Reference is made to page 36 for further details on financial highlights.
Independent and employee agents, marketing companies, financial institutions, brokers/dealers, wirehouses, affinity groups, direct response, worksite marketing, institutional clients
Key competitive strengths • Market leader in nearly every business segment • Products distributed through diverse, broad-based channels of distribution.
Key competitive strengths • Full line insurer profitably serving virtually every market segment • Business units with their own products, brand names and distribution channels • Strong relationships with leading professional intermediaries, the key distribution channel • Excellent cost and margin control
Key priorities for 2002 • Consolidate activities on production platforms to achieve cost leadership and improved customer service • Expand the product line with emphasis on savings, specialized insurance and pension products • Standardize and utilize IT and on-line services to extend and develop the distribution network and to support the professional intermediary
• Further strengthening of relationships with professional independent intermediaries, e.g. via internettechnology
Individual and group pension and life products, asset management, mutual funds, third party pension scheme administration
Key competitive strengths • Financial strength to compete at the forefront of the financial services industry • Long-term investment performance • Experienced provider with a quality image • Flexible structure to maximize new business opportunities
Key competitive strengths • Range of distribution channels • Targeted product development • Excellent cost control
Key competitive strengths • Broad product range, innovative organization • Professional sales network
Kees J. Storm started his career at one of AEGON’s predecessors in 1978 as a member of the Executive Board. After the merger of AGO and ENNIA he was responsible for the insurance activities of AEGON USA, the Netherlands and Europe (excluding the Netherlands). In May 1993 he became Chairman of the Executive Board of AEGON N.V. He will retire on 1 July 2002 and on 18 April 2002 Don Shepard will take over as chairman of the Executive Board of AEGON N.V.
Group Tax Group Treasury Group Treasury Company Secretary Adri D.J. Verzijl C. Michiel van Katwijk Investor Relations Peter Tuit
The Executive Board from left to right: Kees J. Storm, Donald J. Shepard, Paul van de Geijn, Joseph B.M. Streppel
Donald J. Shepard began his career with Life Investors in 1970. Serving in various management and executive functions with Life Investors, he became Executive Vice-President and Chief Operating Officer in 1985, a position he held until AEGON consolidated its other US operations with Life Investors to form AEGON USA in 1989. He became a member of the Executive Board in 1992 and he is also Chairman, President and CEO of AEGON Americas. On 18 April 2002 he will become the new chairman of AEGON N.V.
AEGON N.V. is the holding company of one of the world’s largest listed insurance groups. The Group’s businesses offer a diverse portfolio of products: principally in life insurance, pensions and related savings and investment products; but also in accident, health and general insurance.
That is why we give all AEGON businesses the freedom to organize themselves around the customers they serve: to stay close to their needs, to respect local markets, to be flexible and responsive to their ever-changing requirements.
In a world of complexity it is always good to remind ourselves of the basic goals that underly our business, which is why we have chosen ‘creating better futures’ as the overall theme for this year’s annual report.
He was appointed in 1990; his current term expires in 2005. He is Chairman of the Compensation and Nominating Committees and a Member of the Audit Committee.
She was appointed in 1992; her current term expires in 2004. She is a Member of the Nominating Committee.
He joined the Board in 1997; his current term will end in 2005.
Former Chairman of the Executive Board of N.V. Koninklijke KNP BT
Dutch corporate law, including, in particular, the composition of the Executive Board, corporate governance and group strategy. In our deliberations we worked closely with the
Council of the Netherlands and with external parties including the auditors. A formal report of the Supervisory Board’s activities will be found on pages 96 and 97.
Over the course of the year we reviewed and supported the Executive Board’s active decisions on acquisitions and divestitures. These included the acquisition of JC Penney’s direct marketing operations and the subsequent share issue, as well as the acquisition of the World Financial Group in the
The pending changes in Dutch corporate law, which would amend the basis for ‘structure companies’ and affect the responsibilities of the Supervisory Board, led to active discussions about AEGON N.V.’s position. As a result, alterations to the company by-laws are being considered to further advance the transition of the company to truly international status.
We took active interest in development of AEGON policies on fair value, embedded value, dividends provisioning and the group-wide risk management report. The Audit Committee also reviewed Ernst & Young’s fee and independence, prior to advising on the firm’s reappointment as external auditor for another year. See also pages 98 and 99.
On 18 April 2002, Kees J. Storm will step down as Chairman of the Executive Board and retire on 1 July 2002. AEGON
has benefited from his strong and charismatic leadership for nine years, in which time the company has grown into one of the world’s largest and most profitable life insurers. We are deeply grateful for his involvement with AEGON and its precursor companies dating back to 1978 and for the strong values he has fostered within the business: team spirit, striving for excellence, and dedication. We look forward to working with him as a colleague on the Supervisory Board.
Kees J. Storm, the Supervisory Board intends to appoint Johan G.
Morris Tabaksblat, Chairman review, the decision was made to establish a fourth committee to focus on issues relating to corporate strategy.
The Supervisory Board has three separate committees from among its nine members. These are the Nominating,
AEGON supplements its autonomous growth with selective acquisitions. Acquisitions are preferred in countries where AEGON already has a presence in order to build scale and enhance distribution. AEGON limits its annual investment in greenfield and start-up operations to 3% of net income.
The AEGON Executive Board from top: Donald J. Shepard, 55 (American), Kees J. Storm, Chairman, 59 (Dutch), Paul van de Geijn, 55 (Dutch), Joseph B.M. Streppel, 52 (Dutch)
AEGON touches the lives of millions of people around the world in many different ways. Our goal is to help them all create better futures. Our actions in doing so are driven by: respect, responsibility, ambition and clarity.
For stockholders the emphasis must be on achieving attractive shareholder returns and high levels of security and reassurance through the clarity of our strategy, the quality of our management and our strong financial track record.
For our employees, the people who make our business the unique story it is today, we strive to create a thriving, energetic business culture in which personal respect is encouraged, performance rewarded, training of staff is encouraged and the human side of our business comes first.
For the intermediaries and agents who sell our products in the market, creating better futures means giving them the market information, low operating costs and flexible administrative systems they need to deliver the best service to their customers.
For the many other trusted AEGON partners, it means generating new ideas and services that provide mutual benefit and creating partnerships based on clarity, honesty and integrity.
For all of the other stakeholders in our business, we want to work hard to recognize and accept our wider responsibilities to the communities and environments in which we do business. We believe that a constructive approach to assure sustainable performance is essential in creating better futures for us all.
Though not immune to these influences, we delivered a 16% increase in net earnings and a 12% rise in net earnings per share, so ensuring a nineteenth consecutive year of earnings growth.
Group are increasingly identified as the life and pension providers of choice, providing a solid base on which to build our future.
The theme of this year’s Report — creating better futures — is especially appropriate for an Executive Board whose leadership is changing, yet firmly committed to the continuity of AEGON’s core values and direction, as we have done for many years. The Report also contains discussion of six core contributors to our 2001 results: our decentralized organization; balanced product lines; emphasis on value; multi-branded/multi-channel distribution; technology and corporate responsibility. These strengths will enable the
There have been two consecutive years of world economic weakness — exacerbated by the effects of the terrorist attacks of 11 September and the difficult investment climate — and ongoing industry-wide challenges such as pressure on margins, regulatory burdens and credit quality. In all of our markets, we face an uncertain and difficult environment that weighs on our short-term growth prospects.
With the acquisition of JC Penney’s direct marketing activities last year, AEGON is now the world’s largest direct supplier and marketer of supplementary life and health insurance products. The integration of AEGON
AEGON Direct Marketing Services marks a major step forward in direct sales technology that will be applied in the USA and other countries. The new organizational structure adopted by AEGON USA last year will facilitate cooperation among the various companies, while keeping decision-making close to the market. AEGON Canada is diversifying its distribution and product portfolio in the wealth accumulation market. Following the acquisition of
Mexico were extremely positive, and AEGON continues to be attracted to prospects in the Mexican insurance and pension market.
EU economies hold significant promise. Acquisition opportunities are expected to arise from consolidation and, in certain cases, eventual demutualization. Here AEGON’s specialized expertise, careful acquisition approach and balance sheet strength makes it an ideal partner. Innovative savings products such as those being developed in the collaboration between AEGON The Netherlands and food retailer Albert Heijn — or offered by Spaarbeleg/MoneyMaxx will help further expansion in European markets. AEGON UK
Netherlands and the UK offers further opportunity for growth. In Asia, operations in Taiwan are growing quickly. In mainland China AEGON was awarded a license during 2001 and is negotiating with a local partner as a prelude to opening up operations in a leading city within this highly promising new market.
will take over as Chairman of AEGON N.V. effective 18 April 2002. Though our core values remain constant, AEGON has undergone extraordinary change over the last nine years, and Don Shepard’s appointment is a fitting symbol of our transition from a Dutch insurer to an international Group.
I am proud of the changes we have seen: an eight-fold increase in market capitalization; a continuous renewal of the product offering so that three quarters of our 2001 sales came from products that did not exist when I became
But I am equally proud of the things that have not changed: a decentralized, restless organization with a bias towards action, focused and dedicated employees with great initiatives; a sound growth record; long, mutually beneficial relationships with our key distribution partners; excellent ratings and disciplined financial management; and most importantly, an increasingly self-confident culture of shared success reflected in our motto: ‘Respect People,
Notwithstanding our many successes to date, a host of challenges await AEGON’s management team, notably in the form of margin pressures, increased regulatory burdens, risk management related issues, but also new opportunities.
I am confident our leadership is equipped to address these challenges.
Maintaining and managing a high quality investment portfolio is more difficult in today’s volatile economic environment, as evidenced by the unexpected collapse of
Enron, a highly rated company ranking among the ten largest US companies. Despite our high quality investment grade bond portfolio at AEGON USA, we are not immune to the market-wide increase in corporate default losses.
Greater coordination of asset management operations and information sharing has become a higher priority in this volatile investment climate.
However, we have a positive outlook for the underlying growth of our core business. Therefore, barring unforeseen circumstances, net income and net income per share for 2002 are expected to be at least equal to the 2001 earnings.
Don Shepard, who has been a friend and colleague for over twenty years, will take over. Don is a professional with over thirty years of experience and enjoys working with people. With great confidence, I hand over the ‘conductor’s baton’ of our AEGON (jazz)band to him. There will be ample challenges for him and for the entire AEGON Group to meet and resolve.
My own challenges will concentrate on a new era in my life, yet I will remain closely connected with the developments of the AEGON Group.
The decentralized organization must also deliver economies of scale to win market share as lowest cost producer. Therefore, to optimize efficiency and control costs, all of AEGON’s country units are looking for opportunities to localize the front-office where agent or other intermediary interaction take place with the customer, yet standardize and concentrate policy and back-office systems where IT, communications, internal reporting, regulatory compliance and other management support functions are overseen.
This meant that AEGON companies in some cases partnered with distribution channels that have made the decision to outsource their administrative activities or, in other cases, drew on available resources or were taken in-house such as various call center facilities.
growing willingness to share information, expertise and resources in pursuit of common objectives; an outgrowth of the developing web of personal relationships developed whenever AEGON professionals gather to reinforce a culture of cohesiveness and shared values. Besides exchanging ideas and information this internal cooperation is increasingly important as a driver of new business.
With the continuous development of new products, services and distribution models, and with the steady strengthening of relationships within the AEGON organization, the outlook is for further cooperation based on shared objectives and natural synergies.
AEGON Bank A number of business units of AEGON The Netherlands have developed banking and investment products for both private and corporate markets. In order to support and accelerate these activities, AEGON Bank has been established to accommodate product development, administration, reporting and risk management processes and to facilitate multicurrency and multi-lingual options. AEGON Bank enables the business units to focus on marketing, sales and client services from a central platform. The business units retain the benefits of a decentralized operation, while working closely with their customers in all their different market segments.
AH Geldzaken, the collaboration between Albert Heijn and AEGON The Netherlands, with more than 200,000 customers, also uses the infrastructure of AEGON Bank. The most recent example — introduced in the beginning of 2002 — is an investment product developed by AEGON Pensioen en Advies, which provides the opportunity for employees of large group pension contracts to invest their pension premiums in a number of AEGON funds according to their own preference.
AEGON USA’s Enterprise Client System is an ambitious program to create an integrated, company-wide database to provide a comprehensive overview of each client’s relationships with all AEGON entities.
This is a strategic priority focused on integrating technology and delivery channels to provide customer services when and where it is most convenient. Building a common customer database enables AEGON USA to organize the vast amount of information it has on its customers, access it more efficiently and use it to improve service in all customer transactions. The project, which includes important privacy and security safeguards, is an important step in AEGON USA's ability to deliver services seamlessly to 15.5 million customers across multiple platforms.
With its close focus on the customer, AEGON kept abreast of this trend to become one of the leading variable life providers in all of its markets.
And in a year of economic downturn, when the mood of financial markets swung sharply so that performance became less of a priority than capital preservation, the AEGON product strategy again proved its worth. For years, variable products have been favored, last year sales of traditional products moved ahead well as customers became more risk averse.
Management UK added a range of fixed income investment capabilities, garnering several industry awards and new mandates that justify the ambitions in this area. Likewise in the Netherlands, AEGON saw a growth in market share for savings products, while sales of pension products also benefited strongly.
AEGON’s balance sheet is self-directed by the clients, making use of a wide variety of available investment options according to individual risk-reward profiles. EUR 131 billion is managed by AEGON for its general account, largely by means of a high quality investment grade fixed income portfolio.
(USD 545 million) in charges against the provisions for asset impairments in AEGON USA. Measured over the longer term, AEGON’s credit quality experience remains good, with a average of just 20-30 basis points of default exposure.
Balanced investment approach251 Notwithstanding the effects of corporate bankruptcies, increased volatility, and a general decline in credit quality during the year, AEGON’s investment approach continues to be geared towards generating stable long-term returns.
This applies to all asset categories managed by AEGON: investments for the account of policyholders, investments linked to AEGON’s long term product liabilities, and increasingly, assets managed for third parties.
The drive to create better futures — for customers, for shareholders, for the company, and for all those working for it — lies at the heart of
For shareholders, the target is above-average growth in earnings per share through disciplined adherence to a clear strategy. Consistency and reliability in earnings forecasting is a particular source of pride.
For customers, the AEGON commitment to providing value means that both individuals and groups should be able to fulfill their needs for protection, savings, pensions or investments at the desired level of cost and service. Multiple brands and distribution channels ensure every customer has access to the most appropriate products delivered in the most convenient manner.
Intermediaries and agents also benefit from the AEGON value commitment, which supports them in serving their clients with the aid of flexible administrative systems, low cost products and training to improve market insight.
retirement savings market both at group and individual level through the introduction of stakeholders pensions.
While active debate continues over how best to distribute these mass-market pension and savings products, Scottish Equitable — the largest company within AEGON UK — has focused on helping its independent financial advisor partners to serve the corporate stakeholders market, taking advantage of a need for quality advice.
For AEGON staff, the chance to thrive in an organization committed to excellence and professionalism is clearly valued, as is a stock option program covering virtually all employees. Through a range of informal and formal programs, including the company’s own Inner Circles, AEGON
conferences, managers and key staff come together to share ideas and learn from each other. As personal relationships develop, so do business dealings across divisional borders.
As retirement planning and life insurance are by definition long-term activities, the AEGON emphasis on value includes the assurance that whatever structural changes markets may experience, customers benefit from products offering maximum flexibility and reliability.
AEGON’s commitment is to offer innovative, flexible, and high quality products that are backed by a Group with a reputation for quality, reliability, and performance.
Embedded Value Embedded Value has long been used by AEGON to monitor the performance of insurance contracts and as an important internal aid to pricing and cost structure management. AEGON believes Embedded Value to be an important management tool. Embedded Value is defined as the present value of future distributable earnings of the existing book of business, after taking into account solvency requirements and tax liability.
Notwithstanding the emergence of e-commerce in some sectors of our business, life insurance, pensions and investments are mostly sold and serviced through professional intermediaries. They remain the traditional preferred distribution channel thanks to their thorough understanding of these sophisticated products and long-standing client relationships and continue to be the leading distribution channel for AEGON’s core products in all of its national markets.
Associating different brands with particular market segments served by particular distribution channels, AEGON uses its brand diversity as a way of growing and serving new and attractive niches in every market. This increases customer choice, while ensuring steady expansion of the business in each country or market. The Group’s companies offer life and investment products at various steps in the value chain, from wholesale investment contracts and reinsurance to private label products sold by independent financial institutions, through affinity groups and pension plan sponsors, and directly to individual clients via intermediaries or direct marketing. Market segments are served by specifically designed product lines and distribution that match the level of cost and service required by customers to fulfill their insurance, pension or investment needs.
Growing our presence in Canada In 2001 AEGON took another step in growing its presence in the Canadian market through its acquisition of National Financial Corporation, parent company of Money Concepts (Canada) Ltd., a national network of franchisees and representatives offering mutual and segregated funds and several life insurance products.
AEGON name and rating resonate well in wholesale and financial markets. A multi-brand approach allows
AEGON to penetrate existing markets better with competing distribution channels than a single brand approach.
AEGON has undertaken a wide variety of initiatives to support its distribution partners, ranging from training and technology to outright investment when appropriate.
As specialized equal partners, the two companies have developed a flexible, economical in-store system that allows customers to accumulate cash savings conveniently and privately at the check-out counter using the customer’s loyalty card. In its first year, the system has attracted more than 200,000 savers, and additional easy to use banking and investment products are scheduled to be introduced through this highly innovative format. A Dutch business magazine ranked the Albert Heijn Spaarrekening as ‘product of the year’, a rare praise for a financial product.
Similarly, telecommuting has been encouraged by a number of AEGON units to retain key employees and control costs.
Transamerica’s, for example, allows it to reduce its annual expenses by more than USD 34 million. Ultimately, this results in lower unit costs, increased flexibility and improved service delivery.
The approach adopted by AEGON business units to the internet and web-based services proved to be the correct course in 2001. All units use the internet in a variety of ways, from providing customers and intermediaires with convenient, on-line account information to facilitating the sales and policy issue process.
A leader in US direct sales In 2001 the AEGON USA companies took a major step to extend expertise in direct marketing and database management with the acquisition of JC Penney’s direct marketing insurance operations. With the acquisition, AEGON Direct Marketing Services (ADMS) is now the leading player in its market. Direct marketing is well suited to the life and supplementary insurance products that this marketing and distribution powerhouse is ideally positioned to offer.
community, AEGON supports initiatives designed to create better futures for all our stakeholders.
AEGON culture — which fosters initiative, values clarity and integrity, and encourages contribution to the community –
is one of our defining characteristics. We seek to do business in a responsible fashion where respect, responsibility, ambition and clarity play an important part.
Within AEGON careful attention is paid to our own progress in these fields by means of an Inner Circle devoted to corporate responsibility. Prepared in
Creating better futures for the community At AEGON, striving for excellence goes beyond the world of business. We have a long tradition of supporting excellence in sport, such as our speed skating sponsorship. 2001 marked AEGON The Netherlands’ 25th anniversary as sponsor of the speed skating — a partnership that began in 1976 with the Ennia Challenge Cup. Since 1984 company sponsorship has helped the Royal Dutch Skating Association with the training and development of Dutch skaters who go on to compete in World Cup competitions and the Olympic Games.
Council of Life Insurers (ACLI) Integrity First Competition. The award program recognizes companies that have demonstrated successful initiatives to increase public confidence in life insurers and promote integrity in their business operations or product marketing. This award recognized the exceptional Compliance Field Advisor Program, which provides important educational compliance support to an independent field force and improves customer understanding of the company’s products. IDEX, another AEGON
creating better futures through social responsibility 2 Creating better futures through health AEGON has long been involved in the fight to improve everyone’s quality of life by supporting a program of research into prostate and breast cancer run jointly by the Johns Hopkins Oncology Center, School of Medicine in
Results of the extended research program were also presented at the prominent American Association for Cancer Research (AACR). One participant has been included in the prestigious Innovators in Breast Cancer Research Program and exchange meetings between the two institutes were organized.
Within the business environment, AEGON actively contributes to the discussion on International Accounting Standards (IAS). AEGON has made proposals in order to come to a workable solution to the issues which confront the insurance industry in the conversion to
Flexible Benefits Scheme at the recent Pension Scheme of the Year
Safety Council’s highest award, the Sword of Honour. This award recognizes organizations that have implemented safety systems that are among the best in the world.
On general account life products, AEGON carries the investment risk and earns a spread (difference between investment performance and crediting rates to customers)
Term insurance covers the insured for a specific period of time. The policy pays death benefits only if the insured dies during the term. Policies can usually be renewed upon expiration and premiums normally increase upon renewal.
A fixed annuity is a contract upon which the client is guaranteed a fixed minimum payout. Payments can either start immediately or be deferred to start later. Should the insured die prior to annuitizing the policy, the beneficiary receives the accumulated cash value death benefit.
Funding agreements are issued to non-tax qualified clients. These are usually perpetual with no stated final maturity and liquidity option. The contract is terminated at the notification of the client; notice provisions range from three months to 13 months in advance of the payout date.
(independent) agents brokers direct response worksite marketing financial institutions pension funds*
individuals (independent) agents marketing organizations brokers financial institutions individuals (independent) agents direct marketing supermarkets franchise organizations
Annuities allow the client to save for the future on a tax-deferred basis and allow payout options that meet the client’s need for income upon maturity. This can be in the form of a lump sum, income for life or income for a period of time.
Includes products that generate fee income for AEGON by providing management, administrative or risk services related to off balance sheet assets (i.e. equity or bond funds, third-party managed assets and collective investment trusts). Much of this income is generated by synthetic GICs which differ from traditional GICs in that the client owns the assets. The contract defines a crediting rate based on a formula that is inclusive of portfolio gains and losses.
weathered the effects better than many of its peers, due to the fact that the company does not offer property and casualty products and insurance and investment losses were moderate. The pre-tax amount reported for all insurance claims, net of reinsurance, was EUR 34 million, with the majority of claims attributable to reinsurance losses.
During the following days and weeks, AEGON USA pulled together to respond to the tragedies in a number of ways, including participating in industry-wide initiatives to assist victims and beneficiaries, reviewing business continuity procedures and strengthening policies protecting workplace security.
additional demand for protection products following the events in the fall.
AEGON USA made tremendous progress in 2001 expanding its channels of distribution, improving services to customers, and capitalizing on internal synergies. In 2002
Offering a broad range of insurance and investment products through independent agents, financial advisors, marketing companies and registered representatives, the Agency Group and its four divisions continued to be major contributors to revenues. Each channel serves distinct market segments, from home service to high net worth individuals. Products offered through professional agents and intermediaries remains the Agency Group’s dominant method of delivery.
Monumental achieved steady growth and excellent profitability in 2001, reaffirming its role as one of the leaders in the home service market. Known for its operational efficiency, Monumental is now extending this same discipline to the field, where agents are strengthening their sales skills and overall consistency of service.
Strong recruiting and sales efforts in 2001 contributed to solid growth for the Individual Division. The year saw substantial production in its bank and corporate-owned life insurance markets. Transamerica Insurance & Investments
The Equity Group, suffering its first downturn in variable life sales in over a decade because of the decline in the financial market, focused on helping clients understand the long term aspects of their investment alternatives and positioning their investment strategies to meet their
(ADMS), which markets life insurance and supplemental products to consumers through direct channels. The acquisition of JC Penney’s direct marketing insurance operations in June 2001 has made AEGON USA the largest direct marketing organization of life and supplemental insurance in the United States, with USD 2.3 billion in revenues and 15.5 million customers. Customers who might not be reached through AEGON USA’s other channels – such as the underserved middle market or customers who prefer to buy direct – can purchase ADMS’s comprehensive product portfolio through direct mail, point-of-service, the internet, telemarketing or direct response advertising. Products are marketed through the endorsement of sponsoring organizations, such as financial institutions, associations, credit unions or car dealers, as well as directly to consumers.
Financial Institutions division benefited from conservative investors’ flight to guaranteed fixed interest rate annuities.
This business, which provides a range of guaranteed savings and investment products to institutional retirement and savings clients, continued to expand an already diversified product and market base by more than doubling balances in its Euro and
Global medium term note program, as well as adding USD 6.5 billion in fee-based synthetic GICs sold to retirement plans.
In 2001 Transamerica Reinsurance focused on growth and profitability through product innovation, developing new markets and disciplined risk analysis. During the year
Services, serving the smaller corporate market, achieved good results despite the challenges of the volatile equity markets and an unsettled climate. Both are well-positioned to take advantage of the long-term, sustainable growth opportunities in the retirement market. Diversified, for example, is one of the few organizations of its kind making the necessary investment in technology to address the growth that lies ahead.
AEGON USA Investment Management is responsible for managing over 96% of AEGON USA’s USD 94.9 billion of invested assets. Bonds constitute the great majority of invested assets. Commercial mortgage loans, alternative investments, and equities comprise the balance.
Despite the high quality investment grade bond portfolio held in the US, an expected level of credit losses is anticipated and priced for in all products. Due to the current poor credit cycle, EUR 631 million was added to default provisions during 2001, while impairments totaling EUR 408 million were charged against these provisions. However,
AEGON USA ended the year with less than 0.5% nonperforming assets as a percent of total assets. Moreover, the portfolio achieved a total return of 7.96%, which exceeded comparable benchmarks.
AEGON’s highly successful joint insurance and pension fund management ventures with Seguros Banamex AEGON and
Transamerica Life Canada, AEGON Canada’s key operating subsidiary, succeeded in maintaining a leadership position in the sales of life insurance and segregated fund products.
Through 18,000 independent distributors, representing the largest independent network for the distribution of life and savings products, Transamerica Life Canada performed well and aggressively pursued growth in a challenging marketplace. Product innovation formed the cornerstone of growth in 2001, with the launch of a new universal life product and the introduction of a ‘best-of-breed’ segregated fund offering.
Management has spent the last year concentrating the business on market segments where there is a clear competency and strategic advantage in terms of market position. Nearly a dozen smaller businesses representing approximately 15% of total assets have been sold or liquidated. The operations are now clearly directed towards three key segments: commercial finance, leasing activities, and real estate information services.
AEGON The Netherlands once again increased market share and achieved its profit growth targets.
AEGON The Netherlands that was concluded within a relatively short period.
An important innovation was the expanded contribution of Adfis, an internal consultancy providing sophisticated tax and legal advice to distribution partners and high net worth individuals.
AEGON Nabestaandenzorg is the new unit into which the funeral insurance portfolios of AEGON Personal Lines, NVG
and AXENT/AEGON will be merged. Non-life lines, such as the motor portfolio, again produced good profit growth, as the focus on loss prevention and careful risk acceptance continued to pay off. Such strong profit growth is exceptional for this market.
Preparations for the introduction of the euro were skillfully managed and completed well before the end of the year. This substantial and complex project not only aimed to safeguard business continuity but also to strengthen relationships with independent intermediaries across the country, providing expertise and support.
Smooth introduction of the euro within the company was achieved thanks to the dedication of all those involved in the implementation project.
The cost/revenue ratio again improved in 2001, thanks to the streamlining of the back-office system, outsourcing and integration of IT and internet into the business activities of all business units. To help improve efficiency and reduce costs, AEGON The Netherlands business units make increasing use of centralized back-office support for IT, administration and policy issuance.
In 2001, a year of market uncertainty in which the number of major players again declined, the strong reputation of
Independent Financial Advisors (IFAs) bore fruit. With a flight to quality stimulated by some well-publicized insurance failures, and with the stakeholder pensions program off to an uncertain start, Scottish Equitable emerged as just one of a handful of providers in the UK corporate pensions market perceived as offering top quality products and services, a reliable commitment to its business partners and superior financial strength. Scottish Equitable’s commitment to being at the forehand of industry developments was reinforced when it was one of the first five companies to have succeeded in achieving accreditation under the
contributed actively to the ongoing debate about the future shape of the pensions and investment industry.
The management team of AEGON UK from top: David Henderson Group Chief Executive
Group risk or employee benefits emerged as an important activity following the integration of the Guardian
Scottish Equitable International, the unit responsible for marketing overseas products to UK customers, experienced a difficult year due to the slowdown in single premium investment products.
As the regulatory debate concerning pension and regulatory reform moves into higher gear with new proposals to liberalize the way pensions, investments and savings plans are sold in Britain, AEGON UK will continue to work with partners to ensure a healthy industry. The company will continue to grow and fully integrate the IT-systems to improve efficiency and accessibility of services and reduce expenses. As customers and advisors seek out strong, wellcapitalized providers in anticipation of these changes,
Finally, continued focus on cost control during a period of further growth will enhance our cost competitiveness.
In 2001 AEGON Hungary established itself as one of the country’s top seller of new life policies and delivered good profits growth with the help of its stable, high-quality sales force. As a result of extensive investment and reorganization, AEGON Hungary has now consolidated a dominant market position in both the life and non-life sector.
AEGON Spain’s life insurance results declined due to a turbulent year caused by a shifting of assets away from falling equities; results in general and health were good in 2001. All units continued to focus on portfolio quality, more targeted sales and greater process efficiency.
As in other markets, unit-linked sales slowed sharply as consumers sought more traditional savings and investment products. This caused a dramatic fall-off in single premium sales volumes, especially through banks, which used the falling stock market to encourage clients to select other investment and savings alternatives.
Vigorous efforts to improve the motor insurance portfolio is quality bore fruit, thanks to process efficiencies and upgraded IT systems. There is greater accountability of agents when writing policies and evaluating risks, while they enjoy much greater branch support. As a result, there was once again improved handling of routine functions at head office using powerful IT support.
The health sector yielded good returns, benefiting from cross-selling by general insurance agents. Problems with the state-funded national health program did not, however, make matters easier for the private sector. For this sector to enjoy really rapid growth, tax laws will need to be changed, or compulsory health cover phased out.
During 2001 AEGON Taiwan life insurance completed the integration of Transamerica’s local activities and acquired
Plans to tap the huge potential of mainland China’s market received a welcome boost last 25th September, when
AEGON believes China’s huge potential can best be realized by mobilizing the resources within the entire Group to create a distinctive offer and build significant market share in what is expected to become a competitive environment.
The office was opened early 2002. The reinsurer already had operations in Taipei, Taiwan, Seoul, Korea and Hong
James Liu president and CEO of AEGON Life Insurance (Taiwan), Inc.
Income geographically 3,259 3,030 8 Income before tax business units 3,640 3,282 11 –355 –409 –13 Interest charges and Other –397 –443 –10
At At At At 31 Dec. 31 Dec. 31 Dec. 31 Dec.
Outstanding common shares: — Number of common shares (millions) 1,422 1,351 5 — Weighted average number (millions) 1,357 1,315 3 1 Labouchere in 2000 reclassified to unconsolidated group company. 2 Based on the weighted average number of common shares. 3 Based on the number of common shares outstanding at the end of the period.
AEGON’s disclosure practices and accounting standards have been developed in accordance with generally accepted accounting principles over many years with due consideration of the needs of our stakeholders, including the various regulators and research analysts. In recent years, substantive supplemental information has been added to AEGON’s annual and quarterly accounts, including new production and capital allocation information which supplements the expanded segment analysis of life insurance earnings by country unit and provides greater transparency of AEGON’s results. AEGON remains committed to providing useful disclosure to its stakeholders, including future requirements which may be promulgated within the Dutch civil code and adoption of International
AEGON also provides estimates in this annual report on earnings sensitivity in the Financial Review section on page 40. In this financial review and in other parts of this annual report, information on AEGON’s accounting principles and procedures in relevant areas in accordance with the recent
In the United States, AEGON’s shares are traded on the New York Stock Exchange (NYSE) and in Europe, the shares are included in many major indices and are listed on the stock exchanges in London, Amsterdam, Frankfurt and Zurich.
An active investor relations program focuses on providing investors around the world with timely information and access to senior management, and on keeping AEGON attuned to changes in the markets. Along with periodic news releases and shareholder reports, investor and analyst briefing materials, financial interviews and a highly regarded corporate web site, mainstays of the program include management ‘road shows’ and investor days, and webcasts and teleconferencing. In addition, investor relations personnel in the Netherlands and the United States are available to answer questions and maintain the dialogue between AEGON and its key financial supporters.
UK contributed to this growth. The Americas was 13% lower due to expected lower term life and institutional single premium sales. The USA, however, reversed this trend and produced a 16% increase in standardized life production in the fourth quarter. This was more than offset in the fourth quarter totals for the Americas by a cumulative correction for life production in Mexico for the full year.
(USD 25 million) of acquired JC Penney’s direct marketing insurance operations’ earnings and an addition to the default provision of EUR 174 million for 2001 compared to
Life for account of policyholders results reflect higher recurring premium revenues and an increase in in-force business. Earnings also benefited from the positive development of the equity market in the fourth quarter.
Improved cost efficiency in the Netherlands also contributed to the earnings increase, while in the UK a contribution to the earnings increase arose through higher surrender charges as individuals reassessed their options for taking retirement income.
EUR 30 million for 2000. The higher addition to the default provision more than offset higher account balance earnings.
Lower variable annuity results are due to lower account balances which reduces fee income and increases amortization of acquisition costs. Variable annuity deposits decreased 28% but were up 12% in the fourth quarter in the United States reflecting strong production from new partnerships with financial institutions. In Canada segregated fund deposits continued to lag last year’s sales substantially as a result of the depressed equity markets and changes in product design due to regulatory requirements.
general insurance as well as lower interest rates on debt allocated to insurance activities.
United Kingdom were more than offset by a low tax rate on the gain from the sale of the Mexican operations.
higher dividend of EUR 0.83 per common share is proposed for the year 2001 (2000: EUR 0.74). The dividend proposal will be submitted at the Annual General Meeting of
Shareholders (AGM) for approval on 18 April 2002. After taking into account the interim dividend of EUR 0.37, this represents a final dividend of EUR 0.46 per common share.
The final dividend will be paid entirely in cash or stock at the
option of the shareholder. AEGON shares will be quoted exdividend on 22 April 2002. The selection period during which shareholders can express their preference will commence on that day and last up to and including 29 April 2002. The value of the share dividend will be based upon the average price of the AEGON share on the Euronext
Amsterdam stock exchange for the four trading days from 30 April 2002 up to and including 6 May 2002. Cash or stock dividends will be payable as of 14 May 2002.
to EUR 131 billion (USD 115 billion) during 2001 and now represent 43% of total investments. This part of AEGON’s investment portfolio represents assets accumulated related to products on which AEGON carries the investment risk and earns a spread. In the Americas and the Netherlands, the increase in mainly fixed income securities is for the largest part the result of increased new production.
Americas, which comprise 98% of total general account investments, performed well compared to their relevant benchmarks. The investment portfolio was slightly re-balanced from equities towards fixed income during the year, partly driven by lower equity markets. At the end of 2001, 92% of the general account portfolio was invested in fixed income securities and 8% in equity securities and real estate.
As an international life insurance company, AEGON is exposed to currency fluctuations, changes in mortality, longevity and the market value of its investments, credit risk, and the impact of interest rate changes. The risk management framework AEGON applies is designed in line with the sources of income and the business processes of the Group. AEGON’s decentralized organization emphasizes the autonomy of the local units. Each country unit applies strict risk management policies and procedures in the normal course of business. In addition, there are risks arising from the local businesses that potentially impact the AEGON Group as a whole. These risks are monitored at Group level in close cooperation with the various country units. Additionally, sensitivity analyses are performed to assess variability of various parameters. Some of the results are presented throughout this section to show the sensitivity of forecasted earnings and shareholders’ equity in 2002. It should be noted however, that the results presented below are derived from static analyses which are performed without taking into account correlation between factors, assuming unchanged conditions for all other assets and liabilities and no management actions taken.
AEGON’s policy is to minimize the financial impact of operational risks. All AEGON Group units report on these three major risk categories.
Financial Review secondary effects, most notably the price changes in equity markets following the events, also had a negative impact on
AEGON, both on its general account equity investments and on the fee income derived from unit-linked and variable products.
US for several days, AEGON’s liquidity position was not substantially affected during the aftermath of the terrorist attacks. AEGON’s balance sheet liquidity is strongly supported by available committed credit lines.
In the period shortly after 11 September, AEGON maintained excellent liquidity without accessing liquidity under these committed facilities.
Currency risk is managed based on AEGON’s currency risk policies. For investments, these policies are based on asset and liability matching principles. Equity held in subsidiaries is kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and self-imposed capital requirements. However, this may effect the level of AEGON’s shareholders’ equity. The remainder of AEGON’s capital base (capital securities, subordinated and senior debt) is held in various currencies relative to the book value of
AEGON’s activities in those currencies. As a result, AEGON’s debt-to-total-capital ratio is not materially affected by currency volatility. AEGON does have a translation risk on earnings generated by its various country units. AEGON
does not hedge its income streams. As a result, earnings may fluctuate due to currency translation risk.
The starting point for risk management resides with the country units. The country units are responsible for their own asset and liability management.
Movement of markets Effects on net income Effects on shareholders’ equity
Parallel yield curve shift up of 100 basis points between 0.0% and –1.0% — Parallel yield curve shift down of 100 basis points between 0.0% and 1.0% —
Increase versus the euro of USD, GBP and CAD of 15% between 10.5% and 11.5% between 13.0% and 14.0% Decrease versus the euro of USD, GBP and CAD of 15% between –10.5% and –11.5% between –13.0% and –14.0%
Increase of equity and real estate markets of 15% between 4.0% and 5.0% between 7.5% and 8.5% Decrease of equity and real estate markets of 15% between –4.0% and –5.0% between –7.5% and –8.5%
Increase in average life expectancy of one year less than –0.5%
1 Basic assumptions: no correlation between markets and risks; unchanged conditions for all other assets and liabilities; no management actions taken; all changes are relative to forecasts for 2002.
Presently, the other country units target the duration of the assets to be about equal to the duration of the liabilities.
The exposure limits are as follows: Exposure limit on single name % of general
If an exposure exceeds the stated limits as a result of a downgrade, positions have to be in line with the new limit within a specified period of time, which varies with the asset quality of the security. In all cases, exceptions to the aforementioned can only be made after explicit approval in advance from senior management. 97% of all general account securities rated BB or lower (below investment grade) are held within AEGON USA.
At Group level, the aggregated exposure to financial institutions is monitored. For that purpose AEGON
aggregates exposures from various country units and instruments to assess overall credit risk with respect to counterparties.
AEGON uses derivative financial instruments such as interest rate swaps, options, credit derivatives, futures and foreign exchange contracts to manage its exposures related to investments and borrowings. AEGON does not hold or issue derivative instruments for speculative trading purposes. During 2001, AEGON established a subsidiary, which will act as external counterparty for all over-thecounter derivative transactions executed by AEGON Group units in future periods. This subsidiary enables centralized monitoring and netting of exposures with derivatives counterparties. During 2002, country units that trade OTC
The Netherlands holds the largest investment in equities, both in absolute terms and expressed as a percentage of total general account investments of the country units.
Most operational risks are very specific to the local business, which makes aggregation at Group level difficult.
Group as a whole. All country units have business continuity programs and policies for information security in place.
During 2001, the largest effects on AEGON’s capital base were the issue of new shares to fund the acquisition of the insurance activities of JC Penney (EUR 1.7 billion) and the negative revaluation (balance of realized and unrealized results) of AEGON’s equity and real estate investments for general account (EUR 1.5 billion). Other negative effects include goodwill charged to shareholders’ equity (EUR 286 million), cash settlement of stock option plans (EUR 71 million) and the redemption of convertible subordinated loans (EUR 68 million). Positive effects on shareholders’
With regard to other funding activities operational funding requirements were slightly higher in 2001 compared to preceding years as a result of the funding provided to
AEGON enjoys an extensive amount of additional credit lines, while TFC has access to USD 4.5 billion of committed facilities. During the days immediately following 11 September 2001, AEGON maintained excellent access to liquidity through its outstanding name in worldwide money markets.
AEGON’s capital base, as presented in the table on this page, reflects the capital employed in its core activities. The composition of the capital base was relatively stable during 2001 despite the marked decrease in worldwide equity markets. As a percentage of total capital, equity remained at 69%. AEGON will continue to target shareholders’ equity to be at least 70% of total capital base, while limiting the portion of subordinated and senior debt to 25% of total capital. The remaining part — between 5% and 15% —
consists of capital securities. Additionally, AEGON applies capital adequacy measures for its operating units, which are aimed at maintaining strong capitalization. These selfimposed standards substantially exceed those of regulatory bodies in the various countries. AEGON remains committed to a strategy which assures continued financial strength. In addition to strong credit ratings, this is reflected in the excellent insurance financial strength ratings assigned by both
FINANCIAL STATEMENTS AEGON N.V. 46 Consolidated balance sheets 48 Summarized consolidated income statements 49 Consolidated income statements 51 Consolidated cash flow statements 52 Notes to the consolidated financial statements 54 Notes to the consolidated balance sheets 66 Notes to the consolidated income statements 78 Segment information 85 Group companies 86 Balance sheets of AEGON N.V. 87 Income statements of AEGON N.V. 88 Notes to the balance sheets of AEGON N.V.
AEGON is committed to providing quality information and services to existing and potential shareholders.
As well as the annual report, we publish a separate booklet, historical data booklet 1991-2001, which provides further information and trend data over an 11-year period.
AEGON touches the lives of millions of people around the world in many different ways. Our aim is to help them all create better futures. Our actions in doing so are driven by our four core values: respect, responsibility, ambition and clarity.
Prepayments and accrued income 1,386 1,322 Accrued interest and rent 1,573 1,421 132 180 Other prepayments and accrued income 150 193
Current liabilities 2,741 4,050 Payables out of direct insurance 3,110 4,353 155 153 Payables out of reinsurance 176 164 2,851 1,905 Amounts owed to credit institutions 3,235 2,047 5,690 4,838 Entrusted savings accounts and deposits 6,456 5,199
Summarized consolidated income statements In accordance with Dutch Accounting Principles Amounts in millions
Change in provision for claims Gross 238 –171 Reinsurers’ share –134 212
Consolidated cash flow statements In accordance with Dutch Accounting Principles Amounts in millions
–437 321 Change in provisions –488 348 1,273 1,186 Amortization of policy acquisition costs 1,422 1,284 91 109 Amortization of interest rate rebates 102 118 657 –705 Change in current liabilities 734 –763 1,125 –88 Change in entrusted funds 1,257 –95
–2,290 –2,210 Deferred policy acquisition costs –2,558 –2,393 –84 –56 Interest rate rebates granted –94 –61
Invested and acquired –3,564 –6,531 Real estate and shares –3,980 –7,072 –1,498 –904 Shares of group companies and subsidiaries –1,673 –979
–647 –549 Indirect return real estate and shares –723 –595 3,692 –2,546 Change in investments for account of policyholders 4,123 –2,757 –299 –298 Other –335 –323
Cash flow from financing activities 991 543 Change in subordinated loans and other long-term loans 1,107 588 –19 –391 Repurchased and sold own shares –21 –423 1,509 0 Issuance of common shares 1,685 0 0 –14 Withdrawal of preferred shares 0 –15 26 0 Change in deposits withheld from reinsurers 29 0
–17,066 –19,941 Annuity, GIC and funding agreement repayments –19,059 –21,593 128 –221 Change in liquid assets 143 –239 0.8954 0.9235 Translation rate EUR/USD: weighted average exchange rate
On 8 March 2001, AEGON announced the acquisition of J.C. Penney’s direct marketing insurance operations in the United States. As part of the agreement, J.C. Penney and AEGON entered into a 15-year strategic marketing alliance designed to offer an expanded range of financial and membership services products to J.C. Penney customers. The transaction was effective as of June 18 2001.
A review of the impact on AEGON and its operations from the tragic events on 11 September 2001, in New York, Washington D.C. and Pennsylvania revealed that none of the operations were directly impacted by these events. Total claims cost in life insurance and life reinsurance amounted to EUR 33.5 million (USD 30 million) net of reinsurance, with an after tax earnings impact of EUR 22.4 million (USD 20 million). These results have been fully recognized in the 2001 financial statements.
Due to their insignificance the minority interests are included under other current liabilities. A list of names and locations of the most important group companies is given on page 85.
With regard to the income statements of AEGON N.V., article 402, Book 2 of the Dutch Civil Code has been applied.
AEGON’s capital base reflects the capital employed in its insurance activities. AEGON manages the capital base to contain at least 70% shareholders’ equity, between 5% and 15% capital securities, and a maximum of 25% subordinated and senior debt.
Assets and liabilities denominated in foreign currencies are converted at the year-end exchange rates after consideration of transfer risks, where necessary.
The most important closing rates are: US Dollar (USD) 0.88130 0.93050 Swiss Franc (CHF) 1.48290 1.52320 Pound Sterling (GBP) 0.60850 0.62410 Canadian Dollar (CAD) 1.40770 1.39650 Japanese Yen (JPY) 115.33000 106.92000 Hungarian Forint (HUF) 246.33000 264.94000
Where not otherwise stated, balance sheet items are carried at face value. If necessary a provision for bad and doubtful debts is deducted. Default provisions on fixed income investments are determined based on exposure limits, counterparty credit ratings and securities expected to have a higher probability of default relative to the market in which they trade. Credit risk on mortgages is monitored by assessing delay of payment classification combined with a related level of provision. Other asset provisions are formed as soon as any credit risk emerges.
Assets and liabilities from banking activities and gains and losses on these activities are accounted for in accordance with the rules for banks.
Real estate is shown at market value, being the selling-value under normal market circumstances. Each property is revalued at least once in every five-year period. Valuation is for a large part based on external appraisal. In 2001 98% of the portfolio has been revalued.
Bonds and other fixed rate securities 73,660 61,240 Loans guaranteed by mortgages 20,537 18,244 Other loans 26,831 23,980 Deposits with credit institutions 1,553 1,215 Other financial investments 4,892 3,949
Shares and convertible debentures reported under this caption are valued at their quoted price or, if unquoted, at estimated market value.
Unrealized and realized gains and losses on shares as well as results, expenses and currency exchange rate differences from hedging transactions are recognized in the revaluation account, taking into account the related (deferred) taxes. When optional dividend is taken up in shares, an amount equal to the cash dividend is credited to income. The participation in AEGON Aandelenfonds N.V. is also accounted for under this caption. Purchase price of the portfolio amounts to EUR 7,984 million (2000: EUR 7,653 million).
Bonds are shown at amortized cost representing the cash value at the balance sheet date of future interest and principal repayment components based on the effective interest rate on the date of acquisition.
Market value of the portfolio amounts to EUR 21,179 million (2000: EUR 18,791 million). As no market exists for these investments, market value is calculated based on current interest rate, maturity and risk assumptions. For a proper understanding it should be noted that this market value is not part of the matching of these investments with the related insurance liabilities, which are not stated at market value either.
The provision for doubtful debts for these investments amounts to EUR 53 million (2000: EUR 184 million).
The provision for doubtful debts for these investments amounts to EUR 75 million (2000: EUR 74 million).
Policy loans 1,838 1,700 Receivables out of share lease agreements and others 3,054 2,249
Debentures related to reinsurance contracts that are not at free disposal. Market value amounts to EUR 30 million (2000: EUR 27 million).
Investments for the account of policyholders and insurance-linked savings deposits are investments of which the investment risk is borne by the policyholders. They are valued at market value. Separate investments for group life contracts with full profit sharing are valued according to the principles of the related contracts. Total return of these investments is accounted for in the technical account life insurance on a separate line.
Balance at 31 December 113,272 114,286 6 RECEIVABLES OUT OF DIRECT INSURANCE
The provision for doubtful debts for these receivables amounts to EUR 42 million (2000: EUR 47 million).
Investment receivables 81 109 Sale partnership interests Mexico 828 – Other receivables 3,243 2,481
Equipment is shown at original cost less depreciation over the estimated useful life. Office Data furniture processing & other Total systems equipment equipment
For the notes to the share capital, reserves and stock options refer to page 88 and following.
Interest rate 8%, coupon date 8 June 2005 114 114 Interest rate 77/8%, coupon date 29 September 2005 114 114 Interest rate 73/4%, coupon date 15 December 2005 136 136 Interest rate 71/8%, coupon date 4 March 2011 203 203 Interest rate 75/8%, coupon date 10 July 2008 114 114 Interest rate 71/4%, coupon date 14 October 2008 136 136 Interest rate 67/8%, coupon date 20 December 2005 700 450
Total perpetual cumulative subordinated loans 1,517 1,267 1 Year of first call.
The loans have the same subordination provisions as dated subordinated debt. In addition, the conditions of the loans contain certain provisions for interest deferral and for the availability of principal amounts to meet losses. Although the loans have no stated maturity, AEGON has the right to call the loans for redemption at par for the first time on the coupon date in the years as specified above. Thereafter AEGON has the right to call the loans for redemption at par every consecutive ten-year period on the coupon date, with the exception of the 67/8% bond. This bond is callable every year on the coupon date after the initial call date in 2005.
This item comprises the following loans USD 100 million 74/5% Capital Trust Pass-through Securities 1996/26 113 107 USD 225 million 713/20% Capital Trust Pass-through Securities 1996/26 255 242 USD 190 million 75/8% Capital Trust Pass-through Securities 1997/37 216 204
Capital Trust Pass-through Securities (TRUPS) are securities through which the holders participate in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures of Transamerica Corp. The trusts have been included in the consolidated financial statements. The TRUPS carry certain provisions with regard to deferral of distributions. The TRUPS have maturity terms of 30 to 40 years with a fixed coupon. Earlier redemption is possible for the USD 100 million 74/5% Capital Trust Pass-through Securities on or after 1 December 2006.
These loans are subordinated to all other liabilities and borrowings. The interest rates vary from 6.42% to 8.25%. The market value of these loans amounts to EUR 739 million (2000: EUR 796 million).
13 TECHNICAL PROVISIONS Increase Exchange rate Balance at charged to fluctuations Balance at 1 January the income and other 31 December 2001 statement changes 2001
The provision for life insurance is calculated using assumptions for future mortality, investment performance, lapses and expenses over the lifetime of the contracts. These long-term assumptions are based on best estimates of future experience at policy issue. The estimates include a margin for adverse deviation. Regularly the assumptions are tested against actual experience. If these tests reveal a negative outcome, the provision is adjusted according to the actual data. Future costs of processing benefits are included in the provision. This provision also includes the provision for unearned premiums and unexpired risks as well as the provision for claims outstanding, both as far as related to the life insurance business.
Provisions for annuities are for annuity contracts sold in the United States. Annuities are typically single premium insurance products where the paid-in amounts accumulate with interest credits, or equity growth, less applicable loads or fees. The funds grow on a tax deferred basis and have significant long-term savings characteristics. The benefit reserves are equal to the full accumulated contract values.
The provision for GICs and funding agreements is the amount due for these products which are sold in the United States. Both Guaranteed Investment Contracts (GICs) and Funding Agreements (FAs) are issued on a fixed or floating rate basis and provide protection of principle and a guaranteed rate of interest. GICs are primarily sold to tax qualified retirement plans. FAs are typically sold to other, non-tax qualified institutional investors. FAs are also issued to certain trusts or special purpose entities, which in turn issue medium-term notes or commercial paper secured by these FAs to institutional investors. The benefit reserves of GICs and funding agreements are equal to the full accumulated contract values.
Balance at 1 January 13,459 10,992 Deferred during the year 2,256 2,232 Amortization charged to the income statement –1,203 –1,143 Other changes1 752 1,378
Balance at 31 December 15,264 13,459 1 Mainly caused by acquisitions and currency exchange rate differences.
Policy acquisition costs are costs that are directly or indirectly related to the sale of insurance contracts. Part of the acquisition costs are deferred and deducted from the technical provision life insurance. Policy acquisition costs are deferred to the extent that these costs are recoverable from future expense loadings in the premiums or expected gross profits, depending on the nature of the contract. The assumptions underlying the calculation of expected gross profits are determined from best estimates as to future experience. These estimates are based on, but not limited to: an economic perspective in terms of long-term bonds and equity returns; mortality, disability and lapse assumptions; maintenance expenses; and future expected inflation rates.
Every year the deferred policy acquisition costs are tested to assess the recoverability from future premium loadings or future gross profits, by country unit and product line. If necessary, adjustments to the amortization schedule are applied. Included in AEGON’s deferred acquisition costs is a substantial amount of value of business acquired (VOBA) resulting from acquisitions, which in its nature is the same as deferred acquisition costs and subject to the same recoverability testing.
Deferred policy acquisition costs related to insurance contracts with fixed premiums are amortized over periods not to exceed the premium-paying periods or the contract periods. For flexible insurance contracts and investment type contracts the amortization is generally in proportion to emerging gross profits.
The provision for pension regarding own employees amounts to EUR 1,459 million (2000: EUR 1,450 million).
Balance at 31 December 1,202 545 1 Mainly caused by acquisitions.
Balance at 1 January 2,407 1,794 Less reinsurance recoverables –593 –259
The following amounts on account of reinsurance ceded have been deducted from the technical provisions: Life insurance 2,391 4,744 Unearned premiums and unexpired risks 217 16 Claims outstanding 486 593
Deferred tax assets relating to: Technical provisions 1,880 2,665 Operating losses carried forward 296 —
Accrued interest 506 453 Deferred gains and losses on fixed rate investments 496 200
Real estate –8 –25 Mortgage loans 276 535 Bonds and registered debentures: Private placements 55 218 Other: Derivatives
AEGON uses common derivative financial instruments such as interest rate swaps, options, futures and foreign exchange contracts to hedge its exposures related to investments, liabilities and borrowings. Options and futures contracts are included in the balance sheet at fair value or at the amounts received for written options. Foreign currency amounts are converted at the year-end exchange rates. Realized and unrealized results on derivative financial instruments are recognized in the same period and likewise as the results of the related investments and debt.
Interest rate cap and floor agreements are contracts with a counterparty which require the payment of a premium for the right to receive payments for the difference between the cap and floor interest rate and a market interest rate on specified future dates based on an underlying principle balance (notional amount) to hedge against rising and falling interest rates. Premiums paid for purchased interest rate cap or floor agreements are capitalized and amortized to interest expense over the term of the contract.
Cross currency swaps are used to manage the Company’s exposure to foreign exchange rate fluctuations of both assets and liabilities. Cross currency swap agreements are contracts to exchange the currencies of two different countries at the same rate of exchange at specified future dates. AEGON uses cross currency swaps to allow investments, product offerings and borrowings to be made in foreign currencies, gaining access to additional markets and sources of funding while eliminating foreign exchange risk. Cross currency swaps are recognized in the balance sheet under long-term liabilities and in the income statement in investment income, benefits to policyholders or miscellaneous income and expenditure – currency exchange rate differences. The amount recognized represents the currency exchange difference on the notional amount at period-end rates.
An equity swap is a contract whereby the performance of an equity instrument is exchanged for an interest flow. Equity swaps are valued at market value with changes going through the income statement.
Options are contracts that give the option purchaser the right, but not the obligation, to buy or sell, within a specified period of time, a financial instrument at a specified price. Purchased options are carried at market, while options sold are carried at the premium received. Unrealized gains (losses) on options are recognized in equity or current liabilities.
The following table represents aggregate notional amounts of derivatives. The amounts listed for interest rate contracts will not be exchanged by parties and, thus, do not reflect an exposure of the Company to market movements. The amounts listed for cross currency contracts will be exchanged at amounts calculated on the bases of the notional amounts and the terms of the derivatives, which related to interest rates, exchange rates, or financial or other indexes.
As part of its core operations, AEGON concludes transactions and has relationships with institutional and retail customers for a variety of financial services. The return for these services is a fee related to the asset value, to the investment performance or to the risk exposure of the contract.
For all services the related assets are owned by the customers and therefore they do not appear on the balance sheet of AEGON. Total assets involved in these operations amount to EUR 54 billion (USD 47 billion), (2000: EUR 45 billion).
AEGON’s obligations related to the acquisition of Diversified Investment Advisors from the Mutual of New York, consist of payments relating to the assets and liabilities for a remaining period of one year. AEGON will then purchase the remaining business in force based on a formula described in the agreement.
Investment income allocated to the non-technical account –15 –5 –2 –1 –3 –1 0 –27
Indirect income real estate and shares 577 18 0 595 1 Of which allocated internal rent for real estate in own use an amount of EUR 17 million (2000: EUR 17 million), based on market conditions.
The total return is calculated by determining the average of the total return yield over the last 30 years and multiplying this average yield by the average value of these investments over the last seven years, adjusted for investment purchases and sales. The indirect income from these investments is then calculated as the difference between the total return and the direct income.
Bonds and other fixed rate securities 49 63 Loans guaranteed by mortgage 36 33 Other loans 83 95 Other investments and liquid assets 216 133
Technical provisions 4,804 4,749 Technical provisions with investments for the account of policyholders –5,504 –731
Granted interest rate rebates amount to EUR 94 million (2000: EUR 61 million), almost entirely relating to the Dutch companies.
Technical and non-technical accounts include the following: Pension premiums -111 -82 Other social security charges 189 173 Other expenses 1,223 1,167
Expenses include allocated housing expenses from real estate in own use for an amount of EUR 17 million (2000: EUR 17 million), based on market conditions. Claims processing costs are included in benefits and surrenders and claims for own account; investment expenses are included in investment charges.
In the Netherlands employees participate in a defined benefit scheme based on average salary and for the amount exceeding a certain level employees may opt for a defined contribution scheme. Indexation of vested rights are fully funded yearly and immediately charged to the income statements.
Remuneration of active and retired members of the Executive Board in thousands of EUR
Sir Michael Jenkins 34,034 — J.F.M. Peters (up to 3 May 2001) 15,808 — G. van Schaik (up to 4 May 2000) — 15,824
Stock Stock Shares options Exercise Exercise Market options Exercise held in the balance at price price price balance at price company 1 January EUR Granted EUR Exercised Date EUR 31 December EUR 31 December
The criteria for the number of options offered to the members of the Executive Board are as follows: 1. Comparison of the AEGON share price with a peer group of nine Financials (AIG, Allianz, AXA, Generali, Prudential, Zurich,
ABN Amro, Fortis, ING). The comparison is based on a moving average over the last three years. 2. When AEGON finishes in the top three each person receives the maximum of 200,000 options, in the bottom three 50,000 per person and in the middle four 100,000 per person. 3. If there is no increase in earnings per share, no options will be offered.
Income on investments held against shareholders' equity does not form part of the technical results. The amounts transferred to the non-technical account include direct yield on allocated investments or are based on the average direct yield of the investment portfolio.
Breakdown: Taxes currently due 709 469 Taxes deferred due to temporary differences 209 364
The following is a reconciliation of the expected tax on income with the actual tax expense: Statutory tax rate 1,109 969 Increases (decreases) in taxes resulting from: Dividend income exclusions and credits –286 –109 Depreciation of equipment and real estate –3 –3 Valuation of technical provisions 2 0 Other, net 96 –24
Actual tax expense 918 833 12 NET INCOME UNCONSOLIDATED GROUP COMPANIES
Because of the sale on 31 March 2000, this subsidiary was deconsolidated for comparability reasons. The net profit for the first quarter 2000 amounting to EUR 31 million has been recognized under unconsolidated group companies.
Finance charges 919 1,134 Leasing revenues 489 683 Real estate information 283 286 Other revenues 261 209
Income reported by AEGON: Dividend declared through 30 June 2000 — 82 Net income reported from 1 July 2000 125 66 Funding costs on the related raised debt, net of tax –53 –119
This item includes receivables from lending and leasing activities after deduction of unearned finance charges.
Depreciation –26 –33 Disposals and other changes –106 –15 Currency rate differences 10 16
Equipment held for lease 2,025 2,174 Assets held for sale 399 1,346
The contractual maturity is: Within three months 505 521 Between three months and one year 1,804 2,070 Between one and five years 2,254 3,025 Over five years 363 340
Balance at 1 January 1,542 3,219 Net income 72 29 Capital redemptions/contributions –265 322 Dividends paid –122 –272 Goodwill — –2,059 Currency exchange rate differences 47 270 Other changes –18 33
Deposits 27,438 26,813 2 Total production on balance sheet 30,643 29,034 6
Net deposits 2,938 –48 GICs and funding agreements 3,281 –52 946 –259 Savings deposits 1,057 –280
Total recurring plus 1/10 single 986 1,167 –16 1,102 1,263 –13
Mutual funds/Collective Trusts and other managed assets 6,400 7,425 –14 7,148 8,040 –11
Accident & health insurance 36 34 6 of which general account 687 643 7 of which policyholders account 192 150 28 Banking activities1 45 47 –4
Total gross premiums 4,205 3,860 9 Investment income insurance activities 1,484 1,502 –1 Income from banking activities 384 324 19
Life general account single premium 112 97 15 181 160 13 Life general account recurring premium 49 10 79 16 Life policyholders’ account single premium 2,710 2,959 –8 4,361 4,859 –10 Life policyholders’ account recurring premium 1,098 1,037 6 1,767 1,703 4
Investment income for the account of policyholders –2,066 110 –3,325 181
Total production off balance sheet 275 580 –53 442 952 –54 1 Includes also fee income.
Life for account of policyholders –6 –4 50 –8 –3 4 2 of which policyholders’ account1 1 1 –8 –3 4 2
Life general account single premium 0 4 43 76 –43 3 4 –25 Life general account recurring premium 77 82 –6 52 38 37 89 25 Life policyholders’ account single premium 10 34 –71 45 97 –54 15 21 –29 Life policyholders’ account recurring premium 36 18 38 38 0 98 72 36
Total life insurance gross premiums 123 138 –11 178 249 –29 205 122 68
USD GBP As at 31 December 2001 Americas Netherlands Kingdom countries Total USD
Face value and total sums insured Amounts in EUR millions unless otherwise stated
USD GBP Life insurance Americas1 Netherlands Kingdom Hungary Spain countries Total
Total sums insured at year-end 1 Includes one-time effect of sale Mexico.
ÁB-AEGON Általános Biztosító Rt., Budapest (Hungary) AEGON Unión Aseguradora S.A. de Seguros y Reaseguros, Madrid (Spain) (99.98%) AEGON Lebensversicherungs-AG, Düsseldorf (Germany) AEGON Life Insurance (Taiwan) Inc., Taipei (Taiwan)
Balance sheets of AEGON N.V. at 31 December (after profit appropriation) Amounts in EUR millions
Shares in group companies 1 11,850 11,251 Loans to group companies 2 6,490 3,392
Amounts owed to credit institutions 1,297 1,225 Other payables 893 600
Income statements of AEGON N.V. and the appropriation of profit Amounts in EUR millions
Appropriation of profit: Dividend on preferred shares 3 3 Dividend on common shares 1,142 973 Retained earnings 1,252 1,090
Notes to the balance sheets of AEGON N.V. Amounts in EUR millions
Balance at 31 December 435 524 4 CAPITAL AND RESERVES Common Preferred shares shares Total
On 29 June 2001 AEGON NV entered into a Total Return Swap (TRS) with Vereniging AEGON in order to hedge the stock option plan for 2001. The TRS gives AEGON NV effectively the right to the capital gains on 11,288,800 AEGON NV shares at the termination date and to the dividends on these shares during the contract period. The capital gains are calculated based on an exercise price of EUR 32.04. Any losses compared to the exercise price will be paid by AEGON NV to Vereniging AEGON upon termination. AEGON NV in return will pay interest to Vereniging AEGON on a quarterly basis over the (remaining) amount outstanding under the TRS. The interest rate is equal to the three-month EURIBOR plus a spread. The TRS ends on 12 March 2006 but may be terminated earlier, either partly or entirely, at the option of AEGON NV. The total return swap is carried at fair value with changes in fair value reported in equity.
The weighted average number of EUR 0.12 common shares over 2001 was 1,357,349,252 (2000: 1,315,381,814). The repurchased own shares, although included in the issued and outstanding number of shares, are eliminated in the calculation of the weighted average number of shares (see page 91).
The following tables set forth the changes in the years 2000 and 2001 as well as the breakdown of the options outstanding.
2 Weighted average exercise price of the outstanding options in USD calculated at the closing rate. 3 As of the 1995 series the exercise period for a small part of the options is 74 months. 4 Including stock appreciation rights, which do not entitle to buy AEGON shares but provide the same financial benefits.
Stock options exercisable as of 31 December 2001 amount to 18,445,778 (2000: 10,760,566) and their weighted average exercise price amounts to EUR 24.75 (2000: EUR 13.45).
The breakdown of the stock options and stock appreciation rights granted in 2001 is as follows: Executive Board 400,000, other senior executives 3,824,700, other employees 7,064,100 (2000: 640,000, 4,125,300 and 5,844,400 respectively, recalculated for the split in May 2000). For detailed information about the Executive Board’s options refer to page 71.
Stock dividend –1 –1 –2 –1 Dividend interim and final –1,145 –1,145 –976
The legal reserve for currency differences on foreign subsidiaries refers to accumulated translation differences amounting to EUR 1,653 million (2000: EUR 1,217 million) and is included in the other surplus fund.
The indirect income is released from these revaluations if and as far as the balance is positive. Moreover, the minimum reserve as required by law should be maintained. This reserve consists of the unrealized difference between the bookvalue and the cost price of real estate and shares. In relation to this, as at 31 December 2001, an amount of EUR 3,901 million after tax is presently available for release from the revaluations whereas the remainder is only available after realization.
M. Tabaksblat K.J. Storm H. de Ruiter P. van de Geijn D.G. Eustace D.J. Shepard O.J. Olcay J.B.M. Streppel K.M.H. Peijs G.A. Posthumus T. Rembe W.F.C. Stevens F.J. de Wit
Provisions of the Articles of Incorporation Relating to the Appropriation of Profit (Article 24)
4 The remaining profit shall be put at the disposal of the general meeting of shareholders.
5 Provided it appears from an interim statement of assets signed by the Executive Board that the requirement mentioned in paragraph 2 concerning the position of the Company’s assets has been fulfilled, the Executive Board may, subject to the approval of the Supervisory Board even before the approval of the balance sheets and the income statements of any financial year distribute one or more interim dividends on account of the dividend to the holders of shares, with regard to preferred shares, however, subject to the maximum mentioned in paragraph 3.
7 For a dividend or an interim dividend on a share for which a CF-certificate has been issued, such party shall be entitled as a holder of the share at a time fixed by the Executive Board. In order to exercise the right to a dividend or an interim dividend referred to in the preceding sentence, the rightful claimant must see to it that the dividend sheet is, at the time mentioned there, in the custody of a custodian as referred to in Article 4, paragraph 5. For the distribution of a dividend or interim dividend mentioned in this paragraph, the Company shall be discharged towards the rightful claimants by payment to the institution mentioned in Article 4, paragraph 5 or to one or more third parties to be designated by such institution and the Company, in favour of those in whose names the dividend sheets are in the custodians’ custody at the aforesaid time.
9 Different times may be fixed for the shares mentioned in paragraphs 7 and 8. Each time which has been fixed shall be announced with due regard to regulations applicable for the Company.
10 The Executive Board may decide, subject to the approval of the Supervisory Board, that the payment of a dividend or an interim dividend in cash on registered common shares for which certificates of share have been issued and the dealing in which on an exchange or a similar institution in another country than the Netherlands is permitted with the cooperation of the Company, shall take place in the currency of that country unless this is not possible for the Company owing to government measures or other circumstances beyond its control. If, in accordance with the provisions of the preceding sentence, a dividend or an interim dividend is distributed in a foreign currency, it shall to this end be converted at the exchange rate current on the exchange at Amsterdam on a day to be fixed and announced by the Executive Board which does not fall before the day on which the distribution is resolved upon, nor after the day fixed for the shares in question in accordance with the provisions of paragraph 6.
It is proposed that the final dividend will be made available entirely in cash or entirely in stock to be paid out of the paid-in surplus or, if so requested, out of the 2001 net income. The value of the final dividend in shares will be approximately equal to that of the final dividend in cash.
In order to take full advantage of 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 6 May 2002, after 5.30 p.m., based upon the average share price (quotation Euronext Amsterdam) in the four trading days from 30 April up to and including 6 May 2002.
As of 31 December 2001 the General Meeting of Members of the Vereniging consisted of 21 members. Seventeen of these are not an employee or former employee of AEGON N.V. or one of its group companies, nor a (former) member of the Supervisory Board or the Executive Board of AEGON N.V. They hold the majority of the voting rights. Of the four other members two are elected by the General Meeting of Members from among the members of the Supervisory Board and two from among the members of the Executive Board of AEGON N.V.
The Vereniging has an Executive Committee consisting of eight members, half of whom, including the Chairman and the ViceChairman, are not, nor have been associated with the AEGON Group; the other half consists of the four above mentioned members who hold a position within AEGON N.V. When a vote in the executive committee results in a tie, the General Meeting of Members has the deciding vote.
The Annual Report 2001 of the Vereniging and further information may be obtained through the Secretary (telephone: +31 70 3448288, e-mail: Secretariaat@VerenigingAEGON.nl, fax: +31 70 3477929).
Time was also devoted to the subject of acquisitions and divestitures. We discussed and subsequently approved the acquisition of the direct marketing operations of JC Penney in the USA and the issue of common shares following this acquisition. We also discussed and approved the acquisition of the World Financial Group in the USA and the insurance portfolio of AXA Life Taiwan. We approved the sale of the 48% partnerships in Seguros Banamex and Afore Banamex in Mexico. These divestitures unfortunately became necessary because Citigroup, after acquiring Banamex in 2001, did not want to continue these partnerships. In order to keep up-to-date with AEGON’s businesses, presentations were made to us on a number of themes including: asset management, MoneyMaxx operations in Germany, Belgium, Hungary, Spain and Italy and Transamerica Finance Corporation’s non insurance business.
The Audit Committee, active since 1983, held four meetings in 2001. All Executive Board members, the directors of the Group Finance and the Corporate Actuarial departments and E&Y, AEGON’s external auditor, also attended these meetings.
In order to maintain the current number of Executive Board members, we intend to appoint Mr. Johan G. van der Werf as a member of the Executive Board, as from the AGM on 18 April 2002. The Dutch Central Works Council (CWC) has given a positive advice regarding the appointment.
This annual report includes the annual accounts for 2001, adopted by us as they were prepared and submitted by the Executive Board and advised upon by the Audit Committee. We recommend that you approve these annual accounts. According to Article 23 of the Articles of Incorporation, shareholders can decide, and we propose that they should do so, to discharge the Executive Board from all liability with regard to its management, and to discharge the Supervisory Board from all liability with regard to its supervision of this management. Upon approval of the 2001 annual accounts, and this will include the profit appropriation, a dividend for 2001 will be paid of EUR 0.83 (2000 EUR 0.74) per common share. Please refer to page 94 for further details.
AEGON N.V., in its Articles of Incorporation, has incorporated the complete two-tier provisions as set out in Dutch corporate law, referred to as the ‘Structure Regime’. It has not yet made use of the exemption available with regard to certain provisions. In January 2002, the Dutch Government proposed to Parliament an amendment to the “law with regard to the Structure Regime of large companies”. This proposal has caused the Supervisory Board to discuss and rethink AEGON N.V.’s position as a company governed by the ‘Structure Regime’. The discussions in Parliament regarding this amendment will be watched closely and discussions in the Supervisory Board, as to whether or not AEGON N.V. should make use of the possibility to be made exempt of the ‘Structure Regime’ will continue in 2002. As a consequence of the fact that AEGON N.V. is still being governed by the provisions in the ‘Structure Regime’, the Supervisory Board possesses certain rights, which would otherwise belong to shareholders. This enables AEGON, in accordance with its statutory objectives, to serve equally and fairly the interests of all parties directly or indirectly involved with the Company. The main duties of the Supervisory Board are supervising the Executive Board’s management and advising the Executive Board. Management by the Executive Board and supervision by the Supervisory Board are completely separate responsibilities.
In the performance of their duties, the members of the Supervisory Board shall follow the interests of the Company and its business. The Supervisory Board currently consists of nine members and acts as a body with collective responsibility and accountability. The members of the Board are (re)appointed by the Board itself, each time for a term of office of four years. They must retire at the latest at the conclusion of the Annual General Meeting of Shareholders (AGM) in the year in which they reach the age of 70 years. Shareholders, the Central Works Council in the Netherlands (CWC) and the Executive Board have the legal right to recommend candidates for the Supervisory Board. Moreover, shareholders and the CWC have the legal right to object to any candidate. The requirements, which the composition of the Board and the individual members have to meet, are outlined in the Profile. This Profile was updated in 1997 and is available for shareholders at the secretariat of the Executive Board. According to the Profile, a total of 10 Supervisory Board members is considered to be a suitable number, considering that the Executive Board is composed of 4 to 5 members, only one of the Supervisory Board members may be a former member of the Executive Board and Supervisory Board members may not be dependent on any interests associated with the Company and must fulfill their duties without mandate. (Re)Appointments have to be prepared and advised on by the Nominating Committee. Supervisory Board members are entitled to a fixed fee and an expense allowance. According to Dutch corporate law and the Articles of Incorporation, the Supervisory Board is the body that is authorized to appoint or discharge members of the Executive Board and to adopt the annual accounts. Moreover, certain important Executive Board resolutions, among which those concerning securities’ issues, are subject to the approval of the Supervisory Board.
Rules and Regulations have been adopted, for internal use, in which procedures and the Board's duties, activities and allocation of tasks are laid down.
The Executive Board is accountable to investors for a clear and transparent justification of its management. Every shareholder has the right to speak and to vote without limitation in any of AEGON’s meetings of shareholders. Each outstanding share entitles the holder to one vote.
Furthermore, AEGON was one of those actively involved in the establishment of the Dutch ‘Stichting Communicatiekanaal Aandeelhouders’ (Shareholders’ Communication Channel Foundation), established in April 1998 for better and direct communication with shareholders. Shareholders with a securities account in the Netherlands and participating in this Communication Channel can use the possibility offered by the Foundation to receive the annual report and the agenda for the AGM. Also a system is introduced which will offer shareholders the possibility of voting without attending a meeting in person. Furthermore, for both management and (groups of) shareholders the Communication Channel may serve to solicit proxies.
● To appoint the external auditor. ● To decide on share issues or on the granting of rights to take shares (stock options) or to designate the Executive Board to resolve on such issues or grants, up to a certain maximum percentage and for a period of three years, and, possibly, to exclude shareholders’ pre-emptive rights.
D.G. Eustace, 65, British nationality, is Chairman of Smith & Nephew plc (London, UK) and former Vice-Chairman of Royal Philips Electronics. He was appointed in 1997; his current term will end in 2005. He is also a member of the Supervisory Board of four Dutch companies, among which Royal Dutch Airlines (KLM) and Royal KPN. He is also the Chairman of the Audit Committee.
O.J. Olcay, 65, American nationality, is Vice-Chairman and Managing Director of Fischer, Francis, Trees & Watts, Inc. (New York, USA). He was appointed in 1993; his current term will end in 2004. He is Chairman of FFTW Funds Inc. in New York, FFTW Funds Selection in Luxembourg and FFTW Funds in Dublin. Mr. Olcay is also a member of the Nominating and Strategy Committee.
H. de Ruiter, 68, Vice-Chairman and Dutch nationality, is a retired Managing Director of Royal Dutch Petroleum Company and Group managing director of Royal Dutch/Shell Group of Companies. He was appointed in 1993; his term will end in 2004. He is a member of the Supervisory Boards of six Dutch companies, among which Royal Dutch Petroleum Company, Royal Ahold and Royal Vopak and a Board member of Corus Group. He is also a member of the Executive Committee of Vereniging AEGON and of Trust offices on behalf of some Dutch companies. He is also a member of the Audit, Compensation, Nominating, and Strategy Committees.
W.F.C. Stevens, 64, Dutch nationality, is a senior partner of Baker & McKenzie. He was appointed in 1997; his current term will end in 2005. He is a member of the Supervisory Boards of seven Dutch companies, among which NIB Capital and TBI Holdings, aside from some Board memberships which are exercised in relation to his principal occupation. Further he is a senator in the Dutch Parliament.
The consolidated financial statements of AEGON N.V. have been prepared in accordance with Dutch accounting principles which differ in certain respects from those generally accepted in the United States (US GAAP). The following information is a summary of the approximate effect on the Group’s capital and reserves and net income of the application of US GAAP, which is in further detail included in the Form 20-F report filed with the Securities and Exchange Commission. This report is, as usual, available on request, free of charge, and can also be retrieved from the EDGAR database of the SEC at www.sec.gov.
Debt securities 933 –113 — — The Netherlands: amortized cost for bonds, private placements and preferred shares United States: market value
The Netherlands: charged to shareholders’ equity United States: capitalized and amortized over various periods not exceeding 20 years
Realized gains and losses on bonds and private placements 189 –78 276 –348 The Netherlands: deferred and released to income over the estimated average remaining maturity term United States: recognized as income when realized
Derivatives –377 — –236 — The Netherlands: recognized in same period and likewise as related investments and debt United States: valued at market value, with changes included in earnings, except when hedge accounting is applied
Other comprehensive income, net of tax: Foreign currency translation adjustments 701 659 Unrealized gains (losses) on available for sale securities during the period –621 212 Reclassification adjustment for gains included in net income 377 –821 Cumulative effect of accounting change of adopting FAS 133 49 —
Long-term liabilities, subordinated loans and capital securities at 31 December 2001 Amounts in EUR millions
The following table lists AEGON’s long-term liabilities, subordinated loans and capital securities at 31 December 2001. All loans that are shown separately relate to AEGON N.V. except when stated otherwise.
EUR 102 million 83/4% Eurobonds 1991/01 December 16 — 90 USD 100 million 93/8% Domestic Debentures (Transamerica Corp.) 1996/08 March/Sept 1 114 107 USD 200 million 63/4% Domestic Debentures (Transamerica Corp.) 1996/06 May/Nov 15 227 215 USD 200 million 61/4% Eurobonds 1997/01 October 1 — 215 CHF 150 million 31/4% Bonds 1997/04 June 24 101 98 DEM 150 million 21/2% Eurobonds 1998/03 February 24 77 77 USD 500 million 7% Eurobonds (AEGON Funding Corp.) 1999/04 September 10 567 537 USD 450 million 63/4% Eurobonds (AEGON Funding Corp.) 1999/02 November 15 511 484 CHF 300 million 31/8% Eurobonds 1999/04 September 27 202 197 GBP 250 million 61/8% Eurobonds 1999/31 December 15 411 401 USD 250 million 73/8% Eurobonds (AEGON Funding Corp.) 2000/05 July 25 284 269 EUR 350 million 43/4% Eurobonds (AEGON Funding Corp. II) 2001/05 February 28 350 — CHF 150 million MTN floating 2001/04 Quarterly 101 — EUR 100 million MTN floating 2001/03 Quarterly 100 — USD 367 million MTN floating 2001/02 Quarterly 416 — USD 90 million MTN floating 2001/03 Quarterly 102 —
EUR 227 million Floating Rate / Fixed Rate subordinated Eurobonds 1992/04 September 15 159 160 EUR 125 million 61/2% subordinated Eurobonds 1993/03 September 15 98 102 USD 400 million 8% subordinated Notes 1994/06 Feb/Aug 15 300 285 USD 600 million 43/4% subordinated convertible Eurobonds 1994/04 November 1 — 16 Other subordinated loans 113 120
Quarterly results Amounts in millions 2001 USD 2001 EUR I II III IV Total I II III IV Total
–207 –222 –227 –166 –822 Corporation tax –224 –254 –254 –186 –918
USD exchange rate 0.8832 0.8480 0.9131 0.8813 At end of period
Value as of Annualized return in local currencies 31 December Return Return last Return last
AEGON Equity Fund 3,399 –13.1 6.9 13.3 AEGON Equity North America Fund 2,900 –9.4 8.9 17.2 AEGON Equity Europe Fund 2,715 –14.9 3.5 14.6 AEGON World Equity Fund 2,301 –12.5 7.9 13.9 AEGON Mix Fund 2,178 –3.2 6.6 10.1 AEGON Aandelen Fonds 2,170 –12.6 8.6 13.6
WRL VKAM Emerging Growth 1,078 1,223 –33.2 6.5 15.0 WRL Alger Aggressive Growth 682 774 –16.5 1.0 12.4
FT World Index (in EUR) –13.1 19.3 47.6 JP Morgan Dutch Gov. Bond (in EUR) 5.2 9.5 57.0 S&P 500 (in USD) –15.0 –7.1 35.5 JP Morgan US Gov. Bond (in USD) 6.1 15.2 30.1 FT All Share Index (in GBP) –15.3 1.3 29.8 FT World Index (in GBP) –16.2 6.9 36.2 FT World Europe ex UK (in GBP) –25.1 –2.6 40.1 FT World Pacific ex Japan (in GBP) –0.4 19.1 –26.8 JP Morgan UK Gov. Bond (in GBP) 3.3 10.1 34.7 Tokyo Stock Exchange (TOPIX) (in JPY) –23.3 –2.9 –36.7
AEGON N.V. AEGONplein 50 P.O. Box 202 2501 CE The Hague The Netherlands Telephone: + 31 70 344 32 10 Internet: E-mail: groupcom@aegon.nl
Telephone: + 31 70 344 83 05 Fax: + 31 70 383 27 73 E-mail: groupir@aegon.nl
Key events 2001 25 January AEGON reopens the EUR 450 million perpetual subordinated cumulative bonds issue dated 15 December 2000 6 February AEGON increases EUR 450 million perpetual subordinated cumulative bonds to EUR 700 million 8 February AEGON issues EUR 350 million Eurobonds 8 March Announcement of the acquisition of the direct marketing insurance operations from JC Penney in the USA
Post balance sheet date events 2002 25 February AEGON acquired the approval of the regulatory authorities and hence completed the sale of its Mexican partnership interests to Citigroup’s Banacci
7 May Release results first three months 2002 14 May Final dividend payable 8 August Release results first six months 2002 12 August Start election period optional interim dividend (up to and including 9 September)
20 September Interim dividend payable 7 November Release results first nine months 2002