Aegon (AEG) 6-K Current report (foreign)

Securities and Exchange Commission

Washington, D.C. 20549

Form 6-K

Report of Foreign Issuer

Pursuant to Rule 13a-16 or 15d/16 of

the Securities Exchange Act of 1934

May 2011

AEGON N.V.

AEGONplein 50

2591 TV THE HAGUE

The Netherlands

AEGON’s Embedded Value Report 2010, is included as appendix and incorporated herein by reference.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AEGON N.V. (Registrant)
Date: May 17, 2011	By	/s/    E. Lagendijk
		E. Lagendijk
		Executive Vice President and General Counsel

THE HAGUE, MAY 12, 2011

EMBEDDED VALUE

2010

    LIFE INSURANCE     PENSIONS     ASSET MANAGEMENT

Table of contents

1.	HIGHLIGHTS	P	2
1.1    Overview of embedded value life insurance and total embedded value			2
1.2    New business			3
1.3    Summary of movement analysis			4
1.4    Summary of reconciliation of free surplus in life insurance businesses			5
1.5    Scope of the report			5
2.	RESULTS	P	6
2.1    Value components			6
2.2    Sensitivities			16
3.	REVIEW STATEMENT	P	18
ADDENDUM 1: RECONCILIATION OF TOTAL CAPITAL BASE TO ADJUSTED NET WORTH		P	19
ADDENDUM 2: MOVEMENT ANALYSIS PER REGION AND PRODUCT SEGMENT		P	21
	AEGON Group		22
	Americas		23
	The Netherlands		24
	United Kingdom		25
	New Markets		26
ADDENDUM 3: EMBEDDED VALUE 2010 BY PRODUCT SEGMENTS		P	27
	AEGON Group		27
	Americas		27
	The Netherlands		27
	United Kingdom		28
	New markets		28
ADDENDUM 4: BREAKDOWN Of NEW MARKETS BY REGIONS		P	29
	Free surplus movement for New Markets		29
	Movement analysis of embedded value life insurance for New Markets		30
	Embedded value life insurance sensitivities for New Markets		32
	Value of new business sensitivity for New Markets		33
ADDENDUM 5: OUTCOME BASED ON THE REGULATORY SURPLUS REQUIREMENT		P	34
ADDENDUM 6: METHODOLOGY		P	35
	Introduction		35
	Scope		35
	Methodology and definitions		36
	Operating assumptions		37
	Economic assumptions		38
	Embedded options and guarantees		39
	Required capital		39
ADDENDUM 7: ECONOMIC ASSUMPTIONS		P	40
	Economic assumptions		40
	Exchange rates		41
	Detailed economic assumptions		42
ADDENDUM 8: RECOVERABILITY OF DPAC		P	46
ADDENDUM 9: GLOSSARY AND ABBREVIATIONS		P	47
DISCLAIMERS		P	51

page 1 

1.  Highlights

1.1  Overview of embedded value life insurance and total embedded value

A high level overview of embedded value life insurance and total embedded value is contained in table 1. More details on these values, the principles and assumptions used plus the sensitivity of these values to changes in underlying assumptions are included in this document and should be read carefully in connection with the information presented below. All figures in this document are presented on an after tax basis unless otherwise stated.

Table 1

Embedded value (amounts in millions unless stated otherwise, after tax)	Year-end 2010 EUR			Year-end 2009 EUR			%
Life business
Adjusted net worth (ANW)		15,959			13,216			21
Free surplus (FS)		3,261			2,404			36
Required surplus (RS)		12,697			10,811			17
Value of in-force life business (ViF)		9,798			10,081			(3	)
Present value future profits (PVFP)		13,570			13,035			4
Cost of capital (CoC)		(3,772	)		(2,955	)		(28	)
Embedded value life insurance (EVLI)		25,756			23,296			11
Other activities
IFRS book value		733			1,137			(36	)
Total embedded value before holding activities		26,489			24,434			8
Holding activities		(7,598	)		(6,663	)		(14	)
Market value of debt, capital securities & other net liabilities		(7,098	)		(6,187	)		(15	)
Present value holding expenses		(500	)		(477	)		(5	)
Total embedded value (TEV)		18,891			17,770			6
Value of preferred share capital		(1,170	)		(1,301	)		10
Total embedded value (TEV) attributable to common shareholders		17,721			16,469			8
TEV attributable to common shareholders per share (EUR)		10.38			9.65			8

The most important items impacting the change in embedded value life insurance during 2010 were¹:

¿ Embedded value operating return² of EUR 1.3 billion, consisting of EUR 767 million for in-force performance and EUR 555 million for new business value.

¿ An investment variance of EUR 1.9 billion and an impact of EUR (1.3) billion from economic assumption changes due to lower interest rates particularly in the Netherlands.

¿ Net capital movements from the life operations, impacting the EVLI by EUR (0.7) billion.

¿ The strengthening of other currencies against the euro, particularly the US dollar, increasing the EVLI by EUR 1.2 billion.

¹ For a more detailed analysis, please refer to section 2.1.2 ‘Movement analysis of embedded value life insurance’.

² For embedded value operating margins on a constant currency basis, please refer to addendum 2 ‘Movement analysis per region and product segment’.

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The value of other activities decreased to EUR 0.7 billion (see section 2.1 for details).

Debt, capital securities and other net liabilities, which includes the convertible core capital securities funded by the Dutch State, increased by EUR 0.9 billion, as a result of an increase in the market value of debt, more than offsetting the reduction in debt due to the repurchase of convertible core capital securities in 2010 (EUR 0.5 billion).

1.2  New business

A high level overview of the value of new business (VNB) generated by new business sold during the reporting period is contained below in tables 2 and 3. Throughout this report, the VNB is presented net of tax and after an allowance for the cost of carrying required capital on the internal surplus basis unless stated otherwise.

Table 2

Value of new business (amounts in millions)	2010 EUR			2009 EUR			%
Gross value of new business		1,054			1,199			(12	)
Tax		(308	)		(253	)		(22	)
Cost of capital		(190	)		(178	)		(7	)
Value of new business		555			767			(28	)

Table 3

Value of new business (amounts in millions, after tax)	2010 EUR		2009 EUR			%
Americas		230		293			(22	)
The Netherlands		144		184			(22	)
United Kingdom		65		170			(62	)
New Markets		116		120			(3	)
Asia		4		4			0
Central and Eastern Europe		49		46			7
Spain & France		51		82			(38	)
Variable Annuities Europe		11		(11	)		-
Total		555		767			(28	)

The VNB decreased 28% from 2009 (30% on a constant currency basis). The main reason for the decrease was the strategic shift away from spread business, in both the Americas and the UK. The Netherlands also experienced lower VNB as the margins on mortgage business decreased. New Markets share of AEGON’s total VNB increased to 21% (from 16% in 2009).

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1.3  Summary of movement analysis

Table 4

Summary of movement analysis (amounts in EUR millions, after tax)	Total 2010			Total 2009
Embedded value life insurance BoY		23,296			22,936
Value of new business (VNB)		555			767
In-force performance		767			560
Embedded value operating return		1,322			1,327
Variance from long-term investment return		1,860			(396	)
Change in economic assumptions		(1,332	)		(607	)
Currency exchange differences		1,192			(153	)
Miscellaneous impacts		89			(222	)
Embedded value total return		3,131			(51	)
Capital movements		(672	)		412
Embedded value life insurance EoY		25,756			23,296
Other activities		733			1,137
Holding activities		(7,598	)		(6,663	)
Total embedded value		18,891			17,770
Embedded value operating margin(A)		5.3%			5.8%

^(A) Embedded value operating margin is calculated on a constant currency basis. See addendum 2, tables 15 to 18 for details.

¿ Embedded value operating return was at a similar level to 2009, with stronger in-force performance offsetting a lower level of new business value.

¿ Favorable variances from the long-term investment return of EUR 1.9 billion were partially offset by a negative impact of EUR (1.3) billion from economic assumption changes, both largely caused by the impact in the Netherlands of lower interest rates, which had a positive impact on the derivatives hedging the guarantee reserves, and an offsetting negative impact due to increases in the value of liabilities.

¿ There were net capital movements from the life operations, which impacted the EVLI by EUR (0.7) billion in 2010.

¿ The strengthening of currencies against the euro, particularly the US dollar, increased the EVLI by EUR 1.2 billion.

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1.4 Summary of reconciliation of free surplus in life insurance businesses

Table 5

Summary of reconciliation of free surplus (amounts in EUR millions, after tax)	Total 2010			Total 2009
Free surplus (BOY)		2,404			2,335
Change in Market Value adjustment on Free Surplus		42			17
Return on free surplus		103			160
Earnings on in-force		3,948			3,149
Release of required surplus on inforce		(1,289	)		(1,348	)
Investment in new business		(1,274	)		(1,452	)
New business first year strain		(811	)		(631	)
Required surplus on new business		(463	)		(822	)
Capital movements(A)		(672	)		412
Currency exchange differences		75			14
Other		(75	)		(883	)
Free surplus (EOY)		3,261			2,404

^(A) Net capital movements from covered business only; other activities paid EUR 478m to AEGON NV and EUR 168m to Life businesses, leading to a total net dividend to AEGON NV of EUR 1.3 billion.

The economic value of free surplus in the life business increased during 2010 mainly due to strong earnings on the in-force portfolio (up 25% from 2009) and a reduced level of total capital required to write new business (down 12% from 2009). Capital movements show a net outflow of capital from the covered business in 2010, compared to a net contribution to these businesses in 2009. The impact of Other items is much smaller than last year, due to reduced non-recurring items, particularly the strengthening of the regulatory default assumption in the UK.

1.5  Scope of the report

This report uses the IFRS reporting structure of 2010.

The regional groupings used throughout the report are as follows:

¿ Americas consists of AEGON Canada, AEGON USA, AEGON’s 50% interest in Mongeral (Brazil) and AEGON’s 49% interest in Seguros Argos (Mexico).

¿ The Netherlands, consisting of AEGON’s operating companies in The Netherlands.

¿ UK, consisting of AEGON UK.

¿ New Markets consists of AEGON’s operations in the Czech Republic (including the 90% interest in its partnership in the AEGON Pension Fund), Hungary, Poland, Slovakia, Romania, Turkey, Variable Annuities Europe, Spain (including AEGON’s interests in four partnerships in Spain), AEGON’s 35% interest in La Mondiale Participations (France) and AEGON’s 50% interest in its partnership in China.

A breakdown of the New Market results by region is shown in Addendum 4.

Other activities include the IFRS book value of AEGON’s 26% interest in AEGON Religare (India), AEGON’s 75% interest in Religare AEGON Asset Management (India), AEGON’s 49% interest in AEGON Industrial Fund Management (China), AEGON’s 50% interest in Caixa Terrassa Vida y Pensiones (Spain) and AEGON’s 50% interest in AEGON Sony Life Insurance Company (Japan).

page 5 

2. Results

This section presents the EVLI and TEV as of December 31, 2010. All profits are in millions of euros and based on local regulatory accounting net of reinsurance and after tax. The level of required surplus is based on internal surplus requirements.

2.1  Value components

The values under the internal surplus requirements are:

Table 6

Embedded value components (amounts in EUR millions, after tax)	Americas			The Netherlands			United Kingdom (A)			New Markets			Total 2010
Life business
Adjusted net worth (ANW)		10,744			3,779			667			768			15,959
Free surplus (FS)		872			2,053			133			202			3,261
Required surplus (RS)		9,872			1,726			534			566			12,697
Value of in-force life business (ViF)		3,982			2,621			2,234			961			9,798
Present value future profits (PVFP)		6,785			3,213			2,413			1,158			13,570
Cost of capital (CoC)		(2,803	)		(592	)		(179	)		(198	)		(3,772	)
Embedded value life insurance (EVLI)		14,726			6,401			2,901			1,729			25,756
Other activities
IFRS book value		572			(195	)		(106	)		461			733
Total embedded value per region		15,298			6,206			2,795			2,190			26,489
Holding activities														(7,598	)
Market value of debt, capital securities & other net liabilities														(7,098	)
Present value holding expenses														(500	)
Total embedded value (TEV)														18,891
Value of preferred share capital														(1,170	)
Total embedded value (TEV) attributable to common shareholders														17,721

^(A) Free Surplus in the UK in this report differs from UK regulatory Pillar I free capital due to exclusion of an internal company loan of admissible value GBP 148 million.

The solvency requirement on which the business is managed is based on the more stringent of the local regulatory requirements and Standard & Poor’s local capital adequacy models at an AA level, plus any additional internally imposed requirements, if applicable³. This forms the basis for the solvency requirements for the business throughout this report.

The embedded value life insurance increased due to strong positive performance on the in-force business, the contribution from VNB, positive economic variances and favorable currency movements, partially offset by economic assumptions changes. For a detailed discussion of the change in embedded value life insurance from end of year 2009 to end of year 2010 refer to section 2.1.2.

³ The exception is AEGON’s partnership in France, La Mondiale Participations, which is managed on local regulatory requirements.

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The main areas covered by Other activities are banking (EUR 0.5 billion), distribution (EUR 0.1 billion), general insurance (EUR 0.2 billion), health insurance (EUR 0.1 billion), asset management (EUR 0.2 billion) and the company’s pension and employee benefit schemes (EUR 0.1 billion). These are partially offset by the impact of eliminations of intercompany reconciliations in the country units.

Non-recurring expenses

In established operations, certain incurred expenses are considered non-recurring, and are classified as exceptional. For newer operations, such as China or Czech Republic, the VNB and the projection of expenses in the embedded value life insurance reflect longer term expected run rate acquisition and maintenance expenses, with expenses in excess of this also being classified as exceptional.

In total an amount of EUR 112 million, after tax, was considered as exceptional expenses (Americas EUR 10 million, the Netherlands EUR 9 million, UK EUR 57 million and New Markets EUR 36 million), and not included in the derivation of acquisition and maintenance expense assumptions.

Employee pension plan costs

Expense assumptions in the embedded value include the cost of providing employee pension benefits where appropriate. The allowance for these costs fully reflects the long-term cost of providing pensions and is consistent with the allowance for pensions elsewhere in the calculation of the total embedded value. Any pension asset or liability has been included at the IFRS book value, in accordance with International Accounting Standard (IAS) 19.

Embedded options and guarantees

In total, the explicit cost of time value of options and guarantees included in the EVLI for the Group was EUR 1.0 billion, after tax; this value is included in the present value of future profits (please see Addendum 6 for details on how this value is calculated).

As the PVFP explicitly allows for the cost of the time value of embedded options and guarantees, the PVFP for the Netherlands also allows for a positive value of EUR 1.7 billion in relation to the release of EUR 2.6 billion statutory reserve held for financial options and guarantees, and which is backed by an economic hedging program. This value has been established by projecting the future releases to shareholders from the reserve.

page 7 

2.1.1 Free surplus

Table 7

Reconciliation of free surplus (amounts in EUR millions, after tax)	Americas			The Netherlands			United Kingdom			New Markets			Total 2010			Total 2009
Free surplus (BOY)		822			1,114			177			292			2,404			2,335
Change in MV adjustment on FS		2			36			-			5			42			17
Return on free surplus		14			67			5			17			103			160
Earnings on in-force		2,290			1,126			442			91			3,948			3,149
Release of required surplus on inforce		(1,290	)		(12	)		14			(3	)		(1,289	)		(1,348	)
Investment in new business		(669	)		(174	)		(325	)		(106	)		(1,274	)		(1,452	)
New business first year strain		(409	)		(45	)		(289	)		(68	)		(811	)		(631	)
Required surplus on new business		(261	)		(129	)		(36	)		(37	)		(463	)		(822	)
Capital movements(A)		(362	)		(88	)		(91	)		(130	)		(672	)		412
Currency exchange differences		66			0			6			3			75			14
Other		0			(16	)		(94	)		35			(75	)		(883	)
Free surplus (EOY)		872			2,053			133			202			3,261			2,404

^(A) Net capital movements from covered business only; other activities paid EUR 478m to AEGON NV and EUR 168m to Life businesses, leading to a total net dividend to AEGON NV of EUR 1.3 billion.

The economic value of free surplus in the life business increased during 2010 mainly due to:

¿ Return on free surplus of EUR 0.1 billion.

¿ OveraII earnings on in-force operations based on local statutory accounting of EUR 3.9 billion comprising:

¿ In the Americas, the earnings on in-force of EUR 2.3 billion (EUR 0.1 billion higher than 2009) reflecting substantial earnings from life business and fixed annuities.

¿ In the Netherlands, the earnings on in-force of EUR 1.1 billion (EUR 0.8 billion higher than 2009), due to underlying earnings, realized gains and gains on the interest rate hedging program.

¿ In the UK, the earnings on in-force of EUR 0.4 billion.

Partially offset by

¿ An overall increase in required surplus on the in-force portfolio, with impact on free surplus of EUR (1.3) billion. This increase is mainly due to a strengthening of required surplus on in-force, caused by changes to Standard & Poor’s asset factors, which had a negative impact on free surplus of EUR (1.4) billion. This affected primarily the Americas businesses.

¿ Investment in new business, including new business strain and required capital on new business, of EUR (1.3) billion. This is lower than the investment in new business in 2009, largely due to lower fixed annuity volumes in the Americas and lower immediate annuity volumes in the UK, as a result of the strategic shift away from these lines of business.

¿ Net capital movements from the life businesses, with an impact of EUR (0.7) billion.

¿ Other of EUR (0.1) billion, primarily related to the setting up of a provision in the UK to cover policyholder redress under the customer redress program and exceptional staff pension scheme contributions.

Further detail on the reconciliation of free surplus for New Markets is shown in Addendum 4.

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2.1.2 Movement analysis of embedded value life insurance

The change in embedded value life insurance (EVLI) from year to year is split into the following components⁴. The main items per region are explained in further detail after table 8 and table 10.

Table 8

Movement analysis 2010 (amounts in EUR millions, after tax)	Americas			The Netherlands			United Kingdom			New Markets			Total 2010
Embedded value life insurance BoY		13,415			5,514			2,591			1,777			23,296
Value of new business (VNB)		230			144			65			116			555
Gross value of new business		514			249			101			190			1,054
Tax		(170	)		(64	)		(27	)		(47	)		(308	)
Cost of capital (after tax)		(114	)		(41	)		(9	)		(26	)		(190	)
In-force performance		825			(243	)		90			95			767
Unwind of discount		1,188			459			221			162			2,030
Operating variances		320			(10	)		(101	)		(63	)		145
Mortality/morbidity		52			(52	)		15			4			20
Persistency		(95	)		(29	)		(6	)		(26	)		(155	)
Maintenance expenses		16			29			(24	)		(7	)		13
Exceptional expenses		(7	)		0			(30	)		(21	)		(59	)
Other		355			41			(56	)		(14	)		327
Change in operating assumptions		(683	)		(692	)		(29	)		(4	)		(1,408	)
Mortality/morbidity		85			(618	)		7			8			(518	)
Persistency		(644	)		(4	)		(38	)		(23	)		(709	)
Maintenance expenses		150			(51	)		(18	)		(10	)		71
Other		(274	)		(20	)		20			21			(252	)
Embedded value operating return		1,055			(98	)		155			211			1,322
Variance from long-term investment return		74			1,577			202			6			1,860
Change in economic assumptions		41			(1,388	)		32			(17	)		(1,332	)
Currency exchange differences		1,099			0			80			13			1,192
Miscellaneous impacts		(596	)		883			(69	)		(130	)		89
Embedded value total return		1,673			975			401			82			3,131
Capital movements		(362	)		(88	)		(91	)		(130	)		(672	)
Embedded value life insurance EoY		14,726			6,401			2,901			1,729			25,756
Other activities														733
Holding activities														(7,598	)
Total embedded value														18,891
Embedded value operating margin(A)		7.2	%		(1.8	)%		5.8	%		11.8	%		5.3	%

^(A) Embedded value operating margin is calculated on a constant currency basis. See addendum 2, tables 15 to 18 for details.

Return on embedded value

The overall embedded value operating margin was 5.3% in 2010 (5.8% in 2009). The embedded value total margin was 13.4% in 2010 ((0.2)% in 2009).

Currency exchange differences

A currency variance of EUR 1.2 billion was primarily caused by the strengthening of other currencies, particularly the US dollar, against the euro.

Capital movements

Capital movements include transfers between life operations, holding activities and non-life operations.

⁴ Refer to addendum 2 ‘Movement analysis per region and product segment’, tables 15 to 18, for a split per region and per product segment.

page 9 

Americas

¿ The embedded value operating margin on a constant currency basis was 7.2%.

Operating variance

¿ In-force variance benefited from more efficient financing solutions at Life and Protection as well as increased admissibility of deferred tax assets, both of which are reflected under Other. This positive impact was partially offset by unfavorable persistency experience on universal life contracts.

Operating assumption change

¿ The change in operating assumptions was primarily due to the impact of strengthening persistency assumptions, particularly higher expected shock lapse rates on term products in the Life and Life Reinsurance business, and the implementation of dynamic interest dependent policyholder behavior assumptions which impacted Variable Annuities. These adverse impacts were offset by updated mortality at Life Reinsurance and a favorable change in expense assumptions for the Life business. Furthermore the Variable Annuity business was negatively impacted from the extension of the macro delta equity hedge as well as the increase in the notional amount of the hedge, which is shown under Other.

Investment variance and economic assumptions

¿ The favorable variance from long-term investment return was caused by higher market returns, increasing current and projected fees as well as by lower defaults and more favorable credit spreads. This was partially offset by a decrease in interest rates reducing yields on new investments.

¿ The net change in economic assumptions was positive, mainly due to the reduction in the assumed bond defaults on the portfolio. This was partially offset by an unfavorable decrease in the risk free interest rate. In addition, an increase in the assumed long-term credit spreads had a positive impact.

Miscellaneous impacts

¿ The negative miscellaneous impact reflected the cost of capital of increased S&P capital requirements across most lines of business. In addition, there was a negative impact from modeling adjustments in Life and Life Reinsurance.

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The Netherlands

¿ The embedded value operating margin was (1.8)%.

Operating variance

¿ The main components of the in-force operating variance were unfavorable persistency on Pensions business partially offset by favorable maintenance expenses, better than expected persistency on Life business and positive experience on single premium pension transfers.

Operating assumption change

¿ The change in operating assumptions reflected a large negative impact from assumed increasing longevity in Pensions when changing to the latest Dutch mortality tables, and in addition a negative impact from strengthened maintenance expense assumptions.

Investment variance and economic assumptions

¿ Variance on long-term investments were positive, as all asset classes showed better growth over the year than had been expected, which more than offset the negative change in economic assumptions, leading to a small positive overall impact from economic factors. The major positive impact was due to the impact from the interest rate hedge program and an increase in the guarantee reserve⁵ related to traditional policies with profit sharing and unit-linked policies with guarantees. The negative arose from the lower long-term interest rate assumptions impacting the value projection.

Miscellaneous impacts

¿ The miscellaneous impacts reflected modeling improvements on Pensions resulting in a more accurate projection of liability cash flows. Modeling improvements included more granular policyholder information.

⁵ For the details of the valuation of the guarantee reserve, please refer to addendum 6 ‘Methodology’.

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United Kingdom

¿ The embedded value operating margin on a constant currency basis was 5.8%.

Operating variance

¿ The in-force variance included negative impacts from expenses, relating mainly to exceptional and project costs and the impact of a provision set up to cover policyholder redress under the customer redress program. In addition, there were negative contributions from tax and persistency, partially offset by better than expected mortality experience on both Life and Pensions business.

Operating assumption change

¿ Changes to operating assumptions included a negative impact from the strengthening of assumptions relating to future lapse rates on Pensions business and negative impacts from increases to the assumed future costs of ongoing projects. The UK benefitted from the reduction in the corporation tax rate assumed on future profits, from 28% to 27%.

Investment variance and economic assumptions

¿ The variance from long-term investment return was positive, due to a better than expected performance on Pensions business arising from equity market performance and narrowing spreads on corporate bonds. Life business also contributed a positive variance due to movements in assets backing the annuity portfolio and a change in the regulatory valuation basis.

¿ On economic assumptions, a positive impact on Life business arose from a reduction in the default assumption on assets backing the annuity portfolio. On Pensions business, the widening of the risk margin and the increase in the expense inflation assumption had negative impacts.

Miscellaneous impacts

¿ In Miscellaneous the most significant item was due to a change in reporting structure, with a portfolio of business previously being reporting as part of the UK now being reporting as part of Variable Annuities Europe. In addition, there was an exceptional payment to the staff pension scheme.

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New Markets

¿ The embedded value operating margin on a constant currency basis was 12.4%.

Operating variance

¿ The negative in-force operating variance arose largely due to the development expenses in some operations (particularly China and Turkey) and a negative persistency variance in Spain.

Operating assumption change

¿ The change in operating assumptions was slightly negative overall with the negative impact of strengthening persistency assumptions in Spain and Hungary being largely offset by removing an assumed future decrease in the asset management fees in Poland and an improvement in persistency assumption in Slovakia.

Investment variance and economic assumptions

¿ The positive variance from long-term investment return was largely due to the positive impact of better than expected investment return on Variable Annuity products.

Miscellaneous impacts

¿ The most significant item in miscellaneous impacts was a negative impact in Hungary, due to changes in pension legislation and the introduction of a bank tax, partially offset by a reduction in the corporate tax in Hungary. In addition, the change in reporting structure and the inclusion for the first time in Variable Annuities of a portfolio of business previously reported in the UK was also included as a miscellaneous item.

page 13 

2.1.3  Value of new business

Value of new business (VNB) represents the value created by new business sold during the reporting period. Table 9 links this value to modeled written premium⁶.

Table 9

Modeled new business	Premium business				Deposit business				VNB
APE(A) and deposits
(amounts in EUR millions)	APE(A)				Deposits(B)
	2010		2009		2010		2009		2010		2009			%
Americas		1,084		997		13,792		17,753		230		293			(22	)
The Netherlands		377		328		-		-		144		184			(22	)
United Kingdom		1,047		1,070		91		-		65		170			(62	)
New Markets		356		357		1,060		525		116		120			(3	)
Asia		30		31		-		3		4		4			-
China		30		24		-		-		4		1			300
Taiwan(C)		-		7		-		3		-		2			(100	)
Central and Eastern Europe		104		79		324		119		49		46			7
Czech Republic		12		12		33		49		4		6			(33	)
Hungary		22		17		90		32		19		24			(21	)
Poland		53		38		199		24		16		8			100
Romania		1		1		0		1		2		1			100
Slovakia		8		10		0		2		5		7			(29	)
Turkey		8		1		2		12		3		1			200
Spain & France		222		247		51		-		51		82			(38	)
France		99		99		-		-		5		4			25
Spain		123		148		51		-		46		77			(40	)
Variable Annuities Europe		-		-		685		402		11		(11	)		(200	)
Total		2,864		2,753		14,943		18,278		555		767			(28	)
VNB		440		611		115		156

^(A) APE = recurring premium + 1/10 single premium.

^(B) Including on and off balance sheet deposits.

^(C) Activities in Taiwan divested in April 2009.

⁶ Refer to addendum 2 ‘Movement analysis per region and product segment’ for the split of VNB per region and per reporting segment.

page 14     Local knowledge. Global power.

Table 10 shows VNB as a ratio of the present value of new business premiums (PVNBP), as well as calculated internal rates of return.

Table 10

2010 VNB summary	Premium business										Deposit business
(amounts in EUR millions)
	VNB		PVNBP		VNB/ PVNBP			VNB/ APE			VNB		PVNBP		VNB/ PVNBP			Total VNB		Total IRR
Americas		139		4,648		3.0	%		12.8	%		91		21,040		0.4	%		230		12.9	%
The Netherlands		144		2,491		5.8	%		38.3	%		-		-		-			144		14.1	%
United Kingdom		65		6,829		1.0	%		6.2	%	-	0		91		0.0	%		65		11.2	%
New Markets		92		2,721		3.4	%		25.8	%		24		1,678		1.4	%		116		33.9	%
Asia		4		151		3.0	%		15.1	%		-		-		-			4		15.2	%
China		4		151		3.0	%		15.1	%		-		-		-			4		15.2	%
Central and Eastern Europe		37		597		6.2	%		35.3	%		12		903		1.4	%		49		26.5	%
Czech Republic		4		70		5.6	%		31.3	%		0		113		0.1	%		4		17.5	%
Hungary		13		136		9.5	%		58.1	%		6		270		2.3	%		19		28.9	%
Poland		12		310		3.8	%		22.5	%		5		451		1.0	%		16		25.8	%
Romania		0		5		8.2	%		31.7	%		2		50		4.0	%		2		28.7	%
Slovakia		5		45		10.1	%		58.3	%		0		3		2.6	%		5		28.7	%
Turkey		3		30		10.2	%		40.8	%	-	0		16		-2.9	%		3		22.1	%
Spain & France		51		1,973		2.6	%		22.7	%		0		90		0.4	%		51		46.0	%
France		5		1,215		0.4	%		5.2	%		-		-		-			5		10.8	%
Spain		45		758		6.0	%		36.9	%		0		90		0.4	%		46		>50.0	%
Variable Annuities Europe		-		-		-			-			11		685		1.6	%		11		19.1	%
Total		440		16,689		2.6	%		15.4	%		115		22,809		0.5	%		555		17.4	%

In the Americas, VNB decreased 26% in US dollars (down 22% in euros), largely due to the strategic decision to de-emphasize fixed annuities. The main contributor to the decrease in VNB was the reduction in fixed annuity volumes, partially offset by better margins on the variable annuity business. As a result of an improved business mix, IRR in the Americas increased from 11.7% in 2009 to 12.9% in 2010.

The decrease in VNB in the Netherlands was mainly caused by a change in business mix. In particular the margins and production of mortgage business decreased and the annuities production increased, creating a less profitable business mix as a result. The IRR in the Netherlands decreased from 17.4% in 2009 to 14.1% in 2010.

The reduction in VNB in the UK was driven by lower production and lower margins of annuities. The IRR also decreased from 14.0% in 2009 to 11.2% in 2010.

The decrease in VNB in New Markets reflected lower sales and margins in Spain, partially offset by improved VNB results for CEE and Variable Annuities Europe.

page 15 

2.2  Sensitivities

Table 11 and table 12 reflect the impact of changing the underlying assumptions on the EVLI and the VNB respectively. In each sensitivity scenario, only the stated assumptions have been changed, while keeping other assumptions equal to the ‘base case’. However, any discretionary elements or policyholder behavior assumptions directly impacted by the changed assumption (e.g. bonus rates or dynamic lapses) are assumed to vary with the scenario, if appropriate. The sensitivity results include the impact on the allowances for financial options and guarantees.

2.2.1  Embedded value life insurance sensitivity

Table 11

Sensitivity analysis - Embedded value life insurance (amounts in EUR millions, after tax)	Americas		The Netherlands		United Kingdom		New Markets		Total 2010
Base case embedded value life insurance 2010		14,726		6,401		2,901		1,729		25,756
Required surplus at regulatory solvency		13%		2%		0%		2%		8%
100 bps decrease in risk discount rate		6%		6%		8%		7%		6%
100 bps increase in risk discount rate		-5%		-5%		-7%		-6%		-5%
100 bps decrease in risk-free rate, all asset returns and risk discount rate		-2%		7%		7%		2%		2%
100 bps increase in risk-free rate, all asset returns and risk discount rate		0%		-6%		-5%		-2%		-2%
100 bps decrease in equity and property returns		-2%		-5%		-4%		-1%		-3%
100 bps increase in equity and property returns		1%		4%		4%		1%		2%
10% fall in equity markets		-3%		0%		-5%		-1%		-2%
100 bps decrease in fixed interest		-5%		9%		4%		-3%		-1%
100 bps increase in fixed interest		4%		-4%		-3%		3%		1%
10% decrease in lapse rates		3%		0%		3%		3%		2%
5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business		7%		0%		0%		0%		4%
5% decrease in mortality/ morbidity rates for longevity exposure business		0%		-2%		-1%		-5%		-1%
1% mortality/ morbidity improvement per year for the entire projection period		9%		-5%		-3%		0%		4%
10% decrease in maintenance expenses		2%		2%		2%		2%		2%

The impact of the change in discount rate on the value of the business depends on the timing of future profits: the higher the average remaining duration, the higher the sensitivity and the asymmetry to changes in discount rates.

The difference in sensitivity to changes in investment returns between the regions mainly reflects the composition of the different in-force life portfolios and asset allocations. The asymmetry in sensitivity to investment returns can be attributed to the minimum guarantees in many products. As a result of these guarantees, future lower investment returns may not be fully offset by equally lower crediting rates.

page 16     Local knowledge. Global power.

2.2.2  Value of new business sensitivity

Table 12

Sensitivity analysis - Value of new business (amounts in EUR millions, after tax)	Americas		The Netherlands		United Kingdom		New Markets		Total 2010
Base case value of new business 2010		230		144		65		116		555
100 bps decrease in risk discount rate		25%		21%		42%		15%		24%
100 bps increase in risk discount rate		-22%		-18%		-36%		-13%		-20%
100 bps decrease in risk-free rate, all asset returns and risk discount rate		-23%		15%		2%		0%		-5%
100 bps increase in risk-free rate, all asset returns and risk discount rate		21%		-12%		-3%		-1%		5%
100 bps decrease in equity and property returns		-5%		0%		-21%		-2%		-5%
100 bps increase in equity and property returns		6%		0%		24%		2%		6%
100 bps decrease in fixed interest		-36%		-6%		-9%		-11%		-20%
100 bps increase in fixed interest		33%		6%		9%		10%		19%
10% decrease in lapse rates		18%		3%		21%		8%		12%
5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business		27%		1%		1%		1%		12%
5% decrease in mortality/ morbidity rates for longevity exposure business		0%		-1%		-3%		-4%		-1%
1% mortality/ morbidity improvement per year for the entire projection period		55%		-1%		-8%		1%		22%
10% decrease in acquisition expenses		14%		2%		22%		6%		11%
10% decrease in maintenance expenses		10%		7%		9%		4%		8%

In general, the VNB is more sensitive to changes in parameters than the in-force. A relatively small change in future profits can have a relatively large impact on a small VNB compared to the EVLI. The size and sign of the sensitivities depend on the profitability of the individual products as well as the composition of the new business portfolio within a region. However it should be noted that these sensitivities do not provide indication of future new business profitability under alternative conditions, as no allowance is made for the potential to re-price products.

page 17 

3.  Review statement

Towers Watson has reviewed the methodology and assumptions used to determine the embedded value at December 31, 2010 and the value of 2010 new business for AEGON’s principal life operations. The review also included the analysis of movement in the embedded value from December 31, 2009.

Towers Watson has concluded that the methodology and assumptions employed comply with the EEV Principles and Guidance. In particular:

¿ The methodology makes allowance for the aggregate risks in the covered business through the incorporation of risk margins in the discount rates applied to best estimate projections of after-tax statutory profits in determining the present value of future profits, the deduction of the cost of required capital relating to the business and the stochastic allowance for the cost of financial options and guarantees.

¿ The operating assumptions have been set with appropriate regard to past, current and expected future experience.

¿ The economic assumptions used are internally consistent and consistent with observable, reliable market data. It is noted that the risk margin included in both the risk discount rate and the equity return assumptions for the Netherlands have been set at a level lower than for the US and UK, reflecting the higher level of de-risking of AEGON’s Netherlands business that has taken place.

¿ For participating business, the assumed bonus rates, and the allocation of profit between policyholders and shareholders, are consistent with the projection assumptions, established company practice and local market practice.

Towers Watson has also performed limited high-level checks on the results of the calculations and has confirmed that any issues discovered do not have a material impact on the embedded value results shown in table 6 and table 8. Towers Watson has not, however, performed detailed checks on the models and processes involved.

In arriving at these conclusions, Towers Watson has relied on data and information provided by AEGON, including the IFRS book values of the ‘other activities’ and the market values of debt, capital securities, preferred share capital and other net liabilities and AEGON’s legal opinion regarding its ability to distribute the EUR 895 million statutory reserves for subsidiaries as referred to in its Annual Report 2010.

This opinion is made solely to AEGON N.V. in accordance with the terms of Towers Watson’s engagement letter. To the fullest extent permitted by applicable law, Towers Watson does not accept or assume responsibility, duty of care or liability to anyone other than AEGON N.V. for or in connection with its review work, the opinions it has formed or for any statement set forth in this opinion.

page 18       Local knowledge. Global power.

Addendum 1: Reconciliation of total capital base to adjusted net worth

The embedded value life insurance is not based on international financial reporting standards (IFRS). Rather, it is based on local regulatory accounting. As the base case, EVLI has been prepared using required capital on the internal surplus basis. The following reconciliation presents the adjustments to the total capital base under IFRS to arrive at the adjusted net worth (ANW) that is based on local regulatory accounting rules.

Table 13

Reconciliation of total capital base to Adjusted Net Worth (amounts in EUR millions)		2010			2009			%
Total capital
	AEGON shareholders’ equity(A)		17,210			12,164			41
	Capital securities & subordinated debt &(B)		6,347			6,839			(7	)
	Minority interest		11			10			10
	Senior debt related to insurance activities(C)		1,187			958			24
	Total capital base		24,755			19,971			24
	Other net liabilities(D)		-			(1	)
	Total capital base and other net liabilities		24,755			19,970			24
Capital in units
	Americas		15,967			12,207			31
	The Netherlands		4,067			3,544			15
	United Kingdom		2,868			2,441			17
	New Markets		1,853			1,778			4
	Asia		112			60			87
	Central and Eastern Europe		556			703			(21	)
	Spain & France		922			930			(1	)
	Variable Annuities Europe		93			85			9
	Asset Management		170			-
	Total		24,755			19,970			24
Allocated to
	Life subsidiaries		24,022			18,833			28
	Other activities		733			1,137			(36	)
	Total		24,755			19,970			24
Reconciliation capital in life subsidiaries to adjusted net worth
	Capital in life subsidiaries		24,022			18,833			28
	Adjustments to local equity		(8,064	)		(5,617	)		44
	Adjusted net worth (ANW)		15,959			13,216			21

^(A) Including the preferred share capital (2010: EUR 2,122 million, 2009: EUR 2,122 million).

^(B) Including convertible core capital securities (2010: EUR 1.5 billion, 2009: EUR 2 billion).

^(C) Borrowings (of which related to insurance activities): EUR 8,518 million (EUR 1,187 million) in 2010 and EUR 7,485 million (EUR 958 million) in 2009.

^(D) Carried at the holding companies.

The capital base is largely invested in the life subsidiaries. The remaining capital allocated to other activities is included in total embedded value at IFRS book value. In the reconciliation, the capital allocated to life subsidiaries is adjusted to local regulatory accounting.

page 19 

The largest part of the adjustment relates to the non-admissibility on a regulatory basis of deferred policy acquisition cost (DPAC) and value of business acquired (VOBA) of the modeled life business⁷. The life insurance DPAC in certain countries, most significantly the Netherlands (EUR 0.3 billion), are not eliminated, as they are admissible assets under their regulatory accounting. The impact of the elimination of inadmissible DPAC/VOBA relating to the modeled life business equal EUR (13) billion, asset related differences amount to EUR (1.3) billion, reserve related differences amount to EUR 5.6 billion and the balance of the adjustments, EUR 0.6 billion, is explained by a number of smaller adjustments, including deferred tax and goodwill on moving from IFRS to regulatory accounting. The asset valuation differences in the Americas are down substantially from 2009 as large interest rate related gains have been realized on a regulatory basis but not for IFRS. The reserve valuation differences are higher than in 2009 due to an increase in the Americas, partially offset by a fall in the UK, where local statutory reserves for annuities reflect the impact of lower bond yields.

The differences between embedded value and the accounting treatment of DPAC are discussed in addendum 8.

⁷ The non-admissibility of certain assets on a local basis simultaneously decreases equity while increasing future profits as the margins that are available to amortize these intangible assets on an IFRS basis go straight to the bottom-line under regulatory accounting. In other words, the decrease in equity when going from IFRS to the local basis is largely offset by an increase in the value of the in-force business.

page 20     Local knowledge. Global power.

Addendum 2: Movement analysis per region and product segment

This addendum splits the movement analysis into product segments for AEGON as a whole and for the different regions. First, the AEGON total split by reporting segment is presented in euros and then the movement of the four regions per reporting segment is stated in euros except for the Americas and the United Kingdom which are stated in local currency with only the opening and closing value and the value of the other activities translated into euros. The product segments are in line with the product segments used for primary financial reporting under IFRS during 2010.

page 21 

AEGON Group

Table 14

Movement analysis 2010	Life			Individual savings and retirement			Pensions			Life Re- insurance			Non-life			Associates			Run-off Business			Total
(amounts in EUR millions, after tax)
Embedded value life insurance BoY		8,590			3,617			8,164			1,843			264			553			266			23,296
Value of new business (VNB)		269			58			149			43			7			29			-			555
Gross value of new business		536			91			257			97			13			60			-			1,054
Tax		(154	)		(28	)		(71	)		(32	)		(3	)		(19	)		-			(308	)
Cost of capital (after tax)		(112	)		(5	)		(38	)		(21	)		(2	)		(12	)		-			(190	)
In-force performance		706			147			(63	)		(89	)		9			18			40			767
Unwind of discount		741			336			714			162			19			43			15			2,030
Operating variances		(13	)		272			(57	)		(35	)		(13	)		(16	)		7			145
Changes in operating assumptions		(22	)		(461	)		(720	)		(216	)		3			(10	)		17			(1,408	)
Embedded value operating return		975			205			86			(46	)		16			46			40			1,322
Variance from long-term inv. return		301			3			1,507			5			6			(5	)		43			1,860
Change in economic assumptions		(56	)		16			(1,270	)		(17	)		(14	)		(7	)		15			(1,332	)
Currency exchange differences		495			282			240			153			-			1			21			1,192
Miscellaneous impacts		(526	)		(105	)		942			(107	)		24			(35	)		(105	)		89
Embedded value total return		1,189			402			1,506			(11	)		33			(0	)		14			3,131
Capital movements		(465	)		310			(242	)		(284	)		(26	)		46			(10	)		(672	)
Embedded value life insurance EoY		9,313			4,328			9,428			1,547			271			599			270			25,756
Other activities																							733
Holding activities																							(7,598	)
Total embedded value																							18,891
Embedded value operating margin(A)		10.7%			5.2%			0.8%			(2.3	)%		6.2%			8.3%			13.6%			5.3%
VNB, PVNBP and APE (amounts in EUR millions, after tax)	Life			Individual savings and retirement			Pensions			Life Re- insurance			Non-life			Associates			Run-off Business			Total
Value of new business 2010		269			58			149			43			7			29			-			555
Present value of new business premiums		6,874			6,344			23,806			855			81			1,538			-			39,498
APE(B)		1,265			-			1,337			116			10			136			-			2,864
Deposits		595			6,342			8,001			-			-			4			-			14,943

^(A)  Embedded value operating margin is calculated on a constant currency basis. See tables 15 to 18 for details.

^(B)  APE = recurring premium + 1/10 single premium.

page 22     Local knowledge. Global power.

Americas

Table 15

Movement analysis 2010	Life			Individual savings and retirement									Pensions			Life Re- insurance			Canada (B)			Non-life		Associates			Run-off Business			Total
(amounts in USD millions unless stated otherwise, after tax)	Life and Protection			Fixed annuities			Variable annuities			Retail mutual Funds			Employer solutions & Pensions
Embedded value life insurance BoY(EUR millions)		5,091			2,049			1,271			63			2,185			1,843			634			-		12			266			13,415
Embedded value life insurance BoY		7,334			2,952			1,832			91			3,148			2,654			914			-		17			384			19,326
Value of new business (VNB)		114			1			60			11			59			57			(3	)		-		7			-			304
Gross value of new business		306			(6	)		100			16			102			128			22			-		12			-			679
Tax		(101	)		2			(33	)		(5	)		(34	)		(42	)		(7	)		-		(4	)		-			(225	)
Cost of capital (after tax)		(91	)		5			(7	)		-			(10	)		(28	)		(18	)		-		(1	)		-			(151	)
In-force performance		740			410			(242	)		2			253			(118	)		(6	)		-		(2	)		52			1,089
Unwind of discount		596			227			193			-			252			214			68			-		-			20			1,570
Operating variances		117			95			253			2			57			(47	)		(63	)		-		(2	)		10			422
Changes in operating assumptions		27			88			(689	)		-			(56	)		(285	)		(10	)		-		-			22			(902	)
Embedded value operating return		854			411			(183	)		13			312			(61	)		(9	)		-		5			52			1,393
Variance from long-term inv. return		(87	)		4			38			3			90			7			(13	)		-		-			56			98
Change in economic assumptions		16			61			(40	)		(0	)		33			(23	)		(14	)		-		1			20			54
Currency exchange differences		17			-			-			-			-			5			49			-		-			-			71
Miscellaneous impacts		(327	)		(148	)		5			19			(61	)		(141	)		38			-		(34	)		(138	)		(787	)
Embedded value total return		473			327			(180	)		35			375			(212	)		50			-		(29	)		(10	)		830
Capital movements		(420	)		(213	)		688			12			(235	)		(376	)		0			-		78			(14	)		(479	)
Embedded value life insurance EoY		7,387			3,066			2,340			138			3,288			2,067			963			-		67			361			19,676
Embedded value life insurance EoY(EUR millions)		5,528			2,295			1,752			103			2,460			1,547			721			-		50			270			14,726
Other activities(EUR millions)																															572
Total embedded value for Americas(EUR millions)																															15,298
Embedded value operating margin		11.6%			13.9%			(10.0	)%		13.9%			9.9%			(2.3	)%		(1.0	)%		-		26.4%			13.6%			7.2%
VNB, PVNBP and APE	Life			Individual									Pensions			Life Re- insurance			Canada (B)			Non-life		Associates			Run-off Business			Total
(amounts in USD millions, after tax)	Life and Protection			Fixed annuities			Variable annuities			Retail mutual Funds			Employer solutions & Pensions
Value of new business 2010		114			1			60			11			59			57			(3	)		-		7			-			304
Present value of new business premiums		4,192			484			3,927			3,486			19,903			1,130			689			-		123			-			33,934
APE(A)		1,088			-			-			-			133			153			57			-		-			-			1,431
Deposits		-			484			3,927			3,486			10,021			-			300			-		-			-			18,219

^(A)  APE = recurring premium + 1/10 single premium.

^(B)  Canada contains both Life and IS&R business

page 23 

The Netherlands

Table 16

Movement analysis 2010	Life			Individual		Pensions			Life Re-		Non-Life			Associates		Run-off		Total
(amounts in EUR millions, after tax)	Life and Savings			savings and retirement					insurance							Business
Embedded value life insurance BoY(EUR millions)		1,858			-		3,392			-		264			-		-		5,514
Embedded value life insurance BoY		1,858			-		3,392			-		264			-		-		5,514
Value of new business (VNB)		101			-		36			-		7			-		-		144
Gross value of new business		154			-		82			-		13			-		-		249
Tax		(39	)		-		(21	)		-		(3	)		-		-		(64	)
Cost of capital (after tax)		(15	)		-		(25	)		-		(2	)		-		-		(41	)
In-force performance		75			-		(327	)		-		9			-		-		(243	)
Unwind of discount		127			-		313			-		19			-		-		459
Operating variances		(4	)		-		7			-		(13	)		-		-		(10	)
Changes in operating assumptions		(47	)		-		(648	)		-		3			-		-		(692	)
Embedded value operating return		176			-		(291	)		-		16			-		-		(98	)
Variance from long-term inv. return		264			-		1,308			-		6			-		-		1,577
Change in economic assumptions		(112	)		-		(1,261	)		-		(14	)		-		-		(1,388	)
Currency exchange differences		-			-		-			-		-			-		-		-
Miscellaneous impacts		(325	)		-		1,184			-		24			-		-		883
Embedded value total return		2			-		940			-		33			-		-		975
Capital movements		(50	)		-		(13	)		-		(26	)		-		-		(88	)
Embedded value life insurance EoY		1,810			-		4,320			-		271			-		-		6,401
Embedded value life insurance EoY(EUR millions)		1,810			-		4,320			-		271			-		-		6,401
Other activities(EUR millions)																			(195	)
Total embedded value for the Netherlands(EUR millions)																			6,206
Embedded value operating margin		9.5	%		-		(8.6	)%		-		6.2	%		-		-		(1.8	)%
VNB, PVNBP and APE	Life			Individual		Pensions			Life Re-		Non-Life			Associates		Run-off		Total
(amounts in EUR millions, after tax)	Life and Savings			savings and retirement					insurance							Business
Value of new business 2010		101			-		36			-		7			-		-		144
Present value of new business premiums		753			-		1,656			-		81			-		-		2,491
APE(A)		83			-		283			-		10			-		-		377
Deposits		-			-		-			-		-			-		-		-

^(A)  APE = recurring premium + 1/10 single premium.

page 24     Local knowledge. Global power.

United Kingdom

Table 17

Movement analysis 2010	Life			Individual savings and retirement		Pensions			Life Re- insurance		Non-Life		Associates		Run-off Business		Total
(amounts in GBP millions unless stated otherwise, after tax)
Embedded value life insurance BoY(EUR millions)		431			-		2,160			-		-		-		-		2,591
Embedded value life insurance BoY		383			-		1,918			-		-		-		-		2,301
Value of new business (VNB)		8			-		47			-		-		-		-		56
Gross value of new business		21			-		66			-		-		-		-		86
Tax		(6	)		-		(18	)		-		-		-		-		(23	)
Cost of capital (after tax)		(7	)		-		(1	)		-		-		-		-		(7	)
In-force performance		54			-		24			-		-		-		-		77
Unwind of discount		46			-		143			-		-		-		-		189
Operating variances		(2	)		-		(85	)		-		-		-		-		(86	)
Changes in operating assumptions		9			-		(34	)		-		-		-		-		(25	)
Embedded value operating return		62			-		71			-		-		-		-		133
Variance from long-term inv. return		62			-		110			-		-		-		-		173
Change in economic assumptions		45			-		(17	)		-		-		-		-		27
Currency exchange differences		-			-		-			-		-		-		-		-
Miscellaneous impacts		(23	)		-		(36	)		-		-		-		-		(59	)
Embedded value total return		146			-		128			-		-		-		-		274
Capital movements		(44	)		-		(33	)		-		-		-		-		(77	)
Embedded value life insurance EoY		484			-		2,013			-		-		-		-		2,497
Embedded value life insurance EoY(EUR millions)		562			-		2,339			-		-		-		-		2,901
Other activities(EUR millions)																		(106	)
Total embedded value for United Kingdom(EUR millions)																		2,795
Embedded value operating margin		16.2	%		-		3.7	%		-		-		-		-		5.8	%
VNB, PVNBP and APE	Life			Individual savings and retirement		Pensions			Life Re- insurance		Non-Life		Associates		Run-off Business		Total
(amounts in GBP millions, after tax)
Value of new business 2010		8			-		47			-		-		-		-		56
Present value of new business premiums		630			-		5,282			-		-		-		-		5,912
APE(A)		81			-		814			-		-		-		-		895
Deposits		-			-		78			-		-		-		-		78

^(A)  APE = recurring premium + 1/10 single premium.

page 25 

New Markets

Table 18

Movement analysis 2010	Life			Individual savings and			Pensions			Life Re-		Non-life		Associates			Run-off		Total
(amounts in EUR millions, after tax)				retirement						insurance							Business
Embedded value life insurance BoY(EUR millions)		751			59			427			-		-		541			-		1,777
Embedded value life insurance BoY		751			59			427			-		-		541			-		1,777
Value of new business (VNB)		70			10			12			-		-		24			-		116
Gross value of new business		106			11			21			-		-		51			-		190
Tax		(25	)		(1	)		(4	)		-		-		(16	)		-		(47	)
Cost of capital (after tax)		(11	)		-			(5	)		-		-		(11	)		-		(26	)
In-force performance		41			(10	)		45			-		-		19			-		95
Unwind of discount		71			5			43			-		-		43			-		162
Operating variances		(36	)		(5	)		(8	)		-		-		(15	)		-		(63	)
Changes in operating assumptions		6			(11	)		11			-		-		(10	)		-		(4	)
Embedded value operating return		111			(1	)		58			-		-		43			-		211
Variance from long-term inv. return		4			5			2			-		-		(5	)		-		6
Change in economic assumptions		(1	)		4			(13	)		-		-		(7	)		-		(17	)
Currency exchange differences		8			2			3			-		-		-			-		13
Miscellaneous impacts		38			(4	)		(154	)		-		-		(10	)		-		(130	)
Embedded value total return		160			6			(105	)		-		-		21			-		82
Capital movements		(105	)		-			(13	)		-		-		(13	)		-		(130	)
Embedded value life insurance EoY		806			65			309			-		-		549			-		1,729
Embedded value life insurance EoY(EUR millions)		806			65			309			-		-		549					1,729
Other activities(EUR millions)																				461
Total embedded value for New Markets(EUR millions)																				2,190
Embedded value operating margin		15.0	%		(1.3	)%		13.5	%		-		-		7.9	%		-		11.8	%
VNB, PVNBP and APE (amounts in EUR millions, after tax)	Life			Individual savings and retirement			Pensions			Life Re- insurance		Non-life		Associates			Run-off Business		Total
Value of new business 2010		70			10			12			-		-		24			-		116
Present value of new business premiums		1,915			138			901			-		-		1,444			-		4,399
APE(A)		221			-			-			-		-		136			-		356
Deposits		595			137			324			-		-		4			-		1,060

^(A)  APE = recurring premium + 1/10 single premium.

page 26     Local knowledge. Global power.

Addendum 3: Embedded Value 2010 by product segments

This addendum provides the split of the embedded value into product segments effective for IFRS reporting.

AEGON Group

Table 19

Embedded value components	Life			Individual savings and retirement			Pensions			Life Re- insurance			Non-life			Associates			Run-off Business			Total
(amounts in EUR millions, after tax)
Life business
Adjusted net worth (ANW)		4,636			4,281			4,450			869			115			378			1,230			15,959
Free surplus (FS)		1,188			157			1,924			19			30			(7	)		(49	)		3,261
Required surplus (RS)		3,448			4,124			2,526			850			85			385			1,280			12,697
Value of in-force life business (ViF)		4,678			48			4,978			678			156			221			(960	)		9,798
Present value future profits (PVFP)		6,151			815			5,849			882			188			342			(658	)		13,570
Cost of capital (CoC)		(1,473	)		(768	)		(871	)		(204	)		(32	)		(121	)		(303	)		(3,772	)
Embedded value life insurance (EVLI)		9,313			4,328			9,428			1,547			271			599			270			25,756

Americas

Table 20

Embedded value components	Life			Individual savings and retirement								Pensions
(amounts in EUR millions, after tax)	Life and Protection			Fixed annuities			Variable annuities			Retail mutual Funds		Employer solutions & Pensions			Life Re- insurance			Canada (A)			Non-life		Associates			Run-off Business			Total
Life business
Adjusted net worth (ANW)		2,762			2,385			1,753			-		1,047			869			656			-		41			1,230			10,744
Free surplus (FS)		720			31			112			-		3			19			37			-		(1	)		(49	)		872
Required surplus (RS)		2,041			2,354			1,641			-		1,044			850			620			-		42			1,280			9,872
Value of in-force life business (ViF)		2,767			(90	)		(1	)		103		1,414			678			65			-		8			(960	)		3,982
Present value future profits (PVFP)		3,654			233			410			103		1,766			882			372			-		23			(658	)		6,785
Cost of capital (CoC)		(887	)		(323	)		(411	)		-		(353	)		(204	)		(308	)		-		(15	)		(303	)		(2,803	)
Embedded value life insurance (EVLI)		5,528			2,295			1,752			103		2,460			1,547			721			-		50			270			14,726

^(A)  Canada contains both Life and IS&R business

The Netherlands

Table 21

Embedded value components	Life			Individual
(amounts in EUR millions, after tax)	Life and Savings			savings and retirement		Pensions			Life Re- insurance		Non-Life			Associates		Run-off Business		Total
Life business
Adjusted net worth (ANW)		694			-		2,970			-		115			-		-		3,779
Free surplus (FS)		374			-		1,649			-		30			-		-		2,053
Required surplus (RS)		320			-		1,321			-		85			-		-		1,726
Value of in-force life business (ViF)		1,116			-		1,349			-		156			-		-		2,621
Present value future profits (PVFP)		1,231			-		1,793			-		188			-		-		3,213
Cost of capital (CoC)		(115	)		-		(444	)		-		(32	)		-		-		(592	)
Embedded value life insurance (EVLI)		1,810			-		4,320			-		271			-		-		6,401

page 27 

United Kingdom

Table 22

Embedded value components
(amounts in EUR millions, after tax)	Life			Individual savings and retirement		Pensions			Life Re- insurance		Non-Life		Associates		Run-off Business		Total
Life business
Adjusted net worth (ANW)		324			-		343			-		-		-		-		667
Free surplus (FS)		(88	)		-		222			-		-		-		-		133
Required surplus (RS)		412			-		121			-		-		-		-		534
Value of in-force life business (ViF)		238			-		1,996			-		-		-		-		2,234
Present value future profits (PVFP)		372			-		2,041			-		-		-		-		2,413
Cost of capital (CoC)		(133	)		-		(46	)		-		-		-		-		(179	)
Embedded value life insurance (EVLI)		562			-		2,339			-		-		-		-		2,901

New markets

Table 23

Embedded value components
(amounts in EUR millions, after tax)	Life			Individual savings and retirement			Pensions			Life Re- insurance		Non-life		Associates			Run-off Business		Total
Life business
Adjusted net worth (ANW)		332			10			90			-		-		336			-		768
Free surplus (FS)		153			6			49			-		-		(6	)		-		202
Required surplus (RS)		179			4			40			-		-		342			-		566
Value of in-force life business (ViF)		474			54			219			-		-		213			-		961
Present value future profits (PVFP)		536			56			248			-		-		319			-		1,158
Cost of capital (CoC)		(61	)		(2	)		(29	)		-		-		(106	)		-		(198	)
Embedded value life insurance (EVLI)		806			65			309			-		-		549			-		1,729

page 28     Local knowledge. Global power.

Addendum 4: Breakdown of New Markets by regions

This addendum provides the breakdown of the reconciliation of free surplus, movement analysis and sensitivity tables for New Markets by region.

Free surplus movement for New Markets

Table 24

Reconciliation of free surplus (amounts in EUR millions, after tax)	Asia			Central & Eastern Europe			Spain & France			Variable Annuities Europe			New Markets Total 2010
Free surplus (BOY)		5			253			35			(1	)		292
Change in MV adjustment on FS		(0	)		0			4			-			5
Return on free surplus		0			14			2			1			17
Earnings on in-force		2			57			33			(1	)		91
Release of required surplus on inforce		1			13			(12	)		(5	)		(3	)
Investment in new business		(9	)		(76	)		(13	)		(8	)		(106	)
New business first year strain		(5	)		(57	)		0			(7	)		(68	)
Required surplus on new business		(4	)		(19	)		(14	)		(1	)		(37	)
Capital movements		17			(112	)		(35	)		-			(130	)
Currency exchange differences		1			2			0			0			3
Other		(9	)		2			12			30			35
Free surplus (EOY)		7			154			27			15			202

The economic value of the free surplus for New Markets decreased during 2010.

The main impacts that increased the free surplus were:

¿ Earnings on in-force of EUR 91 million, largely from CEE and Spain & France.

¿ A release of required surplus on in-force largely related to Variable Annuities Europe.

More than offset by:

¿ Investment in new business of EUR (106) million.

¿ Dividends paid from CEE and Spain & France, shown in capital movements.

page 29 

Movement analysis of embedded value life insurance for New Markets

Table 25

Movement analysis 2010 (amounts in EUR millions, after tax)	Asia			Central & Eastern Europe			Spain & France			Variable Annuities Europe			New Markets Total 2010
Embedded value life insurance BoY		30			964			726			57			1,777
Value of new business (VNB)		4			49			51			11			116
Gross value of new business		10			72			95			13			190
Tax		(3	)		(14	)		(29	)		(2	)		(47	)
Cost of capital (after tax)		(3	)		(9	)		(14	)		0			(26	)
In-force performance		(7	)		84			33			(15	)		95
Unwind of discount		3			92			56			11			162
Operating variances		(10	)		(27	)		(18	)		(7	)		(63	)
Mortality/morbidity		(0	)		5			(1	)		1			4
Persistency		(0	)		(7	)		(20	)		3			(26	)
Maintenance expenses		0			(3	)		(1	)		(4	)		(7	)
Exceptional expenses		(9	)		(12	)		0			0			(21	)
Other		(0	)		(11	)		4			(7	)		(14	)
Changes in operating assumptions		0			19			(5	)		(18	)		(4	)
Mortality/morbidity		0			9			2			(2	)		8
Persistency		(0	)		(0	)		(16	)		(6	)		(23	)
Maintenance expenses		0			(10	)		10			(10	)		(10	)
Other		0			21			(1	)		0			21
Embedded value operating return		(3	)		133			84			(4	)		211
Variance from long-term inv. return		(0	)		4			(5	)		7			6
Change in economic assumptions		(0	)		(7	)		(8	)		(2	)		(17	)
Currency exchange differences		4			5			0			4			13
Miscellaneous impacts		0			(183	)		(7	)		61			(130	)
Embedded value total return		0			(48	)		65			65			82
Capital movements		17			(112	)		(35	)		0			(130	)
Embedded value life insurance EoY		47			804			755			123			1,729
Other activities														461
Total embedded value for New Markets														2,190
Embedded value operating margin(A)		(8.8	)%		13.7	%		11.6	%		(6.6	)%		11.8	%

^(A) Embedded value operating margin is calculated on a constant currency basis.

Asia

¿ The embedded value operating margin on a constant currency basis was (8.8)%.

¿ The in-force variance was negative largely due to the impact of expense overruns in China due to the start-up nature of the company.

¿ The rise in value of the Chinese currency against the euro had a positive impact.

page 30     Local knowledge. Global power.

Central & Eastern Europe

¿ The embedded value operating margin on a constant currency basis was 13.7%.

¿ The in-force variance included negative variances from exceptional expenses in Turkey, due to the stage of development of the operation, and worse than expected persistency in Hungary, for both Life and Mortgage business. These were partially offset by lighter than expected claims for Life business in Poland and Hungary.

¿ Changes to operating assumptions were mainly driven by Poland and Slovakia. In Poland, this was due to a change in the future assumed asset management fee and positive change in maintenance expenses. In Slovakia, there was a positive persistency change as a result of improving the Pension persistency assumption in line with experience. This was partially offset by Hungary, due to negative persistency change and maintenance expenses assumption change as a result of revised expense allocation between Life and Non-life businesses.

¿ The variance from long-term investment return was positive largely due to favorable equity returns in Poland, partially offset with a small negative impact from fixed interest returns across the region.

¿ On economic assumptions, the negative impact was mainly driven by an overall decrease of fixed interest returns and from the increase in risk discount rates, particularly in Hungary and Poland.

¿ Miscellaneous was mainly related to the impact of changes in the mandatory pensions legislation in Hungary, which had a significant negative impact on the in-force pension portfolio. Also in Hungary, the recently introduced bank tax had additional further negative impact, but was partially offset by a positive impact due to a corporate tax legislation change.

Spain & France

¿ The embedded value operating margin on a constant currency basis was 11.6%.

¿ The in-force variance included negative variances from persistency, mainly driven by worse than expected persistency in Spain, particularly on risk products.

¿ Changes in operating assumptions was mainly driven by a strengthening of persistency assumptions in Spain, partially offset by an improvement in the maintenance expense assumption.

Variable Annuities Europe

¿ The embedded value operating margin on a constant currency basis was (6.6)%.

¿ The Miscellaneous item included a transfer of a portfolio of business from the UK segment at the start of 2010.

¿ A strengthened maintenance expense assumption produced a negative impact.

¿ The variance from long-term investment assumptions largely reflected the positive impact of better than expected investment performance leading to reserve releases on Variable Annuity business.

page 31 

Embedded Value life insurance sensitivities for New Markets

Table 26

Sensitivity analysis - Embedded value life insurance (amounts in EUR millions, after tax)	Asia		Central and Eastern Europe		Spain & France		Variable Annuities Europe		New Markets Total 2010
Base case embedded value life insurance 2010		47		804		755		123		1,729
Required surplus at regulatory solvency		8%		3%		1%		0%		2%
100 bps decrease in risk discount rate		6%		6%		7%		6%		7%
100 bps increase in risk discount rate		-5%		-5%		-6%		-5%		-6%
100 bps decrease in risk-free rate, all asset returns and risk discount rate		-14%		2%		3%		3%		2%
100 bps increase in risk-free rate, all asset returns and risk discount rate		12%		-2%		-3%		-2%		-2%
100 bps decrease in equity and property returns		0%		-1%		-1%		-1%		-1%
100 bps increase in equity and property returns		0%		1%		1%		2%		1%
10% fall in equity markets		-1%		-1%		-1%		-1%		-1%
100 bps decrease in fixed interest		-19%		-3%		-3%		0%		-3%
100 bps increase in fixed interest		18%		3%		3%		1%		3%
10% decrease in lapse rates		0%		3%		3%		1%		3%
5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business		0%		0%		0%		0%		0%
5% decrease in mortality/ morbidity rates for longevity exposure business		0%		0%		-11%		0%		-5%
1% mortality/ morbidity improvement per year for the entire projection period		1%		0%		0%		0%		0%
10% decrease in maintenance expenses		1%		2%		2%		3%		2%

page 32     Local knowledge. Global power.

Value of new business sensitivity for New Markets

Table 27

Sensitivity analysis - Value of new business (amounts in EUR millions, after tax)	Asia		Central and Eastern Europe		Spain & France		Variable Annuities Europe		New Markets Total 2010
Base case value of new business 2010		4		49		51		11		116
100 bps decrease in risk discount rate		20%		17%		12%		14%		15%
100 bps increase in risk discount rate		-18%		-15%		-10%		-13%		-13%
100 bps decrease in risk-free rate, all asset returns and risk discount rate		-69%		5%		2%		3%		0%
100 bps increase in risk-free rate, all asset returns and risk discount rate		56%		-4%		-2%		-2%		-1%
100 bps decrease in equity and property returns		0%		-2%		-1%		-4%		-2%
100 bps increase in equity and property returns		0%		2%		1%		4%		2%
100 bps decrease in fixed interest		-82%		-8%		-8%		-7%		-11%
100 bps increase in fixed interest		80%		8%		8%		4%		10%
10% decrease in lapse rates		3%		9%		8%		4%		8%
5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business		2%		2%		1%		0%		1%
5% decrease in mortality/ morbidity rates for longevity exposure business		0%		0%		-10%		1%		-4%
1% mortality/ morbidity improvement per year for the entire projection period		2%		2%		0%		0%		1%
�� 10% decrease in acquisition expenses		3%		7%		1%		29%		6%
10% decrease in maintenance expenses		7%		7%		1%		4%		4%

page 33 

Addendum 5: Outcome based on the regulatory surplus requirement

Table 28

Embedded value components - Regulatory surplus (amounts in EUR millions, after tax)	Americas			The Netherlands			United Kingdom			New Markets			Total 2010			Total 2009
Life business
Adjusted net worth (ANW)		10,743			3,779			667			768			15,958			13,214
Free surplus (FS)		7,277			2,438			133			286			10,134			7,575
Required surplus (RS)		3,466			1,341			534			483			5,824			5,639
Value of in-force life business (ViF)		5,846			2,725			2,234			997			11,801			11,524
Present value future profits (PVFP)		6,785			3,213			2,413			1,158			13,570			13,035
Cost of capital (CoC)		(940	)		(488	)		(179	)		(161	)		(1,768	)		(1,511	)
Embedded value life insurance (EVLI)		16,589			6,504			2,901			1,765			27,759			24,738
Other activities
IFRS book value		572			(195	)		(106	)		461			733			1,137
Total embedded value per region		17,161			6,309			2,795			2,227			28,492			25,920
Holding activities														(7,598	)		(6,663	)
Market value of debt, capital securities & other net liabilities														(7,098	)		(6,187	)
Present value holding expenses														(500	)		(477	)
Total embedded value (TEV)														20,894			19,257

page 34     Local knowledge. Global power.

Addendum 6: Methodology

Introduction

AEGON has long used embedded value as a management tool for its life insurance operations. AEGON’s management believes that embedded value, in conjunction with other publicly disclosed financial information, can provide valuable additional information for analysts and investors to assess a reasonable range of values inherent in the business.

Embedded value life insurance (EVLI) is an estimate of the economic value of a company’s existing life insurance business and is to a large extent actuarially determined. EVLI should not be viewed as a substitute for AEGON’s primary financial statements.

EVLI represents the contributed capital invested in AEGON’s life operations,available surplus or adjusted net worth (ANW), and thevalue of in-force life business (VIF). The latter equals the present value of expected future profits arising from the existing book of life insurance business, including new business sold in the reporting period, less the cost of capital. Future new business that is sold after the valuation date is not reflected in this value, although certain assumptions such as unit costs reflect a going concern basis.

Total embedded value (TEV) is an additional measure used by management in considering shareholders’ interest in the value of the existing business. TEV represents the sum of the embedded value life insurance, the IFRS book value of all other business that is not included in EVLI (other activities) and the adjustments in respect of holding companies (holding activities). The holding activities largely represent the market value of AEGON’s debt, capital securities and other net liabilities. IFRS measures have been used to value the holding activities, as this is the accounting basis on which AEGON’s primary financial statements are based.

EVLI calculations use local regulatory accounting principles rather than company specific accounting principles (e.g. IFRS) as these regulatory requirements determine when profits can be distributed to shareholders. As the base case, EVLI has been prepared using required capital on theinternal surplus basis. This presentation has been adopted, as this is how the business is managed and is consistent with European Embedded Value (EEV) Principles.

The methodology AEGON uses to calculate EVLI is consistent with EEV Principles. This disclosure document is in compliance with the additional guidance on minimum required disclosures of sensitivities and other items under EEV, as published by the CFO Forum in October 2005.

Towers Watson has been engaged to review AEGON’s embedded value and conclusions of this review are presented in section 3.

Scope

Each division in each country unit calculates the embedded value life insurance (EVLI) for the relevant product segments within the life insurance entities (life business) based on detailed actuarial calculations.

All business not included in the life entities, such as general insurance, A&H in non-life entities and banking products is referred to as other activities. All business in non-life entities is valued at IFRS book value.

The sum of the embedded value life insurance per region and the value of the other activities is referred to as total embedded value per region.

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The adjustments in respect of the holding activities comprise two parts:

¿ Debt, capital securities and other net liabilities included at their market values.

¿ The present value of future after tax holding expenses, representing the expenses incurred by the Group staff departments which are not allocated to the country units.

The sum of the total embedded value per region and the adjustment in respect of the holding activities represents the total embedded value (TEV).

The total embedded value less the value of the preferred share capital represents thetotal embedded value attributable to common shareholders. The preferred share capital is valued by discounting the expecteddividends at the weighted average cost of capital(WACC). This amount is then reduced by 5% to represent a liquidity discount adjustment.

Methodology and definitions

Calculation of the embedded value life insurance requires a considerable number of assumptions to be set with respect to both expected operational and economic developments. The principles developed by AEGON to calculate its embedded value life insurance and value of new business are intended to reflect industry best practices for the purpose of supplementary reporting.

Embedded value life insurance

The embedded value life insurance only reflects the value that arises from current business (assuming a closed book) and therefore does not include a value for future new business.

The embedded value life insurance is built up from the following components:

EVLI	=	Free surplus	}	Adjusted net worth
	+	Required surplus
	+	Present value of future profits	}	Value of in-force life business
	–	Cost of capital

The EVLI is defined as the adjusted net worth (ANW) plus value of in-force life business (VIF)1⁸.

ANW represents the market value of available assets in excess of liabilities determined on the local regulatory basis. ANW is split betweenrequired surplus and free surplus. Required surplus represents assets required to be present in the company to support the in-force life business (solvency requirement). Assets backing required surplus are marked-to-market. Free surplus represents assets available at the valuation date that are not required to support the in-force life business, and is the excess of assets over the sum of the liabilities (on the regulatory basis) and the required surplus. Assets backing free surplus are marked-to-market. Refer to table 13 for a reconciliation of the total capital base to ANW.

⁸ Alternatively, the sum of the required surplus and present value of future profits less the cost of capital is also known as the present value of distributable earnings (PVDE). The value of the free surplus plus the PVDE then equals the embedded value life insurance.

page 36     Local knowledge. Global power.

The VIF equals thepresent value of future profits (PVFP) less thecost of capital (CoC). The PVFP represents the present value of future after tax regulatory profits projected to emerge from business in the current life insurance portfolio discounted at the discount rate. The discount rate both reflects the time value of money and a risk margin. The CoC originates from the fact that solvency requirements will constrain distributions to shareholders while earning a net return less than the discount rate.

The cost of capital depends on the level of required surplus and affects the EVLI. The higher the required surplus, the greater the CoC and this switch from free surplus to required surplus results in a lower EVLI. The AEGON internal requirement is based on the higher of the local minimum regulatory requirements and Standard and Poor’s local capital adequacy models at AA level, plus any additional internally imposed requirements, if applicable (internal basis). The exception is AEGON’s partnership in France, La Mondiale Participations, which is managed on local regulatory requirements, which then also forms the basis for the solvency requirements for that business throughout this report.

For comparison purposes, addendum 5 includes the embedded value components and the embedded value life insurance per country unit on the regulatory surplus basis.

Movement analysis including new business

A movement analysis illustrates the change in embedded value life insurance from one reporting period to the next. One of the components of the movement analysis is the value of new business (VNB). The VNB is a measure of the value added by production sold within the last reporting period. It is calculated at the end of the reporting period as the sum of the four quarters VNB results over the year which are based on the beginning of year economic assumptions and assumptions outside of management control, and beginning of quarter operating assumptions. The change to end of year economic assumptions is reflected under ‘change in economic assumptions’, while the difference between the assumed and actual investment experience is reflected in the ‘variance from long-term investment return’.

Where pre-tax numbers are presented, the calculations are carried out on an after tax basis and the profits are then grossed up for the relevant corporate tax rate.

Operating assumptions

Operating assumptions are best estimate assumptions and based on historical data where available. The assumptions fall into two categories: operating assumptions involving policyholder behavior and operating assumptions involving company policies, strategies and operations. All assumptions fall within the scope of the external review and reflect a going concern basis.

Operating assumptions involving policyholder behavior

Operating assumptions involving policyholder behavior, such as premium contributions, mortality, morbidity and persistency, reflect the company’s ‘best estimate’ of future experience and are based on the historical and current experience of the company. These assumptions are adjusted to reflect known changes in the environment and identifiable trends, such as in the UK where the impact of the forthcoming Retail Distribution Review has been taken into account in setting future persistency rate trends. If historical data is insufficient to provide a reliable basis to develop assumptions, the company’s best judgment is used taking into consideration the company’s pricing and/or reserving assumptions and the experience of other companies with comparable products, markets and operating procedures.

Operating assumptions involving company policies, strategies and operations

Operating assumptions involving company policies, strategies and operations, such as profit sharing/bonus rates and reinsurance and investment/reinvestment strategies reflect contractual requirements as well as the most current policies, strategies and operations.

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Consistent with the close matching approach implemented in 2004, the estate of Guardian Assurance in AEGON UK has been valued assuming its distribution as terminal bonus.

Allowances for tax reflect best estimates of future taxes according to local taxation rules, taking into account current ‘substantially enacted’ legislation and tax rates. This best estimate of future taxes initially assumes no future new business (i.e. is on a closed book basis) and includes both cash and accrual adjustments (e.g., deferred taxes). The tax attributed to new business written in the year is generally determined by considering the marginal impact of that new business on the existing business tax position (allowing for any losses carried forward). For the UK, the tax attributable to new business assumes that existing business profits are first made available to relieve new business strains, with any balance of such profits then being used to relieve carried forward losses. The UK new business strains and current tax position of the fund thus generate a negative tax variance, which has been included under ‘in-force variance’ in the movement analysis in section 2.1.2.

Expenses are based on current experience which can clearly be demonstrated as non-recurring are identified and omitted from maintenance or acquisition costs and excluded from the determination of the appropriate unit expense assumptions. Expenses are subject to inflation adjustments into the future⁹. Holding expenses reflect the present value of expected future expenses incurred by the holding companies (present value holding expenses). These expenses are assumed to run off in line with the in-force life business.

The target investment mix assumed does not vary with different scenarios. Where the current investment mix is different from the target, the target mix is modeled to be reached over a period of time.

Operating assumptions are reviewed each year and a determination is made as to whether they should be changed.

Economic assumptions

Economic assumptions used in the embedded value are based on observable market data and projections of future trends. These assumptions are approved by the Executive Board.

Risk discount rate

The discount rates used in embedded value reflect AEGON’s weighted average cost of capital (WACC). From the WACC, AEGON derives an AEGON risk margin as the difference between the WACC and weighted current risk free rates across the three major country units (the US, the Netherlands and the UK). The WACC is calculated using a combination of a group level risk free interest rate, an equity risk premium, an assessment of company risk (beta) and an allowance for the gearing impact of debt financing. Rigid adherence to such an approach can result in inappropriate volatility in the WACC and the derived AEGON risk margin, for example as a result of short-term movements in beta.

Discount rates are then calculated at a country unit level to reflect the AEGON risk margin and the country risk free rate assumption. Where risk free rates are projected to move from current market rates to an ultimate long-term rate, the risk margin is applied to a blended rate to arrive at a single risk discount rate. An allowance for specific risk factors in the new/ smaller country units is included in the discount rates where appropriate.

⁹ Refer to addendum 6 for the inflation assumptions.

page 38     Local knowledge. Global power.

Equity return

The method used to derive projected equity returns is similar to that used to derive risk discount rates. As in previous years, this method has resulted in the assumption of equity returns at the same level as discount rates. This includes the Netherlands, even though the lower risk premium applicable to this business could have supported an approach where they exceeded the discount rate to achieve consistency of equity returns across euro economies.

Risk free fixed interest returns

Risk free fixed interest returns correspond to the government bond yield for ten-year fixed interest instruments. These returns are used to derive risk discount rates and also underlie projections of returns on reinvestments, which will vary by the duration and credit characteristics of the assumed investment policy. In the Americas and the Eurozone, the assumed returns grade from the current market levels to the long-term assumptions – derived from the forward curve – over a period of approximately five years.

Embedded options and guarantees

Insurance policies can have options and guarantees that are embedded in the product design (embedded options and guarantees). These embedded options and guarantees include minimum guaranteed death/income benefits, minimum interest guarantees (floors), minimum (cash) surrender values, annuity options, etc.

An explicit allowance for the time value of all material embedded options and guarantees has been included by assessing their impact on embedded value life insurance using mostly stochastic modeling. The methodology and assumptions used to assess this for the two regions where the impact on the EVLI is material are described in addendum 7.

Required capital

The solvency requirement underlying the cost of capital allowance in the embedded value is the internal surplus requirement on which the business is managed. This requirement is based on the more stringent of the local regulatory requirement and the Standard and Poor’s local capital adequacy models at an AA level plus any additional internally imposed requirements, if applicable. The exception is AEGON’s partnership in France, La Mondiale Participations, which is managed on local regulatory requirements. This then forms the basis for the solvency requirements for that business throughout this report.

In addition, embedded value figures calculated using the regulatory surplus requirement are shown in table 28, in addendum 5.

page 39 

Addendum 7: Economic assumptions

Economic assumptions

The economic assumptions for AEGON’s main markets in 2010 and 2009 are presented in table 29. The assumptions are set using a market based approach with rates that can vary by country unit and change from year to year taking into account available empirical data.

Further detail on the setting of discount rates and the economic assumptions in New Markets is also described in this addendum.

Table 29

Economic assumptions 2010	United States		The Netherlands		United Kingdom
Discount rate		8.9%		7.9%		8.7%
Equity returns		8.9%		7.9%		8.7%
Property returns		7.0%		6.6%		8.7%
Risk free fixed interest returns(A)		3.3%		3.3%		3.6%
Net credit spread on fixed interest (bps)(B)		174		126		157
Inflation rate		2.0%		2.0%		3.0%
Tax rate		35.5%		25.0%		27.0%
Economic assumptions 2009	United States		The Netherlands		United Kingdom
Discount rate		8.9%		7.4%		8.8%
Equity returns		8.9%		7.4%		8.8%
Property returns		8.0%		6.7%		8.8%
Risk free fixed interest returns(A)		3.9%		3.8%		4.2%
Net credit spread on fixed interest (bps)(B)		290		124		167
Inflation rate		2.0%		2.0%		2.0%
Tax rate		35.5%		25.5%		28.0%

^(A) Risk free fixed interest returns correspond to the 10-year government bond yield. The table above shows start rates only. Refer to table 31 for more detail.

^(B Average net credit spread in basis points (bps) of all corporate bonds, mortgages, loans, etc. over the ‘fixed interest returns’. The table above shows start rates only. Refer to table 31 for more detail.

All economic assumptions are reviewed each year and adjusted if appropriate. All assumptions fall within the scope of the independent review and reflect a going concern.

Risk discount rate

The main changes for 2010 were decreases in the short-term risk-free rates across all major countries and an increase in the risk margin. The risk discount rate is determined as a blend of the current and ultimate risk free fixed interest returns (shown in table 31) plus the risk margin. The risk margin to determine equity returns and the discount rate increased to 4.5% for the US and the UK, driven by the higher weighted average cost of capital and the decline in risk-free rates (in 2008 and 2009, the AEGON risk margin was set at 4%). For the Netherlands where the risk margin increased to 4% (0.5% below the US and the UK), with the lower margin reflecting the substantial de-risking of their business profile.

page 40     Local knowledge. Global power.

Exchange rates

The currency exchange rates used in this report are reflected below. The weighted average exchange rates are used for the amounts in the movement analysis whereas the closing exchange rates are used for the year-end 2010 and 2009 amounts.

Table 30

Exchange rates			2010				2009
Currency	Abbreviation		Closing rate		Average rate		Closing rate		Average rate
Euro		EUR		1.000		1.000		1.000		1.000
US Dollar		USD		1.336		1.321		1.441		1.407
British Pound		GBP		0.861		0.854		0.888		0.890
Canadian Dollar		CAD		1.332		1.360		1.513		1.577
Polish Zloty		PLN		3.975		3.977		4.105		4.325
Ren Min Bi Yuan		CNY		8.822		8.970		9.835		9.485
Hungarian Forint		HUF		277.950		273.949		270.420		280.293
Czech Republic Krona		CZK		25.061		25.121		26.473		26.334
Romanian Leu		RON		4.262		4.192		4.236		4.235
Turkish New Lira		TRY		2.069		1.987		2.155		2.162

page 41 

Detailed economic assumptions

Table 31

Economic assumptions 2010	Discount rate		Equity returns		Property returns		Risk free fixed interest returns (A)						Net credit spread on fixed interest(B)							Inflation rate		Tax rate
							Start		Ultimate		Grading period (years)		Start		Ultimate			Grading period (years)
Americas
United States		8.9%		8.9%		7.0%		3.3%		5.5%		5		174	170				2		2.0%		35.5%
Canada		8.0%		8.0%		-		3.1%		4.0%		5		117	112				2		2.0%		25.8%
Mexico		11.4%		-		-		4.9%		4.9%		-		-	-				-		4.4%		40.0%
The Netherlands		7.9%		7.9%		6.6%		3.3%		4.5%		5		126	126				-		2.0%		25.0%
United Kingdom		8.7%		8.7%		8.7%		3.6%		5.1%		5		157	119				2		3.0%		27.0%
New Markets
Asia
China		10.9%		10.9%		-		4.1%		4.6%		5		137	137				-		3.0%		25.0%
Central and Eastern Europe
Czech Republic		8.8%		8.8%		8.8%		3.9%		4.6%		5		-	-				-		2.0%		19.0%
Hungary		13.0%		13.0%		13.0%		8.0%		8.0%		-		-	-				-		3.0%		19.0%
Poland		10.6%		10.6%		-		6.1%		6.1%		-		-	-				-		3.0%		19.0%
Romania		11.5%		11.5%		-		7.0%		7.0%		-		-	-				-		4.2%		16.0%
Slovakia		8.4%		8.4%		-		3.3%		4.5%		5		-	-				-		3.0%		19.0%
Turkey		15.0%		15.0%		-		8.5%		8.5%		-		-	-				-		5.0%		20.0%
Spain & France
France		8.4%		8.4%		5.6%		3.3%		4.4%		5		55	55				-		2.0%		34.4%
Spain		8.4%		8.4%		8.4%		3.3%		4.5%		5		128	53				2		2.0%		30.0%
Variable Annuities Europe		8.7%		8.7%		8.7%		3.6%		5.1%		5		153	153				-		3.0%		12.5%
Economic assumptions 2009	Discount rate		Equity returns		Property returns		Risk free fixed interest returns(A)						Net credit spread on fixed interest(B)							Inflation rate		Tax rate
							Start		Ultimate		Grading period (years)		Start			Ultimate		Grading period (years)
Americas
United States		8.9%		8.9%		8.0%		3.9%		6.0%		5		290			130		2		2.0%		35.5%
Canada		8.2%		8.2%		-		3.7%		4.8%		5		104			65		2		2.0%		28.0%
Mexico		12.5%		-		-		6.5%		6.5%		-		-			-		-		4.2%		40.0%
The Netherlands		7.4%		7.4%		6.7%		3.8%		5.0%		5		124			100		2		2.0%		25.5%
United Kingdom		8.8%		8.8%		8.8%		4.2%		5.4%		5		167			119		2		2.0%		28.0%
New Markets
Asia
China		10.2%		10.2%		-		4.0%		4.4%		5		131			131		-		3.0%		25.0%
Central and Eastern Europe
Czech Republic		8.3%		8.3%		8.3%		4.3%		4.3%		-		-			-		-		3.0%		19.0%
Hungary		12.0%		12.0%		12.0%		8.0%		8.0%		-		-			-		-		3.0%		19.0%
Poland		10.2%		10.2%		-		6.2%		6.2%		-		-			-		-		3.0%		19.0%
Romania		13.0%		13.0%		-		9.0%		9.0%		-		-			-		-		4.0%		16.0%
Slovakia		8.4%		8.4%		-		3.8%		5.0%		5		-			-		-		3.0%		19.0%
Turkey		15.0%		15.0%		-		9.0%		9.0%		-		-			-		-		5.0%		20.0%
Spain & France
France		8.4%		8.4%		8.4%		3.8%		5.0%		5		90			50		1		2.0%		34.4%
Spain		8.4%		8.4%		8.4%		3.8%		5.0%		5		126			90		2		2.0%		30.0%
Variable Annuities Europe		8.8%		8.8%		8.8%		4.2%		5.4%		5		127			127		-		2.0%		12.5%

^(A) Risk free fixed interest returns correspond to the 10-year government bond yield.

^(B) Average net credit spread in basis points (bps) of all corporate bonds, mortgages, loans, etc. over the risk free fixed interest returns.

page 42     Local knowledge. Global power.

Americas

Stochastic modeling methodology

The embedded value is taken as the average of the values calculated over a range of stochastic scenarios. The risk discount rate used in each scenario is described in table 29.

Scenarios for general account products

¿ Treasury yield curve scenarios

These scenarios model the US treasury yield curve. The underlying dynamics of the scenario generator are lognormal, with mean reversion to the assumed interest rate levels as described in table 29 as well as further adjustments in the event that the rates become too extreme. A short maturity (90-day) and long maturity (10-year) rate are projected. For both rates a quarterly volatility, a mean reversion target, and a mean reversion factor are specified, as well as a correlation between the movements of the two projected rates. Volatilities (standard deviations) are based on historical data. The net credit spreads are not assumed to vary by scenario.

Table 32

Stochastic modeling mean reversion targets
Maturity	Reversion target		Quarterly yield volatility
90-day		4.10%		16%
10-year		5.48%		8%

¿ Equity scenarios

Common stock and preferred stock account for less than 2% of the total AEGON USA general account assets. Therefore, these are not modeled separately.

Scenarios for separate account products

These scenarios cover various classes of equities and fixed income investments (bonds, money markets) as benchmarks for separate account funds. The underlying dynamics of the generator are lognormal, with inputs of expected returns and volatilities for each fund class as well as correlations between fund classes. Volatilities and correlations between funds are based on historical data. The current economic environment and forward-looking assumptions as per the dividend discount model were used to determine expected annual returns.

Within the stochastic scenarios, non-economic assumptions such as lapses are modeled dynamically. No management behavior is modeled.

Table 33

Stochastic modeling assumptions	Effective annualized long-term  gross return		Annual price volatility(A)
Equity		8.90%		20.00%
Convertible bonds		7.87%		10.75%
Barclays Capital Aggregate Bond		6.20%		3.75%
Money market		4.10%		0.50%

^(A) Volatilities in this table are with respect to volatilities of returns.

page 43 

Table 34

Correlation matrix(A)	Equity		Convertible bonds		Barclays Capital Aggregate Bond		Money market
Equity		1.00		0.85		0.07		0.10
Convertible bonds		0.85		1.00		0.21		0.11
Barclays Capital Aggregate Bond		0.07		0.21		1.00		0.10
Money market		0.10		0.11		0.10		1.00

^(A) Correlations in this table are with respect to correlations of returns.

The Netherlands

Stochastic modeling methodology

The allowance in embedded value for the minimum interest guarantees in the life insurance portfolio (traditional business, unit-linked portfolios and separate account contracts) is calculated stochastically, where applicable. The impact of the financial options is calculated using the average values of the future after-tax shortfalls and profit-sharing over a range of stochastic scenarios, discounted using the risk discount rate described in table 29.

Within the stochastic scenarios non-economic assumptions are based on best estimates. No management behavior is modeled.

Scenarios for general account products

Profit sharing is mainly driven by an externally defined basket of government bonds. Therefore, no equity return or correlation assumptions are required to assess the exposure to the financial options and guarantees embedded in the traditional products.

At year-end 2010, the book yield on this basket equaled 2.29%. To assess the value of the minimum guarantees, a mean reversion target return of 4.52% is assumed for this benchmark. Projected interest rate scenarios are specified taking into account correlation between successive years, the mean reversion target and volatility. The model volatility is related to the implied volatility of the 7-year yield as an approximation of the actual volatility of the profit-sharing benchmark.

Table 35

Stochastic modeling mean reversion targets
	Reversion target		Annual yield volatility
Profit-sharing rate		4.52%		19.0%

Scenarios for unit-linked and separate account pension products

The unit-linked portfolio and separate account pension contracts are backed by a mix of equities and fixed income investments. The underlying dynamics of the scenario generators are lognormal, with inputs of expected returns and volatilities as well as the correlation matrix. The following tables include the mix of the underlying assets, the expected returns, volatilities per asset class and the assumed correlations for each of the unit-linked and separate account products. Volatilities and correlations between asset classes are based on historical data.

page 44     Local knowledge. Global power.

Table 36

Stochastic modeling unit-linked portfolio
AEGON funds	Expected return						Annual price volatility
	Start		Ultimate		Grading period		Start		Ultimate		Grading period
Equity fund		7.90%		7.90%		-		16.50%		17.10%		5
Fixed income fund		1.22%		3.93%		5		3.90%		3.90%		-
Property fund		7.90%		7.90%		-		16.50%		17.10%		5
Mix fund(A)		4.48%		5.87%		5		7.60%		7.70%		5
Government bonds fund		3.89%		5.52%		5		0.60%		0.60%		-

^(A) The AEGON Mix fund is a combination of 40% equity fund, 55% fixed income fund and 5% property fund.

Table 37

Stochastic modeling unit-linked portfolio
Correlation matrix(A)	Equity						Fixed income						Property
	Start		Ultimate		Grading period		Start		Ultimate		Grading period		Start		Ultimate		Grading period
Equity		1.00		1.00		-		-0.28		-0.26		5		0.74		0.56		5
Fixed income		-0.28		-0.26		5		1.00		1.00		-		-0.26		-0.05		5
Property		0.74		0.56		5		-0.26		-0.05		5		1.00		1.00		-

^(A) Correlations in this table are with respect to correlations of returns.

Table 38

Stochastic modeling separate account pensions
			Annual Price Volatility
	Distribution		Start		Ultimate		Grading period
Equity(A)		14.9%		16.50%		17.10%		5
Fixed income(A)		82.6%		3.90%		3.80%		5
Property(A)		2.5%		16.50%		17.10%		5

^(A) The expected returns used in stochastic modeling for these asset classes are the same as in table 31.

Table 39

Stochastic modeling separate account pensions
Correlation matrix(A)			Equity				Fixed income						Property
	Start		Ultimate		Grading period		Start		Ultimate		Grading period		Start		Ultimate		Grading period
Equity		1.00		1.00		-		-0.28		-0.26		5		0.74		0.56		5
Bonds		-0.28		-0.26		5		1.00		1.00		-		-0.26		-0.05		5
Property		0.74		0.56		5		-0.26		-0.05		5		1.00		1.00		-

^(A) Correlations in this table are with respect to correlations of returns.

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Addendum 8: Recoverability of DPAC

This section discusses a number of differences between embedded value and the accounting treatment of deferred policy acquisition costs (DPAC), including value of business acquired (VOBA), with the aim of linking embedded value to DPAC. The DPAC analyzed here is on an IFRS basis.

Policy acquisition costs are deferred to the extent that they are recoverable from future expense charges in the premiums or from expected gross profits, depending on the nature of the contract. Every year the DPAC are tested by country unit and product line to assess the recoverability. Included in DPAC is the VOBA resulting from acquisitions, which is equal to a proportion of the present value of estimated future profits on insurance policies in-force related to business acquired at the time of the acquisition and is in its nature the same as deferred policy acquisition costs and also subject to the same recoverability testing.

Differences between the assessment of embedded value and DPAC/VOBA, include, but are not limited to, the following:

¿ DPAC/VOBA in most countries is based on different accounting assumptions from those used in EVLI.

¿ DPAC/VOBA should be compared to IFRS profits instead of local statutory profits, on which EVLI is based.

¿ DPAC/VOBA under IFRS is reported pre-tax; EVLI is on an after tax basis.

In the Netherlands and a number of other country units, DPAC/VOBA is reflected in EVLI, where it is an admissible asset.

Under the EV framework, thepresent value of future profits (PVFP) represents the present value of future after tax regulatory profits projected to emerge from business in the current life insurance portfolio, discounted at the embedded value discount rate. For the reasons explained above, this PVFP cannot be compared directly to the DPAC/VOBA.

To arrive at a comparable basis, the profits included in the PVFP are adjusted to represent the present value of future pre-tax IFRS profits, before DPAC/VOBA amortization and discounted at the earned rate, net of investment charges/ expenses. The outcome of this calculation is compared to outstanding DPAC/VOBA balances to give an indication of the extent to which the aggregate DPAC/VOBA is recoverable. However, it should be noted that actual DPAC/VOBA recoverability testing does not occur in aggregate but rather at a lower level of segmentation and hence accelerated amortization may be required from time to time on specific blocks or segments of business even though ample coverage exists in aggregate.

Table 40 shows that total life insurance DPAC/VOBA has a coverage ratio of 205%. All of the regions showed coverage ratios above 100%.

Table 40

DPAC recoverability (amounts in EUR millions, pre tax)	Americas		The Netherlands		United Kingdom		New Markets		Total 2010
Adjusted PVFP		17,900		5,500		5,493		1,620		30,513
Gross DPAC		9,988		349		4,079		439		14,855
Coverage		179%		1576%		135%		369%		205%

page 46     Local knowledge. Global power.

Addendum 9: Glossary and abbreviations

Glossary

Base case	The EVLI, TEV and VNB calculated under the set of assumptions and methodology outlined in addendum 6 ‘Methodology’. Sensitivity tests reflecting a deviation on the assumptions are presented in comparison to the base case.
Closed book	An assumption that the portfolio will run off after the valuation date and is not expected to grow with future new business.
Cost of capital	The cost related to having to hold solvency capital that will constrain distributions to shareholders. The cost originates from the fact that the net return earned on the assets backing this capital is lower than the discount rate.
Discount rate	The rate at which future cash flows are discounted back to the valuation date.
Embedded options and guarantees	Can apply to both assets and liabilities of AEGON. On assets, refers to features such as the ability to exercise an option to call, put, prepay or convert an asset. On liabilities, refers to features such as minimum guaranteed death/income benefits, minimum interest guarantees (floors), minimum (cash) surrender values, annuity options, etc.
Embedded value life insurance	The contributed capital invested in AEGON’s life operations, the adjusted net worth and the present value of the existing life insurance business at the valuation date less the cost of capital and excluding any value attributable to future new business.
Embedded value life insurance movement	The change in embedded value life insurance from one reporting year to another.
Embedded value operating margin	Return on embedded value life insurance from operating activities. Defined as embedded value operating return divided by beginning of year embedded value life insurance (after any beginning of year adjustments) on a constant currency basis.
Embedded value operating return	Embedded value life insurance earnings from operating activities. Defined as the value of new business plus in-force performance.
Embedded value total margin	Return on embedded value life insurance from all sources. Defined as embedded value total return divided by beginning of year embedded value (after any beginning of year adjustments) in euros.
Embedded value total return	Embedded value life insurance earnings from all sources, not including capital movements. Defined as embedded value operating return plus the variance from long-term investment return, changes in economic assumptions, currency exchange differences and miscellaneous impacts.
European Embedded Value Principles	A consistent framework for the calculation and reporting of embedded value published in May 2004 by the CFO Forum, a group representing the Chief Financial Officers of major European insurers.

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Free surplus	Excess of assets available at the valuation date over capital needed to support the business (liabilities and required surplus).
Going concern basis	Business outlook assumption that expects the business to behave under normal conditions but excluding the value generated by future new business.
Gross value of new business	The value of new business, grossed-up at the effective new business corporate tax rate, before allowance for the cost of capital.
In-force business	Contracts and policies that are in effect as at the valuation date.
In-force performance	Defined as unwinding discount rate plus current-year experience variance from non-economic assumptions within management control plus change in operating assumptions.
Internal rate of return	The discount rate at which the present value of the distributable earnings from new business equals the investment in new business, i.e. the projected return on the initial investment in new business.
Internal surplus basis	The more stringent of local regulatory solvency requirements and Standard and Poor’s (S&P) solvency requirements at AA level, plus any additional internally imposed requirements, if applicable.
International financial reporting standards	A set of accounting standards developed by the International Accounting Standards Board. All publicly listed companies in the European Union are required to prepare their financial statements in conformity with IFRS beginning January 1, 2005.
IFRS book value	Net asset value based on international financial reporting standards.
Mark-to-market	The adjustment of the asset value from regulatory value to market value.
Movement analysis	An explanation of the change in embedded value life insurance from one reporting period to the next.
Net asset spreads	Excess of net investment return over the risk free rate.
Persistency	The rate at which policies and contracts remain in-force.
Present value of distributable earnings	The discounted value of expected future distributable earnings as at the valuation date at the discount rate.
Present value of new business premiums	The discounted value of modeled premiums on the block of business sold in the latest reporting year.
Present value of future profits	The present value of future after tax regulatory profits projected to emerge from business in the current life insurance portfolio, discounted at the embedded value discount rate.
Reporting segment	The product type categories of business on which AEGON reports externally for IFRS and EVLI/TEV.

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Required surplus	The capital that AEGON is required to hold in order to satisfy local regulatory solvency requirements or to demonstrate financial strength (via ratings from agencies such as Standard & Poor’s and Moody’s).
Reserve base	Methodology or principle basis to calculate the level of reserves.
Total embedded value	The sum of the embedded value life insurance and the value of the other activities and holding activities.
Time value of money	The expected value of money at a certain valuation date.
Unwind of discount	Expected return on the beginning of year EVLI.
Value of new business	The present value of the future distributable earnings on the block of business sold in the latest reporting year. Value of new business is calculated using beginning of year economic assumptions and assumptions outside of management control, and beginning of quarter operating assumptions.
Value of in-force	The present value of the expected future profits emerging from the business in-force as of the valuation date minus the cost of capital.
Variance analysis	Explanation of the difference between actual and expected experience related to assumptions.

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Abbreviations

A&H	Accident & health
ANW	Adjusted net worth
APE	Annualized premium equivalent
BoY	Beginning of year
CoC	Cost of capital
DPAC	Deferred policy acquisition costs
EEV	European embedded value
EoY	End of year
EVLI	Embedded value life insurance
FA	Fixed annuities
Fee	Fee business
FS	Free surplus
IFRS	International financial reporting standards
IGP	Institutional guaranteed products
IRR	Internal rate of return
LAP	Life for account of policyholders
PVDE	Present value of distributable earnings
PVFP	Present value of future profits
PVNBP	Present value of new business premiums
RS	Required surplus
TEV	Total embedded value
TL	Traditional life
VA	Variable annuities
VIF	Value of in-force business
VNB	Value of new business
VOBA	Value of business acquired

page 50     Local knowledge. Global power.

Disclaimers

Cautionary note regarding non-GAAP measures

This document includes certain non-GAAP financial measures: underlying earnings before tax and value of new business. The reconciliation of underlying earnings before tax to the most comparable IFRS measure is provided in Note 3 “Segment information” of our Condensed consolidated interim financial statements. Value of new business is not based on IFRS, which are used to report AEGON’s primary financial statements and should not viewed as a substitute for IFRS financial measures. We may define and calculate value of new business differently than other companies. Please see AEGON’s Embedded Value Report dated May 12, 2011 for an explanation of how we define and calculate. AEGON believes that these non-GAAP measures, together with the IFRS information, provide a meaningful measure for the investment community to evaluate AEGON’s business relative to the businesses of our peers.

Local currencies and constant currency exchange rates

This document contains certain information about our results and financial condition in USD for the Americas and GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. Certain comparative information presented on a constant currency basis eliminates the effects of changes in currency exchange rates. None of this information is a substitute for or superior to financial information about us presented in EUR, which is the currency of our primary financial statements.

Forward-looking statements

The statements contained in this document that are not historical facts are forward-looking statements as defined in the US Private Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to our company. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. We undertake no obligation to publicly update or revise any forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which merely reflect company expectations at the time of writing. Actual results may differ materially from expectations conveyed in forward-looking statements due to changes caused by various risks and uncertainties. Such risks and uncertainties include but are not limited to the following:

¿ Changes in general economic conditions, particularly in the United States, the Netherlands and the United Kingdom;

¿ Changes in the performance of financial markets, including emerging markets, such as with regard to:

¿ The frequency and severity of defaults by issuers in our fixed income investment portfolios; and

¿ The effects of corporate bankruptcies and/or accounting restatements on the financial markets and the resulting decline in the value of equity and debt securities we hold;

¿ The frequency and severity of insured loss events;

¿ Changes affecting mortality, morbidity, persistence and other factors that may impact the profitability of our insurance products;

¿ Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels;

¿ Changes affecting currency exchange rates, in particular the EUR/USD and EUR/GBP exchange rates;

¿ Increasing levels of competition in the United States, the Netherlands, the United Kingdom and emerging markets;

¿ Changes in laws and regulations, particularly those affecting our operations, the products we sell, and the attractiveness of certain products to our consumers;

¿ Regulatory changes relating to the insurance industry in the jurisdictions in which we operate;

¿ Acts of God, acts of terrorism, acts of war and pandemics;

¿ Changes in the policies of central banks and/or governments;

¿ Lowering of one or more of our debt ratings issued by recognized rating organizations and the adverse impact such action may have on our ability to raise capital and on our liquidity and financial condition;

¿ Lowering of one or more of insurer financial strength ratings of our insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability of its insurance subsidiaries and liquidity;

¿ The effect of the European Union’s Solvency II requirements and other regulations in other jurisdictions affecting the capital we are required to maintain;

¿ Litigation or regulatory action that could require us to pay significant damages or change the way we do business;

¿ Customer responsiveness to both new products and distribution channels;

¿ Competitive, legal, regulatory, or tax changes that affect the distribution cost of or demand for our products;

¿ The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;

¿ Our failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving initiatives;

¿ Our inability to obtain consent from the Dutch Central Bank to repurchase our Core Capital Securities; and

¿ The non-fulfillment of the conditions precedent underlying the agreement to divest Transamerica Reinsurance.

Further details of potential risks and uncertainties affecting the company are described in the company’s filings with Euronext Amsterdam and the US Securities and Exchange Commission, including the Annual Report on Form 20-F. These forward-looking statements speak only as of the date of this document. Except as required by any applicable law or regulation, the company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

page 51 

Corporate and shareholder information

Headquarters		Publication date figures in 2011
AEGON N.V.		Thursday, August 11, 2011	Results second quarter 2011
P.O. Box 85		Thursday, November 10, 2011	Results third quarter 2011
2501CB The Hague
The Netherlands
Telephone	+ 31 (0) 70 344 32 10
www.aegon.com
Group Corporate Communications & Investor Relations
Media relations
Telephone	+ 31 (0) 70 344 89 56
E-mail	gcc-ir@aegon.com
Investor relations
Telephone or	+ 31 (0) 70 344 83 05 877 548 96 68 - toll free, USA only
E-mail	ir@aegon.com

page 52     Local knowledge. Global power.

About AEGON

Throughout their working lives and into retirement, millions of people around the world rely on AEGON to help them secure their long-term financial futures.

As an international life insurance, pension and asset management company, AEGON has businesses in over twenty markets in the Americas, Europe and Asia. AEGON companies employ approximately 27,000 people and serve some 40 million customers across the globe.

AEGON uses its strength and expertise to create added value for customers, shareholders, employees and the wider community. AEGON does this by encouraging innovation and by growing its businesses profitably and sustainably.

AEGON’s ambition is to be a leader in all its chosen markets by 2015.