The Residential Mortgage Business - Aegon · • The mortgage loan portfolio of Aegon NL grew...
Transcript of 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
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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
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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
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
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)
Fee business as % of total portfolio (RHS)
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
13The Aegon SAECURE Program
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
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
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
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 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)
18Organization, Underwriting & Servicing
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
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
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
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 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
23Organization, Underwriting & Servicing
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
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
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
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
28The Dutch Residential Mortgage Market
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.
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.
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%
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
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
34The Dutch Economy and Housing Market
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
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
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
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!