UNITED KINGDOM HISTORY: Scottish Equitable, acquired by AEGON in 1994, was founded in 1831.
GENERAL INSURANCE As part of its overall corporate strategy, AEGON focuses on its main businesses: life insurance, pensions and long-term savings and investment products. However, the Group does offer some limited general insurance in the Netherlands and in Hungary – primarily car, liability, household insurance and fire protection. General insurance contributed 2% to the Group’s 2007 operating earnings before tax.
We believe that AEGON is taking the right steps to serve the developing retirement needs of our customers by providing innovative, need-specific products and services in both our established and developing markets. The introduction of our ‘5 for Life’ variable annuity product in the United Kingdom, first developed in the United States, is a clear example of how we use AEGON’s expertise to capture the opportunities presented by the reality of longer retirement in nearly every market we serve. As a further example, AEGON USA is supporting our new partnership with Sony Life to develop variable annuity products for the Japanese market, fulfilling AEGON’s
April 23, 2008, in accordance with the terms of my contract to retire in the year I turn 62. I welcome the
In 2000, he was appointed to the Group’s Executive Board. In addition to his positions at AEGON, Mr. Streppel is a member of the Supervisory Boards of both Royal KPN N.V and Van Lanschot Bankiers N.V.
Pat Baird began his career at AEGON USA in 1976. He has served as Executive Vice-President and Chief Operating Officer,
The Group’s new lines of business format for operating earnings more closely reflects the way AEGON’s businesses are managed within the Group’s country units.
believes that a balanced assessment of its underlying economic performance can be made using the financial measures the Group publishes regularly, in particular: Value of new business
AEGON strives to ensure equal access to all relevant financial and non-financial information. As such, the Group actively maintains contact with the financial community, largely through its Investor Relations staff in the Netherlands and the United States. AEGON regularly organizes investor road shows in the United States, Europe and Asia. The
Group publishes its fourth quarter results in March and voted on at the Annual General Meeting, usually in April.
(CNOOC), has representative offices in provinces in China covering some 200 million people.
AEGON-CNOOC is now present in nine different locations in the country with a potential market of more than 200 million people.
Holdings, one of the country’s largest financial services companies. The agreement is a boost for AEGON’s businesses in the region: Taishin has more than four million customers
and some 300 outlets across Taiwan. As part of the joint venture, AEGON also acquired a 2.5% interest in Taishin’s
Caja Cantabria will sell life insurance and pensions through the Spanish bank’s network of some 170 branches, serving more than 500,000 customers. With this latest agreement,
In addition, AEGON also increased its 2007 dividend by 13% to EUR 0.62 per share. AEGON had already increased its 2006 dividend to EUR 0.55 per share, up from EUR 0.45 the year before.
Naturally, we are ambitious for our businesses. We know we can go much further. In the years ahead, we want to expand into new markets where we believe AEGON’s expertise, its knowledge of international markets and local situations and its product innovation can make a real difference and help people build better financial futures for themselves and their families.”
EUR 2.9 billion, continues to be very high quality, with more than 99% rated either AAA or AA.
increase). Lower operating earnings from the Americas and the Netherlands in 2007 offset increases in the
The Netherlands was primarily due to movements in fair value items. AEGON UK’s operating earnings before tax rose as a result of a growth in profits from annuity products and increases in fund-related fees on pension business. The rise in operating earnings from ‘Other countries’ mainly reflected continued growth in AEGON’s businesses in both Central and Eastern Europe and Asia.
AEGON’s overall new life sales increased 7% in 2007 to EUR 3,274 million (an increase of 11% at constant currency rates).
In the Americas, new life sales rose 2% to USD 1,276 million.
Operating earnings before tax from institutional products decreased by 4% in 2007 to USD 464 million. During the year, the decrease in the value of certain structured products more than offset the solid underlying growth of the business and the inclusion for the first time of
Investment income rose 4%, thanks to an increase in short-term rates and changes in AEGON Americas’ asset mix, while fees and commissions were 18% higher, due principally to the inclusion for the first time of Clark Inc.
Production in 2006 included USD 50 million from an unassumed block of retail credit life insurance and
USD 1,567 million, as a result of a steepening in the yield curve that helped make annuity credit rates more attractive towards the end of the year. Variable annuity sales also rose, up 10% at USD 3,723 million thanks to an increase towards the end of the year in overall wholesale capacity and the launch of a new product ‘Income Select for Life’.
Operating earnings in 2007 also included a one-off charge of EUR 27 million related to two separate non-recurring items. Meanwhile, OPTAS, acquired at the end of June 2007, contributed EUR 11 million to operating earnings before tax. Earnings in 2006 included EUR 17 million in depreciation costs related to AEGON The Netherlands’
AEGON The Netherlands’ companies are present in five lines of business: Life and protection
AEGON UK INCREASED ITS VALUE OF NEW BUSINESS IN 2007 BY TWENTY-EIGHT PERCENT
United Kingdom. It was registered as a public limited company at the beginning of December 1998.
New life sales in China increased by EUR 5 million, driven mainly by unit-linked single premium sales through the bank channel.
EUR 404 million (on a 100% basis) in 2007. The partnership with CAM is not consolidated in AEGON’s accounts. AEGON includes its share in the earnings from
United Kingdom. AEGON is now present in more than twenty markets in total in the Americas, Europe, and in
Similarly, in China, AEGON works through agents, independent brokers, banks and direct marketing to sell its products. Agents and brokers in China distribute mainly life insurance. With the boom in China’s stock market, variable life products have been the most important product for AEGON’s bank partners. Personal accident products are the main products sold through the direct marketing channel.
AEGON provides a broad range of life insurance products through its businesses in both Taiwan and China. These include unit-linked and traditional life products, as well as endowment, term, health, group life, accident and annuities. Unit-linked products are now AEGON Taiwan’s top-selling product line after efforts were made in 2005 to improve the products and better adapt them to the needs of customers. These unit-linked products offer a wide variety of investment options. In China, AEGON-CNOOC
Operating within this policy framework, AEGON employs risk management programs including asset liability management (ALM) processes and models, hedging programs (which are largely conducted via the use of derivatives) and insurance programs (which are largely conducted through the use of reinsurance). These risk management programs are in place in each country unit.
AEGON manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. AEGON employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure.
The extent to which the exposure to credit risk is reduced through a master netting agreement may change substantially within a short period of time because the exposure is affected by each transaction subject to the arrangement. AEGON may also mitigate credit risk in reinsurance contracts by including downgrade clauses that allow the recapture of business, retaining ownership of assets required to support liabilities ceded or by requiring the reinsurer to hold assets in trust.
AEGON’s Group Risk and Capital Committee. This policy is reviewed regularly.
AEGON’s major country units are presented in table 7, organized by rating category and split by assets that are valued at fair value and those valued at amortized cost.
Other fi nancial assets – carried at amortized cost 5 4
may be required to increase liabilities, which could also reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs due to unrecoverability. This could have a materially adverse effect on AEGON’s business, results of operations and financial condition.
AEGON monitors and manages its underwriting risk by underwriting risk type. Attribution analysis is performed on earnings and reserve movements in order to understand the source of any material variation in actual results from what was expected. AEGON’s units also perform experience studies for underwriting risk assumptions, comparing the
Past due and/or impaired 352 10 – – 362 1 Includes investments of Holding and other activities.
A downgrade in AEGON’s ratings may increase policy surrenders and withdrawals, adversely affect relationships with distributors and negatively affect the Group’s results.
Fitch Ratings maintained its AA- ratings for AEGON N.V.’s senior debt. On June 22, 2007, Moody’s Investors Service withdrew the A1 insurance financial strength rating (stable outlook) of AEGON Scottish Equitable for business reasons.
Executive Board to provide for AEGON’s funding needs as budgeted for 2008. In addition, the Board approved a long-term incentive plan for AEGON staff worldwide, setting out terms for the distribution of stock option rights to employees in March 2008.
States and Asia. The Board was also kept up to date with developments regarding AEGON’s E-learning program and the Group’s Code of Conduct.
Chairman, AEGON has strengthened its financial position, expanded into new growth markets and is now well placed for future growth. The Supervisory Board would like to express its gratitude to Don Shepard for his many contributions to the growth of AEGON’s businesses around the world during a career that has spanned almost four decades.
Shemaya Levy is a retired Executive Vice-President and CFO of Renault Group. He was appointed to AEGON’s Supervisory
Supervisory Board in 2007. Her current term will end in 2011. Ms. Peijs has served as a senior provincial government representative in Utrecht, a member of the European Parliament and from 2003 to 2007 was the Netherlands’ Minister for
Members of AEGON’s Supervisory Board are entitled to: A base fee for membership of the Supervisory Board itself; A fee for membership of each of the Supervisory
AGM scheduled for April 23, 2008. He will be succeeded by Mr. Wynaendts.
Mr. Shepard will amount to EUR 2,551,000 for the financial year 2007, to be paid in 2008, subject to the adoption of the 2007 annual accounts by the AGM on April 23, 2008.
Aandeelhouders, a Dutch foundation dedicated to improving communications between listed companies and their shareholders and to encourage greater shareholder participation at general meetings. Through the ‘Communicatiekanaal’ participating shareholders can vote by proxy.
Vereniging AEGON, it would not be in the Group’s best interests to prevent the CEO and CFO from participating in discussions and decision-making related to Vereniging
AEGON retains its full voting rights on the preferred shares for a period limited to six months. Based on its current shareholdings, Vereniging AEGON would for that limited period command 34% of the votes at a General Meeting of
AEGON endeavors to provide products and services that are transparent and easy to understand, helping customers secure their long-term fi nancial futures; AEGON acts as a responsible employer, providing the conditions, incentives and formal training its employees require for personal success; AEGON takes measures to help reduce the impact of its business operations on the environment, seeking to limit energy use and curb unnecessary waste; AEGON recognizes its position as one of the world’s leading investors and strives to ensure that its investment decisions take into account not only the need for profi t but also the interests of all legitimate stakeholders and the wider communities in which the
Issued capital and reserves attributable to equity holders of AEGON N.V. 19,946 22,637
Dividends paid on ordinary shares – (583) – – – (583) – (583)
Other equity instruments issued – – – – 1,457 1,457 – 1,457
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY OF AEGON GROUP FOR THE YEAR ENDED DECEMBER 31, 2005 - ADJUSTED 1
Report of the Executive Board for these disclosures. Although presented in the Report of the Executive Board, this information is included in the audit of the financial statements.
IFRIC 13 addresses accounting by entities that grant loyalty award credits (such as ‘points’ or travel miles) to customers who buy other goods or services. This interpretation has a required adoption date of
AEGON adopted SOP 05-1 effective January 1, 2007, resulting in an
January 1, 2007. Retrospective adoption is impracticable because information has not historically been accumulated at the level required by this new guidance to enable AEGON to identify deferred acquisition costs specific to prior internal replacements.
shares held by subsidiaries, which are recognized as treasury shares in equity, are eliminated. Intra-group losses are eliminated, except to the extent that the underlying asset is impaired. Minority interests are initially stated at their share in the fair value of the net assets on the acquisition date and subsequently adjusted for the minority’s share in changes in the subsidiary’s equity.
Financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell in the near future are accounted for as loans. To the extent that the
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arm’s length transaction.
Group (outgoing reinsurance). For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums.
Debt instruments are impaired when it is considered probable that not all amounts due will be collected as scheduled. Individually significant loans and other receivables are first assessed separately.
Some products, such as traditional life insurance products in continental Europe and products in the United States, for which account terms are fixed and guaranteed, are measured using the net premium method. The liability is determined as the sum of the discounted value of the expected benefits and future administration expenses directly related to the contract, less the discounted value of the expected theoretical premiums that would be required to meet the future cash outflows based on the valuation assumptions used.
VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized in shareholders’ equity in the revaluation reserve, together with the unrealized gain or loss.
For mortgage and other loans originated by the Group interest rates currently being offered for similar loans to borrowers with similar credit ratings are applied. The fair value of floating interest rate debt instruments and assets maturing within a year is assumed to be approximated by their carrying amount.
Individual savings and retirement products 598 35 – (2) – – 631
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 9 - 10
EUR 9.0 billion (2006: EUR 10.0 billion) cash collateral is received of which EUR 5.5 billion is included in cash and cash equivalents. A
AEGON N.V. and Vereniging AEGON have entered into a preferred shares voting rights agreement, pursuant to which Vereniging AEGON
Transactions in 2006: Purchase: 30 transactions, average price EUR 14.78 – 19,076 –
TOTAL JUNIOR PERPETUAL CAPITAL SECURITIES 4,192 3,447 2,809 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%.
Perpetual cumulative subordinated bonds Coupon rate Coupon date Year of fi rst call 2007 2006 2005
TOTAL PERPETUAL CUMULATIVE SUBORDINATED BONDS 567 567 567 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%
until March 4, 2011. On these dates, and after every consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of nine- to ten-year Dutch government securities and a spread of 85 basis points.
amounts to meet losses. Although the bonds have no stated maturity,
These loans are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period. The fair value of these loans amounts to EUR 34 million
USD 1.54 billion Variable Funding Surplus Note 1,3 Floating 2006 / 36 Quarterly 569 744
1 Issued by subsidiaries of, and guaranteed by AEGON N.V. 2 Issued by a subsidiary of AEGON N.V. 3 Outstanding amounts can vary up to the maximum stated nominal amount. 4 Private Value-in-Force (ViF) securitization by AEGON UK to monetize a portion of future profi ts associated with an existing book of unit-linked business.
TOTAL DEFINED BENEFIT PLANS 1,749 1,642 1,606 1,635 1 Assets held by AEGON The Netherlands for retirement benefi ts do not meet the defi nition 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 also does not form part of the calculation of defi ned benefi t expenses.
The fair value of AEGON’s own financial instruments included in plan assets and the fair value of other assets used by AEGON included in planned assets was nil in both 2007 and 2006.
IAS 19, the defined benefit plan has a deficit of EUR 227 million at
Financial assets at fair value through profi t or loss 255 305 310
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 36 - 37 million). Included in employee expenses is EUR 23 million (2006: EUR
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP NOTE 47
Cash collateral is recorded on the balance sheet as an asset and an offsetting liability is established for the same amount as AEGON is obligated to return the collateral upon termination of the lending arrangement. Cash collateral is usually invested in pre-designated high quality investment strategies. Whether these subsequent investments are recorded on balance or off balance is subject to the same recognition rules as other asset types. The sum of cash and non-cash collateral is typically greater than the market value of the related securities loaned.
Goodwill amounts to EUR 111 million reflecting the expected profitability of new business. The carrying amount of the assets and liabilities of the acquired companies amounted to EUR 10.8 billion and
AEGON has disposed operations for an amount of EUR 42 million regarding Clark business, not considered to be core to AEGON, to
(EUR 60 million at December 31, 2006). As a consequence of the acquisition goodwill of EUR 91 million was reported.
The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the
Prisma Capital Partners I, LP and Prisma Capital Partners EH LLC own 31% and 8% of Prisma LP, respectively. An unrelated entity, Prisma
Johan G. van der Werf 1 These options will vest in 2008 at 100%.
Financial assets and liabilities are offset in the balance sheet when
In accordance with article 32, paragraph 3 of the Articles of Incorporation, a cash dividend equal to 5.25% of the amount paid on the preferred shares will be distributed.
AEGON. As a result of these transactions, Vereniging AEGON’s beneficial ownership interest in AEGON N.V.’s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in AEGON N.V.’s voting shares (excluding issued common shares held in treasury by AEGON N.V.) decreased from approximately 52% to approximately 33%.
AEGON, a special procedure is in place to provide for the need of a unanimous proposal from the Executive Committee, thereby including the consent of the representatives of AEGON N.V. at the Executive
Bifurcation is the measurement and presentation of embedded derivatives separate from the host contracts, as if they were standalone derivative financial instruments.
Reporting Standards may have on our reported fi nancial results and fi nancial condition.