Our operating environment

Ever since the financial crisis, consistently low interest rates have been the norm. This has an impact on our customers, our revenue and our earnings.


Despite the US Federal Reserve’s interest rate increase in December 2016, and the financial markets’ response to the US presidential election, historic low interest rates continue to impact the financial services sector. Many central banks around the world are still holding firm, while those that are changing are doing so conservatively to stimulate growth. 

It is unclear whether interest rates will continue their recent increase and to what level, or that structural macro trends such as aging and lower productivity growth will keep interest rates and investment returns structurally lower in the long term.

Low interest rates have an impact on our revenue and our earnings. Although the market value of our assets may go up, our liabilities (discounted at a lower interest rate) will increase as well. And we may find that returns on future investments are not sufficient to meet the minimum long-term guarantees given to some customers. In combination with new solvency regulations and internal capital models, products providing a long-term financial guarantee, such as defined benefit pensions, become prohibitively expensive for employers or individual customers. 

With lower rates, people need to save more to achieve their objectives, but may have less incentive to do so.


Our strategy has been to focus more on fee-based businesses and less on businesses that depend on investment returns. As a result, our revenues now depend less on capital-intensive products. Whilst low interest rates are not something we can directly influence, we can manage the risks, and ensure our business is in the best shape to deal with them.

Lower for longer

We manage our exposure to interest rate risk by making sure that our assets and liabilities are matched as closely as possible – in terms of both their maturity and value – through hedging programs. 

Examples of these programs include hedging the interest rate risk from guarantees embedded in the defined benefit pension business in the Netherlands, and hedging against adverse equity market movements to protect the capital position in the US. In addition, we are further reducing our exposure to interest rates in the US through the continued wind down of our run-off businesses and the reduction in fixed annuity balances as the product is de-emphasized. 

In the UK, we significantly reduced our exposure by divesting our £9 billion annuity portfolio. At the same time, we continue to transition to a more capital-light business model. 

We continually monitor movements in interest rates and spreads and they are discussed regularly in our Management Board meetings. One of the metrics we use, besides the interest rates themselves, is the exposure that we have to changes in interest rates. This is monitored closely by our Group Risk & Capital Committee and we publish the sensitivity of our capital position to interest rate changes twice per year. 

We also monitor the progress we are making in shifting our business from financial-spread to capital-light fee- and protection-based models. One relevant metric is the percentage of our earnings that is derived from fees. In 2016, our underlying earnings from fees were down slightly from 43% in 2015.

Opportunities created

While the current interest rate environment is challenging, it nonetheless creates opportunities to provide employers and employees with advice on how to best manage their retirement savings. Here again, we’ve advocated greater freedom of choice for our pension customers. In the Netherlands, for example, people with a defined contribution retirement must purchase an annuity immediately at retirement age. 

With low interest rates, this can result in a low pay-out for the rest of a pension-holder’s life, and we have advocated deferred or partial annuitization options. 

Low interest rates are accelerating the trend towards defined contribution pension businesses. We already have strong positions in our main markets of the US, the UK and the Netherlands. In these markets, we administer savings for retirement plan participants and not only help them save for retirement but increasingly focus on offering products and advice for when our customers are retiring.

We’ve also taken the opportunity to refinance our corporate debt at a lower rate.