Europe and Asia, with major operations in the United States, the Netherlands and the United Kingdom.
AEGON upgrades VNB target AEGON raises its 2010 value of new business target by 14% to EUR 1.25 billion after better-than-expected performance from the
United States, the Netherlands and the United Kingdom; Changes in the performance of fi nancial markets, including emerging markets, such as with regard to: • The frequency and severity of defaults by issuers in our fixed income investment portfolios; and
AEGON completes acquisition of Clark Inc, further strengthening the Group’s commercial reach in the
AEGON buys Dutch life insurer OPTAS N.V., further expanding its Group pension business in the
AEGON completes acquisition of PTE Ergo Hestia, strengthening its pension fund management operations in Poland.
AEGON announces new life insurance and pension joint venture with leading Taiwanese fi nancial services group Taishin.
AEGON supports European Commission proposals for new solvency regulations, saying, if adopted, they will further strengthen Europe’s insurance industry.
AEGON announces a EUR 1 billion share repurchase program as part of its capital management strategy.
At the same time, the Group increases interim dividend by 25% to EUR 0.30 a share.
AEGON’s joint venture in Romania gets green light to launch Vital, its new pension fund – just over four months ahead of the offi cial introduction of the country’s new retirement savings system.
AEGON raises its 2010 value of new business target by 14% to EUR 1.25 billion after better-than-expected performances from the Group’s country units.
AEGON fi nalizes agreement with Merrill Lynch, further widening the Group’s distribution network in the
United States. AEGON also buys the US finance company’s two life insurance businesses.
LOCAL KNOWLEDGE GLOBAL POWER 4 AEGON around the world by country unit 6 AEGON around the world by lines of business 8 Chairman’s letter 10 Management Board 12 AEGON and the fi nancial community 16 Financial calendar
26 AEGON Group 32 Americas 38 The Netherlands 44 United Kingdom 48 Other countries 56 Risk management 78 Capital and liquidity management 80 In control statement
OUR GOVERNANCE 82 Report of the Supervisory Board 88 Members of the Supervisory Board 91 Remuneration policy and report 97 Corporate governance 101 Corporate responsibility
OF AEGON GROUP 2007 106 Consolidated balance sheet 107 Consolidated income statement 108 Consolidated cash fl ow statement 1 10 Consolidated statement of changes in equity 1 13 Notes to the consolidated fi nancial statements of AEGON Group 208 Auditor’s report
FINANCIAL STATEMENTS OF AEGON N.V. 2007 210 Balance sheet of AEGON N.V.
AEGON’s reinsurance business, is present in twelve locations: Bermuda, Brazil, Chile, France, Hong Kong, Ireland, Japan,
AMERICAS HISTORY: AEGON companies can trace their roots back to the mid-nineteenth century. Transamerica Life, meanwhile, has been present in the Canadian market since 1927, while in 2006 AEGON agreed a new joint venture with the Mexican life insurer, Seguros Argos.
THE NETHERLANDS HISTORY: AEGON’s history in the Netherlands stretches back to the burial funds of the mid-nineteenth century.
MAIN BUSINESS LINES: Life and protection, individual savings and retirement, pensions and asset management, distribution, general insurance.
Hungarian insurer Állami Biztosító. Since then, the Group has expanded into four other countries – Poland, the
ASIA HISTORY: AEGON launched Taiwan as a greenfield operation in 1992. Since then, AEGON has opened businesses in China, Japan and India.
AEGON provides a wide variety of savings and retirement products, including retail mutual funds and fixed and variable annuities. In 2007, AEGON’s individual savings and retirement products business accounted for approximately 19% of the Group’s operating earnings before tax.
REINSURANCE AEGON USA provides a range of life and annuity reinsurance products. The company’s core product
– mortality risk transfer – is offered primarily through coinsurance, but is also available under yearly renewable term arrangements. In 2007, AEGON’s reinsurance business contributed 5% to the
AEGON works through many different distribution channels, including brokers, agents and independent financial advisors. AEGON companies also provide products and services online and use worksite and direct marketing channels. In many countries, banks also play an important role in selling insurance products, particularly in parts of Europe, such as Spain, France, as well as the United States and China. For this reason, in the past few years, AEGON has expanded its web of bank distribution agreements, signing new partnerships in China, Spain and the United Kingdom.
1 2006 fi gures are on a pro forma basis. For further details, please see page 26.
AEGON offers life insurance and financial protection products at its operations around the world.
The Group has leading life insurance businesses in the United States, the Netherlands and the
United Kingdom as well as a rapidly growing presence in emerging markets in Asia, the Americas and Central and Eastern Europe. AEGON insurance companies include some of the best-known brands in the insurance sector. They include Transamerica in the United States, AEGON Scottish
AEGON provides individual savings and retirement products in its established markets: the
United Kingdom. Demand is growing in other regions, too, including China and the countries of
AEGON USA markets a range of institutional products to pension and retirement funds, money market funds and US municipalities as well as investors outside the United States. These products include bank-owned and corporate-owned life insurance.
America, through its Transamerica Reinsurance business unit. Transamerica Reinsurance has operations in Bermuda, Brazil, Chili, France, Spain, Hong Kong, Ireland, Japan, Mexico, South Korea,
Americas, Europe and Asia resulted in a 4% increase in net underlying earnings for the year. New life sales showed an increase of 7% over the previous year. The betterthan -expected progress our businesses made toward
We continue to have sufficient capital to support the organic growth of our businesses while at the same time pursuing acquisition opportunities consistent with our disciplined approach to pricing.
ambition to enter the world’s second largest market for life insurance and related products. Similarly, AEGON UK
is lending its support to the launch of our new business in
is in the process of forming a new asset management joint venture with Industrial Securities, further underscoring the Group’s commitment to this important growth market.
In Spain, AEGON entered into a new partnership agreement with regional savings bank Caja Cantabria - the fourth such partnership which together provide access to approximately 3.5 million customers through over 1,800 bank branches across the country.
The international expansion of AEGON’s businesses into areas where we believe we can achieve long-term sustainable and profitable growth continues to be an important strategic objective for the Group. In addition to expanding further in Central and Eastern Europe, and entering the markets of Japan and India, AEGON-CNOOC
Alex and our Executive Board colleague Jos Streppel to improve AEGON’s balance sheet, strengthen the Group’s distribution network and expand AEGON’s footprint in both our established markets and the fast developing emerging economies of Asia and Central and Eastern
I wish to express my gratitude to the Supervisory Board for having given me the opportunity to lead AEGON during what continues to be an exciting time for our business.
Americas and Asia, along with our dedicated employees who work daily to generate long-term value for AEGON’s shareholders and create the better futures the Group’s many customers have come to expect and deserve.
Don Shepard began his career in 1970 with Life Investors Inc., an insurance holding company based in Cedar Rapids, Iowa.
Board and in April 2002 was appointed Chairman. In addition to his position at AEGON, Mr. Shepard also serves as a member of the boards of directors at CSX Corporation and PNC Financial Services Group.
Jos Streppel started his career in 1973, occupying treasury and investment positions at one of AEGON’s predecessor companies in the Netherlands. In 1986, he became the Chief Financial Officer of FGH Bank, joining the bank’s Executive
Four years later, he also became Chairman of FGH Bank. Mr. Streppel was named as AEGON’s Chief Financial Officer in 1998.
Alex Wynaendts began his career in 1984 with ABN Amro, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined AEGON as
Abbey Life and Royal Insurance before returning to AEGON UK in 1994 as Development Director. In 2002, Mr. Thoresen was appointed Finance Director of AEGON UK before becoming the company’s CEO three years later. Mr. Thoresen has been a member of AEGON’s Management Board since the beginning of 2007.
AEGON’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the
AEGON is committed to ensuring that all shareholders, bondholders and other investors in the company have the information they need to make the right investment decisions.
AEGON has many trusted relationships within the global investment community. These relationships play an important role in helping AEGON manage its businesses effectively and profitably.
AEGON COMMON SHARES ARE INCLUDED IN A NUMBER OF THE MAJOR EQUITY MARKET INDICES, AMONGST OTHERS, IN THE FOLLOWING KEY INDICES: AEX
designed effectively to exclude the impact of excess volatility on earnings from certain of the Group’s fair-value financial investments.
publishes details of its value of new business, along with its internal rate of return, each quarter. In addition, the
AEGON regularly calculates and publishes its embedded value life insurance, EVLI, as well as a figure for total embedded value. EVLI is also used internally for performance assessment and business planning. Like other insurance companies, AEGON focuses its embedded value calculations on life insurance because of the longterm nature of this business. Non-life business, which tends to be shorter term, is included in the Group’s total embedded value calculation, published every year.
Group also issues regular press releases and hosts webcast presentations to ensure all investors and shareholders are fully informed of the latest developments. Regulary,
In addition, AEGON encourages shareholders, bondholders and other potential investors to learn more about the
Group’s outstanding shares: Vereniging AEGON, an association set up to safeguard the long-term interests of all AEGON stakeholders (for further information on
Report). To AEGON’s knowledge there are no other parties holding a capital/voting interest in AEGON N.V. in excess of the thresholds established under Dutch securities law.
These listings give AEGON access to global capital markets, a vital part of the Group’s overall corporate and financial management strategies.
In addition, AEGON is active on world debt markets, using its strong credit ratings to issue debt instruments in various currencies. These issues are part of broader efforts aimed at strengthening the Group’s capital base and reducing its overall funding costs.
In 2007, AEGON completed a number of transactions designed to ensure more efficient management of the
AEGON recognizes the importance of a clear, stable and coherent dividend policy, supported by the Group’s strong cash flows and capital position.
Group publishes its second quarter results in August; A fi nal dividend, proposed at the same time as the
For dividend payments in shares, AEGON uses a stock fraction, based on the average share price over a period of five trading days. There is no trading in dividend rights on either the Amsterdam or any other stock exchange. In 2007, AEGON declared an interim dividend of EUR 0.30 per common share.
In 2007, AEGON’s share price fell by 16.3%, from EUR 14.44 on December 31, 2006, to EUR 12.09 on December 31, 2007. Including the dividends paid during 2007, the total return for holders of AEGON common shares amounted to minus 12.7%, down from plus 8.7% in 2006. This compares1 with total returns for the DJ Stoxx 600 Insurance Index, a leading industry benchmark, of minus 9% in 2007
E-mail: ir@aegon.com 1 Source: Bloomberg. Calculations assume reinvestment of AEGON’s dividend payment in either the stock or the market. 2 2004 - 2006 based on adjusted data.
6 Full year 2007 results 25 Record date for attending/voting at the
Embedded Value Report 2007 16 End of fi nal dividend 2007 election period 23 Final dividend 2007 payment date
has businesses in more than twenty countries worldwide, employing more than 30,000 people and serving approximately 40 million customers. AEGON’s corporate structure places great importance on combining local knowledge and local expertise with the resources of an expanding global company.
AEGON was formed in 1983 – the result of a merger between two Dutch insurance companies, AGO and Ennia.
But AEGON can trace its roots back to the mid-nineteenth century when the Group’s predecessors provided modest burial funds to customers wishing to ensure a proper funeral for their loved ones. In the United States and the
United Kingdom, the history of AEGON companies also stretches back more than 150 years.
United Kingdom, as well as other new, emerging markets in Asia, the Americas and Central and Eastern Europe.
AEGON has a focused strategy, aimed at creating longterm value for all its stakeholders – its employees, business partners, customers and shareholders, as well as the wider communities around the world in which the Group operates.
AEGON believes that by focusing on what it does best it can provide lasting value for customers and shareholders alike. AEGON remains focused on three core markets: life insurance, pensions and other long-term savings and investment products.
AEGON stresses the importance of combining local management and local decision-making with the expanding resources of one of the world’s leading life insurance and pension companies.
AEGON believes its core markets will deliver significant growth in the years ahead. But AEGON wants that growth to be sustainable and profitable. AEGON’s aim is to achieve long-term average earnings growth of 10% a year.
AEGON is one of the world’s largest life insurance and pension companies and a leading provider of long-term savings and investment products.
AEGON believes its core markets offer significant prospects for growth in the years ahead. In many parts of the world, people are living longer, healthier lives. Workforces available to fund pension systems are shrinking and governments, particularly those in Europe, are shifting more responsibility for funding retirement to the private sector. In Europe, it is estimated that by 2050 the working-age population will have declined by 20%. At the same time, the population of over-65’s will have risen by a staggering 80%. In the United States, average life expectancy for men and women, according to the US
Center for Health Statistics, has increased from 50 at the turn of the twentieth century to almost 78 today.
These changes are driving increased demand for life insurance, pensions and other long-term savings and investment products. But longer life expectancy rates also mean many people are having to manage their pension assets for longer periods than in the past. In the more mature markets of western Europe, North America and
Prospects for strong, sustainable growth are not confined to AEGON’s established markets. In places such as China,
To capitalize on these opportunities, AEGON has built up a considerable international presence. Aside from its three largest markets – the United States, the Netherlands and the United Kingdom – AEGON today has businesses in five countries in Central and Eastern Europe, has recently signed partnerships in India and Japan and, through its joint venture with China National Offshore Oil Corporation
AEGON wants to increase its value of new business by 2010 to EUR 1.25 billion, up from its 2005 level of EUR 550 million.
In 2007, VNB rose 20% to a record EUR 927 million,
AEGON expanded its international presence by investing in markets that offer above-average growth.
In 2007, AEGON further strengthened its Polish pension business. In April, the Group completed its acquisition of pension fund PTE Ergo Hestia, later announcing a separate agreement to merge PTE Ergo Hestia with fellow pension fund manager PTE Skarbiec Emerytura. Together, the two companies will rank as the fifth largest pension fund manager in Poland, with more than 800,000 members and some EUR 1.7 billion in assets under management.
Group’s leading sales channel. AEGON has been working for many decades with banks in the United States and elsewhere, but the past few years have seen the Group extend its network of bank distribution agreements in countries such as Spain, Taiwan, China and Central and
Bank, one of the United Kingdom’s leading high street banks. The Group’s most significant bank distribution agreement in the United Kingdom to date, the partnership sees AEGON products made available to Barclays customers through the bank’s network of over 900 financial planners across the country.
In June, AEGON announced a life insurance and pension distribution joint venture in Taiwan, with Taishin Financial
AEGON strengthened its cooperation with the world’s banks to ensure its products reach as many customers as possible.
AEGON believes that its core products – life insurance, pensions and long-term savings and investment products –
In January, AEGON formed a partnership with Sony Life, one of Japan’s leading life insurers. The partnership gives
In March, AEGON bought Dutch life insurer OPTAS. The acquisition further strengthened AEGON’s group pension business in the Netherlands, where AEGON became the number one player. OPTAS has a total of 60,000 policyholders, most of them working in Rotterdam, one of
In August, AEGON entered a strategic business relationship with US investment bank Merrill Lynch. Under the agreement, AEGON acquired Merrill Lynch’s two US life insurance companies. In addition, Transamerica, AEGON’s
Merrill Lynch, the United States’ largest wirehouse, sold more than USD 800 million in variable annuities.
EUR 1 billion worth of its own shares. The repurchase, part of the Group’s overall capital management strategy, was aimed at improving returns for its shareholders.
By the end of 2007, AEGON had repurchased a total of 99.8 million of its own shares, including 25.2 million bought as part of the Group’s policy of repurchasing stock dividends distributed during the year. Another 8 million common shares were repurchased in order to hedge granted option rights.
Executive Board member Alex Wynaendts has been instrumental in helping further strengthen AEGON’s operations, spearheading the Group’s international growth strategy and leading efforts to bring about greater and more effective integration of its worldwide insurance, pension and bank distribution businesses.
“We believe the prospects for our more established markets are very positive. But there are other opportunities as well opening up in the new, emerging economies of Asia and
Central and Eastern Europe. In China, with the addition of Zhejiang last year, we now have offices in provinces that cover more than 200 million people. In Central and
AEGON recognized some time ago that as companies become more international so do their pension requirements. First set up in 2005 as AEGON Pension
At the end of 2006, AEGON signed a new partnership in
UK’s project team for India, talks about the opportunities opening up for AEGON and some of the challenges facing the Group as it expands its presence in one of the world’s fastest-developing economies.
“One of the first things that strikes you when you first come here is the sheer scale. India is a huge market, not necessarily in terms of dollars or euros perhaps, but in terms of the potential demand and the number of policies we’re writing. You can’t really call yourself a player unless you’ve got a hundred branches. A lot of the work we’ve been doing has been focused on putting a solid distribution network in place. Since we announced we were going into India, we’ve been hiring like crazy. I think we’ve done more hiring here in the past few months than we would do in ten years in Edinburgh. We’re putting in place a ‘hub and spoke’ model – a strong central office, running various agencies, which might be nothing more than the room in someone’s house. We want to reach not only the cities but also the rural areas where there are also pockets of wealth. ‘Feet on the street’ is a big thing here – having the salesmen in the right places across the country selling your products for you. Consumers in India are just like those anywhere else in this respect. They want to see the whites of your eyes before making a major financial commitment.
That means there’s a huge supply of labor feeding economic growth. In recent years, the Indian economy
has been expanding at a rate of more than 8%. With that growth you’re getting the emergence of a new middle class and more nuclear families, rather than the traditional, extended families. Increasingly, the attitude now is that people have to do more than in past to look after themselves. So, people have more to save and they have more reason to save.
This is an essential part of AEGON’s strategy for international expansion – taking the expertise we have in one place and applying it to another. While AEGON UK is working in India, our colleagues from AEGON USA have been working to get our new partnership with Sony Life in Japan off the ground.”
Group Increase value of new business to EUR 1.25 billion from its 2005 level of EUR 550 million.
AEGON Americas Increase value of new business to USD 730 million. Value of new business USD 581 million.
AEGON The Netherlands Double value of new business to EUR 82 million. Value of new business EUR 51 million.
Grow life production by between 8% and 10% a year. New life sales +5%.
OBJECTIVES FOR 2010 AEGON has set itself very clear targets for 2010 with regard to both its financial performance and its strategic objectives.
“Thanks to better-than-expected performances from our businesses in the Americas, Europa and Asia, AEGON also reported a fourth straight year of value of new business growth in 2007, putting the Group firmly on track to meet its target for 2010.”
continues to maintain its strong financial position. Despite turbulence in world financial markets, AEGON experienced no material impairments to its investment portfolio during the year. AEGON’s subprime portfolio, valued at
AEGON’s net operating earnings and net underlying earnings declined as a result of a weaker US dollar and the impact of significant one-time tax benefits which had lifted earnings for 2006. Underlying earnings before tax increased 9% in 2007, a reflection of solid growth across
Holding and other activities (104) (98) (98) 6 1 2006 information has been adjusted to refl ect the retrospective application of the change in accounting principles relating to guarantees in the Netherlands, the change in defi nition of operating earnings to include AEGON’s share in the net results of associates and a new line of business format. Refer to note 2 in the fi nancial statements for more information.
2 For purposes of comparison, AEGON has provided pro forma operating earnings for 2006. These pro forma fi gures assume that hedges and guarantees had no effect on operating earnings in 2006. The pro forma fi gures exclude the effect of any movements in the fair value of guarantees as would have been the case had AEGON The Netherlands’ hedge program been in place.
The terms adjusted and pro forma are being used throughout this chapter.
AEGON HAS BUSINESSES IN MORE THAN 20 COUNTRIES AROUND THE WORLD
During the year, AEGON took steps to further strengthen its distribution network, agreeing new partnerships with
(subprime ABS) portfolio of EUR 2.9 billion experienced no impairments. The portfolio is currently valued at approximately 88%, or a fair value of EUR 2.5 billion. Total negative pre-tax revaluations on this portfolio amounted to
EUR 348 million in 2007. The pricing of certain parts of this portfolio, such as AA-rated floating rate 2006 and 2007 securities, reflects developments in the subprime ABS
Total negative pre-tax revaluation of this portfolio amounted to EUR 73 million bringing the fair value on the portfolio to EUR 1.5 billion, or approximately 95%.
AEGON’s collateralized debt obligations (CDO) portfolio totals EUR 1.0 billion. Total negative pre-tax revaluations on AEGON’s CDO portfolio amounted to EUR 48 million at the end of 2007, with a fair value of approximately 95%.
The majority of these investments is backed by leveraged bank loans, of which 92% was rated AAA or AA at the end of 2007. The portfolio includes an investment of EUR 21 million in CDOs backed by subprime mortgages assets purchased before 2002. At the end of 2007, total negative pre-tax revaluations on subprime ABS, Alt-A RMBS, negative amortization floaters and CDOs totaled EUR 487 million, bringing the fair value of the portfolio to
CDO). This index is composed of a reference portfolio of 125 investment grade corporate credits. Eighty-four percent of the exposure is to the most senior of the supersenior tranches, i.e. the 30%-100% tranche. This means that losses to AEGON occur only if cumulative net losses on the CDX index exceed 30%, where cumulative net loss is defined as bond defaults net of recoveries. The average duration of the outstanding transactions is 4.7 years.
AEGON considers the probability of losses at these levels to be extremely remote and hence does not expect any cash losses to occur from these synthetic CDO positions.
to EUR 2,102 million (or increase of 5% at constant currency rates).
AEGON Americas exceeded expected returns by EUR 110 million in 2007, less than half the EUR 243 million seen in 2006. The decrease in operating earnings from AEGON
EUR 40 million in 2007, compared with EUR 86 million in 2006. In 2007, this figure included a one-time gain related to the acquisition of the Dutch life insurer OPTAS as well as the negative effect of a decision to refine the method for calculating unit-linked guarantees. As part of its acquisition of OPTAS, completed during the second quarter of 2007, AEGON gained net assets amounting to
EUR 1.7 billion. This was higher than the original acquisition price of EUR 1.5 billion, resulting in a one-off gain for the
refined the method it uses to calculate the fair value of guarantees included in its unit-linked products to align them with existing group pension contracts and traditional products. The impact of this change on net income before tax (recognized in the second quarter of 2007) was a negative EUR 181 million.
(an increase of 3% at constant currency exchange rates), reflecting a change in AEGON’s overall business mix and lower DPAC amortization, offset partly by the underlying growth in the Group’s businesses.
At the end of December 2007, total revenue generating investments stood at EUR 371 billion, up from
EUR 363 billion twelve months previously. On a constant currency basis, the increase was 11%, reflecting net growth in AEGON’s in-force portfolio (both deposits and premium business), improved market performance and the inclusion for the first time of OPTAS and two former Merrill Lynch life insurance companies in the United States, acquired
USD 50 million from an assumed block of retail credit life insurance. In the course of 2006, sales of investor-owned life insurance were discontinued.
1,183 million, following exceptionally strong sales in 2006 as a result of ‘Pension A-Day’.
In Central and Eastern Europe, deposits of pensions and asset management products, as well as retail mutual funds, showed continued strong growth. In the United
Revenues geographically 2007 In EUR million (except for number of employees) Americas
Total life insurance gross premiums 7,955 3,175 10,811 2,269 0 24,210
Accident and health insurance premiums 1,848 203 0 71 0 2,122
has been one of the secrets of our success in the past few years.”
(hedge funds and limited partnerships) again exceeded long-term performance expectations, contributing USD 51 million, unchanged from 2006.
“AEGON Americas is profitable and well-positioned to capitalize on new opportunities opening up, particularly in the pensions and retirement market in the United States.”
individual savings and retirement business declined by 5% in 2007 to USD 713 million mainly due to fluctuations in fair value items during the year. Underlying earnings, which exclude the effect of fair value items, increased 7%
reinsurance business fell by 10% in 2007 to USD 185 million.
This decrease was primarily the result of a decision to strengthen reserves on a closed book of variable annuity guarantees by USD 25 million, combined with less favorable mortality results.
AEGON Americas holds certain fair value assets, which can have a notable impact on operating earnings. These assets, valued at approximately USD 4.5 billion, include certain hedge funds, real estate limited partnerships and convertible bonds. The valuation of these assets contributed USD 571 million to AEGON Americas’ operating earnings before tax in 2007, an increase from
USD 2,098 million in 2007, an increase of 6% compared with the previous year. The effective tax rate on operating earnings declined from 28% in 2006 to 27% in 2007.
Net income, which includes both impairment charges and net gains or losses on investments, rose 12% in 2007 to
USD 2,184 million. Net gains on investments amounted to USD 376 million, compared with losses in 2006 of
New premium production accident and health 898 954 (6) 656 759 (14)
New life sales increased 1% in 2007 to USD 742 million.
Sales of institutional guaranteed spread-based products totaled USD 13,892 million in 2007, an increase of 11%
compared with the previous year. This increase was the result mainly of higher medium-term note sales.
Maryland, but with many associate companies’ offices located throughout the United States.
Based in Toronto, AEGON Canada offers a range of insurance products and financial services, primarily through its Transamerica Life Canada subsidiary, first established in 1927.
AEGON USA’s primary insurance subsidiaries include: Transamerica Life Insurance Company, Transamerica
AEGON USA companies are present in five lines of business: Life and protection
USA uses a variety of distribution channels to ensure customers can access the Group’s products in a way that best suits them. AEGON USA’s main distribution channels include: Independent and career agents, fi nancial planners and other registered representatives; Independent marketing organizations, banks, brokerdealers, consultants, wirehouses, affi nity groups and other institutional partners.
AEGON USA also provides a range of products and services online and uses direct and worksite marketing. In addition,
AEGON USA offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. In 2007, this business accounted for 25% of AEGON’s total operating earnings before tax.
AEGON USA offers a variety of individual and group pensions, as well as retirement planning, investment, administration and technical services. Pension and pension-related products are generally offered through four subsidiaries: Diversified Investment Advisors,
AEGON USA has a strong position in the US market for institutional products, providing a range of specialized financial products for banks as well as pension and investment funds. These products include traditional fixed rate guarantee investment contracts, or GICs, funding agreements and medium-term notes, as well as other management, administration and risk services. AEGON
USA also provides structured products and bank-owned and corporate-owned life insurance.
AEGON USA’s Transamerica Reinsurance unit has been providing reinsurance to the life insurance and financial services industry for the past thirty years. In the United
States, Transamerica Reinsurance provides traditional reinsurance solutions for term, universal, variable universal and whole life mortality and morbidity risks. Transamerica
Transamerica Life Canada, AEGON Canada’s principal operating unit, offers a variety of universal and traditional life insurance products, predominantly term and permanent life insurance, as well as accidental death and out-ofthe -country medical cover, serving both individual and corporate customers.
AEGON The Netherlands’ operating earnings before tax fell by 24% to EUR 362 million in 2007, compared with pro forma operating earnings of EUR 474 million 2006. This decrease was due mainly to losses of EUR 40 million from financial assets carried at fair value (with no offsetting changes in the fair value of liabilities). In 2006, these fair value items had generated a gain of EUR 39 million. In addition, higher investment income was offset by losses on derivatives.
group pension business – the result of a change in Dutch pension law no longer allowing surrender charges.
life business amounted to EUR 189 million in 2007, up from a pro forma figure of EUR 157 million the previous year thanks to higher investment income. Accident and health operating earnings totaled EUR 39 million, up from EUR
34 million – the result of an improved claim experience and lower expenses.
“The Dutch market is a particularly competitive one. But, thanks to the changes introduced over the past few years, AEGON The Netherlands has a much stronger organization in place.”
In January 2008, Johan van der Werf stepped down as Chief Executive Officer of
Management Board of AEGON The Netherlands will report directly to the Group’s Executive Board.
AEGON IS NETHERLANDS’ FIFTH LEADING LIFE INSURANCE AND PENSION COMPANY AND THE COUNTRY’S LARGEST PROVIDER OF GROUP PENSIONS
Income by product segment In EUR million adjusted to adjusted pro forma to pro forma
distribution business amounted to EUR 16 million in 2007, compared with EUR 18 million the year before. Increased operating earnings stemmed from the acquisition of
EUR 12 million charge from the harmonization of clawback provisions at AEGON The Netherlands’ Unirobe and
general insurance operations fell to EUR 8 million in 2007, down from EUR 26 million the year before. The decrease was due mainly to additional provisioning following severe storms in the Netherlands during the first quarter of 2007.
AEGON The Netherlands’ pro forma net operating earnings totaled EUR 283 million in 2007, a decrease from
EUR 437 million the year before. The effective tax rate on operating earnings before tax rose to 22% in 2007, up from 8% in 2006. 2006 included the release of deferred tax liabilities linked to a reduction in the corporate tax rate in the Netherlands.
AEGON The Netherlands’ net income, which includes impairment charges and net gains/losses on investments, decreased by EUR 814 million to EUR 606 million. The fair value movements of guarantee provisions contributed
Realized gains and losses on shares, bonds and real estate contributed EUR 794 million in 2007 (EUR 766 million in 2006). The gains and losses on investments (before tax)
included a negative EUR 329 million from the decrease in market value of derivatives used for asset and liability management purposes in 2007, compared to a negative contribution of EUR 253 million in 2006.
Other income/(charges) of EUR 30 million included a onetime gain related to the acquisition of OPTAS and the effect of a refinement of the calculation of unit-linked guarantees. The acquisition of OPTAS was completed in the second quarter of 2007. The acquired net assets amounted to EUR 1.7 billion, EUR 212 million higher than the acquisition price of EUR 1.5 billion resulting in a onetime gain at acquisition. Starting with the second quarter of 2007, AEGON refined its method of calculating the fair value of guarantees included in its unit-linked products in order to align these calculations with the calculations currently used for group pension contracts and traditional products. This change has been applied prospectively. The cumulative impact on income before tax recognized in 2007 amounted to a loss of EUR 181 million.
Revenues of EUR 6,373 million increased by 6% in 2007 compared to 2006. Pension premiums increased by 4% reflecting the inclusion of OPTAS and increased recurring premiums. Life premiums increased by 6% to
EUR 1,394 million. Accident and health premium income increased by EUR 12 million to EUR 203 million reflecting a full year of premiums from the disability product WIA.
Fees and commission income was 18% higher than in 2006 primarily reflecting the full-year impact of the consolidation of Unirobe in the fourth quarter of 2006.
EUR 18 million reflecting lower sales of the WIA disability product that was successfully introduced in 2006. General insurance sales decreased by 21% to EUR 26 million reflecting AEGON’s continued focus on writing profitable business in a competitive market.
The Netherlands has its headquarters in The Hague, but also has offices in Leeuwarden, Groningen and
AEGON The Netherlands operates through a number of well known brands, including TKP Pensioen, OPTAS and
In recent years, AEGON The Netherlands has taken significant steps to reorganize its businesses as part of broader efforts to improve overall efficiency and customer service. The company has combined its various business units into a single structure. By bringing together product knowledge, administration, IT and other back office support, AEGON The Netherlands has created a more effective and better structured organization.
Dutch market. Corporate and Institutional Clients serves large corporations and financial institutions such as company and industry pension funds. AEGON Bank meanwhile sells mainly to individuals both directly and through tied agents. Lastly, AEGON Intermediary focuses on independent agents and retail sales organizations in the Netherlands.
AEGON The Netherlands’ most important line of business, accounting for 63% of its operating earnings before tax in 2007.
AEGON The Netherlands offers a limited range of general insurance products through its subsidiary AEGON
“2007 was another year of earnings growth for AEGON in the United Kingdom.
Thanks to our decision to diversify into higher-margin products, we now have a more profitable mix of businesses.”
“In addition, we further expanded our distribution network during 2007, particularly through our partnership with
AEGON UK’s pensions and asset management business reported operating earnings of GBP 138 million in 2007, a decrease of 4% compared with 2006. Higher fund-related charges were offset by an increase in expenses during the year. The rise in expenses stemmed from the underlying growth of the business as well as additional investment and project costs.
Income tax attributable to policyholder return (5) (51) 90 (7) (75) 91
Kingdom reported an operating loss of GBP 7 million, compared with a loss of GBP 4 million the year before.
Earnings in 2007 included GBP 5 million in one-off additional incentive payments related to Positive Solutions.
Life insurance gross premiums amounted to GBP 7,393 million in 2007, up 18% compared with the previous year.
Pension and asset management premiums increased by 15% to GBP 5,971 million, reflecting continued strong growth in pension sales, especially AEGON UK’s Retirement
to GBP 1,422 million due to an increase in sales of protection products and continued strong sales of single premium annuities.
GBP 1,183 million - a result of continued strong sales of pensions and annuities. Sales of annuities, protection products and investment bonds represented 30% of total new life sales in 2007, a reflection of AEGON UK’s strategy of diversification.
In GBP million adjusted to adjusted In EUR million adjusted to adjusted
Sales of life and protection products totaled GBP 210 million, an increase of 32% from 2006. The increase was due to continued strong sales of annuities and a rise in sales of protection products.
GBP 973 million, driven by strong sales of individual pensions. Sales of retail mutual funds and managed assets increased by 12% compared with 2007, thanks mainly to strong sales of both retail funds and institutional business.
AEGON UK is a leading provider of life insurance and pensions and also has a strong presence in both the asset management and financial advice markets. With offices located in the United Kingdom and Ireland, AEGON UK has some two million customers, more than 4,900 employees and GBP 53 billion in revenue-generating assets under management. AEGON UK’s main offices are in four locations: Edinburgh, London, Lytham St. Anne’s and Dublin.
Pensions and asset management constitute AEGON UK’s most important line of business. In 2007, it accounted for more than 75% of the company’s operating earnings before tax. AEGON UK provides a range of both personal and corporate pensions, as well as associated products and services. These include self-invested personal pensions and stakeholder pensions. In addition, AEGON
Positive Solutions, meanwhile, is one of the largest and fastest-growing advisor networks in the United Kingdom.
Republic and, most recently, Romania. In Asia, our operations in China are growing strongly and in 2008 we will launch new businesses in both Japan and India. Last year saw further strong growth from these emerging economies. Revenues, operating earnings before tax and value of new business all showed very solid gains. By 2010, we expect these new markets will contribute more than a third of AEGON’s new business.”
stake in French insurer La Mondiale Participations contributed to the increase.
EUR 24 million the previous year. This increase was mainly the result of higher earnings from both Central and
AEGON Hungary, the only unit within Other countries to sell general insurance, reported favorable technical results in both household and motor insurance in 2007. Earnings in 2006 included a strengthening in claim reserves.
EUR 20 million the year before. Earnings for both 2006 and 2007 were impacted by a reduction in deferred tax assets in Taiwan.
EUR 36 million in 2006, due mainly to the increase in net operating earnings. The effective tax rate was 53% in 2007 down from 56% in 2006.
In Asia, new life sales in Taiwan rose 34% in 2007 to
EUR 157 million, driven by strong sales of unit-linked products, which accounted for 58% of total new life sales.
EUR 126 million in 2007, a 54% increase from 2006. Sales of single premium life insurance increased by EUR 248 to
(CAM) saw a decrease of 31% in new life sales to
In the past few years, AEGON has significantly expanded its international presence outside its three main established markets of the United States, the Netherlands and the
AEGON employs more than 3,800 people in its businesses in Central and Eastern Europe, Spain and Asia.
Biztosító. Hungary remains AEGON’s leading business in the region and a springboard for further expansion. Today,
AEGON has a presence in two other western European countries: Spain and France. In recent years, AEGON’s activities in Spain have grown rapidly, thanks in large part to distribution partnerships with four of the country’s leading savings banks. At the end of 2002, AEGON also agreed a partnership with mutual insurer La Mondiale, one of France’s leading insurance and pension companies.
Czech Republic: AEGON Life Insurance Company and AEGON Voluntary Pension Fund Company; Romania: BT-AEGON Pension Fund Management
Poland and Romania, retail banks. Through tied agents, brokers and call centers, AEGON sells primarily life and non-life insurance and pensions. Banks and loan centers are used to sell mainly life insurance, mortgages, pensions and household insurance.
AEGON companies in Central and Eastern Europe offer a range of life insurance and personal protection products.
Unit-linked products cover all types of life insurance, including pension, endowment and savings, while traditional life also includes group life and preferred life.
From 2006, AEGON Hungary has been offering mortgages to retail customers.
AEGON companies in Central and Eastern Europe offer a variety of individual savings and retirement products.
has businesses, AEGON has introduced mandatory pension plans: in Hungary, Slovakia, Poland and Romania.
Additionally in three countries, AEGON has launched voluntary pension plans: in Hungary, Slovakia and the
Hungary have been attractive. Moreover, household insurance provides considerable opportunities for crossselling life insurance. Property and car insurance are also included in AEGON Hungary’s portfolio but neither are considered core businesses.
As elsewhere around the world, AEGON operates through a number of different sales channels in Asia. In Taiwan,
AEGON has a network of more than 800 professional agents. In addition, AEGON Taiwan works through independent brokers and banks, and uses worksite and direct marketing to ensure customers are able to receive the financial products they want in a way that suits them best. Each of these channels provides products tailored to customers’ requirements and the market segments they serve.
Banks are becoming increasingly important in Asia as a means for distributing pensions, life insurance and other long-term savings and investment products. For this reason, AEGON has been striving in recent years to extend its bank distribution agreements in the region. AEGON’s bancassurance network in China now totals 800 outlets.
AEGON’s partnership with La Mondiale gives the Group a foothold in Europe’s second largest insurance market. As in Spain, most life insurance in France – more than 60% –
is sold via retail banks or La Poste, France’s national post office.
that affect the value of AEGON’s investments, liabilities from products AEGON companies sell, as well as deferred expenses and the value of business acquired.
AEGON manages risk at local level where business is transacted, based on principles and policies established at Group level. AEGON’s integrated approach to risk management involves common measurement of risk and scope of risk coverage to allow the Group’s risk position to be aggregated. In addition, this integrated framework facilitates the sharing of best practices and the latest research on methodologies. Risk management functions are applied locally and are tied to the speed of business, while corporate oversight remains independent of business activity providing oversight and peer review.
For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements. For reinsurance, credit risk is normally mitigated by downgrade triggers allowing AEGON’s recapture of business, as well as funds withheld by treaties
(when AEGON owns the assets) and assets held in trust for the benefit of the Group (in the event of reinsurer insolvency).
As part of these risk management programs, AEGON takes inventory of its risk position across risk categories. AEGON
Group’s risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Results from AEGON’s sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and equity to various scenarios. For each type of market risk, the analysis shows how IFRS net income and equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. The analysis considers the interdependency between interest rates and lapse behavior for products sold in the Americas where there is clear evidence of dynamic lapse behavior. Management action is taken into account to the extent that it is part of AEGON’s regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not taken into account.
1 The information in this section (page 56-73) has been prepared in accordance with IFRS 7 ‘Financial Instruments Disclosure’.
Each sensitivity analysis reflects the extent to which the shock tested would affect management’s critical accounting estimates and judgement in applying AEGON’s accounting policies2. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of deferred policy acquisition costs or to an increase in impairment losses on equity investments. Although management’s short-term assumptions may change, if there is a reasonable change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses provided below.
A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value.
AEGON has classified a significant part of its investment portfolio as ‘Available for Sale’, which is one of the main reasons why the economic shocks tested have a different impact on net income than on equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in equity, unless impaired. As a result, economic sensitivities predominantly impact equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalisation ratios and capital adequacy are minimal. AEGON’s target ratio for the composition of its capital base is based on shareholders’
AEGON’s future equity or earnings. The analysis does not take into account the impact of future new business, which is an important component of AEGON’s future earnings.
Neither does it consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates.
2 Please refer to note 3 of the fi nancial statements for a description of the critical accounting estimates and judgements.
The exchange rates for US dollar and UK pound per euro for each of the last five year-ends are set forth in the table below.
AEGON group companies’ foreign currency exposure from transactions denominated in foreign currencies is not material.
The estimated approximate effects on net income and shareholders’ equity of movements in the exchange rates of AEGON’s non-euro currencies relative to the euro as included in table 2 on page 59, are due to the translation of subsidiaries and joint-ventures in the consolidated financial statements.
AEGON requiring the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in market interest rates. This may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of deferred policy acquisition costs (DPAC), which in turn reduces net income.
As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, AEGON typically bears the risk for investment performance equaling the return of principal and interest. AEGON is exposed to credit risk on its general account fixed-income portfolio (bonds, mortgages and private placements), over-the-counter derivatives and reinsurance contracts. In the past, some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. In the past, poor economic and investment climates in AEGON’s major markets resulted in significant investment impairments on the Group’s investment assets due to defaults and overall declines in the securities markets. Impairments on bonds held by AEGON have been low in recent years. However, a return to excessive defaults or other reductions in the value of these securities and loans could have a materially adverse effect on AEGON’s business, results of operations and financial condition.
Sensitivity analysis of net income and shareholders’ equity to currency exchange rate markets 1
Increase by 15% of non-euro currencies relative to the euro 258 2,298
Increase by 15% of non-euro currencies relative to the euro 248 2,666
Decrease by 15% of non-euro currencies relative to the euro (248) (2,666)
The sensitivity analysis reflects the assets and liabilities held at year end. This does not necessarily reflect the risk
Table 5 shows the Group’s maximum gross credit exposure from investments (credit protection not taken into account) in general account financial assets, as well as general account derivatives and reinsurance assets. Please refer to notes 46 and 47 to AEGON’s consolidated financial statements for further information on capital commitments and contingencies and on collateral given, which may expose the Group to credit risk.
AEGON has entered into free-standing credit derivative transactions (Single Tranche Synthetic CDOs and Single
Name Credit Default Swaps). The positions outstanding at the end of the year can be summarized as shown in table 6 on page 61. For a fee, AEGON USA takes credit exposure on a credit index, i.e. super-senior tranches of a CDX index, via a synthetic collateralized debt obligation program
(synthetic CDO’s). This index is composed of a reference portfolio of 125 investment grade corporate credits. Eighty-
Sensitivity analysis of net income and shareholders’ equity to interest rates
positions. The average duration of the outstanding transactions is 4.7 years. As these derivatives are marked to market through earnings, they may cause substantial operational earnings volatility prior to maturity due to credit spread volatility. Assuming there are no cash losses from the positions, any mark to market effect on operating earnings will be reversed by maturity. At December 31, 2007, the notional amount of this program was EUR 4.5 billion with a negative market value of EUR 30 million.
AEGON operates a Credit Name Limit Policy under which limits are placed on the aggregate exposure that the
Group has to any one counterparty. Limits are placed on the exposure at both group level and for individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (Fitch, Moody’s and
The limits were not changed for 2007 and there were no other material changes to the policy. There were no violations of the group-wide limits at year end 2007.
In EUR million Amort cost Fair value Amort cost Fair value Amort cost Fair value Amort cost Fair value Amort cost Fair value
Past due and/or impaired assets 43 374 294 682 – 2 3 – 340 1,058
TOTAL ON BALANCE CREDIT EXPOSURE 13,157 84,791 7,112 20,957 – 4,429 1,866 2,452 22,156 112,929 1 Includes investments of Holding and other activities.
The tables 18 - 20 on page 71 - 73 present specific credit risk concentration information for general account financial assets. Included in the bonds and money market investments are EUR 1,846 million in assets classified as held-to maturity and are therefore carried at amortized cost (2006: EUR 1,502 million). Of the EUR 1,846 million assets held-to-maturity, EUR 1,579 million are government bonds (2006: EUR 1,294 million), EUR 8 million is ABS
AEGON USA also categorizes asset backed securities issued by a securitization trust with second lien mortgages as subprime mortgage exposure, even though a significant percentage of second lien mortgage borrowers may not necessarily have credit scores below 660. AEGON USA
does not currently invest in or originate whole loan residential mortgages. As of December 31, 2007, the amortized cost of investments backed by subprime mortgage loans was EUR 2,866 million and the market value was EUR 2,524 million.
Table 9 provides the market values of AEGON’s subprime mortgage exposure by rating and by vintage.
In addition, AEGON USA has exposure to asset backed securities collateralized by manufactured housing loans.
Market value by vintage In EUR million Pre-2004 2004 2005 2006 2007 Total 1 Second lien collateral primarily composed of loans to prime and Alt-A borrowers.
SASCO name, with each transaction containing its own unique pool of collateral and representing a separate and distinct trust. The combination of low reset margin, slower prepayment speeds, illiquidity in the market, and general level of credit spread widening have pushed the overall market value as a percent of cost price on those RMBS
For all securities in an unrealized loss position, the market to cost ratio is 95%. As the unrealized losses on AEGON’s residential mortgage-backed securities are attributable to credit spread widening and not fundamental credit problems with the issuer or collateral, AEGON does not consider the underlying investments to be impaired as of
Sponsored Enterprises). The typical Alt-A borrower has a credit score high enough to obtain an ‘A’ standing, which is especially important since the score must compensate for the lack of other necessary documentation related to borrower income and/or assets.
AAA-rated securities. The tables below summarize the credit quality of the underlying loans backing the securities and the vintage year.
(also known as option ARMs). Unrealized losses on this portfolio amounted to EUR 73 million at the end of 2007.
Negative amortization mortgages are loans whereby the payment made by the borrower is less than the accrued interest due and the difference is added to the loan balance. When the accrued balance of the loan reaches the negative amortization limit (typically 110% to 125% of the original loan amount), the loan recalibrates to a fully amortizing level and a new minimum payment amount is determined. The homeowner’s new minimum payment amount may be significantly higher than the original minimum payment amount. Exactly when these loans reach their negative amortization cap will vary, and is a function of the accrual rate on each loan, the minimum payment rate on each loan and the negative amortization limit itself. Typically, these loans are estimated to reach their negative amortization limit between three and five years from the date of origination.
The following table provides the market values of negative amortization (Option ARMs) exposure by rating and by vintage.
LBUBS is not credit driven but rather a reflection of the move in interest rates and credit spreads relative to the level at which these deals were originally priced.
For all securities in an unrealized loss position, the marketto -cost ratio is 97%. As the unrealized losses on AEGON’s
About EUR 2.8 billion of the bonds in AEGON USA’s portfolio are wrapped by monoline insurers, of which
EUR 800 million of bonds in the EUR 2.9 billion subprime portfolio. Using updated assumptions that reflect recent increases in subprime delinquencies, AEGON expects that the majority of these will remain at investment grade level.
Table 10 and table 1 1 provide information on past due and impaired financial assets. An asset is past due when a counterparty has failed to make a payment at the time it is contractually due. Assets are impaired when an impairment loss has been charged to the income statement relating to this asset. Once the impairment loss is reversed in subsequent periods, the asset is no longer considered to be impaired. When the terms and conditions of financial assets are renegotiated, the amended terms and conditions apply when determining whether the financial assets are past due. There were no renegotiated assets that would have been past due or impaired had they not been renegotiated during the reporting year (2006: nil).
At December 31, 2007 and December 31, 2006, no collateral and other credit enhancements were held relating to financial assets that were then past due or individually impaired.
Other fi nancial assets – carried at fair value – 3
the policyholder, lower investment returns can reduce the asset management fee earned by AEGON on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees.
Volatile or poor market conditions may also significantly reduce the popularity of some of AEGON’s savings and investment products, which could lead ultimately to lower sales and lower net income. Significant terrorist actions, as well as general economic conditions, have led to and may again result in significant decreases in the value of
minimum benefits provisioning, while moderate scenarios may not. Changes in sensitivities between 2006 and 2007 arise as a result of the decrease in share positions from
Each asset purchased and liability sold has liquidity characteristics that are unique. Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity. If AEGON requires significant amounts of cash on short notice in excess of normal cash requirements and existing credit facilities, the Group may have difficulty selling these investments at attractive prices, in a timely manner, or both.
Investment contracts for account of policyholders 4,214 19,290 21,940 83,098 1 The projected cash benefi t payments are based on management’s best estimates of the expected gross benefi ts and expenses partially offset by the expected gross premiums, fees and charges relating to the existing business in force. Estimated cash benefi t payments are based on mortality, morbidity and lapse assumptions comparable with AEGON’s historical experience, modifi ed for recent observed trends. Actual payment obligations may differ if experience varies from these assumptions. The cash benefi t payments are presented on an undiscounted basis and are before deduction of tax and before reinsurance. The liability amount in AEGON’s consolidated fi nancial statements refl ects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefi t payments shown for all years in the table exceeds the corresponding liability amounts included in notes 18, 19 and 21.
Sources of underwriting risk include policy lapses and policy claims such as mortality, morbidity and expenses. In general, AEGON is at risk if policy lapses increase as sometimes the Group is unable to fully recover up-front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, AEGON sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products.
Groups’s underwriting assumptions. Where products have flexibele policy charges AEGON uses these analyses as the basis for modifying these charges, with a view to maintain a balance between policyholder and shareholder interests.
Life insurers are also exposed to longevity risk. In practice, however, this longevity risk can be mitigated, for example by adjusting premium rates or through reinsurance transactions.
Past due and/or impaired 18 673 2 – 693 1 Includes investments of Holding and other activities.
Credit risk concentrations – bonds and money market investments In EUR million Americas
Asset backed securities (ABSs) - Aircraft 138 – – – 138
ABSs – Collateralized Bond Obligations (CBOs) 854 – – 31 885
Past due and/or impaired 3 200 – 28 231 1 Includes investments of Holding and other activities.
Past due and/or impaired 43 193 – – 236 1 Includes investments of Holding and other activities.
AEGON may face claims from customers and adverse negative publicity if its products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by AEGON or its intermediaries.
New products that are less well understood and that have less of a historical performance track record are more likely to be the subject of such claims. Any such claims could have a materially adverse effect on AEGON’s results of operations, corporate reputation and financial condition.
AEGON’s results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which
Claims paying ability and financial strength ratings are factors in establishing the competitive position of insurers.
of AEGON or any of its rated insurance subsidiaries may, among other things, materially increase the number of policy surrenders and withdrawals by policyholders of cash values from their policies. The outcome of this may be cash payments requiring the sale of invested assets, including illiquid assets, at a price that may result in realized investment losses. Such cash payments to policyholders would result in a decrease in total invested assets as well as a decrease in net income. Among other things, early withdrawals may also cause AEGON to accelerate amortization of policy acquisition costs, reducing net income.
In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of AEGON’s products and services. This may negatively impact new sales and adversely affect the
Standard & Poor’s (S&P) insurance financial strength ratings and ratings outlook of the Group’s primary life insurance companies in AEGON’s major country units are shown in the following table.
AEGON’s cost of funding. During 2007, S&P maintained the credit ratings of AEGON N.V. at A+ with a stable outlook. Moody’s Investor Service maintained the senior debt rating of AEGON N.V. at A2, with a stable outlook.
Additionally, the insurance laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than current requirements.
The US Sarbanes Oxley Act of 2002 (SOX) and rules subsequently implemented by the Security Exchange
AEGON issue a report on internal controls over financial reporting, beginning for the year ending December 31, 2006 onwards. If AEGON is unable to maintain or achieve compliance with SOX, there may be a materially adverse impact on AEGON’s business.
AEGON faces significant risks of litigation and regulatory investigations and actions in connection with activities as an insurer, securities issuer, employer, investment advisor, investor and taxpayer. In recent years, the insurance industry has increasingly been the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities concerning common industry practices such as the disclosure of contingent commissions and the accounting treatment of finite reinsurance or other non-traditional insurance products. AEGON cannot predict at this time the effect this current trend towards litigation and investigation will have on the insurance industry or its business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify and may seek recovery of very large and/or indeterminate amounts, including punitive and treble damages. The existence of such lawsuits and magnitude may remain unknown for substantial periods of time. A substantial legal liability or a significant regulatory action could have a materially adverse effect on AEGON’s business, results of operations and financial condition.
AEGON’s markets, which could, in turn, cause market declines or volatility. Such a failure could lead to a chain of defaults that could adversely affect the Group. In addition, such a failure could impact future product sales as a potential result of reduced confidence in the insurance industry.
The United States and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgements (other than arbitration awards)
The main goals of AEGON’s capital and liquidity management are to manage capital efficiently across the
In the United States, AEGON held approximately 336% of the minimum capital required by the National Association of Insurance Commissioners at December 31, 2007.
The capital base reflects the capital employed in core activities and consists of shareholders’ equity (excluding revaluation reserve), capital securities, dated subordinated debt and senior debt. AEGON targets its capital base to comprise at least 70% shareholders’ equity, 25% capital securities and a maximum of 5% dated subordinated and senior debt. At December 31, 2007, AEGON’s capital base was within these prescribed tolerances. Shareholders’
equity capital represented 71.5% of its total capital base, while perpetual capital securities comprised 21.7% of its total capital base. Senior and dated subordinated debt accounted for the remaining 6.8%. As part of its overall capital management strategy, AEGON successfully completed a EUR 1 billion share repurchase program in
December 31, 2006 1. Net income of EUR 2,551 million was offset mainly by a decrease in the revaluation reserve of
EUR 2,164 million, a decrease due to foreign currency movements of EUR 1,445 million (largely due to a lower US
dollar), the EUR 1 billion share repurchase program, dividend payments, repurchased shares issued as stock dividends and coupon payments on perpetual capital securities.
AEGON conducts its capital and liquidity management processes at various levels within the organization, coordinated for the Group by Group Treasury, under the remit of the Group Risk and Capital Committee.
investors, as witnessed by the successful issuance of junior perpetual capital securities during recent years. AEGON’s focus on the fixed income investor base continues to be supported by an active investor relations program to keep investors well informed on AEGON’s strategy and results.
The principal arrangement is a USD 5 billion syndicated facility including a USD 3 billion back-up facility maturing in 2011 and extendable until 2013. This arrangement also includes a USD 2 billion multicurrency revolving letter of credit facility maturing in 2014, extendable until 2017. In addition, AEGON maintains USD 375 million of shorter dated bilateral back-up facilities. At December 31, 2007,
AEGON N.V. had no amounts outstanding under its commercial paper programs.
The duration profile of AEGON’s capital leverage is managed in line with the duration of surplus assets related to investments in its subsidiaries, subject to liquidity needs, capital and other requirements. Of AEGON’s total capital leverage at December 31, 2007, approximately
AEGON considers its working capital, backed by the external funding programs and facilities, to be amply sufficient for the Group’s present requirements.
EUR 3.6 billion (2006: EUR 2.3 billion). Operational debt primarily relates to mortgage warehousing and the funding of US regulation XXX and Guideline AXXX
redundant reserves. In 2007, AEGON completed three innovative capital management transactions, including a private value of inforce (ViF) securitization of
On the basis of this, AEGON’s Executive Board makes the following statement regarding the Group’s financial reporting risks: AEGON’s risk management and control systems provide reasonable assurance that the Group’s fi nancial reporting does not contain any material inaccuracies; AEGON’s risk management and control systems functioned properly in 2007; There are no indications to suggest that AEGON’s risk management and control systems will not continue to function properly in 2008.
AEGON’s internal audit function is responsible for ensuring that the design and operation of the Group’s internal controls are both appropriate and effective.
As part of this process, the internal audit departments carry out annual risk assessments.
The Remuneration Policy and Report can be found on pages 91 to 96. For detailed information about
The Supervisory Board makes recommendations to the General Meeting of Shareholders (AGM) concerning all appointments, reappointments and dismissals to and from both the Executive Board and the Supervisory Board itself.
In its meetings, the Supervisory Board regularly deals with the following issues: Business strategy
In accordance with AEGON’s Supervisory Board Rules, all regular meetings in 2007 were preceded by preparatory meetings, attended by the Chairman and Vice-Chairman of the Supervisory Board as well as the Chairman and CFO
Members of AEGON’s Executive Board attended all meetings held in 2007. Members of the Group’s formed Management
Representatives from Ernst & Young, AEGON’s independent auditor, also attended the discussion on the Group’s 2006 annual results.
In 2007, discussions within AEGON’s Supervisory Board focused on the following issues: Strategy
Supervisory Board attaches great importance to AEGON’s recent efforts to expand its presence in Asia as a whole and in China in particular. Moreover, the Board also places value on regular meetings with AEGON’s international senior management.
In March 2007, the Supervisory Board discussed AEGON’s annual results for 2006 and the Group’s 2006 VNB figures.
Committee, the Supervisory Board agreed to a proposed change in accounting principles as applied by AEGON
Committee. The Board followed the recommendation of the Audit Committee to approve the budget and the budgeted Capital Plan for 2008 and to authorize the
All proposals above were accepted by shareholders at their AGM in April 2007.
In 2007, the Supervisory Board again paid special attention to issues of compliance, in particular with regard to equitylinked insurance policies in the Netherlands as well as regulatory and other legal issues in Europe, the United
Executive Board Charter. Besides some minor legal updates, the revised internal control procedure for acquisitions, divestitures and joint ventures (as already approved in 2006) was added to the Charter. This Charter is published on AEGON’s corporate website.
AEGON’s Group Risk Officer gave a presentation on the company’s approach to risk management, the implications of the new Solvency II capital adequacy requirements and
AEGON’s own Economic Capital Framework. These issues are of the utmost importance to AEGON and the
Executive Board after six years at the helm of the company. Mr. Shepard’s retirement takes effect at
AEGON’s 2008 General Meeting of Shareholders. In 2008, Mr. Shepard will be 62, his agreed retirement age.
Board identified Alexander R. Wynaendts as Mr. Shepard’s successor. Mr. Wynaendts’ strong financial background and broad international perspective make him the right person to lead AEGON into its next stage of growth. In addition, Mr. Wynaendts has been a vital and integral part of AEGON’s senior management over the past several years. In particular, he has been instrumental in driving the recent expansion of the Group’s international businesses. The Supervisory Board would like to wish
Group’s overall risk management strategy. This committee, called the Risk Committee, will initially consist of Messrs.
Olcay (Chairman), Bailey and Levy. It will meet for the first time in March 2008. At the same time, it was decided that the tasks of the Strategy Committee would be taken over by the full Board.
The Audit Committee held eight meetings in 2007, which also were attended by AEGON’s Chief Financial Officer as well as other members of the Executive Board, the Director of Group Finance & Information and representatives of
In addition, the Committee confirmed that Shemaya Levy qualifies as a financial expert within the terms and conditions of both the Dutch Corporate Governance Code and the Sarbanes Oxley legislation in the United States. In accordance with legal requirements, the Audit Committee approved and recommended to the Supervisory Board to amend the Pre-approval Policy.
Each quarter, the Audit Committee received an update on the activities of the Group’s Internal Auditor as well as
Two separate meetings, in March and September, were devoted to AEGON’s filings during the year with the
US Securities and Exchange Commission. These comprise the Group’s: 2006 Annual Report (Form 20-F)
Results for the fi rst six months of 2007 (Form 6-K)
Group Risk Officer. The Committee also conducted a review of the Group’s 2008 budget, as well as the Group’s Capital
Board. The purpose of the Strategy Committee is to review AEGON’s overall business strategy, in addition to considering alternative strategies and material aspects relating to the realization of the Group’s strategic objectives.
AEGON’s corporate strategy and prepared a framework for the agenda of the Supervisory Board strategy meeting held in Shanghai in May. As required, all proceedings of the Strategy Committee’s meetings were reported to the
Supervisory Board. During 2007, these minutes were a regular item on the agenda of the Supervisory Board meetings. As mentioned above, the Strategy Committee was discontinued at the end of 2007.
AEGON’s Nominating Committee held four meetings in 2007. The Chairman of the Executive Board attended all meetings. During the year, the Nominating Committee discussed the composition of the Supervisory Board and its committees as well as existing and forthcoming vacancies. It also advised the Supervisory Board on nominations for two appointments and one reappointment.
proposed new title of Chief Operating Officer. During the year, the Nominating Committee also discussed
Mr. Shepard’s succession. At its meeting on November 6, the Committee decided to recommend the Supervisory
The Compensation Committee held four meetings in 2007, also attended at certain moments by either the Chairman of the Executive Board or the Group’s CFO. During the year, the Compensation Committee discussed Executive
Incentive Plans and advised the Supervisory Board on incentive payments in 2007. In February and March, the main item of discussion during the Committee’s meetings was the new Remuneration Policy for the Executive Board.
Committee decided to organize a benchmark assessment of AEGON’s executive remuneration based on the
The Committee made use of the advice of Towers Perrin, external independent advisors.
All members of the Supervisory Board are considered independent according to the terms of the Dutch Corporate
Mr. Storm is not regarded as independent within the definition of the Code since he served as Chairman of
AEGON’s Executive Board prior to his retirement in April 2002. Mr. Storm joined the Supervisory Board in July 2002.
Mr. Van Wijk was reappointed to another four-year term of office after his previous mandate expired in 2007.
In compliance with the Dutch Corporate Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the possibility of reappointment for subsequent, additional four-year terms. A schedule for all members of the Executive Board is included in the Group’s Executive Board Rules and posted on AEGON’s corporate website.
In 2007, Mr. Wynaendts’ mandate expired. He was elected to another term of four years by shareholders at the AGM
Management Board to strengthen and coordinate the management of AEGON’s business activities around the world. The Management Board came into effect on
Throughout 2007, AEGON’s Management Board comprised: Members of the Executive Board (Messrs. Shepard,
This Annual Report includes the annual accounts for 2007, prepared by the Executive Board, discussed by both the
Audit Committee and the Supervisory Board and submitted to shareholders for approval. The Supervisory Board recommends that shareholders adopt these annual accounts and approve the proposal to pay a total dividend for the 2007 financial year of EUR 0.62 per common share. This total dividend comprises a final dividend payment of EUR 0.32 per common share and an interim dividend payment of EUR 0.30 per common share which was made in September 2007.
Board would also like to express their appreciation for the dedication and professionalism shown by AEGON
employees in responding to an ever-changing market, business and regulatory environment.
Royal Philips Electronics NV. Mr. Eustace was appointed to AEGON’s Supervisory Board in 1997. His current term will end in 2009. In addition to AEGON, Mr. Eustace also serves on the Supervisory Board of Royal KPN N.V. He is a member of the
European Advisory Council for Rothschilds, Chairman of the Supervisory Board of the unlisted company The Nielsen
O. John Olcay is Vice-Chairman and Managing Director of Fischer, Francis, Trees and Watts Inc., based in New York.
Mr. Olcay was appointed to AEGON’s Supervisory Board in 1993. His term will end in 2008. Mr. Olcay is also Chairman of the investment funds FFTW Funds Selection in Luxembourg and FFTW Funds in Dublin.
Antony Burgmans is a retired Chairman of the Anglo-Dutch group Unilever. He was appointed to AEGON’s Supervisory
Board in 2007. His current term ends in 2011. In addition to his position at AEGON, Mr. Burgmans is also a member of the
Chairman of the Supervisory Board’s Compensation Committee and member of the Nominating Committee
Supervisory Board in 2004. His current term will end in 2008. Mr. Dahan is also Chairman of the Supervisory Board of
Ahold N.V. and a member of the Supervisory Board of TNT N.V. in the Netherlands as well as a member of the International
Toni Rembe is a former partner and senior advisor at Pillsbury Winthrop Shaw Pittman. She was appointed to AEGON’s
Kornelis J. Storm is a former Chairman of AEGON’s Executive Board. He was appointed to the Group’s Supervisory Board in 2002 when he stepped down from his executive role. His current term ends in 2010. In addition to AEGON, Mr. Storm is also
Holdings B.V. and a non-executive director of Unilever N.V. and Unilever PLC. Mr. Storm also serves as a member of the boards of directors of InBev SA and Baxter International Inc.
Leo M. van Wijk is Vice-Chairman of Air France-KLM S.A. He has been a member of AEGON’s Supervisory Board since 2003.
Mr. Van Wijk was re-elected to the Supervisory Board in 2007. His term will end in 2011. He is also a member of the
Policy to the Supervisory Board. Any material changes must be referred to the General Meeting of Shareholders
Member of other committees 5,000 1 AEGON has four committees in total: Audit, Compensation Nominating and Strategy.
Other committees 2 1,250 2 In case of intercontinental travel, this fee is doubled to EUR 2,500.
As part of its overall remuneration policy, AEGON regularly compares the Group’s levels of executive remuneration with those at selected peers. Two separate peer groups have been established, one for US-based Executive Board members and a second for European-based members.
Supervisory Board uses a range between the 40th and 60th percentile of the relevant peer group as an objective. Each year, AEGON’s Supervisory Board reviews Target Total
Compensation levels to ensure they remain competitive and continue to provide proper incentives to members of the Group’s Executive Board.
The table below gives a target breakdown for each of these three components. AEGON’s long-term aim is to ensure that compensation for future members of the
Group’s Executive Board matches these targets as closely as possible. Current members of the Executive Board, however, have employment contracts that pre-date
AEGON’s existing Remuneration Policy. Terms and conditions of these contracts cannot be altered. As a result, the compensation breakdown for current members of the Executive Board may differ from the numbers below.
It is the responsibility of AEGON’s Supervisory Board to determine fixed salaries for each member of the Group’s
AEGON believes that variable compensation is an effective way of strengthening the commitment of individual
Executive Board members to the Group’s short-term and long-term objectives. Variable compensation under this
These indicators are: Real net growth in operating earnings after tax 1 ; Growth in the value of new business 1 ; Total shareholder return.
Members of the Executive Board qualify for 100% of their entitlements if AEGON matches the pre-set performance targets; If AEGON’s performance exceeds the targets, however,
Executive Board members may receive up to 150% of their entitlement.
In addition, AEGON’s Supervisory Board may make discretionary adjustments to Executive Board members’
1 As publicly disclosed in AEGON’s fi nancial statements. 2 For this calculation, the ‘additive method’ is used, i.e. targets are set and performance assessed for each separate indicator, independently of the targets and performances of other indicators.
variable compensation, but must adhere to the following procedure: If the Supervisory Board considers that AEGON’s shortterm or long-term business is being impacted by signifi cant and exceptional circumstances that are not refl ected in the pre-determined performance indicators, it may set up an ad hoc committee to consider possible adjustments; This committee will consist of the Chairman of the
Supervisory Board, the Chairman of the Audit Committee and members of the Compensation Committee; This ad hoc committee will review all circumstances in detail and document its fi ndings. The committee may then put forward a proposal to the Supervisory Board assuming, of course, that the committee’s conclusions coincide in principle with those of the Supervisory Board; To refl ect exceptional circumstances, variable compensation may be adjusted, but only to a level between 75% and 125% of the originally calculated entitlement 1.
Executive Board contain a notice period of three months for the Executive Board member and six months for the
1 The absolute maximum for the adjusted variable compensation as a percentage of the target is therefore 187.5% (in other words, 150% multiplied by 125%). While it is also theoretically possible under this system to arrive at a variable compensation of zero, AEGON’s Supervisory Board has the authority, if justifi ed by the circumstances, to grant a discretionary payment. It should also be noted that these discretionary adjustments concern variable compensation only, not fi xed compensation.
Mr. Wynaendts’ base salary to be reviewed again during 2008 following his appointment as Chairman of the
AEGON’s previous policy in three important respects: First, all LTI payments now take the form of AEGON
shares, rather than shares and stock options which had been the case previously; Second, for variable compensation, the performance period is now one year, rather than three.
Plan shall vest four years after grant date. The remaining fi fty percent shall vest after a period of eight years.
1 For Dutch members of the Board, amounts include base salary, the customary employee profi t sharing bonus as well as a tax-deferred employee savings plan.
2 Bonuses for the 2007 fi nancial year are based on earnings fi gures released on March 6, 2008. 2007 bonuses will be paid in 2008 after adoption of the annual accounts by shareholders. Full details will be published as part of AEGON’s 2008 Annual Report.
In addition to his short-term incentive bonus, Mr. Shepard also received EUR 2,789,000 in 2007 as an additional bonus related to AEGON’s net income for the 2006 financial year. This represents a rise of 2.1% from
This is a decrease of 9% as compared to the bonus paid for the year 2006.
There are two separate LTI compensation plans still running under the terms and conditions of AEGON’s previous Remuneration Policy. They are: The 2005 Long-Term Incentive Plan, which matured at the start of 2008; The 2006 Long-Term Incentive Plan, which will mature at the start of 2009.
AEGON’s 2004 Long-Term Incentive Plan, agreed under the Group’s former Remuneration Policy, matured at the beginning of 2007. Share rights under this Plan, however, did not vest as AEGON failed to reach its financial targets for the three-year period 2004-2006. Therefore, no LTI
AEGON’s 2005 Long-Term Incentive Plan, also formulated under AEGON’s pre-2007 Remuneration Policy, matured at the beginning of 2008. All share rights under this Plan vested as targeted. Grants due in 2008 as part of the 2005 LTI Plan can be found in the following table.
lower than in 2006. Total shareholder returns were also lower as concerns over international credit markets weighed on AEGON’s stock price during the year.
For grants expected in 2008 as part of the 2007 LTI Plan please refer to the table below.
Long-Term Incentive awards to Executive Board members under the 2005 and 2007 Long-Term Incentive Plans will mature and be determined in 2008. Full details will be published as part of AEGON’s 2008 Annual Report.
Any shareholder may request items be added to the agendas of these meetings. Generally, in accordance with
Meeting of Shareholders, to speak and vote at the meeting, either in person or by proxy granted in writing (including electronically embedded proxies). In accordance with the applicable statutory requirements, any shareholder wishing to take part must provide proof of his or her identity and shareholding and notify the company ahead of time of his or her intention to attend the meeting.
In addition, AEGON solicits proxies from New York Registry shareholders in line with common practice in the
At the General Meeting of Shareholders, each share carries one vote. However, the holder of preferred shares,
The Executive Board is charged with the management of the company. Each member of the Board has duties related to his or her specific areas of expertise. The number of
Incorporation, the Executive Board must obtain the prior approval of the Supervisory Board. In addition, the
Supervisory Board may subject other Executive Board decisions to its prior approval.
The Supervisory Board operates according to the principles of collective responsibility and accountability.
AEGON’s Supervisory Board currently consists of eleven non-executive members, one of whom is a former member of the company’s Executive Board. The Supervisory Board also oversees the work of several committees composed of its members, dealing with specific issues linked to
Supervisory Board is well balanced. With that in mind, a profile has been drawn up outlining the required qualifications of its members. Supervisory Board members are no longer eligible for reappointment after the age of 70, unless the Board itself decides to make an exception to this rule. Supervisory Board members’ remuneration is determined by the General Meeting of Shareholders.
As a company based in the Netherlands, AEGON adheres to the Dutch Corporate Governance Code, which came into effect on January 1, 2004. AEGON endorses this Code and strongly supports its principles for sound and responsible corporate governance. AEGON regards the Code as an effective means of helping ensure that the interests of all stakeholders are duly represented and taken into account.
Generally, AEGON applies the best practice provisions set out in the Dutch Corporate Governance Code. Please refer to AEGON’s website for an extensive review of the Group’s compliance with this Code. The cases where AEGON does not fully apply the best practice provisions of the Code are dealt with and explained below (the recorded references are to the relevant provisions of the Code). In these few cases AEGON adheres, as far as possible, to the spirit of the Code.
‘best practice’ provision to all future Executive Board appointments. However, existing employment contracts with current members of the Board, in particular with reference to the severance payment arrangements, are not in line with this best practice provision. The employment agreements of the members of the Executive
Articles of Association of Vereniging AEGON determine that AEGON’s CEO and CFO are excluded from voting on certain issues directly related to AEGON or their position with AEGON. AEGON’s Supervisory Board holds the view that, given the historic relationship between AEGON and
votes per share in certain circumstances, as explained in more detail below, in line with the higher par value of the preferred shares.
There are no restrictions on the transfer of common shares. As regards the transferability of preferred shares, please refer to clause 10.5 of the Amendment to the 1983
Vereniging AEGON holds 171,974,055 common shares, 211,680,000 class A preferred shares and 35,170,000 class B preferred shares. Together, this represents 34% of
AEGON’s major shareholder, Vereniging AEGON, has voluntarily waived its right to cast 25/12 vote per preferred share, except in the event of a ‘special cause’, as defined in greater detail in the Preferred Shares Voting Rights
Agreement, published on AEGON’s website. They include the acquisition by a third party of an interest in AEGON
N.V. amounting to 15% or more, a tender offer for AEGON
The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend
The General Meeting of Shareholders appoints members of both the Executive and Supervisory Boards, following nomination by the Supervisory Board. This nomination is binding if at least two candidates are nominated. However, the General Meeting of Shareholders may cancel the binding character of such nominations with a majority of two-thirds of the votes cast, representing at least one-half of AEGON’s issued capital.
The General Meeting of Shareholders may bring forward a resolution to appoint a person other than in accordance with a nomination by the Supervisory Board, but such a resolution also requires a two-thirds majority of the votes cast, representing at least one-half of AEGON’s issued capital.
Shareholders with the same qualified majority, unless this dismissal is proposed by the Supervisory Board.
The provisions on appointing board members were included as part of a broader review of AEGON’s corporate governance and were adopted at the Extraordinary
General Meeting of Shareholders held on May 9, 2003. The qualified majority requirements were included to give
AEGON temporary protection against unfriendly actions from, for example, a hostile bidder. In effect, major shareholder Vereniging AEGON may block any hostile attempts to replace AEGON’s Executive or Supervisory
New shares may be issued up to the maximum of the company’s authorized capital pursuant to a resolution of the General Meeting of Shareholders. Shares may also be issued following a resolution of the Executive Board, if and to the extent that, the Board is empowered to do so by the General Meeting of Shareholders. An authorization to this end is usually presented to the annual General Meeting of Shareholders.
More information on AEGON’s corporate responsibility strategies and initiatives may be found in the Group’s 2007 Corporate Responsibility Report available online 1.
AEGON’s approach to issues of corporate responsibility mirrors the Group’s overall structure. At Group level, AEGON
We believe that business success is not incompatible with a respect for the environment and human rights.
Indeed, we recognize that creating a sustainable business means taking into account the interests of all our stakeholders – customers, employees, business partners and shareholders. We also believe we can make a valuable contribution to the communities in which we operate not only as a provider of long-term financial products and services, but also as a responsible employer and investor. We will pursue our objectives through sound business principles based on our core values: Respect, Quality, Transparency and Trust.
With more than EUR 370 billion in revenue-generating assets, AEGON is one of the world’s leading institutional investors. It manages investments not only on its own account, but also on behalf of its various customers and policyholders. The Group places great importance on the responsibilities it has as an investor and recognizes that poor social or environmental practices can affect the value of the companies in which it invests.
AEGON’s investment strategy consists in attempting to balance the need to maximize returns with consideration for social, environmental and other non-financial factors.
These agreements help shape and inform the Group’s investment decisions. They include: The Carbon Disclosure Project
Principles on human rights and labor standards contained in the UN Global Compact
In 2007, AEGON donated a total of EUR 6.57 million to charitable organizations around the world, down from
organizes and supports initiatives aimed at improving levels of financial literacy in its local communities.
Insurance Foundation for Education – a non-profi t organization that instructs people on the importance of life insurance and sound family fi nancial planning; AEGON UK is backing the UK government’s National
Strategy for Financial Capability, a program designed to improve fi nancial education; AEGON The Netherlands has set up an extensive training program for salesmen and intermediaries designed to improve the advice they give to customers on insurance and long-term savings products.
Consolidated financial statements of AEGON Group 2007 105 Exchange rates 106 Consolidated balance sheet 107 Consolidated income statement 108 Consolidated cash flow statement 1 10 Consolidated statement of changes in equity
Notes to the consolidated financial statements of AEGON Group 113 General information 113 Summary of significant accounting principles 132 Critical accounting estimates and judgment in applying accounting policies 136 Segment information 144 Intangible assets 150 Investments for account of policyholders 153 Investments in associates 153 Reinsurance assets 155 Deferred expenses and rebates 156 Other assets and receivables 158 Cash and cash equivalents 159 Shareholders’ equity 164 Other equity instruments 165 Trust pass-through securities 166 Subordinated borrowings 166 Insurance contracts 168 Insurance contracts for account of policyholders 168 Investment contracts 170 Investment contracts for account of policyholders 172 Defined benefit plans 179 Deferred revenue liabilities 179 Deferred tax 181 Other liabilities 182 Premium income and premiums to reinsurers 182 Investment income 183 Fee and commission income 183 Other revenues 184 Results from financial transactions 185 Other income 185 Policyholder claims and benefits 186 Profit sharing and rebates 186 Commissions and expenses 190 Impairment charges/(reversals)
190 Interest charges and related fees 190 Other charges 191 Income tax 192 Earnings per share 192 Dividend per share 193 Capital and solvency 194 Summary of total financial assets and financial liabilities at fair value through profit or loss 195 Commitments and contingencies 197 Pledged and repledgeable assets 198 Business combinations 200 Group companies 202 Related party transactions 203 Remuneration Executive Board 206 Remuneration Supervisory Board 207 Events after the balance sheet date 208 Auditor’s report
TOTAL EQUITY AND LIABILITIES 314,120 314,813 1 In 2007, AEGON changed its accounting policy regarding the valuation of minimum guarantees applied by AEGON The Netherlands. Further reference is made to note 2.2.1A.
CONSOLIDATED INCOME STATEMENT OF AEGON GROUP FOR THE YEAR ENDED DECEMBER 31
Income before share in profi t/(loss) of associates and tax 3,041 3,939 2,776
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF AEGON N.V. 2,551 3,169 2,147
2 After deduction of preferred dividends and coupons on perpetuals. 3 Includes proposal of fi nal dividend for the year.
Insurance and investment liabilities for account of policyholders 7,809 12,086 13,940
Disposal of investments (other than money market investments) 67,150 64,046 61,943
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 2 (4,718) 6,781 (1,444)
2 Included in net increase/(decrease) in cash and cash equivalents are interest received (EUR 8,715 million; 2006: EUR 9,458 million and 2005: EUR 9,099 million), dividends received (EUR 886 million; 2006: EUR 1,192 million and 2005: EUR 870 million) and interest paid (EUR 422 million; 2006: EUR 411 million and 2005: EUR 348 million).
Aggregate tax effect of items recognized directly in equity – – 787 – – 787 – 787
Net income recognized directly in equity – (31) (2,164) (1,503) – (3,698) – (3,698)
TOTAL RECOGNIZED NET INCOME FOR 2007 – 2,520 (2,164) (1,503) – (1,147) – (1,147)
Treasury shares – withdrawal 170 (170) – – – – – –
1 Issued capital and reserves attributable to equity holders of AEGON N.V.
Foreign currency translation differences – – (77) – – (77) – (77)
Other equity instruments issued – – – – 638 638 – 638
(Gains)/losses transferred to income statement on disposal and impairment – – 54 – – 54 – 54
Foreign currency translation differences – – 142 – – 142 – 142
Other equity instruments redeemed – – – – (950) (950) – (950)
Coupons on perpetuals – (132) – – – (132) – (132)
AEGON N.V., its subsidiaries and its proportionally consolidated joint ventures (AEGON or ‘the Group’) have life insurance and pensions operations in over twenty countries in Europe, the Americas and Asia and are also active in savings and investment operations, accident and health insurance, general insurance and limited banking operations in a number of these countries. Headquarters are located in The Hague, the Netherlands. The Group employs approximately 30,000 people worldwide.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union (EU) and to IFRS as issued by the
International Accounting Standard Board, that are applicable for financial statements for the year 2007. In addition, changes in accounting policies adopted by the Group in 2007 that require retrospective application have been reflected in the consolidated financial statements. Further information on these changes in accounting policies is provided in paragraph 2.2. Information on the standards and interpretations that were adopted in 2007 is provided below in paragraph 2.1.1b. Certain amounts in prior years have been reclassified to conform to the current year presentation.
IFRS 7 ‘Financial instruments – disclosures’ requires that the financial statements provide information concerning the nature and extent of risks arising from financial instruments. Please refer to Chapter ’Risk management – Financial and insurance risks’ on pages 56 – 73 of the
The financial statements are put to the Annual General Meeting of
New standards become effective on the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2007, the Group has adopted the following IASB standards and interpretations of the International Financial Reporting Interpretations
Insurance Contracts; IFRIC 8 Scope IFRS 2 Share-based payments; IFRIC 9 Reassessment of embedded derivatives; IFRIC 10 Interim fi nancial reporting and impairment; IFRIC 11 IFRS 2 Group and treasury transactions.
IFRIC 8 clarifies that IFRS 2 Share-based payment applies to all transactions in which an entity receives non-financial assets or services as consideration for the issue of its equity instruments, even where nil consideration seems to be received.
IFRIC 9 provides additional guidance to the principle in IAS 39 to assess whether a contract contains embedded derivatives that require bifurcation when the company first becomes a party to the contract.
IFRIC 9 requires an additional assessment to be performed when there is a change in the terms of the contract that significantly modifies the contract’s cash flows. The interpretation prohibits subsequent reassessments to be performed in other instances, with the exception of business combinations for which a scope exclusion is made. IFRIC 9 is consistent with the Group’s current policy on the reassessment of embedded derivatives. Therefore, there has been no impact on equity or net income.
IFRIC 10 prohibits entities from reversing impairment losses recognized in previous interim periods in respect of goodwill or an investment in either an equity instrument or a financial asset carried at cost.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP AMOUNTS IN EUR MILLION, UNLESS OTHERWISE STATED
January 1, 2008, will be applied in the coming years: IAS 1 Presentation of fi nancial statements; IFRS 8 Operating segments; Amendments to IAS 23 Borrowing costs; IFRIC 12 Service concession arrangements; IFRIC 13 Customer loyalty programmes; IFRIC 14 IAS 19 The limit on a defi ned benefi t asset, minimum funding requirements and their interlocation.
The revision of IAS 1 is aimed at improving users’ ability to analyse and compare the information given in financial statements. It introduces for example a statement of comprehensive income. It will not impact net income or equity.
IAS 14 Segment reporting and adopts a management approach to segment reporting as required in SFAS 131 Disclosures about segments of an enterprise and related information. The adoption of IFRS 8 only impacts the segmental disclosures and therefore will not have an impact on equity or net income.
IFRIC 12 applies to service concessions whereby a public service entity grants a contract to a private sector entity for the supply of infrastructure or other public services. It addresses how these service concession operators should account for the obligations they undertake and rights they receive. This interpretation has a required adoption date of January 1, 2008 and is not expected to have a material impact on equity or net income.
IFRIC 14 provides general guidance on how to assess the limit in IAS
As of January 1, 2007, the following changes of accounting policies were adopted: Accounting for minimum guarantees by AEGON The Netherlands; SOP 05-1 Accounting by Insurance Enterprises for Deferred
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 2.1.2 - 2.2.1
AEGON’s income statement. Similarly, changes in the fair value of the guarantees will be reflected in AEGON’s income statement. AEGON
believes that this change in accounting principles increases the transparency of its financial results and should enhance the ability of investors, analysts and other interested parties to judge the performance of its business. The change in accounting policies applies only to AEGON The Netherlands and does not impact other country units.
NET INCOME ATTRIBUTABLE TO EQUITYHOLDERS OF AEGON N.V. - ADJUSTED 3,169 2,147
Shareholders’ equity – based on previous accounting principles 19,137 19,276 14,875
Policyholder claims and benefits, Results from financial transactions and Income tax along with related items in the consolidated cash flow statement.
As allowed by IFRS 4 Insurance Contracts, the Group values its insurance contracts in accordance with the accounting principles that were applied prior to the transition to IFRS. The assets and liabilities relating to insurance contracts issued in the United States and Canada are accounted for in accordance with United States Generally
SOP 05-1 for insurance contracts issued in the United States and
AEGON’s primary format for segment reporting is by geographical area, which is consistent with the Group’s management and internal reporting structure. The following segments have been established: Americas, the Netherlands, United Kingdom, Other countries, and
The following lines have been established: Life and protection, which includes products with mortality, morbidity and longevity risks; Individual savings and retirement products, which include products with no or insignifi cant longevity risk, primarily fi xed and variable annuity products sold by AEGON Americas; Pensions and asset management, which includes both individual and group pension business and 401(k) and similar products, typically sponsored by or obtained through an employer.
Insurance (BOLI/COLI); Reinsurance, which includes earnings on reinsurance business assumed from direct writers; Distribution, which includes commissions earned by independent fi nancial advisors; General insurance, which includes mainly automotive insurance, liability insurance, household insurance and fi re protection; Other is used to report any items which cannot be directly allocated to a specifi c line of business; Interest charges and other includes funding interest expenses and holding expenses. No changes have been made to what was previously reported in this line.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 2.2.2 - 2.4
The captions in the details in note 33 on Results from financial transactions have been revised to reflect the changes in presentation.
Fair value changes and foreign exchange gains and losses 710 313
Gains and losses on investments for account of policyholders 8,139 11,338
The consolidated financial statements include the financial statements of AEGON N.V. and its subsidiaries. Subsidiaries are entities over which AEGON has direct or indirect power to govern the financial and operating policies so as to obtain benefits from its activities (‘control’).
The use of proportionate consolidation is discontinued from the date on which the Group ceases to have joint control.
On consolidation, the financial statements of group entities with a foreign functional currency are translated to euro, the currency in which the consolidated financial statements are presented. Assets and liabilities are translated at the closing rates on the balance sheet date. Income, expenses and capital transactions (such as dividends)
Transfer prices between segments are on arm’s length basis in a manner similar to transactions with third parties.
1 For segment reporting disclosure purposes the above items are aggregated in the line Gains and losses on investments. 2 Derivatives are considered economic hedges of certain exposures related to an existing asset or liability and are part of the Group’s asset liability management.
Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously.
(VOBA). The Group also recognizes VOBA when it acquires a portfolio of investment contracts with discretionary participation features.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. For products sold in the United States and Canada, with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date.
Any change in estimates is recorded in the income statement. For all products, VOBA is assessed for recoverability at least annually on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
The intangible assets are carried at cost less accumulated depreciation and impairment losses. Depreciation of the asset is over its useful life as the future economic benefits emerge and is recognized in the income statement as an expense. The depreciation period and pattern are reviewed at each reporting date, with any changes recognized in the income statement.
Investments for general account comprise financial assets, excluding derivatives, as well as investments in real estate and real estate held for own use.
The following financial assets are measured at fair value through profit or loss: financial assets held for trading, financial assets managed on a fair value basis in accordance with the Group’s risk management and investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced.
equity. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 2.9
For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include non-market observable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset.
Group has transferred the asset without transfer of substantially all the risks and rewards of ownership, provided the other party can sell or pledge the asset. Financial assets, in respect of which the Group has neither transferred nor retained all the risks and rewards, are recognized to the extent of the Group’s continuing involvement.
A security that has been received under a borrowing or reverse repurchase agreement is not recognized as an asset. A receivable is recognized for any related cash collateral paid by AEGON. The difference between sale and repurchase price is treated as investment income. If the Group subsequently sells that security, a liability to repurchase the asset is recognized and initially measured at fair value.
Property that is occupied by the Group and that is not intended to be sold in the near future is classified as real estate held for own use.
Investments held for account of policyholders consist of investments in financial assets, excluding derivatives, as well as investments in real estate and real estate held for own use. Investment return on these assets is passed on to the policyholder. Also included are the assets held by consolidated investment funds that are backing liabilities towards third parties. The accounting principles are the same as those applicable to general account investments, as described in note 2.9.
Derivatives with positive values are reported as assets and derivatives with negative values are reported as liabilities. Derivatives for which the contractual obligation can only be settled by exchanging a fixed amount of cash for a fixed amount of AEGON N.V. equity instruments are accounted for in shareholders’ equity and are therefore discussed in the notes on equity.
Fair value hedges are hedges of a change in the fair value of an unrecognized firm commitment or an asset or liability that is not held at fair value through profit or loss. The hedged item is remeasured to
fair value in respect of the hedged risk and the resulting adjustment is recorded in the income statement.
Entities over which the Group has significant influence through power to participate in financial and operating policy decisions, but which do not meet the definition of a subsidiary or joint venture, are accounted for using the equity method. Interests held by venture capital entities, mutual funds and investment funds that qualify as an associate are accounted for as an investment held at fair value through profit or loss. Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss.
Group’s accounting policies. Any gains and losses recorded directly in shareholders’ equity by the associate are reflected in other reserves in shareholders’ equity, while the share in the associate’s net income is recognized as a separate line item in the consolidated income statement. The Group’s share in losses is recognized until the investment in the associate’s equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
On disposal of an interest in an associate, the difference between the net proceeds and the carrying amount is recognized in the income statement and gains and losses previously recorded directly in shareholders’ equity are reversed and recorded through the income statement.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on either the expected future premiums or the expected gross profit margins. For products sold in the United States and Canada with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, disability and lapse assumptions, maintenance expenses and expected inflation rates. For all products, DPAC is assessed for recoverability at least annually on a country-by-country basis and is considered in the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
Deferred transaction costs relate to investment contracts without discretionary participation features under which AEGON will render investment management services. Incremental costs that are directly attributable to securing these investment management contracts are recognized as an asset if they can be identified separately and measured reliably and if it is probable that they will be recovered.
For contracts involving both the origination of a financial liability and the provision of investment management services, only the transaction costs allocated to the servicing component are deferred. The other transaction costs are included in the carrying amount of the financial liability.
Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. For tangible and intangible assets, financial assets and reinsurance assets, if not held at fair value through profit or loss, the recoverable amount of the asset is estimated when there are indications that the asset may be impaired.
Irrespective of the indications, goodwill and other intangible assets with an indefinitive useful life that are not amortized, are tested at least annually.
Assets are tested individually for impairment when there are indications that the asset may be impaired. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an asset’s value in use and its net selling price. The value in use represents the discounted future
With the exception of goodwill, impairment losses on non-financial assets can be reversed.
All non-impaired assets measured at amortized cost are then grouped by credit risk characteristics and collectively tested for impairment.
The impairment loss is calculated as the difference between the carrying and recoverable amount of the investment. The recoverable amount is determined by discounting the estimated probable future cash flows at the original effective interest rate of the asset. For variable interest debt instruments, the current effective interest rate under the contract is applied.
For equity instruments, a significant or prolonged decline in fair value below initial cost is considered objective evidence of impairment and always results in a loss being recognized in the income statement.
Financial instruments that are issued by the Group are classified as equity if they represent a residual interest in the assets of the Group after deducting all of its liabilities. In addition to common shares and preferred shares, the Group has issued perpetual securities that are classified as equity, rather than as debt, as these securities have no final maturity date, repayment is at the discretion of AEGON and
Life insurance contracts are insurance contracts with guaranteed lifecontingent benefits. The measurement of the liability for life insurance contracts varies depending on the nature of the product.
The liability for the insurance contracts for account of policyholders is measured at the policyholder account balance. Contracts with unitdenominated payments are measured at current unit values, which reflect the fair values of the assets of the fund. If applicable, the liability representing the nominal value of the policyholder unit account is amortized over the term of the contract so that interest on actuarial funding is at an expected rate of return.
Life insurance contracts typically include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives.
If the embedded derivative cannot be reliably bifurcated, the entire insurance contract is carried at fair value through profit or loss.
Other terms and conditions, such as participation features and expected lapse rates are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the balance sheet date for future distribution to policyholders.
The Group issues life insurance contracts, which, as a rule, do not expose the Group to interest risk as the account terms are not fixed or guaranteed or because the return on the investments held is passed on to the policyholder. However, in some cases these contracts may contain guaranteed minimum benefits. An additional liability for life insurance is established for guaranteed minimum benefits that are not bifurcated. Bifurcated guaranteed minimum benefits are classified as derivatives.
In the Netherlands, an additional liability is established for guaranteed minimum benefits that are not bifurcated on group pension plans and on traditional insurance contracts with profit sharing based on an external interest index. The guarantees are measured at fair value.
Some profit sharing schemes issued by the Group entitle the policyholder to a bonus which is based on the actual total return on specific assets held. To the extent that the bonus relates to gains on available-for-sale investments for which the unrealized gains are recognized in the revaluation reserve in equity, shadow accounting is applied. This means that the increase in the liability is also charged to equity to offset the unrealized gains rather than to the income statement.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows and policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels and the level of prudence applied in the test are consistent with local requirements.
To the extent that the tests involve discounting of future cash flows, the interest rate applied may be prescribed by the local regulator or may be based on management’s expectation of the future return on investments.
Any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing a technical reserve for the remaining loss. In subsequent periods, the liability for a block of business that has failed the adequacy test is based on the assumptions that are established at the time of loss recognition. The assumptions do not include a margin for adverse deviation, unless required under local accounting policies.
No catastrophe or equalization reserves are included in the measurement of the liability.
Liabilities for claims subject to periodic payment are calculated using actuarial methods consistent with those applied to life insurance contracts. Discounting is applied if allowed by the local accounting principles used to measure the insurance liabilities. Discounting of liabilities is generally applied when there is a high level of certainty concerning the amount and settlement term of the cash outflows.
The contracts are initially recognized at transaction price less, in the case of investment contracts not carried at fair value through profit or loss, any transaction costs directly attributable to the issue of the contract. Fees and commissions incurred with the recognition of a contract held at fair value through profit or loss and that are not
related to investment management services provided under the contract are recognized immediately in the income statement.
Subsequently, contracts designated as at fair value through profit or loss are measured at fair value, which generally equals the contractholder’s account value. All changes in the fair value are recognized in the income statement as incurred. Other investment contracts without discretionary participation features are carried at amortized cost based on the expected cash flows and using the effective interest rate method. The expected future cash flows are re-estimated at each reporting date and the carrying amount of the financial liability is recalculated as the present value of estimated future cash flows using the financial liability’s original effective interest rate. Any adjustment is immediately recognized in the income statement.
Investment contracts for account of policyholders are investment contracts for which the actual return on investments allocated to the contract is passed on to the policyholder. Also included are participations held by third parties in consolidated investment funds that meet the definition of a financial liability.
For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and is deferred. It is subsequently amortized over the life of the contract or a shorter period, if appropriate.
A liability is recognized for the undiscounted amount of short-term employee absences expected to be paid within one year after the end of the period in which the service was rendered. Accumulating shortterm absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the
The defined benefit obligation is based on the terms and conditions of the plan applicable on the balance sheet date. Plan improvements are charged directly to the income statement, unless they are conditional on the continuation of employment. In this case the related cost is deducted from the liability as past service cost and amortized over the vesting period.
The cost of the plans is determined at the beginning of the year, based on the prevalent actuarial assumptions, discount rate and expected return on plan assets. Changes in assumptions, discount rate and experience adjustments are not charged to the income statement in the period in which they occur, but are deferred.
The Group has issued share-based plans that entitle employees to receive equity instruments issued by the Group or cash payments based on the price of AEGON N.V. common shares. Some plans provide employees of the Group with the choice of settlement.
For share option plans that are equity-settled, the expense recognized is based on the fair value on the grant date of the share options, which does not reflect any performance conditions other than conditions linked to the price of the Group’s shares. The cost is recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately.
Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the carrying value of an item and its tax value, with the exception of differences arising from the initial recognition of goodwill and of assets and liabilities that do not impact taxable or accounting profits. A tax asset is recognized for tax loss carryforwards to the extent that it is probable at the reporting date that future taxable profits will be available against which the unused tax losses and unused tax credits can be utilized.
economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial assets or liabilities are recognized as an adjustment to the effective interest rate of the instrument. Investment income includes the interest income and dividend on financial assets carried at fair value through profit or loss.
Results from financial transactions include: NET FAIR VALUE CHANGE OF GENERAL ACCOUNT
The net gains and losses do not include interest or dividend income.
Gains and losses on financial investments include realized gains and losses on general account financial assets, other than those classified as at fair value through profit or loss
Net fair value change on for account of policyholder financial assets at fair value through profit or loss include fair value movements of investments held for account of policyholders (refer note 2.10). The net fair value change does not include interest or dividend income.
Impairment charges include impairments on investments in financial assets, impairments on the valuation of insurance assets and liabilities and other non-financial assets and receivables. Refer to note 38.
The liability for life insurance contracts with guaranteed or fixed account terms is either based on current assumptions or on the assumptions established at inception of the contract, reflecting the best estimates at the time increased with a margin for adverse deviation. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows. To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement.
In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force are recorded as DPAC
and VOBA assets respectively and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability.
Investment contracts issued by AEGON are either carried at fair value
Changes in own credit risk are not considered when determining the fair value of insurance and investment liabilities as these contractholders have precedent over other creditors in case of default. Own credit risk is considered in measuring the fair value of borrowings and other liabilities.
In the absence of an active market, the fair value of non-quoted investments in financial assets is estimated by using present value or other valuation techniques. For example, the measurement of interests held in non-quoted investments funds is based on the fair value of the underlying assets. The fair value of non-quoted fixed interest debt instruments is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield, credit quality and maturity characteristics.
Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied.
The expected returns are based on risk-free rates, such as the current
London Inter-Bank Offered Rate (LIBOR) forward curve or the current rates on local government bonds. Market volatility assumptions for
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 3 each underlying index are based on observed market implied volatility data or observed market performance. Correlations of market returns across underlying indices are based on actual observed market returns and relationships over a number of years preceding the valuation date. The current risk-free spot rate is used to determine the present value of expected future cash flows produced in the stochastic projection process.
Financial assets at fair value through profi t or loss 3,079 3,330 1,454 7,863 4,376 3,317 1,855 9,548 1 Included in this category are fi nancial assets and liabilities that are measured in whole or in part by reference to published quotes in an active market. A fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. Main asset classes included in this category are fi nancial assets for which the fair value is obtained via pricing vendors or binding broker quotes and assets for which the fair value is determined by reference to indices.
2 Included in this category are fi nancial assets and liabilities that are measured using a valuation technique based on assumptions that are supported by prices from observable current market transactions in the same instrument or based on available market data. Main asset classes included in this category are fi nancial assets for which pricing is obtained via pricing services but where prices have not been determined in an active market, fi nancial assets with fair values based on broker quotes, investments in hedge funds, private equity funds with fair value obtained via fund managers and assets that are valued using own models whereby the majority of assumptions are market observable.
Valuation techniques are used to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, an exit price from the perspective of AEGON. Therefore, unobservable inputs reflect AEGON’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available, which might include AEGON’s own data.
The potential effect of using reasonably possible alternative assumptions for valuing financial instruments would not have a significant impact on AEGON’s net profit.
The total net amount of changes in fair value recognized in net income of the financial instruments of which the valuation technique includes non market observable inputs amount to EUR 57 million.
assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Also, there is a risk that new information obtained by the
Deferred tax assets are established for the tax benefit related to deductible temporary differences, carryforwards of unused tax losses and carryforwards of unused tax credits when in the judgment of management it is more likely than not that AEGON will receive the tax benefits. Since there is no absolute assurance that these assets will ultimately be realized, management reviews AEGON’s deferred tax positions periodically to determine if it is more likely than not that the assets will be realized. Periodic reviews include, among other things, the nature and amount of the tax income and expense items, the expected timing when certain assets will be used or liabilities will be required to be reported and the reliability of historical profitability of businesses expected to provide future earnings. Furthermore, management considers tax-planning strategies it can utilize to increase the likelihood that the tax assets will be realized. These strategies are also considered in the periodic reviews.
The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model. Future blackout periods are taken into account in the model in conformity with current blackout periods. The expected term is explicitly incorporated in the model by assuming that early exercise occurs when the share price is greater than or equal to a certain multiple of the exercise price. This multiple has been set at two based on empirical evidence. The risk free rate is the interest rate for Dutch government bonds.
Individual savings and retirement products 521 – – 3 – – 524
Gains and losses on investments 275 140 (8) 14 – – 421
Gains and losses on investments (22) 513 16 20 42 – 569
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF AEGON N.V. 1,553 1,420 232 36 (64) (8) 3,169
Individual savings and retirement products 461 15 – (4) – – 472
Gains and losses on investments 240 985 9 12 (89) – 1,157
NET INCOME ATTRIBUTABLE TO EQUITY HOLDERS OF AEGON N.V. 1,617 429 144 211 (234) (20) 2,147
The Group uses operating earnings before tax in its segment reporting as an important indicator of its financial performance. The reconciliation of this measure to the Income before tax is shown below. AEGON believes that Operating earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate AEGON’s business relative to the businesses of our peers.
Realized gains and losses on fi nancial investments 33 957 597 704
Impairment (charges)/reversals of fi nancial assets, excluding receivables 38 (88) (24) 14
Individual savings and retirement products 2,872 230 – 8 – – 3,110
Interest charges and related fees (100) (53) (15) – (1,041) 847 (362)
Share in net results of associates – 7 1 24 – – 32 1 Results from fi nancial transactions exclude certain results on fi nancial transactions (refer to note 2.6). 2 Charges to policyholders in respect of income tax in AEGON UK to the amount of EUR 75 million are excluded from segment expenses and included in other nonoperating income/(charges).
Income from reinsurance ceded 1,407 – 278 6 – – 1,691
Interest charges and related fees (58) (50) (2) – (881) 618 (373)
Share in net results of associates – 4 – 16 – – 20 1 Results from fi nancial transactions exclude certain results on fi nancial transactions (refer to note 2.6). 2 Charges to policyholders in respect of income tax in AEGON UK to the amount of EUR 104 million are excluded from segment expenses and included in other non-operating income/(charges).
Amortization of deferred expenses, VOBA and future servicing rights 743 161 278 99 – 1,281
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 4
Investments for account of policyholders 55,474 21,354 62,991 2,730 – (24) 142,525
VOBA and future servicing rights 2,800 117 1,120 41 – – 4,078
Investments for account of policyholders 48,187 20,725 64,999 1,646 – (20) 135,537
Share in results of associates 22 42 17 391 – – 472
Individual savings and retirement products 66,659 6,172 – 35 – – 72,866
Cost to acquire investments in real estate, software and equipment were not material during the financial period.
Amortization / depreciation through income statement – 210 27 13 1 251
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 5
In the preparation of the Opening Balance Sheet under IFRS as at
during 2007. The recoverable amount of the acquired goodwill is based upon fair value of the net assets acquired. Please refer to note 48 for further information on the business combinations entered into by AEGON in 2006 and 2007. The initial allocation of goodwill has not been completed for all business combinations included in the financial statements of 2007. The deferred tax in 2006 relates to an adjustment to goodwill resulting from the subsequent recognition of a deferred tax asset for the acquisition of Nationwide Poland, completed in the last quarter of 2005.
Rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. The VOBA currently recognized is amortized over an average period of 12 to 15 years, with an average remaining amortization period of 13 years (2006: 13 years). Future Servicing Rights are amortized over an average period up to 35 years, of which 10 remains at
December 31, 2007 (2006: 16years). Software is generally depreciated over a period of three to five years. At December 31, 2007, the remaining depreciation period was 2 years (2006: 2 years).
TOTAL INVESTMENTS FOR GENERAL ACCOUNT 133,191 136,131 1 Refer to note 45 for a summary of all fi nancial assets and fi nancial liabilities at fair value through profi t or loss.
Of the bonds, money market and other short-term investments, mortgages and private loans EUR 11,082 million is current (2006: EUR 11,555 million).
Fair value of investments classified as ’held to maturity’ amount to
EUR 1,845 million at December 31, 2007 (2006: EUR 1,582 million).
As part of the AEGON Levensverzekering N.V. funding program the company regularly enters into securitization contracts for its mortgage loans. At December 31, 2007 a total of five publicly placed and one privately placed securitization contracts were outstanding with a total value of EUR 4.7 billion. Although no new securitizations took place in 2007 there were replenishments of SAECURE 6, the most recent publicly placed securitization. In the last quarter of 2007 the first of the publicly placed securitizations was called by the special purpose vehicle. In 2006, AEGON Levensverzekering N.V. terminated one of the two privately placed securitization transactions reported in
AEGON Levensverzekering N.V. to any specified residual positive value of the special purpose entity at maturity. A 3.3% portion of securitized mortgage loans forming part of SAECURE 4 and amounting to EUR 18 million ( 2006: EUR 24 million and 2005: EUR 28 million)
In the year ending December 31, 2006, AEGON USA had sold EUR 105 million of AAA-wrapped municipal debt securities to SPEs. Due to
Upon early termination of a SPE, up to 10% of the excess of the fair value of the securities over the notes value may be shared with the noteholders, with residual flowing to AEGON. In the event that the fair value of the securities is less than the notes value at early termination and the securities have maintained their investment grade rating,
At December 31, 2007, the fair value of the bonds was in excess of the par value of the floating rate notes and no collateral was pledged. The maximum exposure to loss resulting from AEGON’s involvement is the
AEGON owns EUR 120 million (2006: EUR 113 million) of shares in the
97% of all properties were last valued in 2007. More than 91% of these valuations were performed by independent external appraisers.
AEGON USA has entered into commercial property leases on its investment property portfolio, consisting of office, retail and industrial buildings. These non-cancelable leases have remaining lease terms up to 12 years. Most leases include a clause to enable upward revision of the rental charge on an annual basis according to either a fixed schedule or prevailing market conditions.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 6.1 - 6.2
AEGON USA and AEGON The Netherlands, with relatively smaller holdings in Hungary and Spain and are carried at revalued amounts.
Real estate held for own use has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses are charged in ‘Commissions and expenses’ in the income statement.
The useful lives of buildings range between 40 and 50 years.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 7 - 8 7 INVESTMENTS FOR ACCOUNT OF POLICYHOLDERS
Investments for account of policyholders comprise financial assets at fair value through profit or loss, excluding derivatives, as well as investments in real estate and real estate held for own use. Refer to note 8 for details on derivatives for account of policyholders.
TOTAL INVESTMENTS FOR ACCOUNT OF POLICYHOLDERS 142,525 135,537 1 Refer to note 45 for a summary of all fi nancial assets and fi nancial liabilities at fair value through profi t or loss.
Rental income of EUR 134 million (2006: EUR 90 million) is reported as part of investment income in the income statement. There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Derivatives designated as cash fl ow hedges 336 197 197 133
Of these derivatives EUR 55 million net asset is current (2006: EUR 57 million net liability). See note 3 for details on measurement of derivatives.
Derivatives not designated in a hedge – general account 2007 2006 2007 2006
AEGON has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis
These agreements involve the payment or receipt of fixed-rate interest amounts in exchange for floating-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts.
For the years ended December 31, 2007, 2006 and 2005, AEGON
32 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
AEGON uses forward starting interest rate swap agreements to hedge the variability in future cash flows associated with the forecasted purchase of fixed-income assets. These agreements reduce the impact of future interest rate changes on the forecasted transaction.
Investments outside the Eurozone, the United States, United Kingdom and Canada are funded in Euros. When the debt funding of investments is not in the functional currency of the investment, AEGON uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. AEGON utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include subordinated borrowings, long-term and short-term borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
Consolidation following acquisition of remaining shares in an associate – (41)
Group on the contracts that are reinsured are included in other assets and receivables (note 12).
Movements during the year in reinsurance assets relating to life insurance
Changes to valuation of expected future benefi ts 16 (1) 15
Gross premium and deposits – existing and new business 933 94 1,027
Changes to valuation of expected future benefi ts 13 (3) 10
Gross premium and deposits – existing and new business 282 313
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 11
DPAC for insurance contracts and investment contracts with discretionary participation features 10,957 10,938
General insurance – – – 2 2 12 OTHER ASSETS AND RECEIVABLES
Included in the net book value is equipment held for lease of EUR 16 million (2006: EUR 40 million).
Depreciation expenses have been charged in ‘Commissions and expenses’ in the income statement. Equipment is generally depreciated over a period of three to five years.
corresponding liability to repay the cash is recognized in other liabilities (note 27). Refer to note 47 for a discussion of collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. AEGON earns a share of the spread between the collateral earnings and the rebate paid
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 12.3 - 14.1 to the borrower of the securities. Income from security lending programs was approximately EUR 23 million (2006: EUR 26 million; 2005: EUR 21 million).
The weighted effective interest rate on short-term deposits was 4.46% (2006: 4.21%) and these deposits have an average maturity of
For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Cash and cash equivalents 8,431 13,144
The majority of cash is not subject to any restrictions. However, the
DNB. This amount on deposit is reassessed on a monthly basis and carries interest at approximately 2%. The balance at the end of the year was EUR 81 million (2006: EUR 90 million).
TOTAL SHAREHOLDERS' EQUITY 15,151 18,605 18,715 14.1 SHARE CAPITAL – PAR VALUE
There are restrictions on the amount of funds that companies within the Group may transfer in the form of cash dividends or otherwise to the parent company. These restrictions stem from solvency and legal requirements. Refer to note 44 for a description of these requirements.
EUR 115 million. The amount has been added to retained earnings.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 14.2 - 14.3
Share repurchase program: various transactions, average price EUR 13.41 74,570 – –
As part of their insurance and investment operations, subsidiaries within the Group also hold AEGON N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are (de)recognized at the consideration paid or received.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 14.4 - 14.5 income statement. There are restrictions on the distribution of the balance of the revaluation reserve related to real estate held for own use to shareholders.
3 The coupon of the USD 500 million junior perpetual capital securities, callable in 2014, is based on the yield of ten-year US dollar interest rate swaps, with an additional spread of ten basis points. The coupon is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield, with a maximum of 8.5%.
The additions during 2007 are due to the acquisition of Clark Inc. (see note 48).
The fair value of these loans amounts to EUR 143 million (2006: EUR 123 million).
USD 190 million 1 7.625% Semi-annually, May 15 1997 2037 n.a. 34 38
USD 15 million 2 Floating Quarterly, February 23 2003 2033 2008 11 –
TOTAL TRUST PASS-THROUGH SECURITIES 143 123 1 Issued by subsidiaries of, and guaranteed by AEGON N.V. 2 Issued by a subsidiary of AEGON N.V.
Corporation. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of ten consecutive semi-annual periods. There were no defaults or breaches of conditions during the period. The
Losses recognized as a result of liability adequacy testing 15 498
Gross premium and deposits – existing and new business 1,539 1,441
1 Refer to note 45 for a summary of all fi nancial assets and fi nancial liabilities at fair value through profi t or loss.
USD 133 million Zero Coupon Bonds 1 1982 / 10 68 67
USD 500 million Senior Notes 1 5.75% 2005 / 20 December 15 353 379
USD 1.5 billion Variable Funding Surplus Note 1,3 Floating 2007 / 37 Quarterly 204 –
USD 550 million Floating Rate Guaranteed Note 2,3 Floating 2007 / 37 Quarterly 374 –
Proceeds have been swapped, using derivatives, to US Dollar floatingrate. Changes to AEGON’s credit spread had no significant impact on the valuation of these borrowings throughout the year.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 23 - 24
The amounts recognized in the balance sheet are determined as follows: Present value of wholly or partly funded obligations 2,357 2,487 2,542 2,091
Present value of wholly or partly funded obligations 2,361 2,491 2,546 2,091
Present value of wholly unfunded obligations 1 1,846 2,015 2,071 1,789
Actuarial (gains)/losses recognized on present value of defi ned benefi t obligation 4 1 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 24
Movements during the year of the present value of the defi ned benefi t obligations 2007 2006
Movements during the year in plan assets for retirement benefi t plans 2007 2006
Assumed medical cost trend rates have an effect on the amounts reported for the health care plans. A one-percentage change in assumed medical cost trend rates would have the following effects: Aggregate of current service cost and interest cost components of net periodic post-employment medical costs 1 (1) 2 (1)
The Netherlands and AEGON UK. The following sections contain a general description of the plans in each of these subsidiaries, a summary of the principal actuarial assumptions applied in determining the value of defined benefit plans and a description of the basis used to determine the overall expected rate of return on plan assets.
AEGON USA also sponsors supplemental retirement plans to provide senior management with benefits in excess of normal pension benefits. These plans are unfunded and non-qualified under the
Internal Revenue Service Code. The unfunded amount related to these plans, for which a liability has been recorded, is EUR 140 million.
Assumptions used to determine benefi t obligations at year end 2007 2006
December 31, 2007 (that is at January 1, 2007) are as follows: Assumed health care trend rates
Health care cost trend rate assumed for next year 10.00% 8.00%
Year that the rate reaches the rate that it is assumed to remain at 2013 2009
The overall goal of the plans is to maximize total investment returns to provide sufficient funding for the present and anticipated future benefit obligations within the constraints of a prudent level of portfolio risk and diversification. AEGON believes that the asset allocation is an important factor in determining the long-term performance of the plans. From time to time the actual asset allocation may deviate from the desired asset allocation ranges due to different market performance among the various asset categories. If it is determined that rebalancing is required, future additions and withdrawals will be used to bring the allocation to the desired level.
Pension plan contributions were not required for AEGON USA in 2007 or 2006.
Employees earning more than EUR 41,252 per year (as at January 1, 2007) have an option to contribute to a defined contribution plan for the excess salary. However, the cost for the company remains the same. The defined benefit plans were unfunded by EUR 1,541 million at December 31, 2007. Assets held by AEGON The Netherlands for retirement benefits do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets do not form part of the calculation of defined benefit expenses.
Health care cost trend rate assumed for next year 1.50-2.00% 2.00%
Rate that the cost trend rate gradually declines to 1.50-2.00% 2.00%
Year that the rate reaches the rate it is assumed to remain at N/A N/A
AEGON UK operates a defined benefit pension scheme providing benefits for staff based on final pensionable salary. The assets of the scheme are held under trust separately from those of the Group.
AEGON did not recognize deferred corporate income tax assets in respect of losses amounting to EUR 1,199 million (2006: EUR 642 million) that can be carried forward to future taxable income.
Deferred corporate income tax liabilities have not been recognized for withholding taxes and other taxes that would be payable on the unremitted earnings of certain subsidiaries, branches, associates and joint ventures, since such amounts are permanently reinvested.
Refer to note 37 for a description of share appreciation rights and related expenses.
Included in interest income is EUR 7 million (2006: EUR 28 million) in respect of interest income accrued on impaired financial assets. The interest income accrued on financial assets that are not carried at fair value through profit or loss amounted to EUR 1,324 million (2006: EUR 1,265 million).
Included in fee and commission income is EUR 74 million of fees on trust and fiduciary activities (2006: EUR 62 million). EUR 6 million of fees were recognized on financial assets and liabilities that are not carried at fair value with changes in the fair value recognized in the income statement (2006: EUR 14 million).
Net fair value change of general account fi nancial investments at fair value through profi t or loss, other than derivatives 573 775 445
Realized gains and losses on fi nancial investments 957 597 704
Gains and losses on investments in real estate 137 134 222
Net fair value change on for account of policyholder fi nancial assets at fair value through profi t or loss 4,380 7,953 11,238
Realized gains and losses on fi nancial investments comprise: 2007 2006 2005
Realized gains and losses on fi nancial investments relate to: 2007 2006 2005
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2007 2006 2005 - Fair value change on hedging instruments in a fair value hedge (242) (22) 326 - Fair value change on hedged items in a fair valued hedge 253 27 (294)
Other income in 2005 relates to the sale of Seguros Generales, the general insurance company in Spain.
Included in administration expenses above is depreciation amounting to EUR 86 million (2006: EUR 112 million and 2005: EUR 125 million)
that relates to equipment, software and real estate held for own use.
Included in the amortization of deferred expenses and VOBA is EUR 1 million (2006: EUR 29 million and 2005: nil) that is classified for segment reporting purposes as non operating earnings as an offset against realized gains and losses on financial investments.
employees, have been offered both share appreciation rights and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2007, 2006, 2005 and 2004 vest after three years and can only be exercised during the four years after the vesting date. The rights and options granted in 2003 and 2002 vest after two years and can only be exercised during the five years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to which the rights and options have been granted. Option plans are settled in equity, whilst stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
The weighted average share price at which the share appreciation rights were exercised in 2007 is EUR 15.07 (2006: EUR 14.51).
The liability related to share appreciation rights is valued at fair value at each balance sheet date. Refer to note 27 for details. The costs
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 37 related to the share appreciation rights amount to EUR (16) million
The following assumptions are used in estimating the fair value of share options at the grant date: Expected dividend yield 4.53% 4.23% 4.19%
The costs related to the share options amount to EUR 18 million
The fair value of a share appreciation right or share option at the grant date in 2007 amounted to EUR 2.87 (2006: EUR 3.14 and 2005: EUR 2.32). These amounts are equal to the weighted average fair value for the respective years. The total intrinsic value of share options exercised and SARs paid during 2007 amounts to EUR 15 million
At December 31, 2007, the total compensation cost related to nonvested awards not yet recognized is estimated at EUR 28 million. The weighted average period over which it is expected to be recognized is 1.3 years. No cash is received from exercise of share options during 2007, 2006 and 2005. Cash used to settle share appreciation rights amounts to EUR 17 million in 2007 (2006: EUR 10 million and 2005: EUR 18 million).
The exposure from the issued share appreciation rights and share options is economically hedged by a position in treasury shares. At
Impairment reversals on fi nancial assets, excluding receivables 1 (64) (118) (160)
Impact of impairments on the valuation of insurance assets and liabilities 1 16 – –
1 Impairment charges/(reversals) on fi nancial assets, excluding receivables are for segment reporting excluded from operating earnings before tax (refer to note 4).
The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 38 - 41
Write off / (reversal of write off) of deferred tax assets 37 25 8
Changes in deferred tax assets as a result of recognition/write off of previously not recognized/ recognized tax losses, tax credits and deductible temporary differences 27 (12) (66)
The weighted average applicable tax rate is 31.6% (2006: 32.0% and 2005: 34.3%). The change from 2006 to 2007 is due to a change in the profitability of the countries and a change in applicable statutory tax rates. The Dutch statutory tax rate has changed from 29.6% in 2006 to 25.5% in 2007 (2005: 31.5%). In Spain, the corporate tax rate decreased from 35% in 2006 to 32.5% in 2007 and will decrease further to 30% in 2008. In the Czech Republic the corporate tax rate is 24% in 2007. The rate will decrease to 21% in 2008, 20% in 2009 and 19% in 2010. In China the corporate tax rate of 33% in 2007 will decrease to 25% in 2008. In UK the corporate tax rate of 30% will decrease to 28% in 2008. The federal corporate tax rate in Canada will decrease in a period from 2007 to 2012 from 21% to 15%.
Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared and accrued coupons on perpetuals, by the weighted average number of ordinary shares, excluding ordinary shares purchased by the company and held as treasury shares (refer to note 14).
The number of share options that has not been included in the weighted average number of ordinary shares used in the calculation of diluted earnings per share, because these share options were antidilutive for the periods presented, amounted to 8,993,229 (2006: 9,151,195 and 2005: 853,048). The exercise prices of these share options range from EUR 30.63 to EUR 14.98.
Diluted earnings per share (EUR per share) 1.47 1.86 1.25 43 DIVIDEND PER SHARE
(565) million and the reserve for AEGON’s share of changes recognized directly in equity of associates for an amount of EUR (31) million
(2006: EUR 27 million). The reserves are released to the income statement upon the sale of the subsidiary or associate. In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts.
However, certain of AEGON’s subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. While management does not believe such restrictions on AEGON’s subsidiaries will affect its ability to pay dividends in the future, there can be no assurance that these restrictions will not limit or prevent AEGON from doing so.
IFRS does not permit separate presentation of borrowings based on the deployment of the proceeds.
States was 336%. Under the Insurance Industry Supervision Act 1993 in the Netherlands, life insurance companies are required to maintain equity of among others 4% of general account technical reserves and, in case of no interest guarantee, 1% of technical reserves with investments for account of policyholders plus 0.3% of the amount at risk under the insurance policies for life insurers. The Financial
Kingdom under the Financial Services and Markets Act 2000 and sets minimum standards for capital adequacy and solvency.
Derivatives with negative values not designated as economic hedges 1,382 – 1,137 –
TOTAL FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS 1,382 22,651 1,137 23,869
The Group manages certain portfolios on a total return basis which have been designated as at fair value through profit or loss. This includes portfolio of investments in limited partnerships and limited liability companies (primarily hedge funds) for which the performance is assessed internally on a total return basis. In addition, some investment that include an embedded derivative that would otherwise have required bifurcation, such as convertible instruments, preferred shares and credit linked notes, have been designated as at fair value through profit or loss. Investment for general account backing insurance and investment liabilities that are carried at fair value with changes in the fair value recognized in the income statement are designated as at fair value through profit or loss. Classification of the financial assets as available-for sale would result in accumulation of unrealized gains and losses in a revaluation reserve within equity whilst changes to the liability would be reflected in net income
(accounting mismatch). Therefore the Group elected to designate these investments for account of policyholders as at fair value through profit or loss.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 45 - 46 accounting policies these insurance and investment liabilities are measured at the fair value of the linked assets with changes in the fair value recognized in the income statement. To avoid an accounting mismatch the linked assets have been designated as at fair value through profit or loss. In addition the investment for account of policyholders include with profit assets, where an insurer manages these assets together with related liabilities on a fair value basis in accordance with a documented policy of asset and liability management. In accordance with Group’s accounting policies, these assets have been designated as at fair value through profit or loss.
Investment contracts that have been designated as at fair value through profit or loss include contracts that are considered to contain an embedded derivative that requires measurement at fair value through profit or loss, such as equity-linked or pass-through investment performance features and total return swaps. For consistency, the underlying portfolio has been designated as at fair value through profit or loss. Also contracts that contain embedded derivatives that can not be reliably bifurcated are carried at fair value, such as a fixed annuity issued by AEGON USA containing an investment performance pass-through feature subject to a cumulative minimum guarantee.
With the exception of the financial liabilities with discretionary participating features that are not subject to the classification and measurement requirements for financial instruments, all investment contracts for account of policyholders that are carried at fair value or at the fair value of the linked assets are included in the table above.
Guarantees include those given on account of asset management commitments and guarantees associated with the sale of investments in low-income housing tax credit partnerships in the United States.
Standby letters of credit amounts reflected above are the liquidity commitment notional amounts. In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.
AEGON N.V. has guaranteed and is severally liable for the following: Due and punctual payment of payables due under letter of credit agreements applied for by AEGON N.V. as co-applicant with its subsidiary companies Transamerica Corporation, AEGON USA, Inc.
exposure on derivative transactions with these counterparties was therefore minimal as at December 31, 2007.
N.V. or the Group. However, there can be no assurances that AEGON
Future lease payments Not later than 1 year years Later than 5 years Not later than 1 year years Later than 5 years
The operating lease obligations relate mainly to office space leased from third parties. The total of future minimum sublease payments expected to be received on non-cancelable subleases is
The following table reflects the carrying amount of non-cash financial assets that have been transferred to another party with the right to sell or repledge: Financial assets for general account 2007 2006
financial assets and EUR 39 million (2006: EUR 34 million) other assets as collateral for general account liabilities and contingent liabilities, regardless of whether the counterparty may sell or repledge the asset.
No financial assets and other assets were pledged as collateral for liabilities and contingent liabilities for account of policyholders in
has liabilities of EUR 8,280 million (2006: EUR 8,987 million) and EUR
14 million (2006: EUR 806 million) respectively. The value of the assets transferred in these transaction approximates the carrying of the liabilities. To the extent that the counterparty has the right to sell or repledge the assets loaned, these have been included in the table above.
In addition, AEGON can receive collateral relative to derivative transactions that it enters into. Main counterparties to these transactions are investment banks and are typically rate AA or higher.
Of the non-cash collateral accepted, EUR 9,648 million (2006: EUR 11,004 million) can be sold or repledged in absence of default of the counterparty. At the reporting date no amount (2006: EUR 47 million) has been sold or transferred.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 48
The opening balance sheet of the acquired business was recorded provisionally at December 31, 2007, as the acquisition occurred within a few days of year end. The provisionally determined opening balance sheet includes total assets of EUR 10.8 billion, including EUR 8.3 billion separate account assets, EUR 1.8 billion general account investments and EUR 149 million cash and cash equivalents. Total liabilities are
EUR 8.3 billion and insurance contract liabilities of EUR 1.7 billion.
In March 2007, AEGON USA completed the acquisition of 100% of the shares of Clark Inc., a public company specializing in the sale of corporate-owned life insurance, bank-owned life insurance and other benefit programs. The total purchase price was EUR 263 million, consisting of EUR 207 million cash consideration, EUR 36 million of
Clark’s former management after the acquisition. As a result of the acquisition, assets and liabilities were recognized for EUR 549 million and EUR 325 million respectively, which included a cash position of
Since the acquisition date, the company has contributed EUR 2 million to net income. If the acquisition had been as of January 1, 2007, contribution to net income and total revenues would amount to respectively EUR 3 million and EUR 12 million. Assets of EUR 81 million and liabilities of EUR 9 million were recognized due to the acquisition.
By December 31, 2007 the accounting for PTE Ergo Hestia S.A. was not yet finalized.
In June 2007, AEGON acquired OPTAS N.V., a Dutch life insurance company specializing in employee benefit products and services within the Dutch group pension market for EUR 1.5 billion OPTAS N.V., the successor of Stichting Pensioenfonds voor de Vervoer- en
Havenbedrijven (a pension fund for companies active in the transport and port industries) was converted into a public company in 1997. At the end of 2006, OPTAS had 60,000 policyholders and reported total gross written premiums of EUR 86 million, with total assets of
EUR 4.5 billion. Assets held as investment amounted to EUR 3.4 billion, the insurance liabilities were EUR 2.9 billion. A portion of the shareholders’ equity of OPTAS is subject to restrictions as set out in the articles of association of the company. These restrictions assure continued fulfillment of existing policy obligations and will remain in force after the acquisition. Since the acquisition, OPTAS has contributed EUR 11 million to AEGON’s income before tax. Had the acquisition taken place on 1 January 2007, OPTAS’ contribution to the Group’s net income is estimated at EUR 22 million, contribution to revenues would have been approximately EUR 251 million.
Seguros Navarra S.A. took place in two tranches. In the fourth quarter of 2005, 15% was acquired, followed by another 35% in 2006. The acquisition date was April 30, 2006 when approval was obtained from the Spanish and European regulatory authorities. The final price of the acquisition was EUR 61 million, fully paid in cash. The total assets of the joint venture at the acquisition date amounted to EUR 476 million, of which EUR 2 million was cash and cash equivalents. CN is entitled to a contingent earn-out payment, the amount of which is dependent on the business’ performance over the coming five years. AEGON has provided for the expected future payment on a discounted basis
In October 2005, AEGON and the Spanish savings bank Caja Badajoz
(CB), have reached an agreement to establish a 50/50 joint venture to sell life insurance, accident insurance and pension products through the branch network of CB. The new entity, Caja Badajoz Vida y
The remaining 50% shall be paid in within the next 2 years. At the end of the fifth year of the joint venture, CB is entitled to a contingent earn-out payment. AEGON has provided for the expected future payment on a discounted basis (EUR 21 million at December 31, 2006).
Ubezpieczen na Zycie S.A. (Nationwide Poland) in early October 2005 and consolidated the business as of October 1, 2005. AEGON also acquired an investment advisor company, Westcap Investors, LLC
International S.A. prior to the sale was EUR 20 million. The acquiring company, La Mondiale Participations S.A. is a 35% associate of AEGON.
35% of the gain on the sale was eliminated on consolidation.
ML Life Insurance Company of New York, New York, New York (US)
AEGON has an investment (EUR 30 million) in Prisma Enhanced Fixed
AEGON has less than half of the voting power of SERVES, an entity whose primary activity is participating in a total return swap based on the performance of a portfolio of bank loans. In addition to its equity interest (EUR 60 million), AEGON is the owner of 100% of the debt issued by the entity and serves as the investment manager of the bank loan portfolio. As a result, AEGON concluded that it controls the entity and consequently included the entity in its consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 49
AEGON-CNOOC Life Insurance Company Ltd, Shanghai (China), life insurance company (50%)
Summarized fi nancial information of joint ventures for 2007 accounted for using proportionate consolidation
Partners LP (‘Prisma LP’) which serves as an investment manager for certain of AEGON’s hedge fund investments as well as for other third parties, in exchange for management fees. Two unrelated entities,
GP LLC is the general partner with a 1% interest and is responsible for day-to-day activities. A management board with seven voting members (three appointed by AEGON, three appointed by Prisma GP
LLC and one independent member appointed collectively by the other six voting members) must approve certain actions, including restructuring transactions, hiring senior management and the annual operating budget. As a result, notwithstanding AEGON’s 60%
AEGON cannot remove the majority of the management board members and AEGON does not have other arrangements, contractual or otherwise, that would give AEGON more than half of the voting power of Prisma LP.
Refer to note 9 for further details on investments in associates.
exercised its option rights to purchase 2,690,000, repectively 3,190,000 class B preferred shares at par value to correct dilution caused by AEGON’s stock dividend issuances and treasury stock sales during the year.
On May 17, 2005, AEGON N.V. purchased 3,821,645 of its common shares from Vereniging AEGON at a purchase price of EUR 9.847.
On December 5, 2005, Vereniging AEGON exercised its option rights to purchase in aggregate 6,950,000 class B preferred shares at par value to correct dilution caused by AEGON’s stock dividend issuances and treasury stock sales during the year.
AEGON provides reinsurance, asset management and administrative services for employee benefit plans relating to pension and other post-employment benefits of AEGON employees. Certain postemployment insurance benefits are provided to employees in the form of insurance policies issued by affiliated insurance subsidiaries.
At January 1, 2007, AEGON established a Management Board comprising the members of the Executive Board and the CEO’s of
AEGON USA, AEGON The Netherlands and AEGON UK. The total remuneration for the members of the Management Board over 2007 was EUR 15.6 million, consisting of EUR 5.7 million salary and other short term benefits, EUR 7.1 million cash performance payments, EUR
Effective January 21, 2008, Mr. Van der Werf stepped down as Chief
Executive Officer of AEGON the Netherlands and consequently resigned as a member of the Management Board.
4 In accordance with the provisions of the Short-Term Incentive (STI) Plan for the years 2004, 2005 and 2006, it was established that the value of new business of the Group and of the relevant country units for those years was positive. Accordingly, operating earnings were calculated and established per area of responsibility. After adoption of the 2004, 2005 and 2006 annual accounts by the shareholders, the disclosed STI cash bonuses for the years 2004, 2005 and 2006 were paid in 2005, 2006 and 2007 respectively. In addition to the STI plan, Mr. Shepard is entitled to a short-term incentive bonus equal to 0.1% of the net income of AEGON N.V. according to the adopted accounts. The amount included in the table for 2007 is based on net income over 2006 as reported in the 2006 IFRS fi nancial statements. The amount included in the table for 2006 is based on net income over 2005 as reported in the 2005 IFRS fi nancial statements. The amount included in the table for 2005 is based on net income as reported in our 2004 fi nancial statements which were prepared in accordance with Dutch accounting principles.
6 Mr. Van der Werf resigned from AEGON’s Executive Board at January 1, 2007 after being appointed to the Group’s Management Board. Effective January 21, 2008, Mr. Van der Werf has stepped down as Chief Executive Offi cer of AEGON The Netherlands.
Johan G. van der Werf 23-Apr-04 14,106 14,106 2004 – 2006 1 These shares will vest in 2008 at 100%.
Any such severance payments received by Mr. Shepard shall be taken into account in determining the amounts payable to him under his
‘Zwartkruis’ formula, which means that the severance payment would be calculated on the basis of and depending on age, years of service, functional level and the probability of finding an equivalent position.
Karla M.H. Peijs (as of April 25, 2007) 30,718 – –
Peter R. Voser (up to April 25, 2006) – 15,138 54,000
Clifford Sobel (from April 25, 2006 up to July 17, 2006) – 9,231 –
Starting January 1, 2005, a three-components structure has been introduced for the remuneration of the Supervisory Board: (1) a base fee (for membership of the Supervisory Board); (2) an additional fee for membership of a Committee; and (3) an attendance fee for faceto -face Committee meetings.
Members of the Supervisory Board do not have any share options or share appreciation rights in AEGON N.V. at December 31, 2007.
Common shares held by Supervisory Board members Shares held in AEGON at December 31 2007 2006 2005
Karla M.H. Peijs (as of April 25, 2007) 900 – –
On February 21, 2008, AEGON announced that AEGON Hungary has signed an agreement to purchase 100% of the registered capital of
Insurance Company. The shares will be transferred to AEGON by June 30, 2008, subject to the approval of regulatory authorities. This transaction is in line with AEGON’s strategy to strengthen its position in the developing pension and asset management markets in Central
Ankara Emeklilik sells its products and services through a variety of different channels and has an agreement in place to distribute through a nationwide network of 236 branches belonging to Şekerbank.
We have audited the accompanying consolidated financial statements for the year 2007 (as set out on pages 106-207) which are part of the financial statements of AEGON N.V., The Hague, which comprise the consolidated balance sheet as at December 31, 2007, the consolidated income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.
Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
Standards as issued by the International Accounting Standards Board and with Part 9 of Book 2 of the Netherlands Civil Code.
Netherlands Civil Code, we report, to the extent of our competence, that the Report of the Executive Board is consistent with the consolidated financial statements as required by 2:391 sub 4 of the
TOTAL EQUITY AND LIABILITIES 27,131 32,286 1 In 2007, AEGON changed its accounting policy regarding the valuation of minimum guarantees applied by AEGON The Netherlands. Further reference is made to note 2.2
Net income group companies 2,313 2,935 2,096 1 In 2007, AEGON changed its accounting policy regarding the valuation of minimum guarantees applied by AEGON The Netherlands. Further reference is made to note 2.2
AEGON N.V., incorporated and domiciled in the Netherlands, is a limited liability share company organized under Dutch law and recorded in the Commercial Register of The Hague under its registered address at AEGONplein 50, 2591 TV The Hague. AEGON N.V. serves as the holding company for the AEGON Group and has listings of its common shares in Amsterdam, New York, London, and Tokyo.
Headquarters are located in The Hague, the Netherlands. The Group employs approximately 30,000 people worldwide.
With regard to the income statement of AEGON N.V., article 402,
Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction. At the balance sheet date monetary assets, monetary liabilities and own equity instruments denominated in foreign currencies are translated at the prevailing exchange rate. Nonmonetary items carried at cost are translated using the exchange rate at the date of the transaction, whilst assets carried at fair value are translated at the exchange rate when the fair value was determined.
The group companies are stated at their net asset value, determined on the basis of IFRS as applied in the consolidated financial statements of the Group. For details on the accounting policies applied for the group companies refer to the consolidated financial statements on page 106 and following.
NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. AMOUNTS IN EUR MILLION
An asset is impaired if the carrying amount exceeds the amount that would be recovered through its use or sale. Tangible, intangible and financial assets, if not held at fair value through profit or loss, are tested for impairment when there are indications that the asset may be impaired. Irrespective of the indications, goodwill and other intangible assets that are not amortized are tested at least annually.
These restrictions stem from solvency and legal requirements. Refer to note 45 for a description of these requirements.
Vereniging AEGON, based in The Hague, holds all of the issued preferred shares. Vereniging AEGON, in case of an issuance of shares by AEGON N.V., may purchase as many class B preferred shares as would enable Vereniging AEGON to prevent or correct dilution to below its actual percentage of voting shares, unless Vereniging
AEGON as a result of exercising these option rights would increase its voting power to more than 33%. Class B preferred shares will then be issued at par value (EUR 0.25), unless a higher issue price is agreed.
In the years 2003 through 2006 29,290,000 class B preferred shares were issued under these option rights. In 2007, Vereniging AEGON
The weighted average number of EUR 0.12 common shares for 2007 was 1,561,394,680 (2006: 1,578,630,768). The shares repurchased by
Detailed information on remuneration of active and retired members of the Executive Board including their share option rights, remuneration of active and retired members of the Supervisory Board along with information about shares held in AEGON by the members of the Boards is included on pages 203-206 of the consolidated financial statements of the Group.
Transfer to legal reserve – – (184) – 184 – –
Changes in equity from relation with shareholders 4 (244) (637) –
Changes in revaluation subsidiaries – – – – (2,164) – (2,164)
Repurchased and sold own shares – (1,438) – – – – (1,438)
Changes in equity from relation with shareholders 3 (1,269) (1,041) – – – (2,307)
in light of the investments held by group companies. In accordance with Book 2, Part 9 of the Dutch Civil Code it comprises the revaluation reserves held by group companies (EUR (516) million, 2006: EUR 1,648 million), increased for positive changes in value that have been recognized relating to real estate and investments and which do not have a frequent market listing (EUR 396 million; 2006: EUR 411 million).
Other reserves include the legal foreign currency translation reserve for an amount of EUR (2,010) million ( 2006: EUR (565) million and the reserve for AEGON’s share of changes recognized directly in equity of associates for an amount of EUR (31) million (2006: EUR 27 million). The reserves are released to the income statement upon the sale of the subsidiary or associate.
On the balance sheet date AEGON N.V. and its subsidiaries held 136,330,982 of its own common shares with a face value of EUR 0.12 each. Besides the program to repurchase own shares worth
EUR 1 billion, shares have also been purchased to hedge stock appreciation rights and stock options granted to executives and employees and to neutralize the dilution effect of issued stock dividend. Movements in the number of repurchased own shares held by AEGON N.V. were as follows: NOTES TO THE FINANCIAL STATEMENTS OF AEGON N.V. NOTE 9
Sale: one transaction on January 13, price EUR 13.71 and one transaction on March 31, price EUR 13.22 – (3,000)
Junior perpetual capital securities Coupon rate Coupon date: quarterly, as of Year of fi rst call 2007 2006
USD 250 million fl oating LIBOR rate 1 March 15 2010 212 212
EUR 950 million fl oating CMT rate 2 January 15 2014 950 950
USD 500 million fl oating CMS rate 3 January 15 2014 402 402
TOTAL JUNIOR PERPETUAL CAPITAL SECURITIES 4,192 3,447 1 The coupon of the USD 250 million junior perpetual capital securities, callable in 2010, is based on the yield of three-month LIBOR plus an additional spread of 87.5 basis points. The coupon will be reset each quarter based on the then prevailing three-month LIBOR yield, with a minimum of 4%.
2 The coupon of the EUR 950 million junior perpetual capital securities is based on the yield of ten-year Dutch government bonds (‘CMT’) plus an additional spread of ten basis points. The coupon will be reset each quarter based on the then prevailing ten-year Dutch government bond yield, with a maximum of 8%.
Perpetual cumulative subordinated bonds Coupon rate Coupon date: quarterly, as of Year of fi rst call 2007 2006
TOTAL PERPETUAL CUMULATIVE SUBORDINATED BONDS 567 567 1 The coupon of the EUR 114 million bonds with an interest rate of 7.625% is fi xed. 2 The coupon for the EUR 136 million 7.25% bonds is set at 7.25% until October 14, 2008, while the coupon for the EUR 203 million 7.125% bonds is set at 7.125%
Amounts owed to credit institutions, loans from group companies and payables to group companies have a maturity of less than one year.
Other include derivatives with negative fair values of EUR 174 million
At December 31, 2007, there were no amounts due and payable; Due and punctual payment of payables by the consolidated Group companies Transamerica Corporation, AEGON Funding Corp.,
On February 21, 2008 AEGON announced that AEGON Hungary has signed an agreement to purchase 100% of the registered capital of
& Eastern Europe. AEGON Hungary’s assets under management for the pension business currently amount to EUR 1.6 billion. Following the acquisition, assets under management will increase by approximately EUR 300 million. After completion, AEGON will rank second in the Hungarian mandatory and third in the voluntary pension fund market.
Ankara Emeklilik sells its products and services through a variety of different channels and has an agreement in place to distribute through a nationwide network of 236 branches belonging to
Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Incorporation of AEGON N.V.
The relevant provisions read as follows: 1. The General Meeting of Shareholders shall adopt the annual accounts.
3. From the net profi t as refl ected in the profi t and loss account, if it is suffi cient to this end after a part of the profi t has been set aside for augmenting and/or forming reserves in accordance with 2, fi rst of all the holders of preferred shares shall receive, on the amount paid on their preferred shares, a dividend the percentage of which, on an annual basis, shall be equal to the European
Central Bank’s fi xed interest percentage for basic refi nancing transactions, to be increased by 1.75 percentage points, all applicable to the fi rst trading day on Euronext Amsterdam in the fi nancial year to which the dividend relates. Apart from this, no other dividend is to be paid on the preferred shares.
Executive Board, subject to the approval of the Supervisory Board, shall make a proposal for that purpose. A proposal to pay a dividend shall be dealt with as a separate agenda item at the
Supervisory Board, decide that a distribution on common shares shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, in all cases out of the profi t and/
It is proposed to the annual General Meeting of Shareholders on
April 23, 2008, to pay a dividend for the year 2007 of EUR 0.62 per common share of EUR 0.12 par value which, after taking into account the EUR 0.30 interim dividend, leads to a final dividend of EUR 0.32 per common share. It is also proposed that the final dividend will be made available entirely in cash or entirely in shares, at the election of the shareholder. The value of the stock dividend will be approximately 5% lower than the value of the cash dividend and will be paid out of the paid-in surplus fund. Shareholders can elect to receive a dividend in cash or in shares up to and including May 16, 2008.
NET INCOME 2,551 3,169 1 In 2007, AEGON changed its accounting poicy regarding the valuation of minimum guarantees applied by AEGON The Netherlands. Further reference is made to note 2.2.
merged into AEGON N.V.. Vereniging AGO initially received approximately 49% of the common shares (which was reduced gradually to less than 40%) and all of the preferred shares in AEGON
Group companies, insured parties, employees and other relations of the companies.
AEGON sold 350,000,000 of its common shares, of which 143,600,000 common shares were sold directly by Vereniging AEGON in a secondary offering outside the United States and 206,400,000 common shares were purchased by AEGON N.V. from Vereniging
AEGON. AEGON N.V. subsequently sold these common shares in a global offering. The purchase price for the 206,400,000 common shares sold by Vereniging AEGON to AEGON N.V. was
B preferred share. Instead, Vereniging AEGON has agreed to exercise one vote only per preferred share, except in the event of a ‘special cause’, such as the acquisition of a 15% interest in AEGON N.V., a tender offer for AEGON N.V. shares or a proposed business combination by any person or group of persons whether individually or as a group, other than in a transaction approved by the Executive Board and the
AEGON N.V. and Vereniging AEGON have amended the option arrangements under the 1983 Merger Agreement. Under the amended option arrangements Vereniging AEGON, in case of an issuance of shares by AEGON N.V., may purchase as many class B preferred shares as would enable Vereniging AEGON to prevent or correct dilution to below its actual percentage of voting shares, unless Vereniging
AEGON N.V.) at December 31, 2007, amounts to approximately 23.94%. In the event of a ‘special cause’, Vereniging AEGON’s voting rights will increase, currently to 34.02%, for up to six months per
AEGON consisted of seventeen members. The majority of the voting rights is with the fifteen members not being employees or former employees of AEGON N.V. or one of the AEGON group companies, nor current or former members of the Supervisory Board or the Executive
Board of AEGON N.V. The two other members are both elected by the
General Meeting of Members of Vereniging AEGON from among the members of the Executive Board of AEGON N.V.
Vereniging AEGON has an Executive Committee consisting of seven members, five of whom, including the chairman and the vice-chairman, are not nor have ever been, related to AEGON. The other two members are also members of the Executive Board of AEGON N.V.
Committee. Following the amendment of the Articles of Association as effected on September 13, 2005, this requirement does not apply in the event of a hostile change of control at the General Meeting of
voting interest in AEGON N.V. in excess of the thresholds established under Dutch securities law.
Our responsibility is to express an opinion on the company financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the company financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the company financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the company financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the company financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
In our opinion, the company financial statements give a true and fair view of the financial position of AEGON N.V. as at December 31, 2007, and of its result for the year then ended in accordance with Part 9 of
Revenues by line of business 825 748 758 779 3,110 Individual savings and retirement products 717 705 680 673 2,775 8,885 8,573 9,559 9,598 36,615 REVENUES BY LINE OF BUSINESS 10,375 9,392 9,696 9,808 39,271 10,687 8,414 7,896 12,168 39,165 Gross deposits (on and off balance sheet) 12,976 9,902 12,056 9,594 44,528 260 (2,214) (1,555) (2,621) (6,130) Net deposits (on balance sheet) (52) (726) (279) (2,076) (3,133)
Compound financial instruments are financial instruments that, from the issuer’s perspective, contain both a liability and an equity element.
and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Derecognition is the removal of a previously recognized asset or financial liability from an entity’s balance sheet.