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The residential mortgage business

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Update on the Dutch residential mortgage market and economy (June 2018) and information about the SAECURE program

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The residential mortgage business

  1. 1. Helping people achieve a lifetime of financial security The Residential Mortgage Business Global ABS Conference Barcelona, 5-7 June 2018
  2. 2. 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 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 Disclaimer
  3. 3. 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 The Residential Mortgage Business Content Contact details Slides 38 07
  4. 4. 4 Executive summary Executive summary
  5. 5. 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 development Source: 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 portfolio Source: Aegon
  6. 6. 66 Aegon Highlights Aegon Highlights
  7. 7. 7Aegon Highlights Aegon at a glance 6% 61% 31% 2% Focus Life insurance, pensions & asset management for over 26 million customers History Our roots date back to the first half of the 19th century Employees Over 28,000 employees (December 31, 2017) Earnings Underlying earnings before tax of € 2.1bn (FY 2017) Investments Revenue-generating investments € 817bn (December 31, 2017) Americas Europe AAM Sales Total sales of € 16bn (FY 2017) Asia
  8. 8. 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. 9. 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 outstanding Source: Dutch Central Bank Mortgage loan portfolio Aegon NL Source: Aegon (2006 – 2017) Mortgage lending market share in the Netherlands (FY 2017); Source: Land Registry (Kadaster) Overview of the Dutch mortgage market Source: 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) Fee business as % of total portfolio (RHS) EUR bn
  10. 10. 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 income Non-life<1 = • Full risk transfer • Attractive fund solutions (DMF I and DMF II) and tailored whole loan solutionsFee business 15 • Mostly short interest rate reset periods • Offering products to clients on both sides of the balance sheet Bank 6 ⃰ Mortgage allocation • Vertical slice allocation …supports strong mortgage origination capabilities • Long-dated assets • Good match against liabilities 15 • Funding diversification • Low spreads RMBS – SAECURE programme 3 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
  11. 11. 1111 The Aegon SAECURE Program The Aegon SAECURE Program
  12. 12. 12The Aegon SAECURE Program SAECURE transactions SAECURE 1 - 15 Source: Investor Reports (2006 – Q1 2018) * Redeemed at FORD Note: 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 EUR(Billions) 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
  13. 13. 13The Aegon SAECURE Program Note: Historical performance is not an indicator of future performance which may differ materially Note: 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 buckets Note: 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 transactions Source: AEGON (Q1 2018) 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 • 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
  14. 14. 14The Aegon SAECURE Program Performance of SAECURE transactions (ctd) Recovery rates Loss statistics across SAECURE transactions Source: Investor Reports (2006 – 2017) Loss statistics across NHG SAECURE transactions Source: Investor Reports (2006 – 2017) Nr. of defaulted loans across SAECURE transactions Source: Investor Reports (2006 – 2017) • 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 Outstanding net balance (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 Outstanding net balance (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 7 15 7 10 14 46 98 92 55 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. 15. 15 0% 10% 20% 30% 40% 0 2 4 6 8 10 12 14 16 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Fee business outstanding at year end Fee business as % of total portfolio (RHS) 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 portfolio Source: 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 tools Source: Aegon
  16. 16. 1616 Aegon’s Residential Mortgage Loan Origination, Underwriting & Servicing Organization, Underwriting & Servicing
  17. 17. 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)
  18. 18. 18Organization, Underwriting & Servicing Residential mortgage loan production Aegon mortgage loan part production – by interest reset period Source: Aegon (%) FY 2017 Aegon mortgage loan part production – by product type Source: 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. 19. 19 Product development & Pricing Customer Investor Financial Risk Management Operational Risk Management & Compliance Audit Legal Finance ICT Other secondary processes Governance & Policies Marketing & Communication Distribution Operations Special Servicing Capital Management Structuring & Arranging Master Servicing ActivitiesProcess 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
  20. 20. 20Organization, Underwriting & Servicing 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
  21. 21. 21Organization, Underwriting & Servicing 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
  22. 22. 22Organization, Underwriting & Servicing 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 payment b) Allow time for drafting of legal documents c) Begin foreclosure process d) 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
  23. 23. 23Organization, Underwriting & Servicing Repossession & Sale process In The Netherlands Continued from previous page Stage 5c Action to receive payment Letter of lien of salary Third party guarantor Stage 6 Sale process Stage 7 Post sale Up 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 appointed Sale type decision Private sale Auction Bailiff appointed to collect any remaing debts** Unsuccessful Successful Yes No
  24. 24. 2424 The Dutch Residential Mortgage Market The Dutch Residential Mortgage Market
  25. 25. 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
  26. 26. 26The Dutch Residential Mortgage Market 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 MainmortgageproductspriortoJanuary 1st2013 Mainmortgage productssince January 1st2013 Redemption Types for New Origination of Mortgage Loans of Aegon Portfolio Source: 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
  27. 27. 27The Dutch Residential Mortgage Market 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
  28. 28. 28The Dutch Residential Mortgage Market Aegon’s mortgage loan pricing Overview Mortgage loan pricing grid Source: 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 curve Source: 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.
  29. 29. 29The Dutch Residential Mortgage Market 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% Interest deductibility: 51.50% LTV: 103% Interest deductibility: 51% LTV: 102% Interest deductibility: 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% Interest deductibility: 50% Max amount based on average house price. Remains at Max € 245k 2018 LTV: 100%* Interest deductibility: 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.
  30. 30. 30The Dutch Residential Mortgage Market 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%
  31. 31. 3131 The Dutch Economy and Housing Market The Dutch Economy and Housing Market
  32. 32. 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 economy Source: Eurostat, CPB Trade balance (% of GDP) Source: OECD Unemployment rate comparison Source: Eurostat Evolution of Y-o-Y real GDP growth rate Source: 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
  33. 33. 33The Dutch Economy and Housing Market 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 Netherlands UK Germany France US 0 50 100 150 200 250 300 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Netherlands UK Germany France US - 20 40 60 80 100 120 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Netherlands UK Germany France US
  34. 34. 34The Dutch Economy and Housing Market Dutch household financials Overview Source: Dutch Central Bank (DNB), Statistics Netherlands (CBS) Dutch household debt and wealth composition 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. 1126 1210 1178 1403 1468 1607 1586 320 338 341 347 352 357 358 47 53 62 71 86 88 95 667 670 652 650 656 664 672 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
  35. 35. 35The Dutch Economy and Housing Market 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
  36. 36. 36The Dutch Economy and Housing Market The Dutch housing market: supply and demand Regional house price development Source: CBS, rebased at 2010 = 100 House price development in The Netherlands Source: CBS, Ministry of Housing, VROM. Per FY 2017. Regional population development Source: 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 1,18 Netherlands 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. 37. 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 80 100 120 Dwelllings completed Dwellings building permits issued The Dutch Economy and Housing Market The 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 dynamics Source: CBS, Ministry of Housing, VROM, ABF Research Dutch housing prices development Source: Eurostat, S&P Case Schiller Building permits and newly built homes Source: CBS Dutch population and housing occupation Source: 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 Ireland Spain Netherlands United Kingdom United States * Dutch National Housing agenda (‘Woonagenda’) 2018-2021 (https://www.rijksoverheid.nl/documenten/publicaties/2018/05/23/nationale-woonagenda-2018-2021)
  38. 38. WWW.AEGON.COM For further questions please contact: For questions relating to Aegon please contact: Aegon Investor Relations T: +31 70 344 8305 E: ir@AEGON.com Jeroen Dekkers Senior Strategic Analyst T: +31 6 119 11 447 E: jeroen.dekkers@aegon.nl Tom Hoefakker Vice President Corporate Treasury T: +31 70 344 49 97 E: tom.hoefakker@aegon.com Niels Roek Manager Funding T: +31 58 244 34 91 E: nroek@aegon.nl
  39. 39. 3939 Aegonplein 50, 2591 TV the Hague Telephone: +31 (0)70 344 3210 Postbus 202 2501 CE the Hague The Netherlands Thank you!

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