Number of common shares (million) 12/31/2004 1,553 Free float of common shares* 12/31/2004 89% Average daily trading volume 2004 all exchanges (million common shares) 9.8 * Percentage of outstanding common shares not owned by Vereniging AEGON
AEGON supplements its autonomous growth with selective acquisitions and partnerships, preferably in countries where
AEGON was successful in maintaining its focus on its core lines of business — life, pensions and asset accumulation products — and profitably growing its business in both existing and developing markets.
At AEGON, we continue to see great opportunity for our industry. The need for wealth preservation and asset accumulation products will become increasingly in demand as aging populations look for more diverse pre and post-retirement
China, in October, AEGON signed a national cooperation agreement with the Agricultural Bank of China, further enhancing AEGON’s multi-distribution strategy in this promising market.
The Netherlands. Since April 2002 he has been a member of the Executive Board of
The duties of the Supervisory Board, which currently has ten non-executive members, consist of the supervision of the
During the annual General Meeting of Shareholders (AGM) held on April 22, 2004, the Supervisory Board discussed with the shareholders its views and intentions relating to corporate governance. The chapter on Corporate Governance in this annual report will be on the agenda of the AGM to be held on April 21, 2005 and at that time proposals will be made to amend the
Articles of Incorporation that are intended to bring AEGON’s corporate governance further in line with the best practice provisions of the Dutch Corporate Governance Code. This annual report provides a section on AEGON’s corporate governance that describes the views and intentions of the Supervisory Board and the Executive Board in this regard.
Board also approved the divestiture of AEGON Spain’s non-life business as well as the sale of most of the remaining non-core businesses of Transamerica Finance Corporation (the maritime container business and the European trailer business).
Charter and the Pre-approval Policy. Among other things, the Charter states that the Audit Committee shall be directly responsible for the compensation and oversight of the work of the independent auditor and that the company shall provide appropriate funding, as determined by the Audit Committee, for the payment of compensation to the independent auditors and to any advisor employed by the Audit Committee.
Board member may be reappointed for successive periods of four years.
Streppel solely depends on AEGON’s income before realized gains and losses on shares and real estate. For Messrs. Van der
The Supervisory Board has determined that as from January 1, 2005, employment contracts for new members of the Executive
Under the 2003 LTI plan, the Executive Board members were eligible to receive a predetermined number of Stock Appreciation
1The numbers have been adjusted to reflect the changes in accounting principles implemented as of January 1, 2004
(USD 16 million received in the first quarter of 2004). The 2003 results included USD 7 million of interest from an IRS tax refund and USD 6 million from a property insurance settlement.
Accident and health premiums of USD 2,541 million were 1% higher than in 2003 due to increased sales through sponsored programs along with rate increases on certain health products earlier in the year offset by the effect from the announcement earlier in the year of the discontinuance of new sales of long-term care policies in 2005.
INCOME BEFORE REALIZED GAINS AND LOSSES ON SHARES AND REAL ESTATE in EUR million1
INCOME BEFORE REALIZED GAINS AND LOSSES ON SHARES AND REAL ESTATE LIFE INSURANCE in EUR million1
Off balance sheet production decreased by 78% compared to the strong performance in 2003.
INCOME BEFORE TAX 123 77 60 1The numbers have been adjusted to reflect the changes in accounting principles implemented as of January 1, 2004
INCOME BEFORE REALIZED GAINS AND LOSSES ON SHARES AND REAL ESTATE Spain in EUR million1
In May 2004, AEGON Taiwan launched a new variable annuity product, which generated NTD 18 million in fee income in 2004.
expects this trend to continue with the ongoing international development and advancement of risk management techniques.
Reporting Standards or IFRS. Because AEGON will report financial information for 2005 only under IFRS, the sensitivity analysis included in this section may not reflect the same sensitivities that would result from the application of IFRS.
Accordingly, during periods of sustained low interest rates, net income may decline as a result of a decrease in the spread between either the interest rates credited to policyholders or the rates assumed in reserves and returns on the investment portfolio.
AEGON’s shareholders’ equity is directly exposed to movements in the equity and real estate markets. Starting in 2004, AEGON
Sources of underwriting risk include policy lapses, policy claims such as mortality, and expenses. In general, AEGON is at risk if policy lapses increase as sometimes AEGON is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality risk, AEGON sells certain types of policies that are at risk if mortality increases, such as term insurance, and sells certain types of policies that are at risk if mortality
Claims paying ability and financial strength ratings are factors in establishing the competitive position of insurers. A rating downgrade (or the potential for such a downgrade) of AEGON or any of its rated insurance subsidiaries could, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies.
IFRS as of January 1, 2005, may have a material impact on
A multi-strategy annuity allows a customer a choice of investment strategies to allocate funds and provides a cumulative lifetime minimum guaranteed interest rate. Early withdrawal by the customer of the cash value of the annuity is subject to surrender charges.
Variable annuities allow a customer to save for the future on a tax-deferred basis and to select payout options that meet the customer’s need for income upon maturity, including lump sum payment or income for life or for a period of time. Premiums paid on variable annuity contracts are invested in funds offered by
AEGON offers limited forms of health insurance, including disability insurance in the Netherlands, Spain and Hungary and accidental death and dismemberment insurance in the United
In Canada, AEGON offers accidental death, critical illness and out-of-the-country medical expense coverages.
AEGON ANNUAL REPORT 2004 55 1 Line of business result represents income before realized gains and losses, excluding interest charges and other.
Available liability capital includes shareholders’ equity, capital securities and subordinated loans.
Time Financial and a newly formed group called The Plan Group.
GIC in 1982. Since then, it has significantly expanded its platform to include traditional fixed rate GICs, funding agreements and fee-based businesses such as synthetic GICs, in which AEGON
The Life Products business unit of TLC provides life insurance products for individuals and companies across Canada.
During 2004, AEGON The Netherlands continued the restructuring process. The product assortment has been reduced and the development of new product propositions is currently underway; integration of the IT systems is in progress and will be completed in phases in 2005 and 2006.
Fund plan and savings plan products. Fund plan and savings plan products are mainly endowment and savings type products, both single premium and recurring premiums with profit sharing based on the selected fund performance. A customer may choose from a wide variety of AEGON funds. AEGON The Netherlands has issued a guarantee of 3% for investments in the Mix Fund and/or the Fixed Income Fund (4% on policies sold before the end of 1999) at the maturity date if the policyholder has paid the premium for a consecutive period of at least ten years or on death of the insured.
Individual pensions. SE also offers a comprehensive range of pension products for individuals. These include stakeholder pensions, pensions for executives and transfers from other schemes and policies allowing an individual to supplement corporate pensions, called free standing additional voluntary contribution plans.
AEGON Asset Management UK (AAM UK) is a major provider of asset management services both within AEGON UK and to institutional customers and individuals. As of December 31, 2004, AAM UK managed approximately GBP 39 billion of funds, providing both mutual and segregated funds for clients.
In June 2004, AEGON announced the start of an operation in the Czech Republic. After the required registration of the operating company with the Czech Commercial Register in
Caja de Ahorros del Mediterráneo (CAM). This partnership combines CAM’s significant customer reach through its banking network with AEGON’s expertise in life insurance and pensions.
Supervisory Board. In preparation for the formal attestation over the financial year 2006 under section 404 of the Sarbanes Oxley
SOX 404, the above statement does not imply an assessment as required by SOX 404.
In addition, the Remuneration Policy offers an incentive for board members through performance-linked pay, reflecting both their individual role as well as the collective responsibilities of the
More detailed regulations regarding conflicts of interest between members of the Executive Board and AEGON are included in the Executive Board Rules. Any transactions in which there are conflicts of interest shall be agreed on terms customary in the industry and are published in the annual report.
in the event of a special cause (as defined in the preferred shares voting rights agreement) for up to six months.
(18,706) (17,421) Annuity, GIC and funding agreement repayments (15,042) (15,402) (18,269)
Balance at to income for Other Balance at January 1 statement default movements December 31
In the Netherlands, the United Kingdom and other countries the impact of equity market movements on estimated gross profits is covered by the yearly or, if appropriate, quarterly recoverability testing; a negative outcome is charged to the income statement in the period of determination. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted for future periods.
AEGON has defined benefit plans and defined contribution plans covering substantially all AEGON employees. In a number of countries, including the Netherlands and the United Kingdom, retirement benefits are insured with AEGON life insurance companies based on the appropriate actuarial formulas and assumptions. In the remaining countries, including the United States, the provisions for pension obligations are vested in separate legal entities not forming part of AEGON.
AXA, Fortis, Generali, ING, Prudential PLC, and Zurich). The comparison is based on the share price performance over the preceding three years.
F.J. de Wit (up to April 22, 2004) 10,603 — —
Increases (decreases) in taxes resulting from: — dividend income exclusions and credits (184) (22) 194
Both insurance and banking companies are required to maintain a minimum solvency margin based on local directives. AEGON’s insurance subsidiaries in the United States are subject to risk-based capital standards established by the National Association of Insurance Commissioners. At December 3 1, 2004, the combined risk-based capital ratio of AEGON’s life insurance subsidiaries in the United States was 370%. Under the Insurance Industry Supervision Act 1993 in the Netherlands, life insurance companies are required to maintain equity of amongst others 4% of general account technical provisions and, in case of no interest guarantee, 1 % of technical provisions with investments for account of policyholders. At December 31, 2004, the solvency as a percentage of the locally required solvency margin was well in excess of the minimum ratio. The Financial Services Authority regulates insurance companies in the United Kingdom under the Financial Services and Markets Act 2000 and sets minimum standards for capital adequacy and solvency. At December 31, 2004, the free assets ratio of Scottish Equitable plc was 1 1.5%.
In general, the accounting treatment of derivatives mirrors the accounting treatment of the underlying financial instrument. In the balance sheet, the book values, if any, of the derivatives are recognized under the captions of the related underlying financial instrument. In the income statement the interest income and expenses of the derivatives are included in the same line-item as the underlying financial instrument.
Realized and unrealized results on derivative financial instruments are recognized in the same period and are included in the same line-items as the results of the related investments, liabilities and borrowings.
• Caps/floors are contracts to settle the difference between a market interest rate and a certain strike rate for a certain period of time on a specified notional amount.
Accident and health insurance premiums 1 1 0 87 82 6 — —
USD GBP AT DECEMBER 31, 2004 Americas Netherlands Kingdom countries EUR USD
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in The Hague.
Senior executives of AEGON companies as well as other AEGON employees have been offered AEGON stock appreciation rights in 2004, 2003, and 2002 which do not entitle the holder to buy AEGON shares but provide the same financial benefits. Stock options have been offered in 2001 and previous years. Rights and options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights granted in 2004 vest after three years and can only be exercised during the four years after the vesting date. The rights granted in 2003 and 2002 vest after two years and can only be exercised during the five years after the vesting date. The plans for 1998 up to and including 2001 can be exercised three years after being granted and then during a period of two years. Plans for stock appreciation rights and, in the past, stock option plans can only be established after the prior consent of the annual General Meeting of Shareholders. If, subsequently, the Executive Board decides to implement such plans, that decision has to be approved by the Supervisory Board. Options granted pursuant to the purchase agreement with Providian have various expiration dates. The options granted in 1997 to senior executives of former Providian business units fully vest in three years and the exercise period is up to ten years, with the latest period ending in August 2008. In compliance with regulations under Dutch law, stock appreciation rights and options cannot be exercised in black-out periods.
5 SHAREHOLDERS’ EQUITY Share Paid-in Revaluation Other Net Total Total capital surplus account surplus fund income 2004 2003
Changes in the provision for deferred taxation (63) (106) 10 (47) (53) (153)
In order to fully reflect the prevailing market price of AEGON N.V. common shares within the indication provided, the number of dividend coupons that gives entitlement to a new common share of EUR 0.12 will be determined on May 9, 2005, after 5.30 p.m., based upon the average share price (quotation Euronext Amsterdam) in the five trading days from May 3, 2005, up to and including May 9, 2005.
The adjustment shown in the reconciliation in the net income column represents the difference between the release of the deferred results on a Dutch accounting principles basis and the realized results on a US GAAP basis, and also includes gains and losses on debt securities in the trading portfolio.
Under US GAAP the technical provisions for traditional life insurance contracts are computed using the net level premium method with investment yields, mortality, lapses and expenses based on historical assumptions, and include a provision for adverse deviation. For universal life contracts and investment type contracts (annuities) the technical provisions are equal to the policyholder account balances at the balance sheet date. The technical provision in the United Kingdom is reduced to equal the contract holder balance. The technical provision for fixed annuities, GICs and FAs is the same as under DAP.
The common shares of AEGON N.V. are quoted on stock exchanges in: • Amsterdam