decision

Private sale

Auction

Bailiff appointed to collect any

remaing debts**

Unsuccessful

Successful

Yes

No

2424

The Dutch Residential Mortgage Market

The Dutch Residential Mortgage Market

25The Dutch Residential Mortgage Market

Key characteristics of the Dutch residential

mortgage market

Code of

Conduct

• The Code of Conduct aims lenders to compete on service and price rather than aggressive lending practices

• Affordability calculation assuming 30 year amortizing loan regardless of product and interest rate risk

NHG

• The NHG programme is the public mortgage loan guarantee scheme supporting home ownership in The Netherlands

• All Dutch citizens can obtain a guarantee from the Dutch State guaranteed non-profit organization

(Stichting WEW) subject to the applicable terms and conditions

Underwriting

• Mortgage loans are provided predominantly on the basis of income (LTMV’s are a less significant basis due to tax incentives)

• “Full-doc” underwriting, no self certification of income

• Industry wide credit database (BKR) and Fraud Register (SFH)

Products

• Predominantly prime, owner occupied

• Virtually no buy-to-let, non-conforming and sub-prime

• Mainly fixed rate mortgage loans

Framework

• Lenders can repossess and sell properties by public auction without a court order

• Full recourse to the borrower. After foreclosure, any remaining debt remains enforceable until discharged in full

• Strong social support and pension system


Key mortgage loan products

Repayment

mortgage loans

Annuity mortgage loans

• Fixed monthly payments

Linear mortgage loans

• Principal component comprising an equal, fixed amount each month

Interest-only

mortgage loans

Interest-only mortgage loans

• Borrowers do not make any principal repayments until maturity

Savings mortgage loans

• Borrowers do not make any principal repayments but instead make

payments into a savings account with an insurance company bank

Life mortgage loans

• Borrowers do not make any principal repayments but have an

insurance policy, into which they pay a monthly premium, which is

either expected or guaranteed to repay the mortgage loan at

maturity

Investment mortgage loans

• Borrowers do not make any principal repayments but select an

investment policy, into which they pay a monthly premium, which is

expected (however not guaranteed) to repay the mortgage loan at

maturity

Savings mortgage

loans

Main

mort

gage p

roducts

prio

r to

January

1st2

01

3

Main

mort

gage

pro

ducts

sin

ce

Jan

ua

ry

1st2

01

3

Redemption Types for New Origination of

Mortgage Loans of Aegon PortfolioSource: Aegon (2006 – 2017)

• Aegon offers several mortgage loan products. Since

January 1st 2013 only amortizing mortgage loans are

eligible for tax deductibility, resulting in a steep

increase in the volume of annuity mortgage loans

being originated.

• Tax deductibility on outstanding mortgage loan

products are grandfathered by the tax authorities.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Interest Only

Life Insurance

Savings

Investment

Lineair

Annuity

Other


Mortgage loan structure

LTMV = 106 / 100 = 106%

Transfer Tax

@ 2% = 2

Costs

@ 4% = 4

Market

Value

Property

= 100

Required

for

property

purchase

= 106

Interest

Only

Mortgage

Loan Part

= 50*

Savings

Mortgage

Loan Part

= 56

Taxes and other

costs related to

the property

purchase can also

be funded by the

mortgage loan

The total

mortgage loan

may consist of

multiple loan

parts

Additional

protection

through

disability /

term life /

accidental

death /

household

insurance

policies

Annuity

Mortgage

Loan

= 105

Before

1-1-2013

From

1-1-2013

Annuity

Mortgage

Loan

= 104

From

1-1-2014

Annuity

Mortgage

Loan

= 103

From

1-1-2015

Annuity

Mortgage

Loan

= 102

From

1-1-2016

Annuity

Mortgage

Loan

= 101

From

1-1-2017

Annuity

Mortgage

Loan

= 100

From

1-1-2018

* 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 savings


Aegon’s mortgage loan pricingOverview

Mortgage loan pricing gridSource: www.aegon.nl (May 2nd 2018)

• Mortgage loans are priced using the following components:

- Reference rate (i.e. swap rate or risk free rate)

- Cost of funds

- Spreads to cover various risks related to mortgage loans (prepayment risk, credit

risk, offer risk)

- Spreads to cover the various costs related to mortgage loans (regulatory capital

requirements, back office, foreclosure department)

- 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 components to populate a two-dimensional pricing grid (LTMV versus interest rate duration)

• Aegon’s mortgage loan interest rates are reviewed and if necessary adjusted on a weekly basis in a mortgage loan pricing committee

Mortgage loan pricing components

NHG Non NHG

Interest Reset Period < 67,5% LTMV < 81% LTMV > 81% LTMV*

Floating 1,90% 2,00% 2,10% 2,55%

1-2Y fixed 1,54% 1,64% 1,74% 2,19%

3-5Y fixed 1,84% 1,89% 1,99% 2,39%

6-10Y fixed 2,04% 2,09% 2,19% 2,49%

11-15Y fixed 2,39% 2,49% 2,54% 2,69%

16-20Y fixed 2,49% 2,59% 2,64% 2,79%

21-25Y fixed 2,64% 2,69% 2,79% 3,04%

26-30Y fixed 2,64% 2,69% 2,79% 3,04%

Client coupon

Risk spreads

Costs

Reference rate

Cost of fund spread

Credit risk spread

Prepayment risk spread

Offer risk spread

Liquidity spread

Economic capital charge

Service cost spread

Discount spread

Product spread

Spreads over the Euro-swap curveSource: Aegon Asset Management

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

3,0%

3,5%

4,0%

4,5%

5,0%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

NHG Non-NHG

*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.


Recent policy developments impacting the

Dutch housing market

Aegon specific

developments

2011 2012 2013 2014 2015 2016

Introduction of Bank

Savings Mortgage Loans

Legal maturity date IO

loans max. 30 years

Loans for recreational

homes discontinued

Penalty-free prepayment

up to the WOZ value of

the collateral

Outstanding IO loans

can be refinanced to a

maximum of 50% of the

property market value

Specific offers for flex

workers and self

employed clients

Interest Rate Averaging

offered to clients

LTV & Interest

deductability

Tax regulations

NHG

Other

Regulations

LTV: 105%

Interest deductibility:

Reduction from 52% to

38% by 0.5% per year

LTV: 104%


51.50%

LTV: 103%


51%

LTV: 102%


50.50%

Transaction tax from 6%

to 2%; Residual debt

remains deductible for

max 10 yrs

New loans need to be

Annuity & Linear.

Grandfathering on

existing loans.

Tax-free endowment of

EUR 100,000

Residual debt remains

deductible (15yr)

Max € 350k (July 1) Max € 320k (July 1)

Max € 290k (July 1);

Only amortizing

mortgage loans are

eligible for NHG

Max € 265k (July 1) Max € 245k (July 1) Max € 245k

Facility for starters of the

Stichting

Volkshuisvesting NL

expanded to € 100mn

Lower loan size due to

stricter affordability

calculations (Nibud)

LTV: 106%

2017

LTV: 101%


50%

Max amount based on

average house price.

Remains at Max € 245k

2018

LTV: 100%*


49,5%*

Proposed decrease by

3% per year**

Restructured income tax,

abolish dividend tax,

decrease property tax

for residential houses**

Max amount based on

average house price.

Estimated at Max

€265k*

Phase out ‘Hillen-

arrangement’ (tax relief

for nearly repaid

mortgages) over 30

years**

* Established policy

** Proposal of the new government agreement (October 2017), effective date to be determined.


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%

3131

The Dutch Economy and Housing Market

The Dutch Economy and Housing Market

32The Dutch Economy and Housing Market

The Dutch economy

• One of the most stable and open economies in Europe with one of the

highest GDP per capita

► Y-o-Y real GDP growth rate 3.2% (2017, provisional)

► Unemployment rate at 3.9% as of March 2018

► Expected Sovereign debt of 58.5% of GDP and budget surplus of 0.5% in 2017

► International trade is key driver of economy and future economic growth

Highlights of the Dutch economySource: Eurostat, CPB

Trade balance (% of GDP)Source: OECD

Unemployment rate comparisonSource: Eurostat

Evolution of Y-o-Y real GDP growth rateSource: Eurostat

0%

2%

4%

6%

8%

10%

12%

14%

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Netherlands UK Eurozone US

-8

-6

-4

-2

0

2

4

6

8

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Netherlands UK Eurozone US Japan

-8

-6

-4

-2

0

2

4

6

8

10

12

1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Netherlands UK Eurozone US


Note: Historical performance is not an indicator of future performance which may differ materially

* GNS = GDP – Consumption – Gov Spending

The Dutch economy (cont’d)

Sovereign debt (% of GDP)Source: Bloomberg, IMF

5 Year CDS Sovereign Spread (in USD - bps)Source: Bloomberg

Deficit (% of GDP)Source: Bloomberg

Gross national savings* (% of GDP)Source: Bloomberg, CIA

(4)

(2)

-

2

4

6

8

10

12

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Netherlands UK Germany France US

-

5

10

15

20

25

30

35

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017


0

50

100

150

200

250

300

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


-

20

40

60

80

100

120

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017



Dutch household financials

OverviewSource: Dutch Central Bank (DNB), Statistics Netherlands (CBS)

Dutch household debt and wealth compositionSource: 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.

11261210 1178

1403 14681607 1586

320338 341

347352

357 358

4753 62

7186

88 95

667670 652 650

656664 672

50 48 44 37 38 32 30

2011 2012 2013 2014 2015 2016 2017

Consumer Credit

Residential Mortgage Debt

Investments

Savings & Deposits

Life insurance & Pension assets


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 materially

The Dutch housing market: HPI comparison

House price development (2000 values rebased at 100)Source: ECB, S&P/Case-Shiller, Nationwide

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.

60,0

70,0

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

2010 2011 2012 2013 2014 2015 2016 2017

Euro Area Ireland Spain Netherlands United Kingdom United States

36The Dutch Economy and Housing MarketThe Dutch housing market:

supply and demandRegional house price developmentSource: CBS, rebased at 2010 = 100

House price development in The NetherlandsSource: CBS, Ministry of Housing, VROM. Per FY 2017.

Regional population developmentSource: CBS, rebased at 2002 = 100

House price development per province; increase or decrease throughout 2017

81

86

91

96

101

106

111

116

2010 2011 2012 2013 2014 2015 2016 2017

Netherlands

Groningen

Friesland

Drenthe

Overijssel

Flevoland

Gelderland

Utrecht

Noord-Holland

Zuid-Holland

Zeeland

Noord-Brabant

Limburg

0,98

1,03

1,08

1,13

1,18Netherlands

Groningen

Friesland

Drenthe

Overijssel

Flevoland

Gelderland

Utrecht

Noord-Holland

Zuid-Holland

Zeeland

Noord-Brabant

Limburg Increase > average (7.5%)

Increase <= average (7.5 %)

Decrease > average (7.5 %)

Decrease <= average (7.5 %)

3%6%

8%

11% 8%

9% 7%

6%

6%

5%

6%

5%

37

2,2

2,25

2,3

2,35

2,4

2,45

2,5

2,55

14,5

15,0

15,5

16,0

16,5

17,0

17,5

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Millions

Population (LHS) Inhabitants per dwelling (RHS)

0

20

40

60

80

100

120Dwelllings completed

Dwellings building permits issued

The Dutch Economy and Housing MarketThe Dutch housing market:

supply and demand

• Supply in the Dutch housing market is relatively inelastic

- Limited land available for housing

- Regulations and planning permissions

• The Dutch Ministry of Housing estimated that from 2018 onward at least 75,000 new

homes are required annually*

• The number of completed homes reached its lowest point since 1953. Given the

growing demand for new homes and increased number of granted building permits, it is

to be expected that the number of completed homes will increase in the coming years

Supply dynamicsSource: CBS, Ministry of Housing, VROM, ABF Research

Dutch housing prices developmentSource: Eurostat, S&P Case Schiller

Building permits and newly built homesSource: CBS

Dutch population and housing occupationSource: CBS

x 1000

Annual new house requirement according

to Ministry of Housing

60,0

70,0

80,0

90,0

100,0

110,0

120,0

130,0

140,0

150,0

2010 2011 2012 2013 2014 2015 2016 2017

Euro Area IrelandSpain NetherlandsUnited Kingdom United States

* Dutch National Housing agenda (‘Woonagenda’) 2018-2021 (https://www.rijksoverheid.nl/documenten/publicaties/2018/05/23/nationale-woonagenda-2018-2021)

WWW.AEGON.COM

For further questions please contact:

For questions relating to Aegon please contact:

Aegon Investor RelationsT: +31 70 344 8305E: [email protected]

Jeroen DekkersSenior Strategic Analyst

T: +31 6 119 11 447

E: [email protected]

Tom HoefakkerVice President Corporate Treasury

T: +31 70 344 49 97


Niels RoekManager Funding

T: +31 58 244 34 91


3939

Aegonplein 50, 2591 TV the Hague

Telephone: +31 (0)70 344 3210

Postbus 202

2501 CE the Hague

The Netherlands

Thank you!

http://www.facebook.com/aegon

http://www.facebook.com/aegon

The Residential Mortgage Business - Aegon · • The mortgage loan portfolio of Aegon NL grew...

Documents

Transcript of The Residential Mortgage Business - Aegon · • The mortgage loan portfolio of Aegon NL grew...