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FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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Commission file number 0-14071
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AEGON N.V.
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(Exact name of Registrant as specified in its charter)
Not applicable
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(Translation of Registrant's name into English)
The Netherlands
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(Jurisdiction of incorporation or organization)
Mariahoeveplein 50, 2591 TV The Hague, The Netherlands
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(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12 (b) of the Act.
Title of each class Name of each exchange on which registered
Common shares, EUR 0.12 per share New York Stock Exchange
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Number of common shares outstanding: 1,350,523,905
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Securities registered or to be registered pursuant to Section 12 (g) of the Act.
Not applicable
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(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not applicable
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days.
X YES ______ NO
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Registrant elects to follow: item 18
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TABLE OF CONTENTS
Page
Item 1 Identity of Directors, Senior Management and Advisors 3
Item 2 Offer Statistics and Expected Timetable 3
Item 3 Key Information 3
Item 4 Information on the Company 9
Item 5 Operating and Financial Review and Prospects 35
Item 6 Directors, Senior Management and Employees 57
Item 7 Major Shareholders and Related Party Transactions 62
Item 8 Financial Information 63
Item 9 The Offer and Listing 64
Item 10 Additional Information 65
Item 11 Quantitative and Qualitative Disclosure about Market Risk 68
Item 12 Description of Securities other than Equity Securities 70
Item 13 Defaults, Dividend Arrearages and Delinquencies 70
Item 14 Material Modifications to the Rights of Security Holders and Use of Proceeds 70
Item 15 Reserved for future use 70
Item 16 Reserved for future use 70
Item 18 Financial Statements 71
Item 19 Financial Statements and Exhibits 71
Signatures 154
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Item 1. Identity of Directors, Senior Management and Advisors
Not applicable
Item 2. Offer Statistics and Expected Timetable
Not applicable
Item 3. Key Information
The selected financial data for the years 1996 through 2000 set forth below are
derived from previously published financial information of the Company. The data
should be read in conjunction with, and are qualified in their entirety by
reference to, such financial statements, including the notes thereto.
All per share amounts have been calculated based on the weighted average number
of common shares outstanding after giving effect to all stock dividends and
stock-splits through December 31, 2000.
Forward-looking information
When included in this report, the words "expects", "intends", "anticipates",
"estimates", and analogous expressions are intended to identify forward-looking
statements. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, competition, changes in financial markets (credit,
currency, commodities and stocks), changes in foreign, political, social and
economic conditions, regulatory initiatives and compliance with governmental
regulations, judicial decisions and rulings, and various other matters, many of
which are beyond the Company's control. These forward-looking statements speak
only as of the date of this Report. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement 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 statement is based.
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Years ended December 31,
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2000 1999 1998 1997 1996
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(in million EUR, except per share amounts and ratios)
Consolidated income statement information:
amounts in accordance with Dutch accounting principles (a)
Premium income 20,771 14,980 11,550 9,532 7,579
Investment income 9,612 6,690 5,003 4,001 2,985
Total revenues (b,c) 30,755 22,374 17,179 14,207 11,112
Income before tax 2,887 2,181 1,634 1,287 913
Net income (c) 2,066 1,570 1,247 1,001 712
Data per common share (d)
Net income 1.57 1.28 1.08 0.90 0.68
Net income, fully diluted 1.55 1.26 1.06 0.88 0.65
Dividends per common share see page 5
amounts based upon US GAAP (e)
Premium income 7,509 5,784 4,928 4,506 3,833
Investment income 12,576 7,013 5,656 4,762 3,210
Total revenues (b,c) 20,457 13,501 11,210 9,943 7,365
Income before tax 3,254 1,950 1,928 1,826 810
Net income 2,588 1,601 1,471 1,518 625
Net income per common share (d)
Basic 1.97 1.31 1.28 1.36 0.59
Diluted 1.94 1.29 1.25 1.33 0.56
Consolidated balance sheet information:
amounts in accordance with Dutch accounting principles (a)
Total assets 244,216 228,808 131,196 123,762 83,099
Technical provisions 206,097 190,145 102,959 95,447 62,360
Long-term liabilities (including current portion) 6,528 5,735 3,891 5,434 4,761
Capital and reserves 12,844 13,543 7,934 8,227 5,121
amounts based upon US GAAP (e)
Total assets 281,580 262,694 138,083 130,705 86,827
Technical provisions 225,602 206,007 108,355 100,822 65,397
Long-term liabilities (including current portion) 15,749 14,770 3,804 5,338 4,761
Trust pass-through securities (TRUPS) and
monthly income preferred stock (MIPS) 553 512 87 96 -
Shareholders' equity 18,965 17,050 9,612 9,764 5,739
Other:
Life insurance in force 1,163,443 972,560 300,466 292,604 205,199
Investment income for the account
of policyholders (b) (3,495) 13,533 8,466 6,523 2,839
Annuity deposits (b) 25,506 17,445 6,723 4,679 2,779
Combined underwriting- expense ratio (f) 102% 104% 104% 103% 98%
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Years ended December 31,
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2000 1999 1998 1997 1996
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Share capital (in million EUR) 215 216 185 193 157
Number of common shares:
(numbers in thousands)
Balance at January 1 668,426 583,180 289,863 265,234 262,248
Stock split 668,426 - 289,863 - -
Issuance of shares - 82,546 - 22,264 -
Stock dividend 13,194 2,319 2,195 1,624 2,398
Exercise of options 478 381 1,259 741 588
Balance at December 31 1,350,524 668,426 583,180 289,863 265,234
(a) The consolidated financial statements of the Company were prepared in
accordance with Dutch Accounting Principles, which differ in certain
respects from accounting principles generally accepted in the United
States (US GAAP). See Note (e) below.
(b) Excluded from the income statements prepared in accordance with Dutch
accounting principles are receipts related to investment type annuity
products and investment income for the account of policyholders. In
addition, also Universal Life type deposits are excluded from the income
statements in accordance with US GAAP.
(c) Foreign currency items in the consolidated income statements have been
converted at the weighted average annual rates.
(d) Per share data have been computed in conformity with US GAAP requirements.
Such data are calculated based on the weighted average number of Common
Shares outstanding after giving effect to all stock dividends and
stock-splits through December 31, 2000. Diluted per share data give effect
to all dilutive securities.
(e) See Note 5 for information concerning the differences between Dutch
Accounting Principles and US GAAP.
(f) The Combined Underwriting-Expense Ratio refers to general insurance and is
the sum of the ratio of losses and loss adjustment expenses incurred to
net premiums earned and the ratio of policy acquisition costs and other
underwriting expenses to net premiums written. The investment income of
general insurance is not taken into account when calculating the ratio.
This ratio has been computed on a basis similar to that used in reporting
to insurance regulatory authorities in the United States and is consistent
with US GAAP.
Dividend
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Since the merger of AGO and Ennia in 1983, the Company has declared interim and
final dividends which for the years 1996 through 2000 are set forth in the table
below. The amounts have been translated into dollars per Common Share based on
the Midpoint Rate (the rate settled each working day at 14.15 hours by the Dutch
Central Bank) on each of the respective payment dates for interim and final
dividends.
EUR per Common share/1/ Translated into
Years ended USD per Common share
December 31,
Interim Final Total Interim Final Total
------------------------------ ------------------------------
1996 0.14 0.18 0.32 0.17 0.22 0.39
1997 0.16 0.26 0.42 0.17 0.29 0.46
1998 0.21 0.30 0.51 0.23 0.31 0.54
1999 0.25 0.35 0.60 0.27 0.31 0.58
2000 0.30 0.44/2/ 0.74 0.27 NA NA
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/1/ Paid, at each shareholder's option, in cash or in stock.
/2/ Proposed.
Upon approval of the annual accounts, which contain the profit appropriation, a
dividend for the year 2000 of EUR 0.74 (NLG 1.63) per common share of EUR 0.12
par value will be paid, which after taking into account the EUR 0.30 (NLG 0.66)
interim dividend, leads to a final dividend of EUR 0.44 (NLG 0.97) per common
share.
It is proposed that the final dividend will be made available entirely in cash
or entirely in stock to be paid out of the paid-in surplus or, if so requested,
out of the 2000 net income. The value of the final dividend in shares will be
approximately equal to that of the final dividend in cash.
In order to take full advantage of the prevailing market price of AEGON N.V.
common shares within the indication provided, the number of dividend coupons
that gives entitlement to a new common share of EUR 0.12 will be determined on
May 18, 2001, after 5.00 p.m., based upon the average share price (quotation
Euronext Amsterdam ) in the five trading days from May 14 up to and including
May 18, 2001.
Exchange rates
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On January 1, 1999, the euro was introduced as a new currency in the following
11 European Union member states (the "Participating Member States"): Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain. The respective currencies of the Participating Member
States, including the Dutch Guilder, will be nondecimal subdivisions of the euro
until January 1, 2002 and to up to six months thereafter. The exchange rate at
which the Guilder has been irrevocably fixed against the euro is EUR 1 = NLG
2.20371.
Beginning January 1, 2002, the Participating Member States will issue new
euro-denominated bills and coins for use in cash transactions. By July 1, 2002,
the Participating Member States will withdraw all bills and coins denominated in
their respective currencies from circulation, and they will no longer be legal
tender for any transactions.
Fluctuations in the exchange rate between the euro and the dollar will affect
the dollar equivalent of the euro price of the Common Shares traded on Euronext
Amsterdam and, as a result, are likely to affect the market price of the Common
Shares in the United States. Such fluctuations will also affect any dollar
amounts received by holders of Common Shares on conversion of any cash dividends
paid in euros on the Common Shares.
As at March 21, 2001 the USD exchange rate/1/ amounts to EUR 1 = USD 0.8970
The high and low exchange rates/1/ for each of the last six months through
February 2001 are:
Sept. 2000 Oct. 2000 Nov. 2000 Dec. 2000 Jan. 2001 Febr. 2001
High (USD per EUR) 0.8993 0.8806 0.8694 0.9388 0.9535 0.9395
Low (USD per EUR) 0.8462 0.8270 0.8382 0.8755 0.9181 0.9057
The average USD exchange rates/1/ (USD per EUR), calculated by using the average
of the exchange rates on the last day of each month during the year, for each of
the last 5 years ending December 31, 2000 are 0.9207, 1.0588, 1.1116, 1.252 and
1.3048 respectively.
/1/ The USD exchange rates are the noon buying rates in New York City for cable
transfers in foreign currencies as certified for customs purposes by the Federal
Reserve Bank of New York.
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Risk factors
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As an international life insurance company, AEGON is exposed to currency
fluctuations, to changes in the fair value of its investments, the impact of
interest rate changes and changes in mortality and longevity. In the normal
course of business, AEGON employs established policies and procedures to manage
its exposures to changes in interest rates and fluctuations in the value of
currencies using a variety of financial instruments. AEGON also closely monitors
its exposure to non-financial market risks in its mortality risk analyses and
counterparty risk, reinsurance and IT (information technology) standards. AEGON
uses common derivative financial instruments such as interest rate swaps,
options, futures and foreign exchange contracts to hedge its exposures related
to both investments and borrowings. AEGON does not hold or issue derivative
instruments for speculative trading purposes.
The local investment departments of the AEGON Group units are responsible for
managing their investment portfolios. Their investment policies are guided by
sound Asset and Liability Management principles. This approach applies
throughout the various Group units.
The risk factors are described in more detail below.
Changes in interest rates may significantly affect profitability
In periods of increasing interest rates, policy loans and surrenders and
withdrawals may tend to increase as policyholders seek investments with higher
perceived returns. This process may result in cash outflows requiring that AEGON
sell invested assets at a time when the prices of those assets are adversely
affected by the increase in market interest rates, which may result in realized
investment losses. Regardless of whether we realize an investment loss, these
cash payments would result in a decrease in total invested assets and a decrease
in net income. Premature withdrawals may also cause us to acelerate amortization
of policy acquisition costs, which would also reduce our net income. Conversely,
during periods of declining interest rates, life insurance and annuity products
may be relatively more attrative to consumers, resulting in increased premium
payments on products with flexible premium features, and a higher percentage of
insurance policies remaining in force from year to year. During such a period,
investment earnings may be lower because the interest earnings on fixed income
investments likely will have declined in parallel with market interest rates. In
addition, mortgages and bonds in the investment portfolio will be more likely to
be repaid or redeemed as borrowers seek to borrow at lower interest rates, and
AEGON may be required to reinvest the proceeds in securities bearing lower
interest rates. Accordingly during periods of declining interest rates,
profitability may suffer as a result of a decrease in the spread between
interest rates credited to policyholders and returns on the investment
portfolio.
The profitability of spread based business depends in large part upon the
ability to manage interest rate spreads, and the credit and other risks inherent
in the investment portfolio. AEGON cannot guarantee, however, that it will
successfully manage interest rate spreads or the potential negative impact on
those risks.
A decline in the securities markets may adversely affect sales of new savings
and investment products and assets under management
Fluctuations in the securities markets, and other economic factors may adversely
affect sales of our separate account unit linked products, pension products,
variable annuities, variable life insurance, and mutual funds. In particular, a
protracted or steep decline in the stock or bond markets would likely reduce the
popularity of these products.
The level of volatility in the markets in which we invest and the overall
investment returns earned in those markets also affect profitability. In
particular, assets, earnings and the ability to generate new sales in recent
years have increased due to significant growth in the retirement oriented
investment market and very strong stock market appreciation, coupled with solid
bond market appreciation spurred by declining interest rates. AEGON cannot
guarantee that these economic and market trends will continue, and if they do
not, net income, revenues and assets may decline singnificatly.
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Differences between actual claims experience and underwriting and reserving
assumptions may require liabilities to be increased
Earnings significantly depend upon the extent to which actual claims experience
is consistent with the assumptions used in setting the prices for products and
establishing the liabilities for obligations for technical provisions and
claims. To the extent that actual claims experience is less favorable than the
underlying assumptions used in establishing such liabilities, AEGON could be
required to increase its liabilities. Also certain costs related to the sale of
new policies and the purchase of in force blocks of polices have been
established as an asset in the balance sheet and are being amortized into income
over time. If the assumptions relating to the future profitability of these
policies (such as future claims, investment income and expenses) are no longer
achievable the amortization of these costs could be accelerated and possibly
even require write-off due to unrecoverability. Such adverse experience could
have a material adverse effect on the business, results of operations and
financial condition.
Foreign currency fluctuations may affect profitability
As an international life insurance company AEGON is subject to currency risk.
Equity held in subsidiaries is kept in local currencies to the extent
shareholder's equity is required to satisfy regulatory and self imposed capital
requirements. The remainder of AEGON's capital base (capital securities and
subordinated senior debt) is held in various currencies relative to the book
value of AEGON's activities in those currencies to minimize any impact on its
debt/equity ratios. Currency risk in the investment portfolios is managed using
asset/liability matching principles. In 2000 AEGON discontinued hedging the
income streams from the main non-Dutch units and as a result earnings may
fluctuate due to currency translation.
A downgrade in ratings may increase policy surrenders and withdrawals, adversely
affect relationships with distributors and negatively impact new sales
Claims paying ability and financial strength ratings are a factor in
establishing the competitive position of insurers. A rating downgrade (or the
potential for such a downgrade) of AEGON or any of its insurance subsidiaries
could, among other things, materially increase the number of policy surrenders
and withdrawals by policyholders of cash values from their policies, adversely
affect relationships with broker-dealers, banks, agents, wholesalers and other
distributors of products and services, negatively impact new sales, adversely
affect its ability to compete and thereby have a material adverse effect on our
business, results of operations and financial condition.
Changes in government regulations in the countries in which AEGON operates may
affect profitability
AEGON's insurance business is subject to comprehensive regulation and
supervision in all countries in which it operates. The primary purpose of such
regulation is to protect policyholders, not stockholders. Future laws and
regulations, or the interpretation thereof, may materially adversely affect
business, results of operations and financial condition.
Litigation and regulatory investigations may adversely affect business, results
of operations and financial condition
AEGON faces significant risks of litigation and regulatory investigations and
actions in connection with its activities as an insurer, employer, investment
advisor, investor and taxpayer. These types of lawsuits, including class actions
and regulatory actions may be difficult to assess or quantify, may seek recovery
of very large and/or indeterminate amounts, including punitive and treble
damages, and their existence and magnitude may remain unknown for substantial
periods of time. A substantial legal liability or a significant regulatory
action could have a material adverse effect on business, results of operations
and financial condition.
Defaults in the fixed maturity and mortgage loan portfolios may adversely affect
profitability
AEGON is subject to the risk that the issuers of fixed maturity securities and
mortgage loan borrowers may default on principal and interest payments due
thereon, particularly if a major economic downturn occurs. An increase in
defaults on these securities could have a material adverse effect on business,
results of operations and financial condition.
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Liquidity risk of certain investment assets
The investments in private placement fixed maturities, mortgage loans, equity
real estate, including real estate joint ventures and other limited partnership
interests are relatively illiquid. If significant amounts of cash are required
on short notice in excess of normal cash requirements, AEGON may have difficulty
selling these investments at attractive prices, in a timely manner, or both.
Derivatives may not be honored by counterparties
Derivative instruments are used to hedge market risk. The derivative strategies
employ a variety of instruments including financial futures, foreign exchange
forwards, foreign currency swaps, interest rate swaps, interest rate caps and
options. A failure by a counterparty to honor the terms of its derivatives
contracts with AEGON could have a material adverse effect on our business,
results of operations and financial condition.
The payment of dividends to shareholders and payments on indebtedness of AEGON
NV may be affected by limitations on subsidiaries regarding the payment of
dividends
AEGON's ability to pay dividends to stockholders, make payments on debt
obligations and pay certain operating expenses is dependent upon the receipt of
dividends from its subsidiaries. Certain of these subsidiaries have regulatory
restrictions which can limit the payment of dividends.
Tax law changes adverse to the sale and ownership of insurance products
Insurance products enjoy certain tax advantages, particularly in the U.S., which
permit the tax-deferred accumulation of earnings on the premiums paid by the
holders of annuities and life insurance products. Taxes, if any, are payable on
the accumulated tax-deferred earnings when earnings are actually paid. The US
Congress has, from time to time, considered possible legislation that would
eliminate the deferral of taxation on the accretion of value within certain
annuities and life insurance products.
Competitive factors may adversely affect market share
Competition in AEGONs' business segments is based on service, product features,
price, commission structure, financial strength, claims paying ability ratings
and name recognition. AEGON competes with a large number of other insurers, as
well as non-insurance financial services companies, such as banks,
broker-dealers and asset managers, for individual customers, employer and other
group customers and agents and other distributors of insurance and investment
products. Some of these companies offer a broader array of products, have more
competitive pricing or, with respect to other insurers, have higher claims
paying ability ratings. Some may also have greater financial resources with
which to compete.
Item 4. Information on the Company
Introduction
AEGON NV, domiciled in The Netherlands, is a limited liability stock corporation
organized under Dutch law and formed in 1983 through the merger of AGO and
ENNIA, both of which were successors to insurance companies founded in the
1800's. The headquarters are located at Mariahoeveplein 50, PO Box 202, 2501 CE
The Hague, The Netherlands, telephone +31 70 344 3210, internet www.aegon.com.
Since its foundation AEGON NV, through its member companies collectively
referred to herein as AEGON, the Company or Group, has emerged as an
international insurer with major operations in the USA, The Netherlands, the
United Kingdom, Canada and Mexico. The Group is also present in: Hungary, Spain,
Belgium, Germany, Hong Kong, Italy, Luxembourg, the Philippines and Taiwan, and
has representative offices in China and India. With roots dating back 150 years,
the AEGON Group has extensive experience in the insurance industry. Crucial
differences exist in local markets and for this reason AEGON emphasizes a
decentralized organization structure. The operating companies, with
knowledgeable and highly experienced local management and employees, market
their own, unique products using tailored distribution channels.
Close to 90% of AEGON's core business is life insurance, pension and related
savings and investment products. The Group is also active in accident and health
insurance, property and casualty insurance and limited banking
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activities. Consistent with a policy of spreading risks to achieve reliable
performance, AEGON seeks to maintain a good balance of business within the
Group, both geographically and among product groups.
Business Segment information
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See Note 3 'Segment information' in the financial statements included in Item 18
for information on our Business segments. The business activities of the
principal subsidiaries are more fully described within the country sections
which follow.
The Americas coordinates management activities in the United States and Canada
through the Agency, Alternative Markets and Pension Groups. Twelve operating
divisions of the subsidiary companies serve consumers and institutional clients
with specialized insurance and retirement and savings products (AEGON USA).
Utilizing a multi-channel distribution system, products are offered through
agents, financial institutions, brokers and direct marketing, as well as through
business partners. The Transamerica acquisition in July of 1999 made AEGON one
of the largest life insurance companies in the US and expanded the product
portfolio by adding a life reinsurance business and a Canadian life insurance
company. The acquisition of the Providian life insurance business in 1997 added
the country's leading traditional and synthetic guaranteed investment contract
(GIC) provider, and expanded market size in home service life insurance sales
and direct-marketed life and supplemental health insurance product sales. AEGON
USA is also active in the Mexican market through two joint ventures with Grupo
Financiero Banamex Accival SA de C.V., Mexico's largest commercial bank.
AEGON The Netherlands operates through independent intermediaries and other
distribution channels. Its Dutch business units each serve their own market
within the insurance field. One business unit is active in the German market.
Focus on cost control and productivity, enhanced customer data bases, product
offerings and distribution methods led to increased premium income and net
profits. AEGON is also present in Belgium.
AEGON UK, through its subsidiary Scottish Equitable plc, in the United Kingdom,
is a leading provider of pension and personal investment products, distributed
via Independent Financial Advisors. AEGON Asset Management UK provides asset
management services and institutional and retail asset management products.
Scottish Equitable International, a Luxembourg-based subsidiary, provides
international investment products primarily for the UK market but also for the
offshore market. The Guardian acquisition in 1999 broadened AEGON UK's product
range and distribution, generating economies of scale and adding a leading
provider of protection products. With the acquisition of HS Administrative
Services in 2000, AEGON UK acquired a leading provider of third-party pension
administration services for large blue chip corporate clients.
AB-AEGON in Hungary offers an expanded line of life and non-life products under
both the AB brand and AEGON brand. Distribution is accomplished via professional
intermediaries and its own sales force.
AEGON Spain markets individual and business customers life and non-life products
through three distinctive profit centers: life insurance, general insurance and
health insurance. The products are sold through a network of tied and career
agents.
AEGON has established experimental greenfield activities in Taiwan (1994) and
the Philippines (1996) as well as representative offices opened in New Delhi,
India in 1997 and in Beijing, China in 1998. Collectively, these provide the
Group with useful insight and experience in serving key Asian cultures, while
respecting its decentralized organizational structure and focus on profitable
growth. Transamerica has operated a branch in Hong Kong for more than 50 years.
The branch focuses on universal life products and sells its products through
independent brokers.
All tables included in this section contain financial information derived from
the Company's consolidated financial statements and are presented on the basis
of Dutch Accounting Principles (DAP). All note references refer to notes to the
consolidated financial statements.
-11-
To provide investors and shareholders with an added insight into AEGON's
progress, the Group expanded its product line reporting in 2000. A detailed
product review, summarizing the main product groups covered by the new
reporting, is presented further in this Item under the heading Product overview.
The tables below show the distribution of the Company's revenues, including
investment income, and income before tax (losses) by lines of business.
Reinsurance assumed has been included; reinsurance ceded has not been deducted.
Revenues
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(EUR in millions) Years ended December 31,
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2000 1999 1998
-------------- -------------- --------------
EUR % EUR % EUR %
Life insurance
Premiums 17,983 58 12,802 57 9,413 55
Investment income 9,182 30 6,308 28 4,653 27
----- -- ----- -- ----- --
27,165 88 19,110 85 14,066 82
Accident & Health insurance
Premiums 2,067 7 1,453 6 1,391 8
Investment income 263 1 195 1 156 1
----- -- ----- -- ----- --
2,330 8 1,648 7 1,547 9
General insurance
Premiums 721 2 725 3 746 4
Investment income 89 1 97 1 95 1
----- -- ----- -- ----- --
810 3 822 4 841 5
Banking activities 372 1 704 3 626 3
Other activities 78 0 90 1 99 1
----- --- ----- --- ----- ---
Revenues 30,755 100 22,374 100 17,179 100
Income before tax
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(EUR in millions) Years ended December 31,
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2000 1999 1998
-------------- -------------- --------------
EUR % EUR % EUR %
Life insurance 3,003 104 2,126 97 1,581 97
Accident & Health insurance 172 6 144 7 112 7
General insurance 60 2 (2) 0 33 2
Banking activities 95 3 155 7 106 6
Interest charges & Other (443) (15) (242) (11) (198) (12)
----- --- ----- --- ----- ---
Total 2,887 100 2,181 100 1,634 100
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The following table shows the geographical distribution of AEGON's revenues. For
all premium income amounts below, reinsurance assumed has been included and
reinsurance ceded has not been deducted.
Geographical distribution of revenues
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(EUR in millions)
Years ended December 31,
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2000 1999 1998
-------------- -------------- --------------
EUR % EUR % EUR %
Americas
Life insurance
Premium income 7,413 4,263 2,509
Investment income 7,522 4,756 3,175
----- ----- -----
14,935 49 9,019 40 5,684 33
Accident & Health insurance
Premium income 1,865 1,264 1,219
Investment income 230 163 131
----- ----- -----
2,095 7 1,427 7 1,350 8
General insurance
Premium income 5 4 4
Investment income 2 1 0
----- ----- -----
7 5 * 4 *
----- -- ----- -- ----- --
Sub-total 17,037 56 10,451 47 7,038 41
The Netherlands
Life insurance
Premium income 3,323 3,012 2,626
Investment income 1,418 1,362 1,295
----- ----- -----
4,741 15 4,374 20 3,921 23
Accident & Health insurance
Premium income 129 118 102
Investment income 31 30 22
----- ----- -----
160 1 148 1 124 1
General insurance
Premium income 408 402 437
Investment income 53 55 52
----- ----- -----
461 2 457 2 489 3
Banking activities 372 1 704 3 626 3
----- -- ----- -- ----- --
Sub-total 5,734 19 5,683 26 5,160 30
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Geographical distribution of revenues (cont'd)
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(EUR in millions)
Years ended December 31,
------------------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
EUR % EUR % EUR %
United Kingdom
Life insurance
Premium income 6,738 5,142 4,026
Investment income 145 99 101
----- ----- -----
Sub-total 6,883 22 5,241 23 4,127 24
Other countries
Life insurance
Premium income 509 385 252
Investment income 97 91 82
----- ----- -----
606 2 476 2 334 2
Accident & Health insurance
Premium income 73 71 70
Investment income 2 2 3
----- ----- -----
75 * 73 * 73 *
General insurance
Premium income 308 319 305
Investment income 34 41 43
----- ----- -----
342 1 360 2 348 2
----- -- ----- -- ----- --
Sub-total 1,023 3 909 4 755 4
Other activities
Investment income 78 * 90 * 99 1
----- -- ----- -- ----- --
Total 30,755 100 22,374 100 17,179 100
* Less than 1%.
-14-
Strategy
AEGON's growth flows from a consistent, clear strategy with four key elements:
Commitment to Core Business:
Insurance, with a strong emphasis on life and pension insurance and related
savings and investment products. AEGON focuses on the financial protection and
asset accumulation needs of its clients.
Decentralized Organization:
Multi-domestic and multi-branded approach, giving a high degree of autonomy to
the management of the individual business units, encouraging entrepreneurial
spirit and action. AEGON requires local management to run local businesses.
Emphasis on Profitability:
Target earnings per share growth of at least 10% per annum; the minimum return
on investment is set at 12% or more after tax on the pricing of new business and
at a long-term average of 11% or more after tax for acquisitions. Divestment of
non-core activities and underperformers, and disciplined expense management are
key to the achievement of these objectives.
International Expansion:
AEGON supplements its autonomous growth with selective acquisitions.
Acquisitions are preferred in countries where AEGON already has a presence in
order to build scale and enhance distribution. AEGON limits its annual
investment in greenfield and start-up operations to 3% of net income.
Americas
Under the heading Americas, the Company's US, Canadian and Mexican activities
are reported.
In North America, AEGON's life insurance operations are managed by AEGON USA.
Business operations are conducted through life insurance subsidiaries of AEGON
USA, Inc. and Transamerica Corporation. Products are offered through several
primary life insurance subsidiaries, with licenses in all states of the United
States, the District of Columbia, Puerto Rico, the Virgin Islands, Guam and
Canada. Operationally, the U.S. subsidiary companies are organized into twelve
divisions, and activities are coordinated through three operating Groups of
AEGON USA: Agency, Alternative Markets and Pensions. The group structure enables
AEGON USA to more easily look across the organization to reduce redundancies,
identify business synergies, pursue cross-selling opportunities and improve
operating efficiencies. Coordinated support services provide expertise in
systems technology, investment management, regulatory compliance, and various
corporate functions to complement the divisional operations.
The Agency Group, which includes Monumental Agency Group, the Equity Group, the
Individual Division, and Transamerica Insurance and Investment Group, sells life
insurance, savings and asset accumulation products through employee and
independent agents, as well as third-party marketing organizations.
The Alternative Markets Group provides customers with a variety of means to
access insurance products through five operating divisions that specialize
either by product type or distribution channel. The Long-Term Care and
Reinsurance divisions specialize by product while the Financial Markets, Special
Markets and Worksite Marketing divisions specialize by distribution channel. The
divisions of the Alternative Markets Group encompass several distribution
channels, including financial institutions, direct sales, internet, worksite
marketing, and securities brokers. The Alternative Markets Group's flagship, the
Financial Markets Division (FMD), further broadened its role with many of the
largest financial institutions and securities brokers. Reflecting the rapid
growth of variable annuity sales through those channels, the FMD business mix
evolved from almost total reliance on traditional fixed products four years ago
to a balanced mix of fixed and variable
-15-
products in 2000. Over the same four years and particularly with the integration
of both Providian and Transamerica, FMD's sales, earnings and assets have grown
to equal the size of the entire AEGON USA unit in 1996.
The Pension Group is composed of three operating divisions; Diversified
Investment Advisors, Institutional Markets Division and Retirement Services.
Diversified Investment Advisors is an investment advisory firm serving the
mid-sized retirement plans of companies, state and local governments and
not-for-profit organizations. The Institutional Markets Division serves the
institutional retirement and savings marketplace. Retirement Services is an
investment advisory firm providing retirement plans to smaller employee groups.
The divisions of the Pension Group remain committed to helping individual and
institutional clients save and invest wisely to achieve their retirement goals.
The Pension Group is solidly positioned to take advantage of consumers
increasing responsibility for personal retirement planning. In the corporate
pension area, the use of web based information and online customer service
transactions has become a key competitive strength. The Institutional Markets
Division maintains a close working relationship with major clients which has
enabled them to develop a growing array of new product designs for specific
institutional market niches.
The non-insurance operations of Transamerica consist of commercial lending,
intermodal leasing, and other real estate related services. Transamerica Finance
Corporation, a wholly owned subsidiary of Transamerica Corporation, includes
Transamerica's commercial lending, intermodal leasing, and real estate
information services and is a separate SEC registrant as a result of its
publicly held debt securities. The commercial lending business makes commercial
loans through three operations: distribution finance, business credit, and
equipment financial services. It has branch lending offices in the United
States, Mexico, Canada, Europe and Asia. The intermodal leasing operation
provides service, rental and term operating leases through an extensive
worldwide network of office, third party depots and other facilities in 52
countries and offers a wide variety of equipment used in international and
domestic commerce around the world. The real estate information services
operation provides real estate tax services, flood hazard certification
services, and other real estate information services throughout the United
States. Transamerica's other non-insurance operations also include certain real
estate and investments. AEGON announced on July 24, 2000 its intention to
continue operating the majority of the finance operations.
In October of 1995, AEGON and the Mexican banking group Grupo Financiero Banamex
Accival SA de C.V. (Banacci), the largest commercial bank in Mexico, formed a
strategic alliance to capitalize on insurance opportunities in Mexico. The joint
venture, named Seguros Banamex AEGON, distributes insurance products through a
large network of bank branches throughout Mexico. The terms of the agreement
provide for the purchase by AEGON of a forty-nine percent participation in the
equity of Seguros Banamex AEGON. The ultimate consideration to be paid by AEGON
to Banacci will be based upon the growth and profitability of the venture over
ten years. The AEGON USA companies are providing insurance expertise to support
the developing operations of Seguros Banamex AEGON.
Mexico's decision to privatize its retirement system in 1997 spurred rapid
growth in the Mexican private pension market. In a partnership extension
agreement forged in June 1998, Afore Banamex AEGON combined the complementary
strengths of AEGON and Banacci to meet emerging market needs. Offering quality
retirement fund management products to Mexican consumers, Afore Banamex AEGON
commands a 16 percent market share and has become one of Mexico's leading
pension fund managers. AEGON, in partnership with Banamex, has high expectations
for future opportunities in Mexico.
Expanding its product portfolio and distribution penetration through targeted
acquisitions continues to be an integral part of AEGON USA's long-term strategy.
Building on competitive products, strong distribution and talented people, the
operations that have joined AEGON USA through acquisitions remain very
successful additions that continue to deliver strong performance and foster new
growth opportunities.
-16-
Early in 2000, Transamerica Life Insurance Company of Canada and ING Canada
established a strategic marketing alliance under which Transamerica acquired
100% of NN Life Insurance Company and ING Canada will distribute life insurance
products manufactured by Transamerica. Additionally, a joint venture mutual
fund/segregated fund broker dealer operation was established, catering
specifically to life insurance intermediaries. The alliance creates the Canadian
market leader in new sales of individual life insurance and segregated funds.
The combination of AEGON USA and Transamerica in 1999 was an aggregation of
strengths. The addition of Transamerica's successful US life reinsurance and
Canadian insurance operations represented an immediate leadership position in
exciting new markets for AEGON USA. The acquisition also significantly
strengthened US agent penetration of higher income customer segments and
enhanced scale in the fixed annuity, long-term care, worksite marketing, 401(k)
pension and structured settlements businesses. Transamerica's Insurance and
Investment, Reinsurance, Retirement Services and Canadian operations have become
new divisions of AEGON USA, while Transamerica's other life insurance businesses
have been integrated into existing AEGON USA divisions. Integration of the
Transamerica insurance businesses was a priority during 2000. The Transamerica
acquisition not only brought breadth and depth to distribution, enhanced product
offerings, and brand recognition, but also offered cost reduction opportunities
to AEGON USA and contributed valuable expertise, extensive market knowledge and
successful business practices.
The 1997 acquisition of Providian added the country's leading traditional and
synthetic GIC provider, Institutional Markets Division, to the AEGON USA family.
It also propelled AEGON USA to top market positions in home service life
insurance sales and direct-marketed life and supplemental health insurance
product sales.
AEGON USA entered the pension market in 1993 with the purchase of Mutual of New
York's group pension operation. Now called Diversified Investment Advisors, this
business continues to distinguish itself among competitors with its unique
`manager of managers' approach which places pension funds with leading
institutional money managers that are typically unavailable to individual
investors.
Currently a leading provider of variable universal life insurance in the United
States, Western Reserve Life, the primary operating company of AEGON USA's
Equity Group, was acquired in 1991. The Equity Group remains one of AEGON USA's
fastest growing divisions.
AEGON USA continues to innovate to meet changing consumer demands. The
flexibility fostered by our decentralized operating strategy enables individual
divisions to continually monitor their industries, identify new growth
opportunities and position themselves to take advantage of them.
During 1999, the Special Markets Group identified and targeted a new market,
created by the growing trend for employers to outsource all or part of their
human resource functions. A cross-divisional initiative provided Professional
Employer Organizations (PEOs) with an innovative 'one-stop shop' for all their
supplemental insurance and retirement products. A further cross-divisional
initiative between the Special Markets Group and Financial Markets Division
created the AEGON Financial Services Group in 1996. This team provides a
coordinated and comprehensive approach to the financial institution market. With
several divisions offering insurance products through financial institutions and
certain other marketing organizations, it became clear that a coordinated
approach would serve this marketplace more effectively.
This innovative approach is nothing new to AEGON USA. The Worksite Marketing
Division, formed in 1998 to allow individuals to purchase insurance products at
work, continues to achieve aggressive growth targets and build market presence,
while the Long-Term Care Division, established as long ago as 1991, has
continually modified its business strategy to stay ahead.
-17-
Life insurance
- --------------
AEGON's subsidiaries offer a variety of group and individual, nonparticipating
life insurance products. Various underwriting requirements must be met before
the issuance of a policy depending upon the size of the policy and age of the
insured. The maximum retention limit on any one life is generally USD 500,000
with certain companies retaining up to USD 2,000,000. Products include whole
life, universal life, variable life, variable universal life, term life, fixed
and variable annuity, guaranteed investment contracts, funding agreements,
accidental death and dismemberment and premium waiver disability insurance.
Whole life policies provide options for level, flexible or modified (providing
for higher first year payments) premiums, with various rider coverages including
deferred annuity riders. Universal life products have either a flexible or
single premium option. Both whole life and universal life products build cash
values which are paid to the policyholder upon surrender.
Term life policies are predominantly ordinary term policies, mortgage insurance
and credit life insurance and provide no cash value. Mortgage and credit life
insurance provides for payment of a mortgage or consumer loan in the event of
the death of the borrower. Mortgage insurance is offered through financial
institutions, primarily banks and credit unions. Credit life insurance is
offered through credit unions, banks and automobile dealerships.
Fixed annuity products offered include deferred or immediate annuities, which
may be purchased on either a flexible or single premium basis. Deferred
annuities are offered on either a fixed or indexed basis. In addition, flexible
premium deferred annuities are offered on a variable contract basis. Variable
annuities and variable universal life products have several investment options
and are maintained in a separate account. The investment risk on variable
products is retained by policyholders and the company earns a return from
investment management fees and mortality and expense charges. A multi-bucket
pass-through product is also offered in the general account of the insurance
subsidiaries.
A broad array of financial products, including floating and fixed rate GICs and
Trust GICs (synthetic GICs) are offered. The Trust GIC product, an off-balance
sheet fee-based product, permits the plan sponsor to own and retain assets
related to these contracts and provide benefit responsiveness in the event that
qualified plan benefit requests exceed plan cash flows.
In addition, the Company provides investment products and administrative
services for various types of pension arrangements. The retirement plan markets
served include Corporate Defined Contribution plans (401-K), Not-for-Profit
organizations qualifying for tax qualified annuities under section 403 (b) of
the US Internal Revenue Code, and asset allocation services for Defined Benefit
and Defined Contribution plans.
In Canada, the Company offers a product which provides a 10 year maturity
guarantee on funds invested in segregated investment funds of the Company.
AEGON USA subsidiaries market and administer the IDEX family of mutual funds,
which invests primarily in common stocks. The funds are sold by NASD licensed
registered representatives.
Accident and Health insurance
- -----------------------------
As the health care industry began to undergo fundamental changes and
restructuring a few years ago, AEGON USA made a strategic decision to
concentrate its health insurance presence in the supplemental and specialized
markets.
In early 1996, AEGON USA completed the sale of the Insurance Center, a division
in its Agency Group which administered small group health plans. This resulted
in the transfer of the divisions administrative facility including its 700
employees located in the Dallas-Fort Worth area. The existing business and
earnings, pursuant to that sale agreement, stayed with certain AEGON USA
insurance companies for five years. In 2001 the business will be assumed by a
UICI, Inc. insurance company, subject to regulatory approval. The same
-18-
percentage of profit sharing on the block of business will remain in effect
until December 31, 2002. The business will be considered sold once the
assumption by UICI occurs and the company is no longer contingently liable for
the business.
This action reflected management's strategic decision to move away from primary
health coverages and to concentrate health operations in the supplemental
coverage sector. Market forces have continued to alter the way primary health
care coverage is delivered in the United States and is marked by a continuing
shift toward managed care with health care providers assuming more of the risk.
AEGON USA has chosen not to compete in this changing and highly competitive
market which is facing continued pressure on profit margins and a complicated
regulatory environment.
Supplemental group health coverages are offered through financial institutions,
affinity groups and auto dealers. Direct response marketing techniques are used
to distribute products through endorsed relationships with banks, credit unions,
mortgage lending institutions and associations. Catastrophic illness coverages
are sold to individuals through agency groups. Cancer treatment, heart disease
and intensive care policies are sold to individuals through payroll deduction
and provide specified daily amounts for the period the patient is hospitalized
or receiving outpatient treatment. Individual and group coverage include: income
payment during hospitalization periods, scheduled benefits for specific
hospital/surgical expenses and cancer treatments, hospice care, deductible and
co-payment amounts not covered by other health insurance and Medicare supplement
products.
Also included in the supplemental health coverage, is long-term care insurance.
Long-term care policies offered include nursing home coverage, home health care,
assisted living and adult day-care services. Long-term care products are sold
individually by brokers and captive agents, and they are also marketed to large
groups such as major associations, professional organizations, and employers.
The passage of the Health Insurance Portability and Accountability Act by the US
Congress in August 1996, a bill which includes long-term care insurance
incentives, provided an additional boost to product credibility and perceived
customer need.
Reinsurance
- -----------
The Transamerica life companies assume life insurance from several external
direct writing companies on both an automatic and case by case basis.
Transamerica Reinsurance is a leading provider of reinsurance and consulting
services for companies underwriting life, annuity and accident & health
business. It maintains reinsurance treaties with approximately 500 ceding
companies in the United States, Latin America and Asia-Pacific.
The reinsurance business developed is closely related to the underlying form of
insurance (life, annuity, A&H) and the specific risks covered by such types of
policies, including mortality, morbidity, persistence, longevity, investment and
expense. In addition to reinsurance capacity, Transamerica Reinsurance provides
the following value added services: product development, third party
administration and a case underwriting facility.
Transamerica Reinsurance writes reinsurance directly with its ceding companies
rather than through brokers. This direct relationship produces an expense
advantage and a more complete understanding of risks. It also contributes to
more favorable underwriting results and deeper, longer-lasting client
relationships. In today's highly competitive reinsurance environment,
Transamerica Reinsurance distinguishes itself through a consultative,
value-added services strategy.
Based in Charlotte, North Carolina, Transamerica Reinsurance has offices in
Addison, Texas, Stamford, Connecticut, and Taipei, Taiwan. In April, the company
opened a liaison office in Seoul, Korea. An offshore affiliate, Transamerica
International Re, is located in Bermuda.
-19-
The Netherlands
Life insurance
- --------------
For more than twenty years, AEGON has offered a variety of interest sharing life
insurance products in The Netherlands which have become the predominant form in
which new group and individual insurance policies are written. Since 1990 AEGON
has offered a variety of excess interest profit sharing products which includes
profit sharing based upon the performance of the underlying investment funds.
These products account for an increasing part of the new individual insurances.
AEGON's group policies insure pension benefits provided by a wide range of
businesses and institutions. Under Dutch law, all employers who offer private
pension plans must provide for the operation of such plans by an independent
third party, such as an insurance company. Since most employers offer private
pension plans, there is a relatively stable demand for such group policies in
The Netherlands.
AEGON's group policies are generally tailor-made to the individual employer's
needs with respect to conditions for eligibility for benefits, level and type of
benefits provided and premiums payable. Tailor-made policies are principally
marketed to businesses and institutions having from 200 to 5,000 employees. In
addition, AEGON offers a variety of standardized group policies which provide
specified levels of benefits and are marketed principally to businesses and
institutions having fewer than 200 employees. All of the group policies
currently offered are interest sharing and provide yields which are based on the
average return on an assumed portfolio of Dutch government bonds. Although the
Dutch life insurance business units have not specifically segmented their
investments against their liabilities, they have sufficient investments in fixed
maturities (bonds, private placements and residential mortgage loans) to fully
cover the liabilities for those policies. The investments in fixed maturities
generally have the same characteristics as the assumed portfolio with higher
yields than the risk free rate of the assumed portfolio and only marginal
additional risk.
The yields on group policies can be reflected in reductions of premiums due
under the group contracts or cash payments. In other cases, the premiums
received are placed in segregated investment funds of which the employer is the
beneficial owner and receives almost the full amount of the interest sharing
income. Also a part of the outstanding group policies are participating.
Premiums on group policies are generally paid in level annual installments,
often in connection with non-recurring premiums for prior service benefits.
Apart from group life, AEGON also insures retirement benefits on an individual
basis. These policies generally combine endowment and term life. The face value
at maturity at the pension date or at premature death is used to purchase a
fixed annuity for the insured and/or beneficiary. The level premium policies
have a face value which generally ranges between NLG 200,000 and NLG 600,000.
They are either participating or interest sharing. All policies provide a
guaranteed minimum return. In addition, the face value of such policies
increases annually to reflect additional interest which predominantly is based
on the average return on an assumed portfolio of Dutch government bonds. In the
case of policies which include profit sharing based on the return of investment
funds, the degree of guarantee of this profit sharing depends on the specific
funds in which the policyholder participated - subject to the choice of the
policyholder.
AEGON's individual endowment policies are generally designed to maximize the
advantages of saving through life insurance and are often connected with tax
incentives provided under Dutch law. AEGON offers level premium endowment
policies which provide for lump sum payments after a fixed term or at death and
generally range between NLG 50,000 and NLG 220,000 in face amount. AEGON and
other life insurance institutions which offer mortgage financing typically
advise the borrower to obtain such insurance and, as a result, sales of level
premium endowment policies are dependent to some extent on the level of activity
in the Dutch housing market. Level premium endowment policies are also offered
separately from mortgages. All of the level premium endowment policies are
either participating or interest sharing. These policies have guarantees similar
to those described in the previous paragraphs. If the term of such policies
exceeds fifteen years, as is typical, the excess of the cash value over the
premiums paid, up to a certain ceiling, is non-taxable to the insured.
-20-
AEGON also offers single premium endowment policies which are purchased
primarily as individual retirement plans and which are marketed as supplements
to government-sponsored retirement programs. The policies are typically payable
at age 60 to 65 or premature death and provide that the amount payable at that
time will be used to purchase a fixed annuity for the insured and/or
beneficiary. Single premium endowment policies are predominantly interest
sharing and may also be participating. The interest sharing feature of such
policies is based on, and generally close to, the average return on an assumed
portfolio of Dutch government bonds. Single premium endowment policies that are
interest sharing are in general sold at a calculated discount. Under Dutch law,
premiums on such single premium endowment policies are tax-deductible by the
insured up to an annual indexed maximum amount or married couples double this
amount. Furthermore, conventional life recurring premium and single premium
annuities are tax-deductible to higher amounts for individuals who, by reason of
their employments, do not build up a satisfactory pension.
In addition to its endowment policies AEGON markets term and whole life
insurance with fixed face values. The average face amount of a term life policy
is NLG 100,000 and premium payments are generally made in level annual
installments. The average face amount of whole life policies is NLG 5,000. Such
policies, which are principally used for burial expenses, are decreasing in
importance to the Company's business.
Two of AEGON's subsidiaries also receive fees for administering savings deposit
life insurance plans in which participants surviving after a fixed term from the
commencement of the plan participate in the value of the savings deposits and
accrued interest at that time. Only a minimum return is guaranteed. Under a term
insurance policy which must be purchased by participants in each plan, either
the total amount of a participant's contribution (with interest) or a
predetermined amount is paid on death.
Sales of individual life policies are generally limited to persons under 60
years of age, although policies may be written for persons above that age. For
policies exceeding NLG 300,000 in value, medical information (including an
HIV-test) from a physician is required before the policy is issued. For policies
of lesser sums, medical information is supplied by the insured. Van Nierop
Assuradeuren, an authorized agent, has a leading position in the Dutch market
for universal life products.
MoneyMaxx
Over the past fourteen years, Spaarbeleg has achieved explosive growth in the
Netherlands, based on offering simple savings and unit-linked insurance products
to the mass market, using low cost distribution options. Now, AEGON The
Netherlands has developed an international version, MoneyMaxx, utilizing
'virtual' business technology as well as more conventional distribution methods.
Through close cooperation between AEGON The Netherlands and other AEGON country
units, local versions of MoneyMaxx have also been rolled out in six countries
outside the Netherlands: Germany, Belgium, Spain, Hungary, Italy and the United
States (GoalTender). In each of these markets, the basic MoneyMaxx concept has
undergone careful adaptation to local market conditions. MoneyMaxx's
international future appears bright, and additional markets are under
evaluation.
Accident & health insurance
- ---------------------------
AEGON The Netherlands offers health insurance through close cooperation with the
Dutch health insurer ONVZ. The Company also offers additional health care
insurance which supplements the minimum benefits that are available to employees
under Dutch law and disability coverages which provide income benefits in case
of disability. With the exception of the supplementary health coverage and
disability coverages where physical examinations are required, the Company does
not generally require information on physical condition other than information
supplied by the insured.
General insurance
- -----------------
In The Netherlands a number of business units offer general insurance products.
AEGON Personal Lines markets products and services for the individual customer,
both in the life and non-life segment. AEGON Non-life Commercial Lines markets
products to clients in the commercial market. The product range includes fire,
-21-
motor, liability and agriculture insurance. The units work very closely with
professional independent intermediaries to ensure proper support through both
product development and service. The NOWM unit was sold in 1999, because this
specialized industrial risk insurer does not fit into our core business.
Banking activities
- ------------------
In keeping with its strategic focus on core insurance, pensions and savings
activities, AEGON realigned its Dutch banking interests in 1998. AEGON Bank
(formerly known as Spaarbeleg Bank), a wholly owned `branchless bank'
subsidiary, remains the chief banking unit, offering a range of specialized
products to support and supplement AEGON The Netherlands' various other business
units. In 1998, FGH BANK, specialized in real estate finance, was sold to
Bayerische Hypotheken- und Vereinsbank in Germany. On August 3, 2000, AEGON
completed the sale of its banking subsidiary Labouchere to Banque Internationale
a Luxembourg, a member of the Dexia Group.
United Kingdom
Life insurance
- --------------
The UK is the third largest financial services market in the world, behind the
US and Japan. Well developed and sophisticated, the market stands to benefit
from the strong underlying demand for pensions, long term investment products
and protection products. This market strength is fuelled by a healthy economy,
Government incentives to savings and favourable demographics. The UK is a highly
dynamic market, both in terms of competitive structure and product mix.
In recent years regulatory developments have, however, made the market more
difficult for all providers. On the one hand, there has been a strong trend
towards fuller disclosure which has substantially increased both price
competition and the cost of compliance. On the other hand, allegations of
mis-selling and highly publicised actions against a number of major firms have
shaken the confidence of insurers and consumers alike.
On the distribution side, new entrants such as retailers and mutual fund
providers have begun to vie with traditional insurers for a slice of the
financial services market, including pensions. On the product side, changing
consumer needs have led to the emergence and rapid growth of a host of new
special purpose investment products and the waning of some traditional
stalwarts, such as endowment mortgages and defined benefit corporate pension
plans. In addition, there has also been significant consolidation of financial
services companies indicating that scale is a key ingredient for future success.
For Scottish Equitable plc, which joined the AEGON NV group in 1994 and at that
time was a very focused pensions specialist, this level of change has brought
with it exciting new growth opportunities.
On 1 January 1999, a new holding company, AEGON UK plc, was formed to reflect
the wider range of business activities undertaken in the UK although all are
based on the life insurance and long term savings sectors. Initially consisting
of three operating businesses, the AEGON UK Group had expanded to six business
units by end 2000. These are:
. Scottish Equitable - insured pension, investment and group protection
products for the corporate and personal investment markets via Independent
Financial Advisors in the UK.
. AEGON Asset Management - asset management services and development of
third-party investment management activities and retail mutual funds.
. Scottish Equitable International Holdings - developing offshore
financial services products to be marketed in to the UK and in to other
European territories.
. Guardian Financial Services - providing quality administration services
and support to various group companies.
. HS Administrative Services - specialising in the third party administration
of large scale corporate pension schemes.
. AEGON Individual Protection - focusing on developing the group's presence
in the fast growing market for individual protection products.
-22-
Having previously increased its presence by building on its asset management and
offshore capabilities, this recent further expansion in the sphere of activities
undertaken by the AEGON UK Group has been achieved by a combination of organic
growth (AEGON Individual Protection) and acquisition (Guardian in 1999 and HSA
in 2000).
Providing pension products and services, distributed through IFAs, continues to
be the cornerstone of AEGON UK's business, via Scottish Equitable. In the
fast-changing and increasingly complex UK pensions market, the IFA has proved to
be an excellent and highly competitive distribution channel. By providing
consumers with convenient value-added guidance through a thicket of competing
product options, IFAs have collectively continued to gain market share, even as
the growing burden of automation, compliance and pricing transparency have led
to a consolidation in their numbers. Scottish Equitable has contributed to the
success of its IFA partners by providing attractive new products, superior
investment performance and client servicing support.
Across Europe and the United States, public officials are evaluating the future
of state-sponsored social security programs with concern; some, including the
Government in the United Kingdom, have begun seeking the assistance of the
private sector pension industry in developing viable long-term solutions. Its
proposals for Stakeholder Pensions, to encourage private provisioning by lower-
and middle-income families to supplement existing retirement benefits, were
unveiled in detail in 2000 and will be available from April 2001 onwards. Seeing
a profitable opportunity to build on its existing group pension expertise and
excellent relationships with the Independent Financial Advisors (IFAs), AEGON
UK's Scottish Equitable is working closely with its major IFA partners, to
establish itself as a preferred supplier of Stakeholder Pension products,
services and advice. Though the Stakeholder Pension opportunity is only just
beginning, Scottish Equitable has seized a strong initial position, from which
to take advantage of the resulting business opportunities.
However, organisational scale and breadth of product range are emerging as
critical factors in securing business from UK IFAs. IFAs, who remain a key
audience for the AEGON UK Group, want to meet the diverse needs of their
customers by placing business with financially strong providers. Margin
pressures, regulatory changes and changing consumer buying patterns have
resulted in fewer providers being able to meet the requirements necessary to be
a major provider of products to the IFA sector. Organic growth and acquisition,
along with the backing of the AEGON NV Group, has allowed the AEGON UK Group to
build on the strong position of Scottish Equitable in the IFA pensions market
and add new business lines with good profit potential. This strategy ensures
that the AEGON UK will remain as one of the major providers to the IFA sector
and will continue to increase its presence in the UK life insurance and long
term savings markets.
Other Countries
Hungary
- -------
Since joining the Group in 1992, AB-AEGON has systematically transformed itself
from a state-owned bureaucracy to a market-driven organization. This process has
affected every employee and every aspect of AB-AEGON's operations. Over the past
several years, the company's management and compensation systems have been
completely overhauled; its extensive national branch network streamlined,
re-equipped and reoriented from administration to sales and service; regional
processing centers replaced by a central state-of-the-art IT system; sales
agents retrained and moved off the payroll and onto a commission basis; the
product line modernized and refocused on life, pensions and household coverages.
As a result of these actions, AB-AEGON has revitalized its culture and business
base while retaining market leadership and excellent profitability. In 1998,
AB-AEGON adopted a highly market oriented structure, with three operating
business units and two investment units specializing respectively in securities
and real estate, all backed up by a lean headquarters staff.
-23-
To increase the profitability and customer orientation of AB-AEGON the next step
was to use more significantly the modern communication and distribution
solutions (call centers, internet, etc). As a result of these developments
AB-AEGON could further improve the cost and sales efficiency.
With the installation of a new management team and a significant reduction in
headquarters staff, the latest steps in AB-AEGON's transformation from
state-owned monopoly to competitive, profit-oriented market leader were achieved
in 1999. The new team will spearhead a renewed drive for profitable growth based
on a more productive and market-responsive organization. This will be supported
by the utilization of new low cost distribution channels, such as the internet
and bancassurance, to supplement the more personalized services of the growing
agent network. In 1999 AB-AEGON developed a secure internet site for the sale of
a specially designed unit-linked product, in response to the demands of a
younger customer segment. The unit-linked product adapted for the internet is
simple and user friendly.
Spain
- -----
AEGON Spain, headquartered in Madrid, offers individual and business customers
specialized life and non-life products through three distinct profit centers:
life insurance, health insurance and general insurance. The products are sold
through a network of tied and career agents while AEGON Spain is also using the
concept of affinity centers with specific products specially designed for their
groups of customers.
AEGON Spain has grown its life insurance premium business significant over the
past years. By marketing unit-linked variable life products to younger
professionals through multiple distribution channels, it has made significant
inroads into a market traditionally dominated by the banks. AEGON Spain
identified an opportunity to enter this market by offering attractive, branded
fee-based products through purpose built channels such as financial
institutions, dedicated life agents and the internet.
Drawing on the experience of its sister units in the US, the UK and the
Netherlands, AEGON Spain has led the industry in introducing new universal life
products backed by a wide and growing range of investment options.
This leadership position should continue, as the division rolls out new life and
investment products specially designed for particular distribution channels:
career and general agents, financial institutions, affinity groups, e-commerce
and MoneyMaxx.
Covadonga, the life insurer acquired at the end of 1999, has been successfully
integrated in 2000.
Having strengthened its central data processing systems to provide improved
measurement and control, AEGON Spain's general insurance division is devolving
more responsibilities to profitable agents, branches and regional headquarters.
The objective of these decentralization moves is to lower costs and to sustain
service levels in a difficult, volatile market climate.
In 1999 the health unit reorganized its commercial management and administrative
systems to increase responsiveness. It has also begun to prepare the way for a
centralized health division back office separate from the general insurance
activities and based on a new administrative system.
Other units
- -----------
In September 1995 AEGON The Netherlands established a satellite of its
Spaarbeleg unit in Belgium to offer savings and life insurance products through
direct marketing and a franchised sales force. AEGON Lebensversicherungs-AG,
located in Dusseldorf, is a venture in Germany, exclusively selling a unit
linked product named MoneyMaxx. This product, modeled from a product for the
Dutch market and marketed there by Spaarbeleg, is sold through direct marketing
and advisors.
AEGON Taiwan, based in Taipei, offers a full range of individual life and health
insurance products for middle and upper income markets through a growing network
of tied and independent agents. AEGON's Taiwan branch began operations in 1994
and its premiums have since seen marked growth. Transamerica's Taiwan operation
is being integrated and both branches are being converted into a subsidiary.
This is expected to be achieved in the middle of 2001.
-24-
AEGON Philippines received a life insurance license in November 1996. The office
was set up in 1997, and has started to sell ordinary individual life policies
through the World Marketing Alliance (WMA), an independent broker with a strong
and successful production record in the USA.
AEGON opened a representative office in New Delhi, India in 1997 and in Beijing,
China in 1998. India's new government has passed the IRDA bill, allowing foreign
ownership up to 26% in new companies. AEGON is well advanced in talks with
potential local partners to establish a life insurance joint venture in India.
AEGON's representative office in Beijing was joined by Transamerica offices in
Beijing, Shanghai and Tianjing. During the second half of 2000, the Chinese
authorities expressed their intention to grant the AEGON Group a life insurance
license. In anticipation of this license, AEGON is making preparations for an
entry into the market. As applies to all foreign insurance companies, AEGON
plans to establish a joint venture with a Chinese company.
Transamerica has operated a branch in Hong Kong for more than 50 years. The
branch focuses on universal life products and sells its products through
independent brokers. Transamerica Hong Kong had strong performance in 1999, as
the recovering Hong Kong economy and an expanded brokerage network resulted in a
significant increase in sales.
Product overview
General Account
- ---------------
On general account life products, AEGON carries the investment risk and earns a
spread (difference between investment performance and crediting rates to
customers) and/or realizes mortality results.
Traditional Life
Traditional life consists of permanent and term life insurance. Permanent life
insurance provides life-long financial protection. Most permanent policies have
a cash value feature with minimum rate guarantee that accumulates tax-deferred,
over the life of the policy and can be used to help fund financial goals such as
retirement. Whole life insurance is a common form and premiums remain constant
over the life of the policy.
Universal life insurance is a flexible premium, adjustable benefit contract that
allows the customer to pay premiums at any time, in virtually any amount,
subject to a minimum and a maximum. The interest rate at which the cash value
accumulates adjusts periodically.
Term insurance covers the insured for a specific period of time. The policy pays
death benefits only if the insured dies during the term. Policies can usually be
renewed upon expiration and premiums normally increase upon renewal. This
category also includes life insurance sold as part of defined benefit pension
plans, endowment policies and post-retirement annuity products. Bank or company
owned life insurance (BOLI/COLI) funds the costs of employee benefits, usually
with key employees of the company as the insured persons.
Earnings contribution: 48%
Customers: individuals, pension funds, companies, banks
Distribution: (independent) agents, brokers, direct response, worksite
marketing, financial institutions, IFAs
Marketed in: United States, Netherlands, United Kingdom, Canada, Hungary, Spain,
Mexico, Taiwan
Fixed annuities
Annuities allow the client to save for the future on a tax-deferred basis and
allow payout options that meet the client's need for income upon maturity.
This can be in the form of a lump sum, income for life or income for a period of
time. A fixed annuity is a contract upon which the client is guaranteed a fixed
minimum payout. Payments can either start immediately or be deferred to start
later. Should the insured die prior to annuitizing the policy, the
-25-
beneficiary receives the accumulated cash value death benefit. Fixed annuities
have a specified rate of interest that can be reset periodically.
Earnings contribution: 14%
Customers: individuals
Distribution: financial institutions, (independent) agents, brokers
Marketed in: United States, Canada
GICs and funding agreements
These are contracts issued to tax-qualified investors, guaranteeing a rate of
return on assets for a fixed period and payment of principal and accumulated
interest at the end of the period (usually between three and five years). GICs
are sometimes used to fund the fixed-income plan in defined contribution plans,
e.g. 401(k) plans.
Also includes funding agreements, which are issued to non-tax qualified clients.
These are usually perpetual with no stated final maturity and liquidity option.
The contract is terminated at the notification of the client; notice provisions
range from three months to 13 months in advance of the payout date.
Earnings contribution: 5%
Customers: Tax qualified: pension funds, financial institutions; Non-tax
qualified: money market funds, municipalities, oversees investors, individuals
Distribution: brokers, direct, (independent) agents
Marketed in: United States, internationally from the USA, Canada
For the account of policyholders
- --------------------------------
On account of policyholder products the policyholders carry the investment risk.
AEGON earns management and administration fees and mortality results.
Life for account of policyholders
Represents several forms of life insurance and pension products whereby death
benefits and cash values vary with the performance of a portfolio of
investments. Premiums can be allocated among a variety of investments that offer
different degrees of risk and reward including stocks, bonds, combinations of
both, or investment products that guarantee interest and principal.
Includes variable universal life (USA/Canada), tontine plans (the Netherlands)
and unit-linked life insurance (Europe).
Earnings contribution: 16%
Customers: individuals
Distribution: (independent) agents, marketing organizations, financial
institutions, worksite marketing, IFAs, franchise organizations
Marketed in: United States, Netherlands, United Kingdom, Canada, Spain, Hungary
Variable annuities
Annuities allow the client to save for the future on a tax-deferred basis and
allow payout options that meet the client's need for income upon maturity. This
can be in the form of a lump sum, income for life or income for a period of
time. Premiums paid on variable annuity contracts are invested in funds offered
by the insurance company, including bond and stock funds. Selection of funds is
dependent upon client's chosen level of risk. Account value reflects the
performance of the funds. This category includes segregated funds (Canada).
Earnings contribution: 4%
Customers: individuals
Distribution: (independent) agents, marketing organizations, brokers, financial
institutions
Marketed in: United States, Canada
-26-
Fee business
Includes products that generate fee income for AEGON by providing management,
administrative or risk services related to off balance sheet assets (i.e. equity
or bond funds, third-party managed assets and collective investment trusts).
Much of this income is generated by synthetic GICs which differ from traditional
GICs in that the client owns the assets. The contract defines a crediting rate
based on a formula that is inclusive of portfolio gains and losses. The
crediting rate is reset regularly and based on an analysis of the assets; AEGON
guarantees that it will not fall below 0% for a specific period of time.
Earnings contribution: 3%
Customers: individuals, pension funds, asset managers
Distribution: (independent) agents, marketing organizations, financial
institutions
Marketed in: United States, Netherlands, United Kingdom
Banking activities
Includes savings accounts and investment contracts (i.e. security lease
products). Both products generate investment spread income for AEGON. Savings
accounts offer attractive interest rate whilst retaining flexibility. Security
lease products provide a convenient combination of monthly interest payments on
a loan and a final payout based on the performance of the investments.
This category also includes investment products, which offer index linked
returns and generate fee income.
Earnings contribution: 3%
Customers: individuals
Distribution: direct marketing, (independent) agents, supermarkets, franchise
organizations
Marketed in: Netherlands
Accident and health insurance
Limited forms of health insurance, including disability insurance, are offered.
AEGON offers no major medical coverage.
Supplemental health insurance normally pays a specified amount for a covered
occurrence, or a deductible or coinsurance amount not paid by primary coverage.
Long-term care insurance protects the insured's income and retirement savings
from the costs of long-term nursing home or home health care.
Earnings contribution: 5%
Customers: individuals, companies
Distribution: (independent) agents, brokers
Marketed in: United States, Netherlands, Spain, Hungary, Taiwan
General insurance
Limited forms of general insurance offered in selected markets, i.e. automobile
insurance, liability insurance, household insurance and fire protection.
Earnings contribution: 2%
Customers: individuals, companies
Distribution: (independent) agents, brokers
Marketed in: Netherlands, Hungary, Spain, Mexico
-27-
Reinsurance
Ceded
- -----
AEGON The Netherlands has concentrated its reinsurance ceded business with a
relatively small number of international firms of recognized standing. Such
non-life reinsurance is generally ceded on an excess of loss basis. AEGON also
cedes reinsurance on its life insurance policies. AEGON Group companies outside
The Netherlands, cede reinsurance on a company by company basis. AEGON remains
contingently liable with respect to the amounts ceded if the reinsurer fails to
meet the obligations it assumed. The credit and health operations in the United
States cede a large portion of their business.
Assumed
- -------
The Transamerica life companies have solicited life reinsurance from other
companies for many years. Business is accepted under automatic reinsurance
agreements from the majority of customers and on a case by case basis for
others.
Technical Provisions
AEGON maintains a provision for life, accident & health and general insurance
policy liabilities.
In the case of life insurance, the provision includes the amounts that are
estimated to be required to meet future policy obligations and is calculated
according to the assumptions made at the time the gross premiums were calculated
as to future investment yield, mortality rates applicable to the population as a
whole and morbidity.
Yearly the total of applied assumptions is tested against recent data. If these
tests reveal a negative outcome, the provision is recalculated according to the
actual data or an extra technical provision will be added.
Policy acquisition costs are costs that directly or indirectly are related to
the conclusion of insurance contracts. Part of the acquisition costs is deferred
and deducted from the technical provision life insurance. Deferred policy
acquisition costs are accounted for under the caption Technical provisions.
Deferred policy acquisition costs of insurance contracts with fixed premiums are
generally amortized over periods not to exceed the premium paying periods or the
contract periods. For flexible insurance contracts and investment type contracts
the amortization is generally in proportion to emerging gross profits.
Interest rate rebates are premium discounts provided on the basis of the
difference between interest rates assumed in the premium structure and the
current market interest rate. The capitalized portion of interest rate rebates
is accounted for under the caption Technical provisions. Interest rate rebates
granted are capitalized and amortized over the period of the contracts concerned
in proportion to anticipated investment income.
The technical provisions for general and accident & health insurance consist
partly of the unearned portion of premiums received and a provision for
unexpired risks. Furthermore, when necessary, this item also includes a special
provision to compensate for the increasing age of persons insured under health
and personal accident policies.
The deferred policy acquisition costs include renewal commission paid related to
unearned premiums, amortized over the related premium period, and first year
commission on health insurance policies, amortized over the contract period.
Both for accident and health insurance and for general insurance a reserve for
claims reported but not settled at year-end and an IBNR (Incurred But Not
Reported) provision is determined, partly based on estimation procedures
utilizing statistical data of prior experiences and for the large unsettled
claims on an item by item basis.
-28-
The Company's ability to predict the size of claims under certain types of
general insurance policies is enhanced by the absence of any provision for
punitive damages under Dutch law and by various provisions of Dutch law which
restrict damages for pain and suffering. Nonetheless, the estimation of the
provision for insurance applicable to general insurance is a more difficult
process than with respect to life and accident & health insurance, and the
above-described statistical projection techniques are subject to more subjective
considerations and a greater degree of managerial judgement. The methods for
determining estimates for reported losses and claims incurred but not yet
reported and establishing the resulting provision are continually reviewed and
updated and adjustments resulting therefrom are reflected in income currently.
The Company's periodic re-estimation of the provision for insurance includes
implicit consideration and reevaluation of the effects of inflation.
Investments
AEGON's United States subsidiaries are subject to regulation under the laws of
the states in which they are domiciled. Each states law prescribes the nature,
quality and percentage of various types of investments that may be made by the
subsidiaries. Such laws generally permit investments in qualified state,
municipal and federal government obligations, corporate debt, preferred and
common stock, real estate and real estate mortgages for less than the value of
the mortgaged property.
Regulation of insurance companies in The Netherlands, which is based on the
third EU directive, requires proper matching of investments and technical
provisions. Investments that serve as coverage for the technical provision can
only be made in bonds, loans including mortgages, shares and real estate.
Certain limitations exist for the amount that can be invested in unsecured
loans, unquoted stock and single investments in real estate, a loan or debtor.
Government supervision of insurance companies in the United Kingdom, Hungary,
Spain and Portugal is comparable to regulations in The Netherlands.
The key investment strategy for traditional insurance-linked portfolios is Asset
Liability Management (ALM), whereby high quality investment assets are matched
in an optimal way to the corresponding insurance liability, taking into account
currency, yield and maturity characteristics. Investment-grade fixed income
securities are the main vehicle for ALM and all of AEGON's investment centers
are highly skilled and experienced in these investments. However, the fastest
growing portion of AEGON's investment portfolio is money managed for the account
of third parties, where the client's performance objectives frequently call for
higher risk, higher return investment strategies. The different country units
have all responded to this trend by increasing their ability to help clients
make the right asset allocation decisions and broadening the range of investment
options offered.
The ALM process is designed to monitor product and asset characteristics. The
strategy represents an appropriate matching of assets and liabilities taking
into account asset and liability risk, maturity and liquidity risk, as well as
asset diversification and quality considerations on the one hand and the
policyholders' guaranteed or reasonably expected excess interest sharing on the
other hand. Each country unit approaches the ALM process in it's own way,
depending upon the structure and characteristics of it's financial markets and
depending upon the profiles of the liability portfolios.
The AEGON USA companies manage their ALM process through the work of several
committees. These committees review strategies, define risk measures, define and
review ALM studies, examine risk hedging techniques, including the use of
derivatives and analyze the potential use of new asset classes. Cash flow
testing analysis is performed using computer simulations which model assets and
liabilities under stochastically projected interest rate scenarios and commonly
used stress-test interest rate scenarios. Based on the results of these computer
simulations, the investment portfolio has been structured with a view to
maintaining a desired investment spread between the yield on the portfolio
assets and the rate credited on the policy liabilities. Interest rate scenario
testing is a continual process and the analysis of the expected values and
variability for three critical risk measures (cash flows, present value of
profits and interest rate spreads) forms the foundation for modifying investment
strategies, adjusting asset duration and mix, and exploring hedging
opportunities. On the liability side the company has some offsetting risks: some
liabilities perform better in rising rate environments
-29-
while others perform well in a falling rate environment. On the asset side,
hedging instruments are continuously studied to determine if their cost is
commensurate to the risk reduction they offer.
The Netherlands investment division manages an extensive ALM program for its
business units. Most liabilities in the Dutch market are nominal and long-term.
Based on their characteristics a long-term liability driven benchmark is
derived. This fixed income representation leads to a scenario and optimalization
analysis with the introduction of the various asset classes. An efficient
frontier of optimal asset allocations representing different risk-return
profiles is the result. Given the scenario results the individual business units
then choose a strategic asset allocation which serves as the input and benchmark
for the investment process. Portfolio managers are allowed to deviate from the
strategic composition based on their short and medium term investment outlook.
Risk based restrictions are in place to control the composition of the actual
investment portfolio as compared to the strategic portfolio. All stipulations
and benchmarks are formalized in a client contract between the business unit and
the investment department. An extensive measurement and reporting system is in
place for both portfolio returns and risks.
Scottish Equitable of the United Kingdom maintains an ALM Committee. The
committee is chaired by the Appointed Actuary and includes members of the
finance, actuarial and investment teams. The committee's responsibility is to
ensure assets and policyholder liabilities are appropriately matched and
tactical investments decisions are made to improve matching. Actions arising
from the Committee are independently monitored after an appropriate period of
time has elapsed, to ensure they have been carried out. The ALM Committee
reports to the Investment Committee of the Board, which meets quarterly. The
Actuarial Department monitors the nature of the Company's liabilities and this
information is provided to the ALM Committee. It is the responsibility of the
ALM Committee to monitor and report monthly on the appropriateness of assets
with regard to these liabilities. The ALM Committee meets monthly and considers
matching and investment policy.
A policy of close matching applies to the non-profit business, which splits into
two components, linked and non-linked. The matching policy relating to linked
assets involves daily monitoring and adjustments of the asset units to match
liability units. It is the purpose of the ALM Committee to propose, implement
and monitor an appropriate investment strategy for non-linked investments,
subject to control by the Investment Committee of the Board. The ALM Committee
has available to it appropriate information derived from investment accounts,
financial accounts and actuarial departments to allow it to fulfill its purpose.
The investment strategy has due regard to the relevant sections of the Insurance
Companies Act, Regulations and Financial Services Authority Guidance Notes.
Within the With Profits business the intended investment policy is tested for
the impact on the financial health and strength of the business. Exposure to
specific categories of assets is monitored and approved at the monthly ALM
Committee meeting e.g. it may reduce equity exposure outside normal guidelines
because of solvency constraints.
In Europe, and particularly in The Netherlands and UK, the investment centers
have relied on broad in-house expertise in all relevant forms of investment,
including equities, while in the US the emphasis has been more on `managing
money managers' - helping customers choose among the profusion of investment
choices that dominate US retail investment in equities. The different approaches
have been equally successful in their respective markets.
In view of the growing importance to AEGON of asset management activities, the
Group is continuing to explore how best to encourage coordination among the
various investment centers and build a clearer identity for AEGON Asset
Management. Among the prospective benefits being sought: creation of a powerful
brand offering high quality global investment management based on a successful
track record, local research and sizable market presence; critical mass and
significant economies of scale; elimination of overlaps and filling in of gaps;
an asset management growth platform established at a reasonable cost and sharing
the culture of the AEGON country units.
-30-
Marketing
AEGON USA markets its insurance products through three groups: Agency,
Alternative Markets and Pension. Divisions within each group focus on a specific
product or market and are accountable for sales distribution, product
development and performance. Whole life and universal life insurance, variable
universal life, association group and annuity products are primarily sold
through independent sales representatives and career agents. Marketing methods
include television and print media as well as direct mail and telephone
solicitation. Fixed and variable annuities are distributed primarily through
financial institutions. Career agents through association groups sell
supplemental health products and employer sponsored payroll deduction. Credit
insurance coverage is sold through financial institutions and automobile
dealerships. Pension products, such as GICs, are sold through a small sales
force, bank trustees, municipal GIC brokers, GIC fund managers, brokers and
direct marketing. Individual pension products are marketed through financial
planners, stock brokerage firms, independent agents, pension consultants,
savings and loan associations, banks and other financial institutions and direct
mail programs.
AEGON The Netherlands markets its insurance products predominantly through
independent brokers, agents and banking institutions which are compensated on a
commission basis. AEGON's marketing staff is principally responsible for
providing technical and marketing expertise and for maintaining a close working
relationship with the professional intermediaries who sell its products. To a
lesser extent products are also sold using direct marketing techniques as well
as through a network of tied agents.
AEGON's life and pension products in the United Kingdom are distributed
predominantly through IFAs. In Hungary, Spain and Portugal predominantly local
tied agents market its products.
Today the customer is in the driver's seat. Taking advantage of unparalleled
access to information and lively competition for new business, the customer has
the final say, not only on what to buy, but also on how, when and where. This
new market dynamic has been making itself felt in the more advanced markets for
some years, but continues to gain strength and is now spreading. It is forcing
enormous changes within the insurance and financial services sector, which
traditionally has been local, highly regulated and inwardly oriented, with more
or less the same products. Nowadays, customers want and get an almost unlimited
choice; either relatively standardized products, comprising various `building
blocks' selected by the client, or tailor-made, rather complex products that
require sophisticated advice from the intermediary.
But along with the challenges, the empowerment of the customer has also created
unparalleled opportunities for those financial service providers who can provide
multiple touchpoints for the customer and stay connected with the markets they
serve. The needs of customers for protection, investment and accessibility have
increased along with the increased levels of wealth.
The market for these services is greater than ever, driven by such trends as
affluence, aging, the scaling back of traditional social security and the
erosion of regulatory barriers. To tap into these opportunities and remain
competitive, businesses must increasingly organize themselves around the
customers they seek to serve. Success comes from staying close to customers,
understanding their needs and being flexible enough to respond quickly to the
changing environment.
AEGON's decentralized structure, with its multi-brand strategy, focuses on a
wide range of profitable market segments within its core markets, and provides
the connection with the customer.
To improve its insight into actual as well as potential customer needs, AEGON
USA is designing a new central database that draws together customer information
from across its entire range of decentralized activities. When completed, the
Enterprise Client System will provide a comprehensive view of a customer's
relationship with the company facilitating more effective interactions and
greater convenience for the customer while carefully complying with all privacy
laws and regulations.
-31-
AEGON The Netherlands decided to improve information gathering around the
customer by adopting a single method to keep the most relevant customer data
up-to-date. Furthermore, the AEGON brand units chose one electronic service
system to open up customer data to that same customer and to intermediaries. In
2000, our specialized units helped to keep AEGON well connected to its clients,
in fourteen countries, issuing over seventeen million insurance and savings
contracts. In addition, its pension units in the United States, Netherlands, the
United Kingdom, Canada, Mexico, Hungary and Spain served almost two million
participants in more than 35,000 group pension programs.
AEGON's core business of life insurance and pensions realized a standardized new
premium production of EUR 2,574 million together with EUR 45,920 million of
deposits and EUR 938 million of amounts subscribed in investment contracts.
These products range from simple term insurance policies to individual and group
savings and pensions to complex, large-scale structured investment contracts for
institutions. Whatever their size and shape, all these products are carefully
designed to meet important customer needs, be it performance on wealth
protection or accumulation, in keeping with the wishes of each customer and the
different ways in which we do business in each market. Along with volume growth,
the product range has been renewed, reflecting both AEGON's customer-centered
niche strategy and, more generally, the growing importance of wealth
accumulation and financial planning products among individual and institutional
clients alike.
To optimize market profile and distribution, AEGON's decentralized business
units utilize a multi-brand strategy to approach different market segments: in
the US for example, the Transamerica brand, with its almost universally
recognized 'pyramid'-logo, has proved to be a powerful consumer marketing
support, while the AEGON name, familiar in financial circles as a hallmark of
quality, has resonated with institutional customers for guaranteed investment
contracts (GICs). In the Netherlands, the UK and Spain, the AEGON brand is used
for distribution through the professional intermediary and for the endorsement
of units with other brand names.
In the Netherlands and the United Kingdom, the AEGON brand is also employed for
supporting the asset management activities. In Hungary, the AEGON brand is used
for premium consumer and corporate products, while the AB brand is used in the
traditional mass market.
AEGON's distribution strategy is based on the premise that all customers should
be able to fulfill their individual insurance, pension or investment needs
conveniently and at the desired level of service and cost. For most individuals
and businesses, the professional intermediary remains the preferred service
provider. The familiarity of face-to-face contact, the value of informed,
personalized service and professional advice all remain powerful, competitive
advantages that enable professional intermediaries to maintain and even
selectively increase their overall market share despite many new forms of
distribution.
Intermediaries, as well as insurers, must keep abreast of changes in tax law and
regulation, and understand new product offerings and technology tools. It is
increasingly important to achieve adequate scale, which occurs only when they
successfully attract and retain talented personnel; and secure adequate capital
for continuity and growth. In most of our key markets, where AEGON companies
have traditionally relied on intermediaries as the principal distribution
channel for our insurance, investment and pension products, support for the
intermediaries in meeting these challenges has been systematic and effective.
Competition is a fact of life, and by helping its distribution partners to
thrive, AEGON shares in their success.
For certain types of insurance and savings products, particularly those
traditionally offered by banks, e-commerce and direct marketing provide a
cost-effective mass-market channel. Spaarbeleg pioneered this in the
Netherlands, and MoneyMaxx, its international version, is now up and running in
six other countries. In the United States, the Special Markets Group is
continuously expanding its state-of-the-art direct marketing activities, while
e-commerce opportunities are being pursued under the Coverna Direct brand.
The third main distribution channel is based on partnering: joint ventures or
other long-term relationships with financial institutions, marketing groups, and
other entities seeking to market insurance or savings products. These include
AEGON's bancassurance ventures with Mexico's Banamex as well as with local banks
in Spain, Italy and Hungary, its franchising activities in the Netherlands and
Spain, its innovative venture with supermarket chain Albert Heijn in the
Netherlands and its successful collaboration with the World Marketing Alliance
in the United States and the Philippines.
-32-
Essential to AEGON's multi-brand, multi-channel distribution strategy is an
equally flexible production capability that leverages powerful economies of
scale to deliver the full range of products with maximum speed and efficiency.
Central production platforms in each national market combine professional
expertise with sophisticated information technology to support a wide range of
brands and specialized distribution channels.
The internet remained an area of extensive development throughout AEGON, as
virtually every unit increased its e-business and web-based transactions as a
means of better supporting sales and service. Particularly for the business
units serving the group pension market, including AEGON USA's Pension Group,
Scottish Equitable within AEGON UK and AEGON Corporate Pensions in the
Netherlands, interactive websites are emerging as an optimal means of
communicating with plan participants - convenient, secure, inexpensive and
always up-to-date. The internet is also playing an ever greater role in
distributor support, by enabling professional intermediaries to access and
deploy the Group's sales and service resources electronically, with all the
concomitant benefits in terms of flexibility, speed and quality. E-commerce
initiatives such as Coverna in the US, E-Rekening in the Netherlands and
MoneyMaxx, now in six countries outside the Netherlands and still growing, are
adding to AEGON's knowledge and experience into this fast developing
distribution channel, though production volumes are still relatively low.
In keeping with the Group's decentralized operating strategy, websites are
designed and operated at the business unit level, though several longer-term
initiatives, such as AEGON USA's Enterprise Client System, aiming at
interlinking individual customer touchpoints into a seamless network. The
Group's e-commerce presence is supported through some 200 websites.
Other technologies of growing importance to AEGON include wireless voice and
datalinks, which greatly increase the mobility, speed and accuracy of the sales
and service force; and 'virtual office' and telecommuting technologies, which
reduce overhead and increase flexibility by facilitating outsourcing.
Competition
In general, the insurance industry competes on the basis of the price of the
products offered, the terms of the products, the capacity of the products to
meet the specific needs of the insured and the quality of service rendered to
the insured. The life insurance industry, particularly in the United States, has
experienced increased competition from other financial service institutions
which offer pension plan management and alternative investments for individuals.
The Financial Services Modernization Act was passed in November 1999 and repeals
the Glass-Steagall Act of 1933 and expands the Bank Holding Company Act of 1956.
This new act allows cross-ownership by banks, securities firms and insurance
companies. As a result, it is likely that there will be business combinations
among banks, securities firms and insurance companies. However, there are a
number of unresolved regulatory issues associated with the authority of banks
and other financial institutions to compete directly with the Company in the
sale of life insurance products, including interest-sensitive products. The
existing legal barriers between Dutch insurers and banks were removed in 1990 to
allow both to diversify their financial products into each other's markets.
Several banks and insurers have merged. The Company does not expect these
mergers to have a material effect on its operations. Also see the Operating and
Financial review in Item 5 for a discussion of the effect of competition on
AEGON's business.
Regulation
AEGON's United States insurance subsidiaries are subject to regulation and
supervision in the states in which they transact business. Supervisory agencies
in the various states have broad powers to grant or revoke licenses to transact
business, regulate trade and marketing practices, license agents, approve policy
forms and certain premium rates, set reserve requirements, determine the form
and content of required financial reports, examine the companies and prescribe
the type and amount of investments permitted. Insurance companies are subject to
a mandatory audit every three to five years by the regulatory authorities and
every year by the independent auditors.
-33-
The US Congress may from time to time consider possible legislation that would
modify or eliminate the estate tax which would have an impact on insurance
products and sales in the US.
Scrutiny is placed on the insurance industry from a marketing, compliance and
regulatory view. Tightened standards have caused the industry to reevaluate past
practices as substantial liability has been incurred by insurance companies
based upon their past sales and marketing practices. AEGON has been and
continues to be focused on these compliance issues.
The National Association of Insurance Commissioners (NAIC) adopted, in December
of 1992, a "Risk Based Capital for Life and/or Health Insurers Model Act" (the
"Model Act") which was designed to identify inadequately capitalized life and
health insurers. Should an insurer's Adjusted Capital, based upon statutory
accounting principles, fall below certain prescribed levels (defined in terms of
its Risk Based Capital), the Model Act provides for various actions. The
Adjusted Capital levels of the Company's United States insurance subsidiaries
currently exceed all of the regulatory action levels as defined by the NAIC's
Model Act.
The Gramm-Leach-Bliley Act (the "Act"), which was passed into law in November
1999, permits financial services companies, such as banks, insurers and
securities firms, to affiliate. The Act, however, restricts the ability of these
financial services companies in the United States to use and share consumer and
customers' nonpublic personal information with non-affiliated third parties.
Specifically, financial services companies must disclose their privacy policies
to customers and permit these individuals to prohibit disclosure of their
nonpublic personal information to third parties. Exceptions to such restrictions
on the use and disclosure of information do exist, however, for certain
marketing activities and business functions such as servicing and underwriting
of products. States are required to implement the Act's provisions with respect
to insurers and are also permitted to impose stricter privacy standards. These
privacy standards are in addition to existing privacy laws to which insurers are
subject.
Insurance holding company statutes and regulations of each insurer's domiciliary
state in the United States require periodic disclosure concerning the ultimate
controlling person (i.e., the corporation or individual which controls the
domiciled insurer in each state). Such statutes also impose various limitations
on investments in affiliates and may require prior approval of the payment of
certain dividends by the registered insurer to the Company or several of its
affiliates. AEGON is subject, by virtue of its ownership of insurance companies,
to certain of these statutes and regulations. Since the Company's primary source
of income is dividends from its insurance company subsidiaries, the Company's
ability to meet its obligations and pay dividends to its shareholders may be
affected by any such required approval.
Insurance companies in The Netherlands are supervised by the Pensioen- en
Verzekeringskamer, the regulatory body for insurance companies (the "Board")
under the mandate of the Insurance Industry Supervision Act 1993. The Company
files with the Board its annual report and, under this Act, the Company's life
and general insurance subsidiaries in The Netherlands are required to file
detailed annual reports. Such reports are audited by the Company's independent
auditors and include balance sheets, profit and loss statements and actuarial
statements. The annual reports are prepared in accordance with accounting
principles which are based on the "net level premium method", combined with the
deferral of a part of the acquisition costs. Insurance companies are initially
licensed by the Board and then monitored closely through the annual filings. In
addition, the Board may require an insurer and/or its ultimate holding company
to submit any other information the Board requests and may conduct an audit at
any time. Under the Insurance Industry Supervision Act, general insurance
companies are required to maintain shareholders' equity equal to not less than
18% of gross premiums written in the previous year, subject to other possible
limitations.
Life insurance companies are required to maintain an equity of approximately 5%
of general account technical provisions and, in case of no interest guarantee,
of approximately 1% of technical provisions with investments for the account of
policyholders. As of December 31, 1999, the capital and reserves of AEGON's
insurance subsidiaries substantially exceeded the minimum solvency requirement.
Even when the net deferred policy
-34-
acquisition cost was subtracted from capital and reserves, these were still more
than 3 times the minimum standard requirement.
Banking activities in The Netherlands are supervised by De Nederlandsche Bank
N.V. (The Dutch Central Bank) under the mandate of the "Wet toezicht
kredietwezen 1992" (Credit Industry Supervision Act). The Company's banking
subsidiaries are in compliance in all material respects with applicable banking
regulations and capitalization requirements. AEGON Bank (formerly Spaarbeleg
Bank) files with The Dutch Central Bank its monthly and annual reports. These
reports are consolidated as far as it concerns their subsidiaries in The
Netherlands, unless the subsidiaries file their own reports with The Dutch
Central Bank. The annual reports are audited by independent auditors.
As a group of companies in The Netherlands may be engaged in both insurance and
banking, apart from direct mergers which are not permitted, The Dutch Central
Bank and the "Board", in consultation with the Ministry of Finance and with
representatives of the banking and insurance industry, have entered into a
protocol for the purpose of jointly regulating groups with interests in banks
and insurance companies (the "Protocol"). The Protocol became effective on
January 1, 1990 and was amended in July 1994. In a group of companies consisting
of at least one bank and one insurance company (a "Mixed Group"), the banks
continue to be regulated by De Nederlandsche Bank and the insurers continue to
be regulated by the Board. AEGON, as the holding company of a Mixed Group in
which banking and insurance operations account for a considerable proportion of
total operations (a "Mixed Financial Group"), which group is primarily engaged
in insurance, must furnish financial information to the Board twice a year,
including information as to (1) equity of the banks, (2) the solvency margins of
the insurance companies, (3) capital, reserves, and subordinated loans of the
other subsidiary companies and (4) information as to the solvency of the group
on a consolidated basis, and shall state the investments, loans, and comparable
undertakings (except for insurance agreements) by a bank or insurance company
within the group, in respect of other companies in the group. The Dutch Central
Bank and the Board meet periodically to monitor holding companies of a Mixed
Financial Group and will contact one another when a reporting institution
encounters difficulties.
Regulation of insurance companies in the United Kingdom is generally comparable
to the regulation of insurance companies in The Netherlands while regulation of
insurance companies in the remaining countries in which the Company operates is
more significant. Regulation of insurance companies in the United Kingdom is
carried out by the Financial Services Authority (FSA) under Insurance Companies
Act 1982. UK Insurance Companies have to supply financial information to the FSA
for supervisory purposes, in the form of annual returns, within 6 months of the
company's financial year-end. The content of these returns is defined by
legislation and includes, for example, detailed analysis of solvency, assets,
liabilities and a detailed actuarial valuation report prepared by the Appointed
Actuary. The Appointed Actuary is normally an employee of the company but
appointment is approved by FSA. The returns are filed at the official Companies
Registry and are therefore available for inspection to the general public.
Copies are available on demand to policyholders and shareholders. The returns
are subject to audit by external independent auditors. In addition the returns
and, in particular, the annual valuation report of the appointed actuary, are
subject to scrutiny by the Government Actuary's Department who advise the FSA on
Actuarial matters concerning Insurance Companies. The FSA examine the returns
and, in conjunction with the Government Actuary's Department, may raise queries
with the company. The FSA has wide-ranging power to intervene if a company fails
to comply with its legal obligations and can order it to cease writing new
business. The returns are of course a retrospective picture of the company; The
Appointed Actuary also has a statutory duty to ensure that he is satisfied with
the financial position of the company at all times, if not, he must advise the
Board of Directors and the FSA.
Solvency margins are imposed by law on both life and non life insurers. The
solvency margins required by the Insurance Companies Act 1982, and elaborated in
statutory regulations are monitored by the FSA, and vary with the type of
company, the classes of cover and certain other factors.
On January 1, 1995, new requirements and regulations were introduced in the
United Kingdom covering the disclosure of sales expenses and commission at the
point of sale.
-35-
The Company has not been subject to any significant regulatory proceedings
involving its operations in the countries in which it operates and is in
compliance in all material respects with all regulatory requirements applicable
to it.
Since the Company is a holding company, the rights of the Company to participate
in any distribution of assets of any subsidiary upon its liquidation, or in the
case of its United States subsidiaries, in reorganization or other similar
proceedings (and thus the ability of holders of Common Shares to benefit
indirectly from such distribution) are subject to regulatory actions and the
prior claims of creditors of that subsidiary. Claims on the Company's
subsidiaries by creditors may include claims of policyholders, holders of
indebtedness and claims of creditors in the ordinary course of business. Such
claims may increase or decrease and additional claims may be incurred in the
future.
Description of Property
In the United States, the Company owns predominantly all of the buildings which
are used in the normal course of its business, primarily as offices for the
Company and its subsidiaries. Its principal offices are located in Baltimore,
Maryland, Cedar Rapids, Iowa, St Petersburg, Florida and Los Angeles,
California. Other principal offices owned are located in Budapest, Hungary and
Madrid, Spain. In The Netherlands and the United Kingdom the Company does not
own its headquarters and principal offices but these are rented. The Company
believes that its properties are suitable and adequate to meet the requirements
of its businesses.
Item 5. Operating and Financial Review and Prospects
Introduction
AEGON's disclosure practices and accounting standards have been developed over
many years with due consideration of the needs of our shareholders and other
stakeholders, including the various regulators and research analysts. In recent
years, substantive supplemental information has been added to our annual and
quarterly accounts.
The segment information in Note 3 of Notes to the financial statements contains
all expanded numerical information on AEGON's results for 2000. Starting with
the presentation of the full year's results for 2000, AEGON provides a further
segmentation of life insurance earnings in order to provide greater transparency
of AEGON's earnings. This complements the additional disclosure on new
production, which AEGON started to publish on a quarterly basis at the end of
the third quarter of 2000.
Starting in 2001, AEGON will slightly modify its system of accounting for
capital gains on equities and real estate to bring the system more in line with
practices of other insurance companies. Previously, AEGON applied a cap on
recognizing indirect return of 7% after tax under this system as a more
conservative treatment. Starting 2001, this cap will be removed. The indirect
return will continue to be based on the average return over the past 30 years
and the seven year average unit value. AEGON will report its autonomous earnings
growth for 2001 taking into account the effect of this accounting change.
During 2000, the accounting treatment for the Transamerica non-insurance
businesses was changed as a result of the decision to retain the majority of
these businesses for an indefinite period of time. Under Dutch Accounting
Principles, these businesses are now carried in AEGON's consolidated balance
sheet at net asset value, and the results of these operations are included in
net income since July 1, 2000.
Also during 2000, Regulation FD became effective in the United States.
Regulation FD requires equal access to material information for all investors.
While AEGON - as a non-domestic company listed on the New York Stock Exchange -
is exempt from the reporting requirements of Regulation FD, it has been and will
continue to be AEGON's practice, to provide equal access to material information
to all investors.
-36-
The year 2000 saw continued marked evolution of our multi-branded product
offering to tap into the fastest growing segments of life insurance and related
financial products. We have built leading market positions in variable and unit-
linked life insurance products in our major markets such as the United States,
the Netherlands and the United Kingdom. We have developed mass-market savings
and investment models based on AEGON The Netherlands' profitable Spaarbeleg
product, which we have rolled out in five countries in Europe under the
MoneyMaxx banner and in a test phase as GoalTender in the United States.
Capitalizing on the strength of the AEGON name in international financial
circles, we are rapidly expanding our wholesale business-to-business offering;
sophisticated, customized products including life reinsurance, BOLI/COLI and
GICs which we sell to other insurers, banks and money managers. All our units
have broadened their pension and retirement savings activities to cover
additional market segments and to afford greater flexibility to individual and
group customers. While adding well-targeted new products, we have continued to
refine our traditional offerings: we have found that a mix of new and
traditional products allows us to satisfy and meet the individual requirements
of our customers and distribution partners and build volumes whatever the
fashions of the day. And, a broadly diverse product line also contributes to our
resistance to interest rate, currency or stock market swings. Last year, for
example, AEGON USA once again achieved record sales of variable insurance and
annuities, mutual funds and other equity-linked products, serving customers
seeking capital appreciation, but also posted record sales of conventional life
insurance and fixed annuities, for those looking for a safe harbor from stock
market volatility. And, despite some gloomy predictions, AEGON The Netherlands
saw sales of security leases reach top figures even though the changes in tax
regulations reduced the fiscal advantages of these popular installment purchase
products. Our product strategy is not based on predicting the future, but on
anticipating and being ready for whatever it holds.
Diversity is also central to our distribution strategy: empowering the customer
means allowing each to find precisely the right products and service levels for
his or her needs and budget. So our distribution channels range from the
professional intermediary offering comprehensive service and sophisticated,
value-adding advice all the way to for instance the supermarket check-out
counter, where since February 2001 Albert Heijn customers in the Netherlands can
use their loyalty cards to build up savings, almost imperceptible and easy.
Multi-branding enables different business units to serve a range of market
segments without cannibalizing sales or blurring the image of our strongest
brands, including AEGON, Scottish Equitable and Transamerica.
To offer the best possible products and services at the best possible price,
while safeguarding profitability, AEGON continues to place great importance on
cost-control and productivity. We want to be the low-cost producer in each of
our markets, and in most cases we are. Our success in controlling costs is an
important driver in continuing our various activities in the creation of value.
New technology again proved to be an important contributor to productivity and
to improved customer service last year. With virtually all business units now
fully web-enabled and on-line, the strategic emphasis has moved towards building
e-links between different activities, to facilitate cross selling while
respecting local autonomy. Although 'customer-facing' e-commerce sales volumes
have remained small, the back-office benefits of improved communications and
sales support, speedy processing and secure, convenient access to information
have been considerable. As one example of the positive impact that information
technology is having on our business, average new policy issuance time in the
Netherlands last year fell from several weeks to 'next day'- a gratifying
improvement in service which was accompanied by an equally gratifying reduction
in issuance costs and error rates.
Though as professional risk managers we remain attentive to potential political,
economic and legal threats, we are optimistic about the current year outlook and
see various opportunities ahead of us. Having digested recent acquisitions and
reinforced our infrastructure, we are well positioned for further growth at a
time when acquisition and joint venture opportunities are on the rise. Demand
for AEGON's core expertise in asset accumulation and financial security, already
strong, is becoming increasingly widespread with the aging of populations, the
scaling back of traditional social security programs and the growth of
affluence. Changes in tax codes, financial services regulation and technology
are providing new competitive opportunities.
-37-
Results of operations
2000 compared to 1999
- ---------------------
Net income for the year 2000 totaled EUR 2,066 million, an increase of 32% over
1999. Earnings per share rose 23% to a new record of EUR 1.57. Excluding the
effects of acquisitions, divestitures and currency exchange rate movements, net
income per share increased 12%. Higher average currency exchange rates to the
euro (especially the US dollar and the British pound) had a positive effect of
10%. The remaining positive effect of 1% stems from acquisitions and
divestitures.
The main factors behind the continued earnings growth were the strong internal
growth in all major business units and the successful integration of acquired
businesses (Transamerica in the US, Guardian in the UK, NN Life in Canada and
Covadonga in Spain). Results from Transamerica's insurance activities and
Guardian have been included for the full twelve months of 2000 and for just over
five and for six months respectively in 1999.
Life insurance and pension results rose 41% to EUR 3,003 million in 2000,
comprising 90% of the Group's income before tax, excluding interest and other
charges. Starting with the full year results of 2000, AEGON provides a further
segmentation of life insurance and pension earnings, which are commented on in
the country unit results which follow. In general, all life and pension product
segments were positively influenced by the inclusion of the acquired activities
as well as the currency effect.
In comparing the earnings increase in the fourth quarter of 2000 with the
increase in the same period of the previous year, it should be taken into
account that in the fourth quarter of 1999 a relatively large proportion of
Transamerica earnings, as well as six months Guardian earnings, were included in
AEGON's results.
Accident & health insurance results increased 19% to EUR 172 million due to
improved results in the Netherlands and a positive currency influence, offset
somewhat by lower results in US dollars in the USA. General insurance results
increased from a EUR 2 million loss in 1999 to a EUR 60 million profit in 2000.
Results in Spain recovered from 1999, whereas the results in the Netherlands
deteriorated due to several large claims.
Income before tax from banking activities declined 39% to EUR 95 million as a
result of the sale of Bank Labouchere. Results from continuing banking
activities increased to EUR 47 million. Interest charges on US dollar and pound
sterling denominated debt rose as a result of the increased currency exchange
rate of the US dollar and the pound sterling against the euro and due to the
accounting changes related to the Transamerica non-insurance businesses.
Total revenues rose to EUR 30.8 billion (USD 28.4 billion), an increase of 37%
(11% autonomous). Total premium income grew 39% (13% autonomous) to EUR 20.8
billion (USD 19.2 billion), with the majority of the difference accounted for by
currency exchange differences. Overall new life insurance premium production
increased 42% on a standardized basis. Gross deposits increased 38% totaling EUR
29,034 million. The overall increase in gross margin was 29%, while commissions
and expenses increased 27%.
Fixed annuity deposits grew 36% to EUR 5.0 billion (USD 4.6 billion) and
variable annuity deposits increased 90% to EUR 9.0 billion (USD 8.3 billion),
largely driven by increased production from AEGON USA's autonomous operations.
GIC and funding agreement deposits rose 27% to EUR 11.5 billion (USD 10.7
billion). Investment income increased by 44% (6% autonomous).
For detailed earnings and revenue figures for the country units refer to Note 3
Segment information of Notes to the financial statements.
Americas
- --------
The American operations of AEGON, which include AEGON USA and Transamerica
companies in the United States and Canada, and AEGON's partnership with Banamex
in Mexico, provide life and health insurance, pension and investment, life
reinsurance and other related financial products and services.
Net income increased 33% - in US dollar terms - to USD 1,237 million in the full
year. Income before tax rose 32% to USD 1,870 million. Gross margin showed a 29%
increase, while commissions and expenses increased
-38-
28%. Earnings from the Transamerica insurance activities have been included
since July 21 of 1999 and many of these activities have been merged into the
AEGON USA structure. The transition of corporate wide systems was completed in
the second half of 2000. No separate figures are available for the Transamerica
insurance activities as the integration is largely completed. Expense reductions
realized from the integration totaled USD 145 million in 2000, and the expected
total annual savings are expected to reach USD 200 million after all
consolidation activities are completed and the benefits realized for a full
year.
Life insurance income before tax increased 36% to USD 1,743 million (1999: USD
1,285 million). All life segments were positively influenced by the acquired
Transamerica insurance activities. Income before tax from traditional life
totaled USD 853 million (up 39%), while income from fixed annuities was USD 426
million, up 19%. Income before tax from GICs and funding agreements amounted to
USD 165 million, which was up 18%. Life for the account of policyholders
contributed USD 95 million (up 76%), while variable annuities produced USD 130
million (up 124%). Fee business increased to USD 74 million (up 25%).
Traditional life results include positive development of single premium
institutional balances (BOLI), fixed universal life balances, policy reserves
and favorable investment spreads. Fixed annuity and GIC results also reflect
favorable investment spreads as well as higher account balances. Variable life
and annuities reflect higher average account balances during the year. Fee
income reflects higher average mutual fund balances during the year. All life
segments have benefited from improved expense margins.
Life insurance premium income (excluding annuity and GIC deposits) increased 51%
to USD 6,846 million (1999: USD 4,521 million). The increase was in large part
due to the inclusion of Transamerica premium income, an increase in Bank Owned
Life Insurance (BOLI) production and of variable universal life premium. New
life insurance premium production totaled USD 1,167 million on a standardized
basis, up 66 %. Gross annuity and GIC deposits totaled USD 23,555 million, up
27%, of which fixed annuities amounted to USD 4,592 million, up 19% and variable
annuities contributed USD 8,299 million, up 65%. GIC deposits and funding
agreements totaled USD 10,664 million, which was an increase of 11%.
Accident & health insurance income before tax totaled USD 124 million (1999: USD
131 million) reflecting the run-off of some discontinued product lines. Accident
& health insurance premium income totaled USD 1,722 million (1999: USD 1,341
million).
AEGON USA's organic growth accelerated broadly last year in the wake of the
acquisition of Transamerica in mid-1999, while net income grew by 33%.
With twelve divisions serving a broad range of specialized market segments and
providing a healthy mix of stability and growth, AEGON USA group of operating
companies are leading life insurers in one of the world's largest markets.
Integration of Transamerica was a major focus in the year under review with the
integration process now nearly complete; the acquisition is more than meeting
synergy and growth expectations. Three new business units were established
within AEGON USA's decentralized structure, while the balance of Transamerica's
activities were merged into five existing AEGON business units: Transamerica
corporate functions performed in San Francisco and Los Angeles were consolidated
in Cedar Rapids, yielding important savings. The Transamerica data center in Los
Angeles was fully integrated into AEGON's Cedar Rapids facility, while
Transamerica Investment Management and AEGON USA Investment Management
reallocated investment responsibilities to optimize the performance of the
investment portfolio.
A number of non-core activities acquired with Transamerica were disposed of in
the course of the year, realizing aggregate proceeds of over USD 1 billion.
After a review of available options, it was decided to retain certain
non-insurance activities, principally distribution and inventory finance, real
estate tax services and container leasing, conducted by Transamerica Finance
Corporation .
Agency Group
The four divisions of the Agency Group offer a broad range of insurance and
investment products, primarily through over 100,000 insurance and investment
professionals: independent insurance agents, financial advisors, career agents,
marketing companies and registered representatives who typically develop
long-term relationships with end consumers by providing value-added financial
planning advice, products and services. Variable life and variable annuities
were the Group's growth stars last year: AEGON USA is now one of the leading
providers of these flexible, investment-linked products, which continue to find
great favor with consumers as a savings and
-39-
retirement tool. Specialized products such as Bank- and Corporate-Owned Life
Insurance (BOLI/COLI) also achieved extraordinary growth, driven by focused
marketing and the quality of AEGON's financial ratings. Traditional life and
fixed annuities' sales grew at a more moderate pace, but were important
contributors to profits. Collectively, the Agency Group boosted its income
contribution and accounted for 44% of AEGON USA's pre-tax income last year.
Alternative Markets Group
Specializing either by product type (long-term care, reinsurance) or by
distribution channel (financial institutions, direct sales, internet, worksite
marketing, securities brokers), the five divisions of the Alternative Markets
Group increased their profit contribution in 2000, accounting for 41% of AEGON
USA's total. The Alternative Markets Group's flagship, the Financial Markets
Division (FMD), further broadened its role with many of the largest financial
institutions in the United States as a supplier of high quality retirement,
asset accumulation and wealth transfer products and services. Reflecting the
rapid growth of variable annuity sales through these channels, the FMD business
mix has evolved from almost total reliance on traditional fixed products four
years ago to a balanced mix of fixed and variable products in 2000. Special
Markets Group is one of the largest direct marketers of life and supplemental
health insurance products in the United States. With the recently announced
acquisition of J.C. Penney's Direct Marketing Services, Special Markets Group
will become the largest direct marketing organization. Transamerica Reinsurance
expertise in risk management, financial management and business consulting
provides a strong platform for growth in the reinsurance market.
Pension Group
Providing innovative savings and investment products to institutional clients,
along with retirement plans for small to large employer groups, the Pension
Group's three business units all continue to grow at a rapid pace, lifting their
profit contribution, which now represents 15% of the AEGON USA's total.
Particularly in the corporate pension area, the use of web-based information and
on-line customer service transactions has become a key competitive strength.
Award-winning user-friendly participant account access and state-of-the-art
financial planning tools have been successfully introduced to over 10,000
corporate customers, representing some one million individual participants. In
the institutional market, a close working relationship with major clients and a
growing array of new product designs for specific institutional market niches
enabled AEGON USA's small team of specialists to generate over USD 16.6 billion
in wholesale production last year.
AEGON USA priorities for 2001 are to build on the established market leadership
positions, while focusing on expense control and aggressively pursuing operating
efficiencies. The company will also explore cross-selling opportunities across
all distribution channels and will use technology initiatives to drive
competitive growth.
Canada
Pretax income of AEGON's activities in Canada amounted to USD 76 million in
2000, including the result of the NN Life acquisition.
With the acquisition and integration of NN Life last year, Transamerica Canada
quickly and decisively established itself as the Canadian leader with a 17%
share of the sale of individual life insurance and segregated asset funds.
Capitalizing on its heightened profile in the wake of the acquisition
announcement and on the excellent performance ratings of its revitalized
investment management activities, Transamerica Canada strengthened its
distribution network of some 18,000 sales people, boosting volumes and margins
simultaneously. The key task in the coming year will be to further diversify the
product offering and develop a multi-brand strategy while relying on
Transamerica Canada's position as an efficient, low cost producer.
Transamerica Canada will further develop its leading positions in the life,
pensions and investment sectors in the wake of the NN Life acquisition last
year.
-40-
Mexico
The pre-tax results for Seguros Banamex AEGON (SBA) and Afore Banamex AEGON
(Afore) in Mexico further increased to USD 63 million (up 31%), reflecting the
continued positive development of these businesses. SBA's earnings were
positively influenced by a continued favorable claims experience.
Seguros Banamex AEGON and Afore Banamex AEGON, the joint ventures with Banamex,
Mexico's leading bank, in the bancassurance and pension fund management markets
respectively, continued their progress. They now rank nationally 6th in life
insurance, 4th in pensions and 2nd in asset size of the pension fund management
business. Together, they have made Mexico AEGON's fifth largest national market
in terms of profit contribution. Growth benefited from strong underlying demand
for pension and life insurance products and from consolidation in the Mexican
banking sector. The continuing improvement in the sales skills of the banking
branch network has increased both the quality and level of business. In the
current year, expansion of the personal insurance product offering should
further reinforce the productivity and leverage the effectiveness of the branch
network.
North of the border, the two partners are cooperating on VITAmerica, a pilot
project targeted at serving the insurance and investment needs of the fast
growing and increasingly affluent Hispanic population in the United States.
The AEGON/Banamex bancassurance joint ventures in Mexico will work to complete
the insurance product package offered through the extensive Banamex branch
network and to strengthen Afore's leading position in the pensions and annuity
market.
The Netherlands
- ---------------
Excluding the earnings contribution from Labouchere, net income rose 11%, while
income before tax rose 14% to EUR 840 million. Excluding Labouchere gross margin
increased 9%, while commissions and expenses increased by 1%.
Higher investment income in the pensions business and an increase in
profitability within the life insurance business units contributed to the rise
in income before tax.
Income before tax from life insurance rose 12% to EUR 727 million. Traditional
life was responsible for EUR 577 million, an increase of 12%, while life for the
account of policyholders amounted to EUR 150 million, up 12%.
Anticipating changes in the tax laws consumers have purchased more life
insurance, opting more often for single premium products instead of recurring
premium policies. Expecting this shift to occur, AEGON The Netherlands
concentrated its efforts on expanding its market position in the single premium
product segment. This movement towards a preponderance of single premium
products and investment contracts is reflected in the 16% overall decrease in
new life insurance premium production, on a standardized basis, which totaled
EUR 301 million. Conversely, investment contract sales increased 102%, totaling
EUR 938 million.
AEGON Bank earnings growth was driven by continued strong spread performance at
Spaarbeleg Bank and high sales of security lease products at Spaarbeleg Bank and
Personal Lines.
Non-life insurance income before tax increased 12% to EUR 66 million, despite
several large claims, amongst which claims resulting from the explosion of a
fireworks factory in Enschede. The increase can be attributed to the 70% higher
results from accident & health insurance, totaling EUR 34 million.
Working closely with its key distribution partners, AEGON The Netherlands
continued to grow revenues and profits in its highly competitive market by
developing attractive new products and keeping tight control on costs.
Changes in Dutch tax and pension legislation boosted single premium production
life and spurred further demand for investment-linked products among Dutch
consumers. The retail business units focusing on this segment were quick to
respond.
Variable universal life and similar unit-linked products now account for fully
60% of AEGON Personal Lines' new production, with single premium products
replacing traditional recurring premium policies. Sales of security leasing
products grew substantially at AEGON Personal Lines and the products were
labeled for
-41-
Nederlandse VerzekeringsGroep and AXENT/AEGON. Securities leasing products
enable the consumer to build a stock portfolio through installment purchasing.
Spaarbeleg, providing mass-market investment products, has been notably
successful in cross-selling more sophisticated products to traditional savers.
It fielded a new 'paper-free' savings product via the internet, while also
introducing a hugely successful securities leasing product. All business units
have now integrated the internet into their business activities, with some
thirty websites launched to date.
The growing volumes of individual business oriented towards equity investment
has led AEGON The Netherlands' Investment unit to significantly strengthen its
organization. Professional asset management has become increasingly important.
AEGON The Netherlands has therefore restructured the existing competence center
into a business unit with its own profit responsibility. This unit will be
strongly expanded and will concentrate on both the internal and external market
for third party money. Thus, the unit will be able to continue to add value to
internal and external portfolios by capitalizing effectively on AEGON's
disciplined approach in equity and fixed income investments and the company's
structured tactical asset allocation decision making.
The Group life and pension business units serving many of the Netherland's
leading corporations as well as a host of small and medium-sized enterprises
also grew successfully last year, gaining market share. Working closely with
AEGON's corporate pension clients were the worksite marketing specialists from
Financieel Compleet, who sell value-adding products and services for individual
plan participants developed by other business units that supplement group
pension programs. Financieel Compleet's popular, cost-effective individual
products and its face-to-face advice have become important supports for AEGON
marketing to potential group clients, as well as generating a stream of
profitable on-going supplementary business.
Non-life insurance activities remained profitable, notwithstanding the Enschede
disaster, emphasizing loss prevention programs and maintaining a disciplined
underwriting and pricing policy. Personal insurance is getting more and more
emphasis, object insurance less.
AEGON The Netherlands' support for its key distribution partners, the
professional intermediaries, takes the form not only of training and technical
assistance but occasionally even more direct involvement: AEGON The Netherlands
has financed the Kamerbeek Meeus Groep, a large professional intermediary, while
many of Financieel Compleet's worksite marketing specialists are insurance
professionals now working as AEGON franchisee. A particularly innovative joint
venture has been established by AEGON with Albert Heijn, the Netherlands'
leading supermarket chain, to distribute easy to use products through its store
network.
Cost control and productivity drives last year included the outsourcing of
certain EDP functions, expanding the use of shared production platforms to
support multiple brands, and growing reliance on money-saving technologies such
as the internet and call centers. These and similar initiatives enabled AEGON
The Netherlands to continue to improve its cost/revenue ratio, for the fifteenth
consecutive year.
MoneyMaxx, the international version of Spaarbeleg administered by AEGON The
Netherlands, continued its roll-out and is now active in six countries outside
the Netherlands, including the US. The activities in Germany and Belgium
continued to achieve growth in the production of their unit-linked products. In
the autumn of 2000 MoneyMaxx Italy was started.
In 2001 AEGON The Netherlands will continue the MoneyMaxx roll-out in Europe and
further strengthen the relationship with the independent intermediary, e.g. via
the internet, and will continuously update the product range, especially
investment and savings products. The company will also remain alert to
cross-selling opportunities to existing clients and strengthen its asset
management activities.
United Kingdom
- --------------
AEGON UK net income, including full year earnings from the acquired Guardian
businesses, increased by 38% in pounds sterling to GBP 160 million. Income
before tax rose 40% to GBP 219 million. Overall gross margin increased by 22%,
while commissions and expenses rose 7%.
Traditional life contributed GBP 31 million (down 6%) while life for the account
of policyholders totaled GBP 180 million, which was an increase of 44%. Fee
business contributed GBP 8 million. The decrease in traditional
-42-
life insurance income is in line with expectations and flows with the shift in
consumer preference for more flexible products with investments for the account
of policyholders.
The growth of the in-force block plus market value increases resulted in higher
fund management and asset related charges compared to 1999. Assets under
management amounted to GBP 34 billion at December 31.
The increase in total premium income amounted to 21%. New premium production of
GBP 538 million, measured on a standardized basis, including Guardian, increased
by 21%.
AEGON UK outperformed its market and reinforced its position as a key provider
of life, pension and investment products and services for the corporate and
personal markets. Net profits rose 38%, while new business volumes increased by
21%.
The Guardian activities acquired in 1999 were successfully integrated during the
course of the year, yielding greater than anticipated economies and an important
impetus to growth. By rounding out Scottish Equitable's traditional strengths in
pensions and investments with well-designed employee benefit and individual
protection products, the Guardian acquisition has reinforced Scottish
Equitable's strategy of making itself the preferred choice for Independent
Financial Advisors (IFAs), who remain the UK's largest and fastest growing
distribution channel for life assurance, pension and investment products. The
strategy to gain a presence in markets complementary to existing strong market
positions was also behind the acquisition in 2000 of HS Administrative Services,
a leading provider of third-party pension administrative services for large blue
chip corporate clients.
The success of this strategy can be seen in Scottish Equitable's strong
positioning in the emerging competition for stakeholder pensions. Fostered by
new fiscal legislation and enjoying broader bipartisan political support than
many previous government initiatives, stakeholder pensions are designed to
encourage pension savings by lower and lower middle income wage-earners not
currently covered by conventional private pension schemes. The run-up to the
introduction of stakeholder pensions has also stimulated the general pensions
market as companies are reassessing their existing programs in light of the new
legislation. Scottish Equitable is well placed to take advantage of the
resulting business opportunities. Scottish Equitable's substantial investment in
recent years in state-of-the-art information systems and electronic customer
service capabilities, such as its 'SmartScheme' web-based service for IFAs, plan
sponsors and individual participants in its existing portfolio of group pension
plans, has given it the capacity and cost structure needed to operate profitably
in stakeholder pensions. Together with its IFA partners, it will aggressively
target this potentially huge growth area, while continuing to benefit from the
buoyancy of the general pensions market.
The Personal Investment products and services of Scottish Equitable and Scottish
Equitable International have continued to show rapid growth and now account for
over 25% of total premiums within the AEGON UK group of companies. AEGON Asset
Management UK enjoyed successful growth in its second year as an autonomous
business unit: assets under management totaled GBP 34 billion at year-end,
including over a billion pounds in third-party mandates. AEGON Asset Management
UK's recognized expertise in both bond and equity investment, and its growing
array of specialized equity mutual funds, provide effective asset management
support to AEGON UK's other business units, and also provide the basis for
pursuing additional third-party business.
For 2001 AEGON UK will actively seek entry to the individual protection and
stakeholder pension market and further develop its position in the institutional
markets. The delivery of technology based solutions to improve efficiency and
accessibility of services will remain a top priority.
Other countries
- ---------------
Total net income from the activities in other countries amounted to EUR 48
million (1999: EUR 11 million loss). Total life insurance income before tax from
Other countries totaled EUR 28 million. Life insurance premium income increased
32% to EUR 509 million. Standardized new life insurance premium production was
EUR 126 million, up 9%.
-43-
Hungary
- -------
AEGON Hungary's net income for 2000 increased 10% and totaled EUR 44 million
(1999: EUR 40 million). The insurance operations in Hungary continued their
earnings growth as new premium production surged in excess of the overall market
growth rate and persistency improved, reflecting the improvement in sales
quality and customer service, strong cost control, a successful annuity
redemption campaign and favorable claim experiences.
In a generally favorable economic climate, AEGON Hungary continued to achieve
strong organic growth in sales and earnings as well as assets under management.
Despite the continued run-off of the old state insurance portfolio and lukewarm
political support for expanding the new private pension system, AEGON Hungary's
sales of modern AEGON branded life insurance and pension products rose by over
50% during the year, as increasing affluence and the spread of private sector
employee benefit plans, particularly among foreign investors, underpinned both
individual and group demand. Like their counterparts elsewhere, Hungarian
consumers increasingly demand a combination of life insurance-investment
products, as reflected in the fourfold increase in single premium product sales.
While creating exciting new sales opportunities, this shift is putting pressure
on margins and increasing the need for flexible, customer-responsive marketing
and service.
Accordingly, management worked to further flatten the organization and
streamline the reporting structure, encourage individual salesmanship and
productivity and eliminate organizational inefficiencies and overlaps. As a
result, activities are increasingly grouped around and focused on specific
market segments. Equally important, costs remained well under control and are
set for further reductions in the coming year.
In the non-life sector, AB-AEGON retained its dominant position in household
insurance, increasing its market share to over 50%, while scaling back its motor
insurance portfolio to improve returns. Profitability remains good. Although
internet is not yet a commonly used channel in the Hungarian market, further
internet initiatives were taken in 2000 by launching another unit-linked
product, which made a promising start. In the spring of 2000, MoneyMaxx Hungary
was introduced with a simple, high yield unit-linked product.
In 2001, AEGON Hungary's top priorities will be to further improve customer
service and satisfaction, continue to outgrow the surging market for life
insurance and retain a tight control on costs. MoneyMaxx Hungary is well
positioned and has set ambitious objectives for 2001.
Spain
- -----
AEGON Spain's net income rose to EUR 13 million (1999: EUR 51 million loss). The
life insurance operations in Spain are being supported by the growth in the life
insurance market and the acquisition of Covadonga. Several organizational
actions, such as cleaning of the portfolio and rate increases, resulted in an
increase of income before tax from non-life insurance activities to EUR 8
million (1999: EUR 55 million loss).
Continued strong gains in the life sector, coupled with effective redress
measures in the motor insurance business, enabled AEGON Spain to post a solid
return to profitability in the year under review.
The growth in life insurance activities was strong as revenues increased 23%.
From a negligible base, life now accounts for nearly 50% of AEGON Spain's
revenues and is expected to represent some two thirds of the total within the
next three years. Powering the growth in life is the increasing popularity of
unit-linked products with a strong investment element, a product sector where
AEGON Spain is particularly well positioned. Also, the effectiveness of a
multi-channel distribution strategy relying on agents, direct sales,
partnerships with financial institutions and growing use of the internet achieve
national market coverage. This country unit also profited from a keen eye on
external growth opportunities, including the successful integration of
Covadonga, a life insurer acquired late in 1999, as well as bancassurance
opportunities. Strong forward momentum - the formation of a new sales team
specializing in serving Spain's fast-changing group pension sector and the
successful roll-out of MoneyMaxx in the Spanish market - all bode well for
continuing progress in the life sector.
-44-
Non-life activities benefited from the easing of the crisis in motor insurance
resulting in a somewhat more acceptable price level; AEGON Spain's vigorous
efforts to help its agents identify and eliminate bad risks and fraudulent
claims, while attracting preferred risks, have sanitized the motor insurance
portfolio and restored profitability with only a minor dip in overall premium
volume. Household and other general insurance also benefited from the improved
agent relationship. Health insurance grew in line with the market and yielded
good returns.
The MoneyMaxx activities continued to grow according to plan: both the response
to the intensive marketing campaign and the number of new clients.
AEGON Spain will continue to improve the quality and productivity of its
distribution channels, drawing on strengthened information and data processing
resources; rationalization of administration and cost control; and improving
scale through acquisitions and/or joint ventures. The MoneyMaxx growth scenario
will be maintained.
Asia
- ----
AEGON Taiwan almost tripled its size in terms of both premium income and assets,
thanks to continued strong organic growth in life insurance sales and
integration of Transamerica's Taiwanese operation. Its growing scale and the
high productivity of its career agents, coupled with AEGON's financial support,
established a sound platform for further growth in Taiwan's consolidating
insurance market. The AEGON and Transamerica branches are being converted into a
subsidiary. This is expected to be achieved in the middle of 2001. The enlarged
operation will concentrate on autonomous growth, with priorities on expanding
the existing sales network and adding new distribution channels, while in the
meantime actively pursuing acquisition opportunities.
In the Philippines, where AEGON's local unit works closely with the World
Marketing Alliance, insurance sales continued to grow.
Unconsolidated group companies
- ------------------------------
The non-insurance operations acquired with the Transamerica acquisition include
lending, leasing and real estate services. Following the accounting change
effected as per June 30, net earnings of USD 27 million (EUR 29 million) from
these activities have been included in AEGON's 2000 results.
Based on Dutch Accounting Principles, total net income for the full year 2000
amounted to USD 141 million compared to USD 189 million for the same period of
1999 (of which USD 92 million from July 21 to December 31, 1999). The earnings
decline is primarily due to strategic divestitures, higher interest cost and
increased credit losses, which were partially offset by an increase in income
from the lending business.
Revenues increased 4% to USD 2,135 million. The increase was mainly attributable
to higher lending revenues from larger net finance receivables outstanding.
During the fourth quarter, the assets of the domestic products leasing division
and certain retail finance receivables were sold resulting in a small book
profit.
Investments
AEGON's general account investment assets increased 10% to EUR 113 billion (USD
105 billion) during 2000 and now represent 40% of total investments. This part
of AEGON's investment portfolio represents assets accumulated relating to
products on which AEGON carries the investment risk and earns a spread. In the
Americas and the Netherlands, the increase, mainly in fixed income securities,
is primarily the result of increased new production. The general account
portfolios in the Netherlands and the Americas, which comprise 98% of total
general account investments, outperformed their respective benchmarks. The
investment portfolio was slightly rebalanced from equities towards fixed income
during the year. At the end of 2000, 90% of the general account portfolio was
invested in fixed income securities and 10% in equity securities and real
estate. The quality of the fixed income portfolio was stable, with no major
adjustments to the credit profile or the diversity of the total portfolio.
-45-
Investments for the account of policyholders, which include unit linked products
and separate accounts, increased by EUR 6 billion to EUR 114 billion and
represent 41% of total investments. The investment risk on these assets is borne
by the policyholders, and the assets generate fee income for AEGON. The gradual
shift from investments in fixed income securities to equity securities in this
category continued during 2000. The largest part (58%) of the investments for
the account of policyholders is allocated to equities and real estate. The
investment portfolio for banking activities equated in 2000 at EUR 5.5 billion
(USD 5.1 billion) at year-end.
Off balance sheet investments, on which AEGON also earns fees, increased to EUR
47.0 billion, representing 17% of the total investment portfolio. This category
includes assets, which are related to third party managed assets, mutual funds
and synthetic GICs. Growth in this investment category was mainly driven by the
strong growth of mutual fund sales in the United States.
Equity and subordinated loans
- -----------------------------
During 2000, the biggest effect on AEGON's capital base was the accounting
change regarding the Transamerica non-insurance businesses. Shareholders' equity
decreased from EUR 13.5 billion to EUR 12.8 billion. Positive effects on
shareholders' equity include retained earnings (EUR 1,090 million) and currency
exchange rate differences (EUR 460 million). Realized and unrealized results and
the release of indirect return on the equity and real estate investment
portfolio had a negative effect on equity of EUR 505 million, as well as the
goodwill charge related to the accounting change for the Transamerica
non-insurance businesses, which more than offset the gain on the sale of
Labouchere. The balance of total goodwill and bookprofits was EUR 1,647 million
negative. Further negative effects include share repurchases to hedge AEGON's
staff and management option plans (EUR 423 million), settlement of stock option
plans (EUR 200 million) and convertible subordinated loans (EUR 24 million).
To facilitate the debt funding related to the Transamerica acquisition, AEGON
founded AEGON Funding Corp. during 1999 and AEGON Funding Corp. II in 2000.
Funding raised by these entities enjoys a full and unconditional guarantee from
AEGON N.V. AEGON Funding Corp raises funds through a USD 4.5 billion Global
Commercial Paper program. In addition, AEGON Funding Corp. issued USD 250
million of 7.375% Bonds due in 2005 and increased two outstanding Bonds by USD
100 million each during 2000. AEGON accessed the perpetual debt market in the
Netherlands towards the end of 2000 with EUR 450 million 6.875% Perpetual
Subordinated Cumulative Bonds. This bond was increased to a total nominal amount
of EUR 700 million early 2001. With regard to other funding activities
operational funding requirements were slightly higher in 2000 compared to
previous years as a result of the funding provided to Transamerica Finance Corp.
AEGON agreed to provide the long term funding of the Transamerica non-insurance
businesses internally, and to guarantee outstanding amounts under Transamerica
Finance Corporation's commercial paper program.
AEGON has further employed its excellent access to the capital markets through
private placements issued under its USD 3 billion Euro Medium Term Notes
Program. Additionally, a USD 2 billion Euro Commercial Paper Program facilitates
access to international and domestic money markets when required. AEGON
maintains back-up credit facilities for outstanding debt under its Commercial
Paper programs.
The composition of the capital base was relatively stable during 2000 despite
EUR 2,254 million of goodwill charged to shareholders' equity directly. As a
percentage of total capital base, equity decreased to 69% from 71 % at year-end
1999. AEGON's financial policies require that total capital contain at least 70%
shareholders' equity. Additionally, AEGON applies capital adequacy measures for
its operating units in setting internal dividends, which are aimed at
maintaining strong capitalization. These self-imposed standards substantially
exceed those of regulatory bodies in the various countries. We manage to these
standards through application our financial strategies and policies, including
acquisition funding and external dividend policy. We remain committed to a
strategy, which assures continued financial strength. In addition to our strong
credit ratings, this is reflected in the excellent insurance financial
-46-
strength ratings assigned by both Standard & Poor's and Moody's to our operating
units in the United States, the Netherlands, and the United Kingdom.
AEGON's commercial paper programs are rated A-1+ by Standard & Poor's and P1 by
Moody's, while the outstanding senior debt is rated AA- and Aa3 and the
outstanding subordinated debt is rated A+ and A1.
Certain effects of US GAAP
- --------------------------
Net income for 2000 based on US GAAP was EUR 2,588 million compared to EUR 1,601
million in 1999. An analysis of the difference between Dutch and US GAAP is
provided in Note 5 to the consolidated financial statements.
1999 compared to 1998
- ---------------------
Net income
- ----------
Net income in 1999 showed a 26% increase from EUR 1,247 to EUR 1,570 million and
a 19% increase per share from EUR 1.08 to EUR 1.28. The 11% autonomous increase
in net income (i.e. excluding the impact of acquisitions, divestitures and
currency exchange rate differences) and earnings per share in 1999 reflects the
continuing growth of AEGON's core operations. The autonomous increase before tax
was 16%. The inclusion of the earnings from acquisitions during 1999
(Transamerica and the former UK life insurance operations from Guardian Royal
Exchange) account for a larger part of the difference between the autonomous and
reported increase in earnings. Currency exchange rate differences had a positive
effect of 2% on consolidated earnings reported in euro. The positive effect of
the Transamerica transaction on earnings per share was 3%.
Transamerica's accounts have been included as from 21 July 1999. On a Dutch
Accounting Principles basis Transamerica's non-insurance operations are
accounted for as equity participations. Declared dividends from these activities
are recognized in AEGON's earnings and offset AEGON's funding costs of these
operations.
Results of the UK life insurance businesses of Guardian Royal Exchange (GRE)
have been included in AEGON N.V.'s consolidated accounts as from 1 July 1999.
The Guardian acquisition and the related share issue had a slightly positive
effect on reported net income per share for 1999.
Beginning with 1999, Group overhead expenses are included in the line Interest
charges & Other and are no longer allocated to the lines of business and country
units. Prior year figures have been restated accordingly.
-47-
Net income Americas The United Other Total Total Increase
in EUR million Netherlands Kingdom Countries 1999 1998 %
- ------------------------------------------------------------------------------------------------------------
Life insurance (including annuities) 1,212 647 237 30 2,126 1,581 34
Accident & Health insurance 123 20 - 1 144 112 29
General insurance 2 39 - (43) (2) 33 -
Banking activities - 155 - - 155 106 46
Interest charges & Other (242) (198) 22
- ------------------------------------------------------------------------------------------------------------
Income before tax Business units 1,337 861 237 (12)
Income before tax 2,181 1,634 33
Corporation tax Business Units (463) (189) (60) 1
Corporation tax (611) (387) 58
- ------------------------------------------------------------------------------------------------------------
Net income 1999 Business Units 874 672 177 (11)
Net income 1,570 1,247 26
Net income 1998 Business Units 621 597 105 28
Revenues
- --------
Total revenues in 1999 rose to EUR 22.4 billion (USD 23.7 billion), an increase
of 30% (9% autonomous). Premium income from life insurance and pension sales
grew 36% to EUR 12.8 billion (USD 13.6 billion). Total premium income grew 30%
(10% autonomous) to EUR 15 billion (USD 16 billion), with the majority of the
difference accounted for by Transamerica and GRE. Annuity, GIC and savings
deposits, not included in premium income and revenues, increased by 100% to EUR
21.1 billion (USD 22.4 billion), also driven by increased production from AEGON
USA's autonomous operations. Investment income increased by 34% (5% autonomous).
Revenues Americas The United Other Total Total
in EUR million Netherlands Kingdom Countries 1999 1998
- ----------------------------------------------------------------------------------------------------------------
Gross premiums
Life general account single 671 456 157 34 1,318 1,236
Life general account recurring 3,032 692 34 123 3,881 2,334
Life policyholders account single 457 535 3,713 143 4,848 3,681
Life policyholders account recurring 103 1,329 1,238 85 2,755 2,162
- ----------------------------------------------------------------------------------------------------------------
Total life insurance 4,263 3,012 5,142 385 12,802 9,413
Accident and Health insurance 1,264 118 - 71 1,453 1,391
General insurance 4 402 - 319 725 746
- ----------------------------------------------------------------------------------------------------------------
Total gross premiums 5,531 3,532 5,142 775 14,980 11,550
Investment income insurance activities 4,920 1,447 99 134 6,600 4,904
Income from banking activities - 704 - - 704 626
- ----------------------------------------------------------------------------------------------------------------
Total revenues business units 10,451 5,683 5,241 909 22,284 17,080
Income from other activities 90 99
Total revenues 22,374 17,179
Investment income for the account
of policyholders 7,216 2,478 3,783 56 13,533 8,466
Gross deposits in:
Annuities and GICs 17,445 - - - 17,445 6,723
Savings accounts - 3,661 - - 3,661 3,804
-48-
Americas
- --------
(Americas comprises the results of AEGON in the USA, Canada and Mexico)
1999 1998 Change
Amounts in millions EUR EUR %
- -----------------------------------------------------------------------------------------------------------
Gross premiums life 4,263 2,509 70
Gross premiums non-life 1,268 1,223 4
Gross premiums 5,531 3,732 48
Investment income 4,920 3,306 49
Total revenues 10,451 7,038 48
Commissions and expenses 2,039 1,480 38
Income before tax 1,337 917 46
Corporation tax (463) (296) 56
Net income 874 621 41
Average exchange rate (USD per EUR) 1.061 1.111 (4.5)
Number of employees (including agents) 14,938 11,631 28
Net income in the Americas rose 34% to USD 927 million. Full year income before
tax rose 39% to USD 1,418 million (+46% in euro). The earnings increase resulted
from the inclusion of Transamerica (USD 259 million before tax), an increase in
assets under management, rising fee income and expense savings in the home
service operations.
The Transamerica transaction accounts for 3% of the increase in AEGON's earnings
per share in euro in 1999. New production of the Transamerica business units has
been stronger than originally anticipated and technical results were slightly
better than expected. Integration efforts are progressing and are on schedule.
Overall, the gross margin in the Americas increased 34%, while commissions and
expenses rose 32%.
Life insurance results, including annuities and GICs, in the Americas totaled
USD 1,285 million in 1999 (USD 921 million in 1998), marking an increase of 40%.
Gross annuity and GIC deposits rose 148% to USD 18,501 million. Life insurance
premium income (excluding annuity and GIC deposits) totaled USD 4,521 million
(USD 2,787 million in 1998). The 62% increase in life premium income was mainly
a result of the consolidation of the Transamerica activities. Life single
premiums rose 17%, whereas life recurring premium income advanced 89%.
Accident and health insurance result rose 38% to USD 131 million. Health
premiums totaled USD 1,341 million (USD 1,354 million in 1998), which reflects
the influence of run-off activities.
The earnings contribution from our joint ventures in Mexico were higher than in
1998 due to an increase in fee income at Afore Banamex AEGON (established
mid-1998) and continued good results of our life insurance joint venture Seguros
Banamex AEGON.
AEGON USA achieved another year of record performance in 1999 marked by solid
earnings growth in each division and the acquisition of Transamerica Corporation
in July. Valued at USD 10.8 billion, the Transamerica acquisition was the second
largest insurance transaction to date in US history. In addition to obtaining
one of the most widely recognized brands in the US insurance industry, AEGON USA
will benefit from various product and distribution enhancements, cost savings
and operating efficiencies.
The Transamerica acquisition made AEGON one of the largest life insurers in the
US and boosted the Americas 1999 earnings before tax to USD 1.4 billion.
Earnings growth before tax for 1999 was 39% (34% after tax), reflecting the
Transamerica acquisition, growth in the variable life and annuity markets and
further expense savings in the consolidation of the acquired Providian
activities. Sustained growth in the equity markets throughout the year continued
to drive consumer demand for equity-linked products. With growing
-49-
responsibility for retirement planning, institutions and consumers continue to
benefit from financial accumulation and protection products provided by quality
insurance companies. The highly rated operating companies of AEGON USA will
continue to offer high quality products that meet institutional and retail
consumer needs in changing market conditions.
US growth opportunities are accelerating, as baby boomers move into their
earning and retirement planning years and the country enjoys record prosperity.
The pace and scale of consolidation is also on the rise, fueled in part by the
repeal of the Glass-Steagall Act, which is increasing competition in financial
services. Thus, AEGON USA has unprecedented opportunity to harness the power of
the addition of a nationally known brand to its growing range of retail-oriented
insurance, savings and investment products. Its core business focus led to the
disposal, for USD 162 million, of the property & casualty activities acquired
with the insurance operations of Providian Corporation in 1997.
AEGON USA continues to coordinate management activities in the United States and
Canada through the Agency, Alternative Markets and Pension Groups. Growth in
earnings during 1999 for the three Groups was 8%, 7% and 24%, respectively.
Representing 41% of earnings in 1999, the Agency Group is AEGON USA's single
largest distribution channel. Customers of the Agency Group seek customized
financial planning advice from knowledgeable experts, and the professional
employee and general agents of AEGON USA excel at meeting these demands.
The divisions of the Alternative Markets Group, which produced 38% of 1999 AEGON
USA's earnings, encompass several distribution channels, including financial
institutions, brokers, direct sales, third-party marketers and partners. The
distribution diversity of this group, combined with a strong agent force,
continues to drive AEGON USA's sales by ensuring that customers can purchase
products and services through their preferred venues.
The divisions of the Pension Group remain committed to helping individual and
institutional clients save and invest wisely to achieve their retirement goals.
Producing 12% of AEGON USA's earnings in 1999, the Pension Group is solidly
positioned to take advantage of consumers increasing responsibility for personal
retirement planning.
Canada
Transamerica Canada sells universal and term life insurance and a variety of
investment products through independent agents and brokerage firms. During the
1990's, the Canadian life insurance market stagnated as the aging population
continued to shift their focus to asset accumulation. Despite this trend,
Transamerica Canada maintained solid sales growth with the introduction of a
variable universal life product designed to fill the emerging consumer needs.
Early in 2000, Transamerica Life Insurance Company of Canada and ING Canada
established a strategic marketing alliance under which Transamerica acquired
100% of NN Life Insurance Company and ING Canada will distribute life insurance
products manufactured by Transamerica. Additionally, a joint venture mutual
fund/segregated fund broker dealer operation was established, catering
specifically to life insurance intermediaries. The alliance creates the Canadian
market leader in new sales of individual life insurance and segregated funds.
Mexico
AEGON USA continues to serve Mexican consumers through its partnership with
Banamex, Mexico's largest bank. In 1999, Seguros Banamex AEGON successfully
introduced term life insurance through Banamex's 1,200 bank branches. Several
additional products followed, including variable universal life, accidental
death, group life, an immediate annuity, major medical and managed health
insurance.
-50-
Established in 1998, Afore Banamex AEGON provides pensions, savings and
investment products to Mexican employees who participated in Mexico's social
security system prior to its privatization. This business is achieving very
strong results with a 12% market share after just one year.
Producing 3% of the 1999 earnings of the Americas, the Mexican operations are
the fastest growing segment of the Americas.
The Netherlands
- ---------------
1999 1998 Change
Amounts in millions EUR EUR %
- -----------------------------------------------------------------------------------------------------------
Gross premiums life 3,012 2,626 15
Gross premiums non-life 520 539 (4)
Gross premiums 3,532 3,165 12
Investment income 1,447 1,369 6
Income from banking activities 704 626 12
Total revenues 5,683 5,160 10
Commissions and expenses 664 611 9
Income before tax 861 742 16
Corporation tax (189) (145) 30
Net income 672 597 13
Increase on 1998, excluding Labouchere 10
Number of employees (including agents) 3,048 3,633 (16)
Net income in the Netherlands totaled EUR 672 million, up 13% from 1998 (10%
excluding Bank Labouchere). The increase in total pre-tax results amounted to
16%.
Life insurance and pensions activities accounted for 75% of 1999 pre-tax income.
The growth in life insurance and pensions results was mainly due to increased
production and a related improved coverage of fixed costs together with higher
investment results. Overall gross margins increased 13%, while commissions and
expenses increased 9%.
Life insurance premium income totaled EUR 3,012 million (up 15%). The increase
in life single premium income was 17%, to a total of EUR 991 million. Recurring
life premiums increased 13% to EUR 2,021 million. Non-life insurance income
before tax totaled EUR 59 million (up 23%). Although the underwriting results
improved, the lower accident & health results are attributable to a write-off of
a reinsurance receivable. General insurance results showed a significant
increase, supported by a release of Y2K claims provisions that proved to be
unnecessary.
Pre-tax results from the banking operations were up 46% compared to 1998,
totaling EUR 155 million. The continued margin improvement contributed to the
increase in earnings from AEGON Bank.
AEGON The Netherlands had a successful year, increasing its net income by 13%,
representing 39% of the consolidated total. The Dutch Government's proposed tax
reforms are prompting a widespread review of existing pensions and insurance
coverage. AEGON The Netherlands' reorganized corporate pension activities were
able to capitalize on this, as were the various other units serving individual
consumers. AEGON The Netherlands' energetic multi-channel market approach is
typified by the innovative venture begun last year to offer easy to use in-store
financial service to customers of Albert Heijn, the country's leading
supermarket chain. Nevertheless, professional intermediaries remain its
distribution channel of choice, particularly for pensions and more complex
investment and savings products. To reinforce its relationships with its
intermediaries and improve returns, AEGON The Netherlands has acquired
Kamerbeek, one of the country's leading brokers.
Continuing the trend in recent years, Dutch consumers are increasingly taking
responsibility for financial planning into their own hands. AEGON The
Netherlands' ability to stay on top of this key trend, fielding the right
products through the right marketing channels, resulted in another year of
increased growth. The business
-51-
units serving individuals - principally AEGON Personal Lines, Spaarbeleg, Van
Nierop, AXENT/AEGON and NVG - all enjoyed buoyant demand throughout 1999 and
were all able to achieve further increases in profitability. In addition, AEGON
The Netherlands' units worked hard to capitalize on important new developments
in the market. For example, a strong housing market created renewed
opportunities for mortgage-linked insurance products, and AEGON The Netherlands'
success in this area accounted for a substantial part of the new life business
generated in 1999. Conversely, though overall savings and demand for unit-linked
products grew strongly, there was a slowing down in demand for certain more
mature products such as Spaarbeleg's Koersplan installment savings.
The significant tax reforms embodied in the Dutch Government's 2001 fiscal
program are causing investors to review their portfolios and consumers to review
their pension needs. This is creating opportunities for the professional
intermediaries, traditionally the main distribution channel for the AEGON
labeled units, to provide value-adding advice on new financial products and
services. Through training, financial and technical support and product
innovation, AEGON The Netherlands is assisting its units and its partners in
exploiting these opportunities.
The Personal Lines Competence Center, a production platform formed to provide
product and service support and expertise for AEGON Personal Lines, AXENT/AEGON
and NVG, successfully rolled out a range of general insurance and savings
products distributed also through the tied agent networks of AXENT/AEGON and
NVG. Spaarbeleg has already developed a powerful range of new products that are
"tax proof". With these products Spaarbeleg will continue its sales successes in
the years to come. Finally, in the fourth year of their existence, the direct
insurance units serving neighboring markets, MoneyMaxx Belgium and MoneyMaxx
Germany, continued to gain ground, while the start-up in Spain looks very
promising. Belgium and Germany are now profitable and the German company ranks
among the leaders in unit-linked products, the fastest growing segment of the
German market.
Since May 1999, three business units, organized along market segment lines, have
divided responsibility for the group pension, insurance and investment products
formerly amalgamated within AEGON Commercial Lines Life: Pensions and Advisory,
which works directly with major employers; the Corporate Pensions business unit,
working through agents to serve smaller and mid-sized companies; and the Asset
Management Products business unit specializing in products and services for
owner-managers, top executives and other higher income individuals affiliated
with AEGON group pension programs. Increased focus, flexibility and
responsiveness is paying off, as intensified marketing and improved service
delivery are powering a renewed increase in market share and profitable growth
despite heated competition.
Non-life Commercial Lines continued to emphasize profitability, focusing on
value-adding non-traditional approaches that differentiate AEGON The Netherlands
in this market. The innovative Prevention-Insurance-Restart (PIR) programs,
aimed at helping clients to avoid losses and to contain their impact when they
do occur, have given AEGON Non-Life Commercial Lines a distinctive market
profile and pricing consistent with the Group's return objectives. As a result,
PIR programs have been extended to cover a growing proportion of the general
insurance offering.
The NOWM unit was sold in 1999, because this specialized industrial risk insurer
does not fit into our core business.
Banking
Bank Labouchere had an excellent year, increasing its earnings by 37%. This
securities and investment-oriented bank serves both retail and institutional
clients, offering a growing range of innovative investment products, backed up
by high quality research, settlement and customer services. After attempts to
merge Bank Labouchere and AOT in the year under review failed, we reconsidered
the position of Bank Labouchere within the Group. It was decided to divest this
bank, a non-core holding, and therefore not consolidate Labouchere in AEGON's
accounts any longer.
-52-
AEGON Bank, a specialized branchless banking subsidiary devoted to supporting
the Dutch, German, Spanish and Belgian insurance and savings units, also
achieved solid profitability.
United Kingdom
- --------------
1999 1998 Change
Amounts in millions EUR EUR %
- -----------------------------------------------------------------------------------------------------------
Gross premiums life 5,142 4,026 28
Gross premiums non-life - -
Gross premiums 5,142 4,026 28
Investment income 99 101 (2)
Total revenues 5,241 4,127 27
Commissions and expenses 284 174 63
Income before tax 237 145 63
Corporation tax (60) (40) 50
Net income 177 105 69
Average exchange rate (GBP per EUR) 0.659 0.670 (1.7)
Number of employees (including agents) 4,240 2,756 54
Net income from AEGON UK totaled GBP 116 million (EUR 177 million), as compared
to GBP 70 million in 1998. The two main factors behind the 66% increase are the
inclusion of results from the acquired Guardian Royal Exchange businesses and
the fact that AEGON's share in Scottish Equitable's profits went up from 95% to
100% at the end of 1998. The growth of the in-force block of business supported
the underlying earnings growth of the AEGON UK operations. The increase in funds
under management resulted in higher income for the UK pensions and asset
management operations. The overall increase in gross margin and commissions and
expenses was 60%.
AEGON UK reported a 26% higher premium income, totaling GBP 3,386 million in
1999. Single premiums increased 24%, while recurring premiums rose 31%. New
premium production, excluding Guardian Royal Exchange, increased by 14%, based
on the industry standard of new annual premiums plus 1/10 of the single
premiums, reflecting the success of unitized pensions and other investment
products.
AEGON UK had a good year, boosting net income by 66% in GBP Scottish Equitable
developed its services to the IFA market. The acquisition of Guardian Royal
Exchange's life and pensions activities reflects our drive for strategically
balanced growth by increasing overall assets under management and adding a
leading provider of group and individual protection products, creating a
stronger capability to serve all major IFA segments. AEGON UK is therefore well
positioned to participate in the Government's Stakeholder Pensions initiative to
extend private pension coverage more broadly throughout the UK.
Scottish Equitable considers that the future of the group pension market holds
considerable potential in the new `Stakeholder' world. The key for success lies
as much with the flow of quality information and advice and the role of the
advisor as with the pricing structure of the products themselves. Scottish
Equitable has been at the forefront of delivering quality pension solutions and
believes that the advisor channel has the major role to play in delivering top
level solutions to the employer market in line with the Government's objectives
of extending the private pension provision of all individuals within the UK. The
success of this lies with the promotion, quality and accessibility of the
product supported by an appropriate level of advice. The move towards more
transparency and flexibility in pension product design has been in motion in the
UK for some time now, driven and shaped by the bigger companies.
At the same time the methods used in the delivery of group pension business are
moving firmly into the technological age. Scottish Equitable is currently
supporting a number of industry-wide technology initiatives and is playing a
leading role in their development. Additionally Scottish Equitable delivered a
major group pension technology initiative - SmartScheme - in the course of the
year. SmartScheme sets an electronic
-53-
standard for group pension business in terms of a fast, accurate, accessible and
confidential information exchange among advisor, employer, employee and
provider. The vast majority of Scottish Equitable's group pension business is
now dealt with electronically.
Scottish Equitable also made strides forward in other market segments in
particular with its investment bond product which saw an increase in new
business volume of 130% resulting in a significant increase in market share.
Scottish Equitable Asset Management
Scottish Equitable Asset Management, formed as a separate company on 1 January
1999, focuses on providing asset management services and institutional and
retail asset management products. It recorded a significant increase in assets
under management in 1999, reflecting impressive increases in new business volume
flowing through the Scottish Equitable sales channel, bolstered by the GBP 10
billion of new funds gained as part of the Guardian transaction. The new funds
were added at a modest incremental cost as the Guardian Asset Management
infrastructure was not acquired as part of the transaction. The larger book of
assets is delivering an increased revenue stream, a stronger profile and more
bargaining power in the market - particularly for investment only services, a
key growth target for the team over the coming year.
Scottish Equitable International Holdings
1999 saw further growth in both the UK market (+23%) and the Italian business
activity (+25%) of Scottish Equitable International Holdings. Its Italian
business was slow in the first half of 1999 as market uncertainties reduced
investor confidence, but recovered strongly in the last quarter as new products
came on stream. The business, with assets approaching GBP 1 billion, is now
generating good profits for AEGON UK.
Other Countries
- ---------------
Hungary
- -------
1999 1998 Change
Amounts in millions EUR EUR %
- -----------------------------------------------------------------------------------------------------------
Gross premiums life 102 93 10
Gross premiums non-life 89 91 (2)
Gross premiums 191 184 4
Investment income 91 84 8
Total revenues 282 268 5
Commissions and expenses 76 80 (5)
Income before tax 44 40 10
Corporation tax (4) (2) 100
Net income 40 38 5
Average exchange rate (HUF per EUR) 253.020 237.725 6.4
Number of employees (including agents) 845 1,591 (47)
Powered by strengthening economic recovery in Continental Europe, and
particularly Germany, the Hungarian economy performed well in 1999. Inflation
continued to fall while increased modernization and integration into the world
economy accelerated as the country prepared to join the European Union. Foreign
investment remained at high levels, and the local financial services and
security markets continued to develop.
The AB Composite division, Hungary's leading household insurer with a market
share of about 50%, saw its 1999 results burdened by extraordinary storm and
flood damage. Despite increased claims, however, the quality of customer service
increased and complaints fell. During the year, AB Composite enjoyed
considerable success in emphasizing its individual life and pension activities
to its mass-market clientele and today it is Hungary's second largest provider
of individual pensions. New product introductions, particularly the Euro 2000
unit-
-54-
linked product line, have driven volume growth in the life segment and have
enabled AB Composite to improve portfolio quality and accelerate conversion of
unprofitable policies dating back to its days as a state-owned insurer.
Following last year's shift in sales agents from employment status to
entrepreneurs, the network distribution infrastructure was further strengthened.
In addition, renewed agent recruitment, continued investment in repositioning
and revitalizing the AB Composite brand and new modes of distribution, including
internet and new cooperative ventures with several foreign banks operating in
Hungary, should all contribute to further progress by AB Composite in the years
to come.
AEGON Corporate, serving the corporate pension market, continued to build its
clientele among larger local and international companies. The AEGON Pension Fund
Management unit works closely with AEGON Life and AB Composite in providing
comprehensive coverage in Hungary's partially privatized pension market.
AEGON Life further expanded its sales force from 180 to about 300 and was able
to meet its ambitious growth targets. Competition from international insurers is
hottest in its segment, modern life insurance and savings products aimed at
Hungary's emerging upper middle class, and success depends on the quality of
marketing as well as on the design of the product itself. Product enhancement in
1999 included a variety of new health insurance riders available as options on
high value life policies. With its infrastructure modernized and under an
aggressive new management team AB-AEGON expects to accelerate its growth in
2000.
Spain
- -----
1999 1998 Change
Amounts in millions EUR EUR %
- -----------------------------------------------------------------------------------------------------------
Gross premiums life 203 113 80
Gross premiums non-life 295 280 5
Gross premiums 498 393 27
Investment income 36 37 (3)
Total revenues 534 430 24
Commissions and expenses 98 92 7
Income before tax (56) (8) -
Corporation tax 5 3 -
Net income (51) (5) -
Average exchange rate (ESP per EUR) 166.386 165.942 0.3
Number of employees (including agents) 750 733 2
For the industry and consequently also for AEGON Spain, continued, rapid
deterioration of the motor insurance business more than offset progress in other
areas during the past few years and resulted in a loss.
The net loss in Spain amounted to EUR 51 million, resulting from a necessary
strengthening of the technical provisions to an amount of EUR 53 million.
Improvements in underwriting and reserving policies have been implemented.
The Spanish motor segment has suffered extreme price competition, predatory
pricing and mounting claims losses. To cope with this AEGON Spain has pursued a
strategy of greater selectivity and further internal cost reduction,
particularly through information management and automation. With the latest
downward lurch of the market in 1999, the scope of both these efforts has
expanded into an all-out campaign to eliminate unprofitable business. This has
required a real culture shift among AEGON Spain's branch managers who are
focusing now more than ever on the bottom line results.
-55-
Principally reflecting the entry of direct insurers other general insurance
lines besides motor have also suffered price erosion, but to a more manageable
degree.
Health insurance activities continued to achieve profitable growth in a highly
fragmented market. Anticipating the reform of Spain's troubled National Health
System, the health division is concentrating on developing a solid product, a
professional sales network and a good administrative base to support future
growth.
In contrast to general insurance, life insurance activities continued to record
exceptional growth and solid profitability. AEGON Spain continued to
successfully expand its life insurance activities. Growth in new life insurance
production was higher than the market average. Premium income in 1999 rose by
79% and accounted for 41% for AEGON Spain's total premiums, versus 29% in 1998.
MoneyMaxx
- ---------
The MoneyMaxx operations in Germany and Belgium, which offer unit-linked
insurance using phone, mail and internet direct marketing, were both profitable
in 1999. The German operation is now selling over 40,000 insurance contracts a
year, making it one of the country's top providers of unit-linked insurance.
Encouraged by successes in the Netherlands, Belgium, Germany and the promising
start of these activities in Spain, this concept is being launched in other
European countries.
Asia
- ----
AEGON's commitment to Asia continued to develop in 1999, with existing AEGON
units in Taiwan and the Philippines bolstered by the addition of Transamerica
units in Taiwan and Hong Kong. In addition, the Group maintains representative
offices in two of the region's highly populated countries, China and India.
AEGON Taiwan
AEGON Taiwan achieved strong organic growth in 1999, offering individual life
insurance through an agency network. In contrast to many of its Asian neighbors,
Taiwan's economy has remained strong, but consolidation pressures continue to
build in the insurance sector following the large-scale entry of foreign
competitors in the wake of deregulation. AEGON Taiwan is positioning itself to
benefit from the consolidation process by developing a solid base and a well
regarded brand name.
AEGON Philippines
The cooperation with the local arm of the World Marketing Alliance, a key
partner of AEGON USA, to offer variable life insurance to Filipino consumers,
continued to develop, as the Philippine economy showed signs of recovery in
1999.
Equity and subordinated loans
- -----------------------------
During 1999 AEGON's capital base changed substantially, mainly as a result of
acquisitions. Shareholders' equity increased from EUR 7.9 billion (USD 9.3
billion) to EUR 13.5 billion (USD 13.6 billion). Most of the increase resulted
from issuance of new shares to Transamerica shareholders (EUR 5.4 billion) and a
private placement to Vereniging AEGON (EUR 0.7 billion) to fund part of the
Guardian acquisition. Realized and unrealized results on the equity and real
estate investment portfolio (EUR 1,371 million), retained earnings (EUR 773
million) and exchange rate differences (EUR 1,051 million) also contributed to
the increase. Shareholders' equity was negatively effected by goodwill (EUR
3,133 million) mainly with respect to the acquisition of Transamerica, share
repurchases to hedge AEGON's staff and management option plans (EUR 315 million)
and cash settlement of stock option plans (EUR 47 million) and convertible
subordinated loans (EUR 69 million).
To facilitate the debt funding related to the Transamerica acquisition, AEGON
founded AEGON Funding Corp. during 1999. Funding raised by this entity enjoys a
full and unconditional guarantee from AEGON N.V. AEGON Funding Corp. raises
funds through a USD 4.5 billion Global Commercial Paper program. In addition,
AEGON Funding Corp. issued USD 400 million of 7% bonds due in 2004 and USD 350
million of 6 3/4% bonds due in 2002 in several tranches in the second half of
1999. AEGON N.V. issued two public bonds in 1999. In
-56-
August, CHF 300 million of 3 1/8% bonds due in 2004 was issued. AEGON accessed
the long dated Sterling market in December with GBP 250 million of 6 1/8% bonds
due in 2031. With regard to other funding activities operational funding
requirements were lower in 1999 than in preceding years as a result of
securitization programs carried out by Labouchere.
AEGON has further employed its excellent access to the capital markets through
private placements issued under its USD 1,500 million Euro Medium Term Notes
Program. Additionally, a USD 2,000 million Euro Commercial Paper Program
facilitates access to international and domestic money markets when required.
AEGON maintains back-up credit facilities for outstanding debt under its
Commercial Paper programs.
The composition of the capital base changed during 1999. As a percentage of
total capital, equity decreased to 71% from 75% at year-end 1998. AEGON's
financial policies require that shareholders' equity makes up at least 70% of
total capital in order to maintain strong capitalization. These self-imposed
standards substantially exceed those of regulatory bodies in the various
countries. We manage to these standards through application of our financial
strategies and policies, including acquisition funding and dividend policies. We
remain committed to a strategy, which assures continued financial strength. In
addition to our strong credit ratings, this is reflected in the excellent
insurance financial strength ratings assigned by both Standard & Poor's and
Moody's to our operating units in the USA, the Netherlands, and the UK.
Capital Base
in EUR million 1999 in % 1998 in %
- ----------------------------------------------------------------------------------------------------
Shareholders' Equity 13,543 71 7,934 75
Capital securities 1,329 7 904 9
Dated subordinated debt 703 3 684 6
Senior debt allocated to insurance activities 3,583 19 1,041 10
- ----------------------------------------------------------------------------------------------------
Total Capital Base 19,158 100 10,563 100
Certain effects of US GAAP
- --------------------------
Net income for 1999 based on US GAAP was EUR 1,601 million compared to EUR 1,471
million in 1998. An analysis of the difference between Dutch and US GAAP is
provided in Note 5 to the consolidated financial statements.
Liquidity and capital resources
Liquidity in the insurance industry generally refers to the ability of a company
to meet all of its cash requirements with funds provided from normal cash flow
from operations. AEGON's net cash provided by operating activities, calculated
in accordance with International Accounting Standard 7, for the three years
ended 2000 amounted to EUR 3.0, 21.6, and 15.5 billion respectively. Net cash
used in investing activities was EUR 7.0, 24.1 and 12.3 billion respectively,
while net cash provided by (used in) financing activities amounted to EUR 3.7,
2.4, and (3.1) billion for these years.
Cash flows from operations have been sufficient to fund normal operating needs.
Due to continuous positive cash flows, AEGON has never encountered difficulties
in arranging desired short term borrowings. AEGON anticipates that cash flow
will continue to be sufficient to service its fixed and other obligations as
they become due. When capital market circumstances are attractive, AEGON
periodically borrows short term funds to invest in anticipation of premium
receipts expected in the near future from interest-sharing policies in order to
fix a positive spread between the yield earned on the investment and the
interest to be paid on the related policies.
The Company's long-term liabilities increased from EUR 3,703 million at year-end
1999 to EUR 4,025 million at year-end 2000. Subordinated loans decreased to EUR
683 million at year-end 2000 from EUR 703 million at year-end 1999 and capital
securities increased to EUR 1,820 million at year-end 2000 from EUR 1,329
million at year-end 1999.
-57-
As a holding company, AEGON is dependent on dividends from, and repayment of
debt obligations of its subsidiaries for cash to meet its operating expenses and
pay dividends to its shareholders. Certain of AEGON's direct and indirect
subsidiaries in the US are subject to restrictions on the amount of dividends
and debt repayments that can be made to AEGON and its affiliates. AEGON does not
believe that such restrictions constitute a material limitation on its ability
to meet its obligations.
Subsequent events
On March 8, 2001 AEGON announced that it had entered into a binding agreement
providing for AEGON's acquisition of J.C. Penney's Direct Marketing Services
operations for USD 1.3 billion in cash. The transaction will be financed with
the proceeds of an equity offering of AEGON N.V. common shares to be executed in
the course of 2001. As part of the agreement, J.C. Penney and AEGON, will enter
into a 15 year strategic marketing alliance designed to offer an expanded range
of financial and membership services products to J.C. Penney customers. The J.C.
Penney Direct Marketing Services businesses will operate as a part of the AEGON
USA companies. The transaction is anticipated to be finalized during the second
quarter of 2001 and will be subject to customary conditions of closing,
including receipt of the usual approvals of regulatory bodies.
Item 6. Directors, Senior Management and Employees
The Company is managed by an Executive Board, which members are employed by
AEGON N.V. The activities of the Executive Board are subject to the general
supervision of the Supervisory Board which appoints the members of the Executive
Board. Members of the Executive Board are appointed for an indefinite period and
generally retire in the year they reach the age of 62.
Certain transactions affecting AEGON as a whole, such as the issuance or
cancellation of shares, application for listing on a stock exchange, major
acquisitions, major capital expenditures and all matters concerning substantial
changes in employee relations require the approval of the Supervisory Board.
The Supervisory Board appoints its own members. The Executive Board, the General
Meeting of Shareholders, and the Central Works Council may recommend candidates.
The latter two also have a right to object to candidates proposed for
appointment by the Supervisory Board. No employee of AEGON is eligible for
appointment to the Supervisory Board. Members of the Supervisory Board are
appointed for a maximum term of four years and may be re-appointed. However,
members are required to retire in the year in which they reach the age of 70.
Set forth below is certain information concerning the members of the Executive
and Supervisory Boards of the Company.
Executive Board
- ---------------
Kees Storm started his career at an accountancy firm in 1970. In 1976 he became
Chairman of the Executive Board of Scholten-Honig. He joined one of AEGON's
predecessors in 1978 as member of the Executive Board. In May 1993 he became
Chairman of the Executive Board of AEGON N.V.
Paul van de Geijn started his career at one of AEGON's predecessors in 1971 at
the legal department. In 1984 he became Vice-president of AEGON N.V. and in 1986
he became a member of the Executive Board of AEGON Nederland N.V. and since 1991
he is also CEO of AEGON The Netherlands. In 1992 he joined the Executive Board
of AEGON N.V.
Don Shepard began his career with Life Investors in 1970. Serving in various
management and executive functions with Life Investors, he became Executive Vice
President and Chief Operating Officer in 1985, a position he held until AEGON
consolidated its other USA operations with Life Investors to form AEGON USA
-58-
in 1989. He became a member of the Executive Board in 1992 and currently he is
also Chairman, President and CEO of AEGON Americas.
Jos Streppel started his career in 1973 at one of AEGON's predecessors in
several treasury and investment positions. In 1987 he joined the Executive Board
of FGH Bank. In 1991 he became CEO and Chairman of Labouchere and in 1995 also
of FGH Bank. In 1997 he became Chief Financial Officer of AEGON N.V. and head of
the Finance department. Since May 2000 Streppel is a member of the Executive
Board of AEGON N.V.
As per December 31, 2000 members of the Executive Board held an aggregate number
of 764,073 shares in the company and 2,580,000 options on AEGON shares (see Note
2(g)).
Supervisory Board
- -----------------
D.G. Eustace, 64 (British), is Chairman of Smith+Nephew plc (London, UK) and
former Vice-Chairman of Royal Philips Electronics N.V. He joined the Board in
1997; his current term will end in 2001. He is Chairman of the Audit Committee.
He is a member of the Supervisory Board of three Dutch companies, among which
Royal Dutch Airlines (KLM) and Royal KPN.
Sir Michael Jenkins, K.C.M.G., 65 (British), is Vice-Chairman of Dresdner
Kleinwort Wasserstein (London, UK). He was appointed in 1995; his current term
will end in 2003. He is a member of the Compensation Committee. He is also a
former British Ambassador to the Netherlands and a member of the Trilateral
Commission.
O.J. Olcay, 64 (American), is Vice-Chairman and Managing Director of Fischer,
Francis, Trees & Watts, Inc. (New York, USA). He joined the Board in 1993; his
current term will end in 2004. Mr. Olcay is also a member of the Nominating
Committee. He is Chairman of FFTW Funds Inc. in New York, FFTW Funds Selection
in Luxembourg and FFTW Funds in Dublin.
Ms. K.M.H. Peijs, 56 (Dutch), is a member of the European Parliament. She was
appointed in 1992; her current term expires in 2004. Ms. Peijs is a member of
the Nominating Committee. She is also a Supervisory Board member of Royal Vendex
KBB and DaimlerChrysler Nederland.
J.F.M. Peters, 69 (Dutch), is a retired Chairman of the Executive Board of AEGON
N.V. He was appointed in 1993; his current term will end in 2001, when he will
reach the statutory retirement age. He is also a member of the Audit Committee.
He is a member of the Supervisory Boards of eight Dutch companies, among which
Randstad Holding and Samas Groep, and of the Boards of Pharmacia (New York, USA)
and Dresdner Endowment Policy Trust Plc. (London, UK) and further holds, among
others, memberships of Trust offices on behalf of a number of Dutch companies.
G.A. Posthumus, 68 (Dutch), is a member of the Council of State in The
Netherlands. He joined the Supervisory Board in 1997; his current term expires
in 2001. He is also a former member of the Executive Board of the I.M.F.
Mrs. T. Rembe, 64, American nationality, is a partner of Pillsbury Winthrop LLP
(San Francisco, USA). She joined the Board in 2000; her current term will end in
2004. She is a member of the Board of Directors of Potlach Corporation (USA) and
SBC Communications (USA)
H. de Ruiter, 67 (Dutch), Vice-Chairman, is a retired Managing Director of Royal
Dutch Petroleum Company and Group Managing Director of Royal Dutch/Shell Group
of Companies. He was appointed in 1993; his current term will end in 2004. He is
a member of the Audit, Compensation and Nominating Committees, respectively. He
is also a member of the Executive Committee of Vereniging AEGON and of Trust
offices on behalf of some Dutch companies of the Supervisory Board. He is a
member of the Supervisory Boards of six Dutch companies,
-59-
among which Royal Dutch Petroleum Company, Royal Ahold and Royal Vopak and a
Board member of Corus Group.
W.F.C. Stevens, 63 (Dutch), is a senior partner of Caron & Stevens/Baker &
McKenzie. He joined the Board in 1997; his current term will end in 2001. He is
a member of the Supervisory Boards of eight Dutch companies, among which NIB
Capital and TBI Holdings, aside from some Board memberships which are exercised
in relation to his principal occupation. Furthermore, he is a senator in the
First Chamber of the Dutch Government.
M. Tabaksblat, 63 (Dutch), Chairman, is Chairman of Reed Elsevier PLC and a
retired Chairman and CEO of Unilever. He was appointed in 1990; his current term
expires in 2001. He is the chairman of the Compensation and Nominating
Committees and a member of the Audit Committee, respectively. He is also a
member of the Supervisory Board of TNT Post Groep and of the Advisory Boards of
Ernst & Young, Salomon Smith Barney (USA) and Renault Nissan. He is also a
member of the Executive Committee of Vereniging AEGON.
F.J. de Wit, 61 (Dutch), is a former Chairman of the Executive Board of Royal
KNP BT. He was appointed in 1990; his current term will end in 2004. He is a
member of the Compensation Committee. He is also a member of the Supervisory
Boards of Oce and PontEecen.
Ownership of AEGON N.V. shares
The aggregate amount of AEGON N.V. common shares hold by the Supervisory Board
members was 49,447 as per December 31, 2000. Members of the Supervisory Board do
not hold options on AEGON N.V. shares.
Supervisory Board Committees
Without prejudice to its responsibility, the Supervisory Board has constituted
three Committees from among its members to deal more extensively with specific
matters. Each Committee has four members.
The Audit Committee, active since 1983, held two meetings in 2000. All Executive
---------------
Board members, the Directors of the Group Finance Department and the Corporate
Actuarial Department and Ernst & Young, AEGON's external auditor, also attended
these meetings.
Discussions in 2000 were again focused on the Committee's permanent agenda: the
annual accounts and the auditing of these accounts by Ernst & Young; accounting
principles; internal control systems; actuarial analyses; AEGON's "Funding Plan"
and "Currency Exposure". The Audit Committee subsequently advised the
Supervisory Board on its findings.
The Chairman and the Vice-Chairman of the Supervisory Board and Messrs.
Tabaksblat and Peters were members of the Audit Committee. Following Mr. Van
Schaik's retirement on May 4, 2000, Mr. Tabaksblat became Chairman and Mr.
Eustace joined as a member. In order to emphasize the Committee<180>s
independence, Mr. Eustace has been appointed as Chairman of the Audit Committee
as from March 8, 2001; Mr. Tabaksblat will then be a member. In accordance with
the Charter of the Audit Committee, all members are highly experienced and
competent in financial and accounting matters.
The Compensation Committee, active since 1989, held two meetings in 2000,
----------------------
attended also by the Executive Board's Chairman. Discussions concentrated on the
remuneration of the Supervisory Board and Executive Board members and the stock
options for the Executive Board members. The Supervisory Board's Chairman and
Vice-Chairman, and Sir Michael Jenkins and Mr. De Wit are members of this
Committee.
The Nominating Committee, active since 1993, also held two meetings, attended
--------------------
also by the Executive Board's Chairman. The Committee discussed the appointment
of Mr. Streppel as the successor of Mr. Van Wijk, Mr. Herringer's resignation as
a member of the Executive Board, the composition of the Executive Board and the
reappointment of Supervisory Board members. The Supervisory Board's Chairman and
Vice-Chairman and Ms. Peijs and Mr. Olcay are members of this Committee.
-60-
Compensation of Directors and Officers
Remuneration of active and retired members of the Executive Board
in thousands of EUR
Performance
related Total Total
Salary payments/1/ Pension 2000 1999
P. van de Geijn 458 402 80 940 948
D.J. Shepard/2/ 1,083 1,201 746 3,030 2,503
K.J. Storm 617 543 108 1,268 1,280
J.B.M. Streppel (as of May 4, 2000) 306 - 53 359 -
------ ------ ------ ------ -----
Total active members 2,464 2,146 987 5,597 4,731
Retired members 519 402 172 1,093 1,417
------ ------ ------ ------ -----
Total 2,983 2,548 1,159 6,690 6,148
/1/ Under an annual bonus scheme of EUR 22,700 (NLG 50,000) per member per
percent point increase in the preceding year earnings per share over the rate of
inflation, with a maximum of that year's salary. The USA boardmembers have an
additional shortterm incentive plan based on prior year's earnings increase.
/2/ The increase is mainly due to the EUR/USD currency effect.
Remuneration of members of the Supervisory Board amounted to EUR 336,000 (1999:
EUR 355,000 1998: 0.3 million), of which EUR 16,000 was related to retired
members of the Supervisory Board.
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Stock options and interests in the company of active members
Stock options Stock options Shares held
Balance at Exercise Exercise Market Balance at Exercise in the company
Juanuary, 1 price Granted price Exercised Date price December, 31 price December, 31
EUR EUR EUR EUR
P. van de Geijn 120,000 9.79 120,000 4-12 44.33 - - 226,722
200,000 17.36 0 - - 200,000 17.36
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
D.J. Shepard 200,000 9.79 200,000 8-18 45.15 - - 276,170
200,000 17.36 0 - - 200,000 17.36
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
K.J. Storm 200,000 17.36 0 - - 200,000 17.36 261,181
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
J.B.M. Streppel 50,000 17.36 0 - - 50,000 17.36 -
50,000 29.02 0 - - 50,000 29.02
40,000 46.95 0 - - 40,000 46.95
40,000 34.50 0 - - 40,000 34.50
The criteria for the number of options offered to the members of the Executive
Board are as follows:
1. Comparison of the AEGON share price with a peer group of 9 Financials (AIG,
Allianz, AXA, Generali, Prudential, Zurich, ABN Amro, Fortis, ING). The
comparison is based on a moving average over the last three years.
2. When AEGON finishes in the top three each person receives the maximum of
200,000 options, in the bottom three 50,000 per person and in the middle four
100,000 per person.
3. If there is no increase in earnings per share, no options will be offered.
The expiration dates of the options are as follows: Exercise price Expiration date
9.79 November 1, 2001
17.36 November 1, 2002
29.02 March 23, 2003
46.95 March 6, 2004
34.50 March 14, 2005
Employees and Labor Relations
At the end of 2000, AEGON had 24,109 employees. Approximately 61% are employed
in America, 13% in The Netherlands, 19% in the United Kingdom and 7% in Other
countries. All of the Company's employees in The Netherlands, other than senior
management, are covered by collective labor agreements which are generally
renegotiated annually on an industry wide basis. In The Netherlands, employment
agreements are generally collectively negotiated by all companies within a
particular industry and then individual companies enter into employment
agreements with their employees based on the relevant collective agreement.
Since its founding, AEGON has participated in collective negotiations in the
insurance industry and has based its employment agreements with its employees on
the relevant collective agreement. The collective agreements are generally for
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one year duration. The Company has experienced no significant strike, work
stoppage or labor dispute in recent years.
Under Dutch law, the Central Works Council of the undertakings of AEGON in The
Netherlands, whose members are elected by the employees, has certain defined
powers, including the right to make non-binding recommendations for appointments
to the Company's Supervisory Board and the right to enter objections against
proposals for appointments to the Supervisory Board.
In today's volatile labor market it is more important than ever to retain and
develop our employees. In the Netherlands, for example, flexibility in labor
arrangements increases our appeal as an attractive employer. Equally, employee
benefits are regarded as vital elements of our labor agreements. Across our
entire Group, training programs have been initiated on all levels in the
organization to maintain and further improve our human resources. AEGON
University started its seventh annual program in which people from across the
Group participated in lectures and intensive workshops by top scholars from
leading academic institutions. Scottish Equitable Employee Benefits, part of our
operation in the UK, received the Award for Customer Service Excellence, a
prestigious Merit Award backed by the Institute of Customer Service and the
Society of Consumer Affairs Professionals. Scottish Equitable received the award
because it was recognized that training and performance in the fields of
employee benefits and quality customer service provides a key competitive
advantage, particularly in the IFA market. As part of the Transamerica
integration, AEGON USA set up the Respectful Workplace Program, emphasizing the
importance of maintaining a work environment that is comfortable for everyone.
The theme of the 2000 program was 'Everyone is a Customer' which enhanced a
dialogue among employees on respectful treatments of each other and of
customers. This program provided key information on a culturally diverse work
environment, available mechanisms and training. Other initiatives completed
during the year included a new collective labor agreement negotiated by AEGON
The Netherlands, which gives employees more flexibility in scheduling their
working hours, and a Balance Score Card system to measure employee satisfaction
which was introduced by AB-AEGON.
The average number of employees per geographical area was:
2000 1999 1998
Americas 14,987 12,857 11,046
The Netherlands 3,059 3,786 3,744
United Kingdom 4,404 3,255 2,609
Other countries 1,927 2,172 4,562
------ ------ ------
24,377 22,070 21,961
Of which agent-employees 4,112 4,647 6,260
Item 7. Major Shareholders and Related Party Transactions
At balance sheet date AEGON N.V. had one shareholder holding an interest of more
than 5%, as during 2000 ING Group disposed of its 5.2% interest in AEGON N.V.
The remaining major shareholder is the Dutch association "Vereniging AEGON", an
independent shareholder of AEGON N.V.
Vereniging AEGON is the continuation of the former mutual insurer AGO. In 1978
AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding
N.V., which was the holding company of its insurance operations. In 1983 AGO
Holding N.V. and Ennia N.V. merged into AEGON N.V. Vereniging AGO initially
received approximately 49% of the common shares (which shareholding was reduced
gradually to 40%) and all of the preferred shares in AEGON N.V., giving it
voting majority in AEGON N.V. and changed its name to Vereniging AEGON.
-63-
The objective of the Vereniging is the balanced representation of the interests
of AEGON N.V. and all of its stakeholders, i.e. AEGON group companies, insured
parties, employees, shareholders and other relations of the said companies.
In accordance with the stipulations of the 1983 Merger Agreement the Vereniging
has a majority vote at the general meeting of shareholders of AEGON N.V. This is
achieved by holding a minority interest in common shares and holding all issued
preferred shares in AEGON N.V. As of December 31, 2000 this voting right stood
at 53% (1999: 53%) and the Vereniging held 37% (1999: 33%) of the common shares
in AEGON N.V. The holding of common shares is intended to be increased gradually
to approximately 40% while the holding of preferred shares will be reduced
simultaneously.
Number of Percent Number of Percent
shares owned of class shares owned of class
------------ -------- ------------ --------
Number of shares Preferred Common
As of January 1, 2000 285,000,000 221,871,948
Adjustment for stock split 285,000,000 221,871,948
Sold at par value (130,000,000)
Stock dividends received 7,211,085
Purchase at an average price of EUR 38.06 per share 48,703,020
As of December 31, 2000 440,000,000 100 499,658,001 37
As of December 31, 2000 the General Meeting of Members of the Vereniging
consisted of 20 elected members. Sixteen of these are not, nor have been an
employee or former employee of AEGON N.V., nor an employee or former employee of
a company associated with AEGON N.V. in a group, nor a (former) member of the
Supervisory Board or the Executive Board of AEGON N.V. They hold the majority of
the voting rights. Of the four other members two are elected from among the
members of the Supervisory Board and two are elected from among the members of
the Executive Board of AEGON N.V.
The Vereniging has an Executive Committee consisting of eight members, half of
whom, including the chairman and the vice-chairman, are not, nor have been
associated with the AEGON Group; the other half consists of the four above
mentioned members who hold a position within AEGON N.V. When a vote in the
Executive Committee results in a tie, the General Meeting of Members has the
deciding vote.
Based on information that has been collected from custodians and registers,
AEGON estimates that American shareholders in total hold approximately 256
million AEGON shares (New York shares and bearer shares) at December 31, 2000.
Interest of Management in Certain Transactions
Not applicable
Item 8. Financial Information
See Item 18.
Legal Proceedings
Some of the Company's subsidiaries and affiliates are parties to litigation in
the ordinary course of their business, including litigation where compensatory
or punitive damages are sought. The Company believes that resolution of these
suits will have no material impact on the Company.
-64-
Dividend policy
Since its foundation in 1983 AEGON has declared interim and final dividends
annually. Each year a final dividend has been paid (around May) upon approval of
the annual accounts at the Annual General Meeting of shareholders. Interim
dividends have been paid (around August) after the release of the six months
results. The pay-out ratio of 47% has been unchanged from 1995. Usually the
dividends have been made available in cash or in stock at the option of the
shareholder. The value of the stock alternative may differ slightly from the
value of the cash option. Under normal circumstances the interim dividend is
equal to 50% of the total dividend of the preceding year. Dividends are based on
net income per share.
Item 9. The Offer and Listing
Since the merger of AGO and Ennia in November 1983, the principal market for
AEGON's Common Shares has been Euronext Amsterdam. The Company's Common Shares
are also listed on the New York Stock Exchange (NYSE) and the Frankfurt, London,
Tokyo and Zurich stock exchanges.
The table below sets forth, for the calendar periods indicated, the high and low
closing prices of AEGON's Common Shares on Euronext Amsterdam as reported by the
"Officiele Prijscourant", the official daily newspaper of the association of
brokers and securities dealers in The Netherlands and the high and low sales
prices on the New York Stock Exchange. Share prices have been adjusted for all
stock splits through December 31, 2000.
Amsterdam New York
Exchanges (EUR) Stock Exchange (USD)
------------------ ----------------------
High Low High Low
1996 12.49 7.59 15.82 10.32
1997 20.49 12.35 22.47 15.35
1998 53.12 20.84 62.88 22.28
1999 55.47 34.75 65.00 36.07
2000 48.30 33.58 49.12 32.12
1999
first quarter 55.48 41.15 65.00 44.50
second quarter 45.60 35.18 48.53 36.97
third quarter 42.60 34.75 44.50 36.07
fourth quarter 47.95 39.75 48.44 42.50
2000
first quarter 48.23 33.58 49.13 32.13
second quarter 44.37 36.42 42.56 34.50
third quarter 45.65 36.36 41.25 33.06
fourth quarter 48.30 42.75 42.88 35.81
September 2000 43.96 38.71 39.44 33.06
October 2000 47.36 42.75 40.38 35.81
November 2000 48.30 45.26 41.31 38.88
December 2000 48.30 43.47 42.88 39.25
January 2001 44.06 38.61 41.56 36.00
February 2001 41.55 34.71 38.60 32.15
Trading on Euronext Amsterdam is in euros as per January 4, 1999. Prior year
figures have been translated at a rate of EUR 1 = NLG 2.20371.
-65-
AEGON's common shares (1,351 million outstanding at December 31, 2000) are held
by shareholders worldwide in bearer and registered form. In The Netherlands 507
million shares are in registered form (of which 475 million shares are held by
Vereniging AEGON). In the United States 134 million shares are "Shares of New
York Registry" (New York shares). Based on information that has been collected
from custodians and registers, AEGON estimates that American shareholders in
total hold approximately 256 million AEGON shares (New York shares and bearer
shares) at December 31, 2000. Bearer shares and registered shares may be
exchanged on a one for one basis. On Euronext Amsterdam only bearer shares may
be traded and on the New York Stock Exchange only New York shares may be traded.
Item 10. Additional Information
Memorandum and Articles of Association
1. The Company is registered under number 27076669 in the Commercial
Register of the Chamber of Commerce and Industries for Haaglanden, The
Hague, The Netherlands. The company's objects-clause is described in
article 3 of its articles of association as follows:
(1) The objectives of the Company are to incorporate, acquire and
alienate shares and interests in, to finance and grant security
for commitments of, to enter into general business relationships
with and to manage and grant services to legal entities and other
entities, in particular those involved in the insurance business,
as well as to conduct any other activity which might further
advance these objectives. These objectives shall be construed as
broadly as possible.
(2) In achieving the aforesaid objectives due regard shall be taken,
within the scope of sound business operations, to provide fair
safeguards for the interests of all the parties directly or
indirectly involved in the Company.
2. (a) no provisions. In case of conflicting interests, the law provides
that the company should be represented by the supervisory board
(see under 9).
(b) no provisions (see under 9)
(c) no provisions (see under 9)
(d) no provisions for executives. Supervisory Board directors should
retire at the age of 70 years (see under 9.)
(e) no provisions, no requirements.
3. The company has 2 types of shares:
(i) ordinary shares,
(ii) preferred shares.
Both types have the following common characteristics:
(a) all shares have dividend rights except for those shares (if any)
held by the company as treasury stock. Dividends, which have not
been claimed within 5 years, shall lapse to the company;
(b) each outstanding share is entitled to one vote except for shares
held by the company as treasury stock. There are no upward
restrictions. Directors are not appointed by shareholders - see
under 9;
(c) all shares have the right to share in the company's net profits.
Net profits is the amount of profits after contributions if any
to a surplus fund and preferred dividend on preferred shares (see
below);
(d) all shares have the right to share in any surplus in the event of
liquidation after settlement of all debts;
(e) The general meeting of shareholders may resolve on a decrease of
the outstanding capital either by (i) repurchase of shares by the
company followed by cancellation or (ii) by a decrease of the
nominal share value.
-66-
On a proposal of the executive board the general meeting of
shareholders may also resolve on repayment, in whole or in part,
of the paid in capital on the preferred shares.
(f) no provisions;
(g) shares are issued fully paid up so no liability to further
capital calls is involved;
(h) no provisions.
Differences between ordinary and preferred shares:
ordinary shares are listed;
preferred shares are non-listed.
- Dividend on preferred shares is restricted to a fixed rate at a
certain percentage as set by the European Central Bank for basic
refinancing transactions increased by 1.75%.
- Any credit balance after settlement of all debts will first be
allocated (as far as possible) to repayment of the paid in
capital on the preferred stock.
4. In order to change the right of holders of stock the Articles of
Association have to be amended to that respect. The General Meeting of
Shareholders (Annual General Meeting or Extraordinary General Meeting)
may only pass a resolution for an amendment of the articles upon a
proposal of the Executive Board, which is approved by the Supervisory
Board.
The resolution should be taken by a majority vote in a meeting with a
quorum of at least 50% of the outstanding shares present or
represented. The actual change of the text of the articles will be
executed by a civil law notary upon certification of no objections by
the Minister of Justice.
5. Annual General Meetings and Extraordinary General Meetings of
Shareholders shall be convened for holders of shares to bearer by an
announcement in a Dutch daily news paper and in the official list of
the Amsterdam stock exchange Euronext. At least 15-days' notice shall
be given, excluding the day of the notice and the day of the meeting.
The notice in the newspaper shall contain a summary agenda and indicate
the place where the full agenda can be obtained. To registered holders
the agenda will be sent to their address or their broker.
In the other countries where the AEGON N.V. stock is listed publication
shall take place in accordance with local requirements.
6. There are no such limitations in the Articles of Association nor in
compulsory law.
7. There are no such provisions in the Articles of Association.
8. There are no such by law provisions.
9. Dutch Company law is significantly different from US law in the
following areas: The Dutch type of Articles of Association (or Articles
of Incorporation) does not only include the Anglo-Saxon concept of
Articles of Incorporation but also the concept of "by-laws". AEGON
N.V., like other large Dutch public companies, has a two-tier
governance system. This typically involves a management or executive
board and a supervisory board. The executive board is the executive
body. Its members are employed by the company. The supervisory board
has supervising and advising functions only and its members are
outsiders and cannot be employed by the company. The supervisory board
has as its duties to supervise the administration by the executive
board and the general course of business of the Company and the
enterprise associated with it and to assist the executive board with
advice.
Members of the executive board are not appointed by the General Meeting
of Shareholders but by the supervisory board. Other powers of a
supervisory board are adoption of the annual accounts as
-67-
prepared by management for presentation and approval by shareholders
and prior approval of certain important resolutions of the executive
board.
The members of the supervisory board are appointed by the supervisory
board itself. The General Meeting of Shareholders however, the
executive board and the employee works council may recommend persons
for vacancies in the supervisory board.
The compensation paid to the executive board members is fixed by the
supervisory board; the compensation for the supervisory board is fixed
by the general meeting of shareholders.
Dutch law requires public disclosure to a supervising government agency
and the company involved with respect to the ownership of listed shares
when the following thresholds are passed: 5%, 10%, 25%, 50% and 66
2/3%.
10. There are no such conditions.
Material Contracts
There are no such contracts.
Exchange Controls
There are no legislative or other legal provisions currently in force in The
Netherlands or arising under the Company's Articles of Incorporation restricting
remittances to holders of securities of the Company not resident in The
Netherlands. Cash dividends payable in euros on Common Shares of the Company may
be officially transferred from The Netherlands and converted into any other
convertible currency.
There are no limitations, either by the laws of The Netherlands or in the
Company's Articles of Incorporation, on the right of non-residents of The
Netherlands to hold or vote the Company's Common Shares.
Taxation
The Netherlands impose a withholding tax on dividends of 25%. The withholding
tax does not apply to stock dividends which are payable out of the for tax
purposes recognized paid-in surplus of the Company.
A tax treaty between the Kingdom of the Netherlands and the United States of
America for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income signed on December 18, 1992 and modified
by the protocol of October 13, 1993 (collectively the "1992 Treaty") replaced
the 1948 Treaty as of January 1, 1994.
A person can only claim the benefits of the 1992 Treaty (i) if such person is a
resident of the United States as defined therein and (ii) such person's
entitlement to such benefits is not limited by the limitations of benefits
provisions of article 26 of the 1992 Treaty.
Under the 1992 Treaty, dividends paid by the Company to a resident of the United
States (other than an exempt organization or exempt pension trust, as described
below) are generally eligible for a reduction of the 25% Dutch withholding tax
to 15%, provided that such holder does not carry on business in The Netherlands
through a permanent establishment and to which business the Common Shares are
attributable. The 1992 Treaty provides for a complete exemption for dividends
received by exempt pension trusts and certain exempt organizations that are
operated exclusively for religious, charitable, scientific, educational or
public purposes. Except in the case of exempt organizations, such reduced
dividend withholding rate (or exemption from withholding) can be applied for at
the source upon payment of the dividend; exempt organizations would remain
subject to the statutory withholding tax rate of 25% and would be required to
file for a refund of such withholding.
-68-
A holder of Common Shares will not be subject to Netherlands net wealth tax
provided that such holder is not an individual or, if he is an individual,
provided that:
(i) such holder is not a resident or a deemed resident of The Netherlands;
or
(ii) such holder does not have an enterprise, or an interest in an
enterprise, which carries on business in The Netherlands through a
permanent establishment or a permanent representative to which or to
whom the Common Shares are attributable.
A holder of Common Shares will not be subject to Netherlands taxes on income or
capital gains provided that the conditions mentioned under (i) and (ii) above
are met and provided that such holder does not have, directly or indirectly, a
substantial or deemed substantial interest in the share capital of the Company,
or, in the event that such holder does have such a substantial interest, such
interest belongs to an enterprise.
No gift, estate or inheritance tax will arise in The Netherlands on a gift of
Common Shares by, or on the death of, a holder neither resident nor deemed
resident in The Netherlands, unless the Common Shares are attributable to a
permanent establishment or permanent representative in The Netherlands.
Item 11. Quantitative and Qualitative Disclosure about Market Risk
Risk management policies
- ------------------------
As an international life insurance company, AEGON is exposed to currency
fluctuations, to changes in the fair value of its investments, the impact of
interest rate changes and changes in mortality and longevity.
Currency risk is managed based on AEGON's currency policies. For investments,
these policies are based on asset and liability matching principles. Equity held
in subsidiaries is kept in local currencies to the extent shareholders' equity
is required to satisfy regulatory and self imposed capital requirements. This
ensures that capital held by Group units will support the local insurance
business irrespective of currency movements. However, this may result in effects
on AEGON's shareholders' equity expressed in euro. The remainder of AEGON's
capital base (capital securities and subordinated and senior debt) is held in
various currencies relative to the book value of AEGON's activities in those
currencies. As a result, AEGON's debt-to-total-capital ratio will not be
materially affected by currency volatility. In 1999, AEGON decided to end its
policy of hedging the income streams from AEGON's main non-Dutch Group units for
the translation to euros beginning in 2000. As a result, earnings may fluctuate
due to currency translation.
AEGON employs established policies and procedures to manage its exposures to
changes in interest rates. The local investment departments of the AEGON Group
units are responsible for managing their investment portfolios. Their investment
policies are guided by sound asset and liability management principles. This
approach applies throughout the various Group units. The portfolio yields in all
our country units continue to be substantially higher than the minimum rate
guarantees on our insurance liabilities. Our assets are managed to be aligned
with the technical provisions for that part of our portfolio for which we
guarantee a minimum return. Also, for new production, the yields on acquired
assets comfortably exceed guaranteed levels.
In the normal course of business, AEGON also closely monitors its exposure to
non-financial market risks in its mortality and longevity risk analysis, its
established counterparts risk policies, reinsurance and IT standards, and has
business continuity programs in place in its country units. AEGON uses common
derivative financial instruments such as interest rate swaps, options, futures
and foreign exchange contracts to hedge its exposures related to both
investments and borrowings. AEGON does not hold or issue derivative instruments
for speculative trading purposes.
Sensitivity analysis are performed on Group level, in close cooperation with the
business units, in order to quantify exposures of the Group to a wide array of
risks.
-69-
Sensitivity Analysis
- --------------------
The sensitivity analysis on forecasted 2001 net income and shareholders' equity
- - presented in the table below - is performed for each risk category
independently. No assumptions are made regarding correlations between markets or
risks, possible management actions or changing conditions for all other assets
and liabilities. It should be noted that the effects presented only relate to
2001 forecasted net earnings and shareholders' equity; no conclusions should be
drawn for subsequent years.
The sensitivity analysis shows the effect of movements in the exchange rates of
15% of AEGON's most important currencies (the US dollar, the Canadian dollar and
the pound sterling which represent around 70% of AEGON's forecasted earnings in
2001) relative to the euro on forecasted net income and shareholders' equity.
The table shows that a decrease of 15% in non-euro currency rates would result
in a negative impact on net income of around 11% and on shareholders' equity of
approximately 11%, mainly as a result of currency translation. Conversely, an
increase of 15% in these exchange rates would result in a positive impact on net
income of 11% and on shareholders' equity of 11%. Movements of other currency
exchange rates have an immaterial impact on net income and shareholders' equity.
AEGON's accounting policy of deferring and amortizing capital gains on equity
and real estate investments in the general account portfolio makes our net
income less sensitive to the effects of volatile equity markets than it would
otherwise be. However, as the allocation of investments held for account of
policyholders is for over 60% in equity securities, net income will become more
sensitive to the fees related to these assets. Net income would be approximately
7.5% lower and shareholders' equity approximately 9.5% lower after a decrease of
15% in equity and real estate markets. Conversely, an increase of 15% in these
markets would result in a positive impact on net income of 7.5% and on
shareholders' equity of 10%. AEGON is not directly exposed to commodity markets.
For US GAAP purposes, net income is more volatile as equity and real estate
gains are recognized when realized. A meaningful US GAAP net income sensitivity
is not practicable, as changes in the market may not coincide with the timing of
the realization.
By the nature of its business, the AEGON Group is exposed to interest rate risk.
The sensitivity analysis shows, however, that because of the balance between
interest sensitive and non-interest sensitive liabilities, the potential effect
of interest rate changes on forecasted 2001 net income is limited. A parallel
decrease of worldwide interest rates of 1% from the current levels would have a
positive effect on earnings of approximately 1%. Conversely, a parallel increase
of worldwide interest rates of 1% would have a 1% negative influence on
earnings.
As a consequence of the insurance and savings features in our products, the
AEGON Group is exposed to mortality and longevity risk. On a regular basis we
perform sensitivity analysis, which quantify the effect of mortality and
longevity developments on our portfolios and technical provisions. If life
expectancy would increase by one year, compared to our existing reserving basis,
the positive effect on the technical provisions would be less than 0.5%. This
implies that the AEGON Group has a well-balanced portfolio, in terms of
mortality and longevity. Therefore, changes to mortality and longevity
developments are not a current concern relative to our strong reserving basis.
-70-
Sensitivity analysis
On forecasted 2001 earnings and shareholders' equity/1/
Effects on
Movement of markets Effects on net income shareholders' equity
- -----------------------------------------------------------------------------------------------------------------
Interest rate markets/2/
Parallel yield curve shift up of 100 basis points between (0.5)% and (1.5)% -
Parallel yield curve shift down of 100 basis points between 0.5% and 1.5% -
Currency markets/3/
Increase versus the euro of 15% between 10.5% and 11.5% between 10.5% and 11.5%
Decrease versus the euro of 15% between (10.5)% and (11.5)% between (10.5)% and (11.5)%
Equity and real estate markets/4/
Increase of equity and real estate markets of 15% between 7.0% and 8.0% between 9.5% and 10.5%
Decrease of equity and real estate markets of 15% between (7.0)% and (8.0)% between (9.0)% and (10.0)%
On technical reserves
Effects on technical reserves
- -----------------------------------------------------------------------------------------------------------------
Longevity
Increase in average life expectancy of one year less than (0.5)%
/1/ Basic assumptions: no correlation between markets and risks; unchanged
conditions for all other assets and liabilities; no management actions
taken; all changes are relative to forecasts for 2001.
/2/ The effect of interest rate movements is reflected as the effect of a one-
time parallel shift up or down of all relevant yield curves on 1 January
2001.
/3/ The effect of currency movements is reflected as a one-time shift in value
of the US dollar, Canadian dollar and the UK pound up or down on 1 January
2001. Movements of other currencies have a negligible influence on both net
income and shareholders' equity.
/4/ The effect of movements in equity and real estate markets is reflected as a
one-time increase or decrease of worldwide equity and real estate markets on
1 January 2001.
Item 12. Description of Securities other than Equity Securities
Not applicable
Item 13. Defaults, Dividend Arrearages and Delinquencies
None
Item 14. Material Modifications to the Rights of Security Holders and Use of
Proceeds
None
Item 15. Reserved for future use
Not applicable
Item 16. Reserved for future use
Not applicable
-71-
Item 18. Financial Statements
Note 5 includes a discussion of net income and shareholders' equity based upon
United States generally accepted accounting principles.
Item 19. Financial Statements and Exhibits
(a) Index of financial statements: Page
----
Report of independent auditors 72
Consolidated Balance Sheets 73
Consolidated Income Statements 76
Consolidated Cash Flow Statements 79
Notes to the Consolidated Financial Statements 80
List of Schedules:
I Summary of investments - other than investments in related parties 147
III Supplementary insurance information 148
IV Reinsurance 149
V Valuation and qualifying accounts 150
(b) Index of Exhibits:
8.1 List of Group companies 151
12.1 Ratio of earnings to fixed charges 152
23.1 Consent of independent auditors with respect to consolidated financial
statements and schedules of AEGON N.V. 153
The Company agrees to furnish to the Securities and Exchange Commission upon
request copies of instruments with respect to long-term debt of the Company and
its consolidated subsidiaries.
-72-
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of AEGON N.V. as of
December 31, 2000 and 1999, and the related consolidated income statements and
cash flow statements for each of the three years in the period ended December
31, 2000. Our audits also included the financial statement schedules listed in
the Index at Item 19 (a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in The Netherlands and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AEGON N.V. at
December 31, 2000 and 1999 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
2000 in conformity with generally accepted accounting principles in The
Netherlands. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein. As
described in Notes 5 and 6 of Notes to the Consolidated Financial Statements,
the Company's policy is to prepare its financial statements in accordance with
accounting principles generally accepted in The Netherlands (Dutch Accounting
Principles). Accounting principles generally accepted in The Netherlands vary in
certain material respects from accounting principles generally accepted in the
United States. An explanation of these differences, insofar as the determination
of net income and shareholders equity, expressed in euros, is concerned, is
presented in Note 5 of Notes to the Consolidated Financial Statements.
Ernst & Young Accountants
The Hague, The Netherlands
March 8, 2001
-73-
Consolidated Balance Sheets at December 31 (after profit appropriation)
In accordance with Dutch Accounting Principles
Amounts in million EUR
Note 2000 1999
number
Investments
Real estate 1(a) 2,116 2,559
Group companies and participations 1(b) 2,300 4,001
Other financial investments 1(c) 117,294 106,401
Deposits with ceding undertakings 1(d) 27 28
------- -------
121,737 112,989
Investments for the account of policyholders 1(e) 114,286 108,276
Receivables
Receivables out of direct insurance 1(f) 2,597 1,326
Receivables out of reinsurance 352 1,106
Other receivables 1(g) 2,590 2,118
------- -------
5,539 4,550
Other assets
Equipment 1(h) 254 161
Liquid assets 1(i) 725 964
Other assets 61 368
------- -------
1,040 1,493
Prepayments and accrued income
Accrued interest and rent 1,421 1,395
Other prepayments and accrued income 193 105
------- -------
1,614 1,500
------- -------
Total assets 244,216 228,808
See Notes to the Consolidated Financial Statements
-74-
Note 2000 1999
number
Capital and reserves 1(j) 12,844 13,543
Capital securities 1(k) 1,820 1,329
Subordinated (convertible) loans 1(l) 683 703
------- -------
Equity and subordinated loans 15,347 15,575
Technical provisions 1(m)
Life insurance 93,073 83,044
Unearned premiums and unexpired risks 715 534
Claims outstanding 2,407 1,794
Profit sharing and rebates 219 222
Other technical provisions 750 626
------- -------
Gross 97,164 86,220
Reinsurers' share (5,353) (4,351)
------- -------
91,811 81,869
Technical provisions with investments
for the account of policyholders 1(n)
Gross 114,637 108,603
Reinsurers' share (351) (327)
------- -------
114,286 108,276
Provisions 1(o) 2,748 2,237
Long-term liabilities 1(p) 4,025 3,703
Current liabilities
Payables out of direct insurance 4,353 3,100
Payables out of reinsurance 164 120
Amounts owed to credit institutions 2,047 4,615
Entrusted savings accounts and deposits 5,199 5,294
Other payables 1(q) 3,583 2,999
------- -------
15,346 16,128
Accruals and deferred income 1(r) 653 1,020
------- -------
Total liabilities 244,216 228,808
See Notes to the Consolidated Financial Statements
-75-
Summarized Consolidated Income Statements
In accordance with Dutch Accounting Principles
Amounts in million EUR
Note 2000 1999 1998
number
Revenues
Gross premiums 20,771 14,980 11,550
Investment income 2(c) 9,612 6,690 5,003
Income from banking activities 2(d) 372 704 626
------ ------ ------
Total revenues 30,755 22,374 17,179
Benefits and expenses
Premiums to reinsurers 1,819 1,206 525
Benefits to policyholders 13,135 7,636 5,887
Change in technical provisions 2(e) 7,513 6,336 5,254
Profit sharing and rebates 2(f) 370 932 571
Commissions and expenses 2(g) 4,100 3,219 2,485
Interest charges 796 759 738
Miscellaneous income and expenditure 2(i) 135 105 85
------ ------ ------
Total benefits and expenses 27,868 20,193 15,545
------ ------ ------
Income before tax 2,887 2,181 1,634
Corporation tax 2(k) (850) (611) (387)
Net income unconsolidated group companies 2(l) 29 0 -
------ ------ ------
Net income 2,066 1,570 1,247
See Notes to the Consolidated Financial Statements
-76-
Consolidated Income Statements
In accordance with Dutch Accounting Principles
Amounts in million EUR
Technical Account Life Insurance Note 2000 1999 1998
number
Premiums for own account
Gross premiums 17,983 12,802 9,413
Premiums to reinsurers (1,210) (847) (139)
------- ------- -------
2(a) 16,773 11,955 9,274
Investment income 2(c) 9,182 6,308 4,653
Investment income for the account of policyholders (3,495) 13,533 8,466
Benefits and surrenders own account
Benefits to policyholders
Gross (12,521) (7,114) (4,911)
Reinsurers' share 758 605 121
------- ------- -------
(11,763) (6,509) (4,790)
Change in other technical provisions own account
Provision for life insurance
Gross (4,466) (19,914) (13,567)
Reinsurers' share 662 284 6
------- ------- -------
(3,804) (19,630) (13,561)
Other technical provisions (37) (34) (30)
------- ------- -------
(3,841) (19,664) (13,591)
Profit sharing and rebates 2(f) (370) (932) (571)
Operating expenses 2(g) (3,058) (2,248) (1,640)
Investment charges 2(h) (296) (223) (158)
Other technical charges own account 2(i) (129) (94) (62)
------- ------- -------
3,003 2,126 1,581
Investment income allocated to
the non-technical account 2(j) (940) (718) (585)
------- ------- -------
Result technical account life 2,063 1,408 996
See Notes to the Consolidated Financial Statements
-77-
Technical Account Non-Life Insurance
Note 2000 1999 1998
number
Premiums earned for own account
Gross premiums 2,788 2,178 2,137
Premiums to reinsurers (609) (359) (386)
------ ------ ------
2,179 1,819 1,751
Change in technical provision unearned
premiums and unexpired risks
Gross (198) (145) (92)
Reinsurers' share (20) (33) 11
------ ------ ------
(218) (178) (81)
------ ------ ------
1,961 1,641 1,670
Investment income 2(c) 352 292 251
Claims for own account
Claims incurred
Gross (1,853) (1,408) (1,370)
Reinsurers' share 481 281 273
------ ------ ------
(1,372) (1,127) (1,097)
Change in provision for claims
Gross (171) (27) (53)
Reinsurers' share 212 0 5
------ ------ ------
41 (27) (48)
------ ------ ------
(1,331) (1,154) (1,145)
Operating expenses 2(g) (738) (615) (617)
Investment charges 2(h) (9) (20) (6)
Other technical charges own account 2(i) (3) (2) (8)
------ ------ ------
232 142 145
Investment income allocated to
the non-technical account 2(j) (27) (51) (56)
------ ------ ------
Result technical account non-life 2(b) 205 91 89
-78-
Non-Technical Account
Note 2000 1999 1998
number
Result technical account
life insurance 2,063 1,408 996
Result technical account
non-life insurance 205 91 89
Investment income 2(c) 78 90 99
Income from banking activities 2(d) 372 704 626
Allocated investment income
transferred from technical accounts 2(j) 967 769 641
Operating expenses banking activities
and other expenses 2(g) (85) (211) (147)
Investment charges 2(h) (710) (661) (655)
Miscellaneous income and expenditure 2(i) (3) (9) (15)
----- ----- -----
Income before tax 2,887 2,181 1,634
Corporation tax 2(k) (850) (611) (387)
Net income unconsolidated group companies 2(l) 29 0 -
----- ----- -----
Net income 2,066 1,570 1,247
See Notes to the Consolidated Financial Statements
-79-
Consolidated Cash Flow Statements
In accordance with Dutch Accounting Principles
Amounts in million EUR 2000 1999 1998
Cash flow from operating activities
Net income 2,066 1,570 1,247
Increase technical provisions after reinsurance 3,253 20,775 13,056
Change in provisions 348 215 (20)
Amortization of policy acquisition costs 1,284 885 654
Amortization of interest rate rebates 118 115 118
Depreciation of equipment 61 54 44
Change in current liabilities (763) 2,284 1,272
Change in entrusted funds (95) 253 696
Deferred policy acquisition costs (2,393) (1,480) (1,031)
Interest rate rebates granted (61) (17) (47)
Change in receivables (796) (3,043) (503)
------- ------- ------
3,022 21,611 15,486
Cash flow from investing activities
Invested and acquired
Real estate and shares (7,072) (2,153) (2,027)
Shares of group companies from third parties (979) (4,900) (342)
Other investments (53,671) (38,912) (28,334)
Equipment (159) (101) (83)
Disposed and redeemed
Real estate and shares 7,955 2,974 2,592
Shares of group companies to third parties 1,374 126 691
Other investments 49,413 37,753 26,476
Equipment 5 9 30
Indirect return real estate and shares (595) (394) (265)
Change in investments for account of policyholders (2,757) (18,451) (10,955)
Other (523) (97) (64)
------- ------- ------
(7,009) (24,146) (12,281)
Cash flow from financing activities
Change in long-term liabilities 588 660 (1,444)
Repurchased own shares (423) (315) (491)
Issuance of common shares 0 681 0
Issuance of preferred shares 0 12 0
Withdrawal preferred shares (15) 0 (9)
Change in deposits withheld from reinsurers 0 0 (11)
Options exercised 7 5 16
Cash settlement subordinated convertible loan (24) (69) (171)
Dividend paid (298) (487) (378)
Annuity deposits 25,506 17,445 6,723
Annuity repayments (21,593) (15,558) (7,324)
------- ------- ------
3,748 2,374 (3,089)
Change in liquid assets (239) (161) 116
-80-
The cash flow statement has been set up according to the indirect method and
also complies with International Accounting Standard No. 7. Only those changes
affecting liquid assets have been taken into account. The effects of revaluation
and currency exchange rate differences have therefore not been included. The
impact of currency exchange rate differences on liquid assets denominated in
foreign currencies is not material.
Notes to the Consolidated Financial Statements
Introduction
These financial statements have been drawn up in accordance with the rules for
financial statements of insurance companies in The Netherlands, embodied in
Section 15 of Title 9, Book 2 of the Dutch Civil Code. A summarized consolidated
income statement has been added to the required formats for balance sheet and
profit and loss account in order to present a comprehensible view of the results
of the AEGON Group. AEGON's accounting policies are in accordance with the
guidelines for insurance companies of the Netherlands Council for Annual
Reporting.
The notes to capital and reserves have been moved from the notes to the
consolidated balance sheet to the parent only section. The results of
Transamerica and Guardian, both acquired in 1999, are included for a whole year
whereas the 1999 figures include amounts for about five and six months,
respectively.
On March 1, 2000, AEGON announced its intention to make opportunistic
divestments of the non-insurance businesses comprising Transamerica Finance
Corporation. Sales of several segments took place after that date. However,
general weakness within the commercial finance market has precluded other
credible bids from being made. Therefore AEGON decided to continue developing
these businesses as operating units of the group. Since their acquisition, AEGON
has been accounting for the non-insurance businesses at cost. In the income
statement for the first six months of this year dividends have offset the
financing costs related to these operations, resulting in a neutral effect on
earnings.
Effective June 30, 2000, the non-insurance businesses are carried in the balance
sheet at their net asset value as unconsolidated holdings, while the net income
of these businesses have been included in AEGON's earnings from July 1, 2000.
The difference between net asset value and the prior carrying value of EUR 2
billion has been charged as goodwill directly to equity. The consolidated
financial statements of businesses have been included in note 2(l).
On April 7, 2000 the AEGON subsidiary Transamerica Life Insurance Company of
Canada and ING Canada entered into a strategic marketing alliance under which
Transamerica acquired 100% of NN Life Insurance Company and ING Canada will
distribute Transamerica life insurance products. Transamerica Life and NN Life
merged into a single organization. Economically, the transaction has taken
effect from January 1, 2000.
On August 3, 2000, AEGON completed the sale of its banking subsidiary Labouchere
to Banque Internationale a Luxembourg, a member of the Dexia Group. The book
profit of approximately EUR 574 million has not been included in profit but has
been taken directly to reserves. Article 362:4 of Book 2 of the Dutch Civil Code
has been applied since including such a relatively large amount in profit would
distort the legally required view of the profit of a life insurance company.
On September 29, 2000, AMVEST, the joint venture of AEGON and PGGM, and Rodamco
Continental Europe completed combining their real estate portfolios and
investment activities in the retail and office sectors under the name Rodamco
Europe. The transaction was materialized by the issuance of new shares to the
AMVEST shareholders along with a loan of EUR 555 million provided by the AMVEST
shareholders, which - at the option of Rodamco Europe - might be repaid in whole
or in part two years after the transaction through a Rodamco Europe share swap
at a fixed price of EUR 43.50 per share. Economically, the bundling of
activities
-81-
has taken effect from March 1, 2000. The shares of Rodamco Europe are recognized
under investments in shares.
Since the introduction of the indirect return method by AEGON in 1995, the
method became an accepted accounting policy in the Netherlands. In 1997 AEGON
has put a cap of 7% after tax on the indirect return. To bring the application
of this method in line with current general practice, the cap on indirect return
will be removed in 2001.
Consolidation principles
In the consolidated financial statements of AEGON N.V. all group companies have
been included, except for some group companies for which the aggregate financial
effect is relatively insignificant and for companies which are not intended to
be held for a long-term ownership. Also group companies of which consolidation
would not result in a fair view of the group because of dissimilar activities
have not been consolidated. The financial statements of these latter companies
have been added separately in the notes. Their results have been included in the
income statements on a separate line. Participations in joint ventures have been
consolidated proportionally.
Due to their insignificance the minority interests are included under other
current liabilities. With regard to the income statements of AEGON N.V., article
402, Book 2 of the Dutch Civil Code has been applied.
Derivatives
AEGON uses derivative financial instruments to hedge interest rate risks,
foreign currency risks and equity market risks related to assets and
liabilities. Derivatives are not used for trading purposes. Derivatives included
in the balance sheet, such as options on shares and bonds and also futures, are
valued at fair value or at the amounts received on written options. Foreign
currency amounts are converted at the year-end exchange rates.
Realized and unrealized results on derivative financial instruments are
recognized in the same period and likewise as the results of the related
investments and debt. Notional amounts of foreign currency contracts and
interest rate contracts are not included in the balance sheet and are shown,
together with other off balance sheet derivatives, under commitments and
contingencies. They represent aggregate notional amounts only and are therefore
not a measure of the exposure of the company.
Foreign currency
Assets and liabilities denominated in foreign currencies are converted at the
year-end exchange rates after consideration of transfer risks, where necessary.
Income statement items in foreign currencies are converted at the average
currency exchange rates for the reporting period. Currency exchange rate
differences resulting from using year-end exchange rates as well as average
exchange rates are charged or credited directly to shareholders' equity under
the caption currency exchange rate differences.
Currency exchange rate differences from not hedging shareholders' equity of
subsidiaries not accounted for in euro, including results and related costs from
the hedging transactions on those subsidiaries, are also charged or credited to
shareholders' equity under the caption currency exchange rate differences. All
other currency exchange rate differences are included in the income statements.
-82-
The most important closing rates are:
2000 1999 1998
Dutch Guilder (NLG) 2.20371 2.20371 2.20371
US Dollar (USD) 0.93050 1.00460 1.16672
Swiss Franc (CHF) 1.52320 1.60550 1.60778
Pound Sterling (GBP) 0.62410 0.62170 0.70541
German Mark (DEM) 1.95583 1.95583 1.95583
Spanish Peseta (ESP) 166.38600 166.38600 166.38600
Japanese Yen (JPY) 106.92000 102.73000 132.83363
Hungarian Forint (HUF) 264.94000 254.92000 251.56507
(1) NOTES TO THE CONSOLIDATED BALANCE SHEETS
Amounts in million EUR
Accounting principles
Where not otherwise stated, balance sheet items are carried at face value. If
necessary a provision for bad and doubtful debts is deducted.
Assets and liabilities from banking activities and gains and losses on these
activities are accounted for in accordance with the rules for banks.
2000 1999
(a) Real estate
Real estate for own use 293 349
Other real estate 1,823 2,210
------ ------
2,116 2,559
Real estate is shown at fair value, being the selling-value under normal market
circumstances. Each property is revalued at least once in every 5 year period.
Valuation is for a large part based on external appraisal. In 2000 97% of the
portfolio has been revalued.
New property is valued at construction cost including interest during the
construction period, or at purchase price.
Unrealized and realized gains and losses on real estate investments as well as
results, expenses and currency exchange rate differences from hedging
transactions are recognized in the revaluation account, taking into account the
related (deferred) taxes.
The participation in AMVEST Vastgoed is accounted for under this caption.
Purchase price of the portfolio amounts to EUR 1,724 million (1999: EUR 2,163
million).
(b) Group companies and participations
Shares in group companies 1,603 3,564
Loans to group companies 629 364
Other participations 64 51
Loans to other participations 4 22
------ ------
2,300 4,001
Interests in companies in which AEGON is able to influence operating policy, as
well as group companies which are not consolidated because of their relative
financial insignificance, are accounted for by inclusion of AEGON's proportion
of the equity and the net income of the companies. Loans to group companies and
participations are valued at face value.
-83-
Interests in short term holdings are valued at cost less provisions where
necessary. Dividends declared are included in the consolidated income
statements.
The Transamerica non-insurance businesses are accounted for under shares in
group companies. These group companies have not been consolidated because of
their diversity in operations.
2000 1999
(c) Other financial investments
Shares 8,666 8,510
Bonds and other fixed rate securities 61,240 56,739
Loans guaranteed by mortgages 18,244 16,135
Other loans 23,980 21,485
Deposits with credit institutions 1,215 617
Other financial investments 3,949 2,915
------- -------
117,294 106,401
Shares 8,666 8,510
Shares and convertible debentures reported under this caption are valued at
their quoted price or, if unquoted, at estimated fair value.
Unrealized and realized gains and losses on the share investments as well as
results, expenses and currency exchange rate differences from hedging
transactions are recognized in the revaluation account, taking into account the
related (deferred) taxes.
When optional dividend is taken up in shares, an amount equal to the cash
dividend is credited to income. The participation in AEGON Aandelenfonds N.V. is
also accounted for under this caption.
Purchase price of the portfolio amounts to EUR 7,653 million (1999: EUR 4,983
million).
Bonds and other fixed rate securities 61,240 56,739
Bonds are shown at amortized cost representing the cash value at the balance
sheet date of future interest and principal repayment components based on the
effective interest rate on the date of acquisition.
The other fixed rate securities include preferred shares and money market
investments. Preferred shares are valued at amortized cost; money market
investments are valued at cost.
Realized gains and losses from transactions within the bonds and private
placements portfolios are deferred and released to the income statements in
annual installments over the estimated average remaining maturity term of the
investments sold.
Redemption value of the bonds 64,066 58,647
Deferred purchase differences (6,887) (5,944)
------- -------
Amortization value bonds 57,179 52,703
Other fixed rate securities 4,061 4,036
------- -------
61,240 56,739
Fair value of these investments amounts to EUR 61,191 million (1999: EUR 55,561
million). For a proper understanding it should be noted that this fair value is
not part of the matching of these investments with the related insurance
liabilities, which are not stated at fair value either.
The provision for doubtful debts for these investments amounts to EUR 110
million (1999: EUR 137 million).
Loans guaranteed by mortgages 18,244 16,135
-84-
Loans guaranteed by mortgages are valued at redemption value. Discounts granted
are deferred and amortized to income over the contractual period of interest
fixation.
Fair value of the portfolio amounts to EUR 18,791 million (1999: EUR 15,952
million). As no market exists for these investments, fair value is calculated
based on current interest rate, maturity and risk assumptions. For a proper
understanding it should be noted that this fair value is not part of the
matching of these investments with the related insurance liabilities, which are
not stated at fair value either.
The provision for doubtful debts for these investments amounts to EUR 184
million (1999: EUR 166 million).
2000 1999
Other loans 23,980 21,485
Private placements are shown at amortized cost representing the cash value at
the balance sheet date of future interest and principal repayment components
based on the effective interest rate on the date of acquisition. Realized gains
and losses from transactions within the private placements and bond portfolios
valued at amortized cost are deferred and released to the income statements in
annual installments over the estimated average remaining maturity term of the
investments sold.
Redemption value 24,147 22,225
Deferred purchase differences (167) (740)
------- -------
Amortization value 23,980 21,485
Fair value of the portfolio amounts to EUR 23,916 million (1999: EUR 21,193
million). As no market exists for these investments, fair value is calculated
based on current interest rates, maturity and risk assumptions. For a proper
understanding it should be noted that this fair value is not part of the
matching of these investments with the related insurance liabilities, which are
not stated at fair value either.
The provision for doubtful debts for these investments amounts to EUR 74 million
(1999: EUR 67 million).
Deposits with credit institutions 1,215 617
This item relates to amounts that can be called up after a certain period of
time, the period exceeding one year. Fair value of the deposits is equated with
book value.
Other financial investments
Policy loans 1,700 1,445
Receivables out of share lease agreements and others 2,249 1,470
------ ------
3,949 2,915
Fair value of policy loans is equated with book value. The fair value of
receivables out of share lease agreements and others amounts to EUR 2,281
million (1999: EUR 1,470 million).
The provision for doubtful debts for these investments amounts to EUR 34 million
(1999: EUR 32 million).
(d) Deposits with ceding undertakings 27 28
Debentures related to reinsurance contracts that are not at free disposal.
Fair value amounts to EUR 27 million (1999: EUR 28 million).
-85-
Changes in investments
Currency
exchange
rate Balance
Balance at Disposed differences at
January 1 and Revalu- and other December
2000 Acquired redeemed ations changes 31, 2000
Real estate 2,559 129 (945) 218 155 2,116
Group companies and
participations 4,001 784 (767) - (1,718) 2,300
Shares 8,510 6,943 (7,010) (251) 474 8,666
Bonds and other fixed
rate securities 56,739 38,157 (37,816) - 4,160 61,240
Loans guaranteed by
mortgages 16,135 4,489 (3,375) - 995 18,244
Other loans 21,485 7,909 (6,769) - 1,355 23,980
Deposits with credit
institutions 617 1,009 (346) - (65) 1,215
Other financial investments 2,915 2,105 (1,104) - 33 3,949
Deposits with ceding
undertakings 28 2 (3) - 0 27
------- -------- ------- ------- ------- -------
Total 112,989 61,527 (58,135) (33) 5,389 121,737
Balances and changes of 1999 66,757 41,398 (40,853) 1,380 44,307 112,989
(e) Investments for the account of policyholders Investments for the account of
policyholders and insurance-linked savings deposits are investments of which the
investment risk is borne by the policyholders. They are valued at fair value.
Separate investments for group life contracts with full profit sharing are
valued according to the principles of the related contracts.
Total return of these investments is accounted for in the technical account life
insurance on a separate line.
Balance at January 1 108,276 58,344
Acquired 28,565 25,322
Disposed and redeemed (22,390) (7,184)
Currency exchange rate differences and other changes (165) 31,794
------- -------
Balance at December 31 114,286 108,276
(f) Receivables out of direct insurance
Policyholders 1,956 902
Agents 641 424
------- -------
Total receivables out of direct insurance 2,597 1,326
The provision for doubtful debts for these receivables amounts to EUR 47 million
(1999: EUR 16 million).
-86-
2000 1999
(g) Other receivables
Investment receivables 109 237
Other receivables 2,481 1,881
------- -------
Total other receivables 2,590 2,118
Other receivables include items for an amount of EUR 847 million maturing within
one year. The remaining items have terms maturing beyond one year.
The provision for doubtful debts for these receivables amounts to EUR 15 million
(1999: EUR 14 million).
(h) Equipment
Equipment is shown at original cost less depreciation over the estimated useful
life.
Office
Data furniture
processing & other Total
systems equipment equipment
EUR EUR EUR
Total cost of equipment 315
Accumulated depreciation (154)
---------
Balance at January 1, 2000 86 75 161
Investments 95 64 159
Depreciation (33) (28) (61)
Disposals and other changes (9) 4 (5)
---------- --------- ---------
Balance at December 31, 2000 139 115 254
Accumulated depreciation 192
---------
Total cost of equipment 446
The increase of investments in data processing systems results from major
long-term information technology projects in several country units.
(i) Liquid assets
Cash on hand and balances with banks 352 385
Short term investments 373 579
------- -------
Total liquid assets 725 964
All liquid assets are at free disposal.
(j) Capital and reserves
For the notes to the share capital, reserves and stock options see Notes 4(d)(4)
and 4(d)(5).
-87-
2000 1999
(k) Capital securities
Perpetual cumulative subordinated loans 1,267 817
Trust Pass-through Securities 553 512
------ ------
1,820 1,329
Perpetual cumulative subordinated loans
This item comprises the following loans: Year/1/
Interest rate 8%, coupon date June 8 2005 114 114
Interest rate 7 7/8%, coupon date September 29 2005 114 114
Interest rate 7 3/4%, coupon date December 15 2005 136 136
Interest rate 7 1/8%, coupon date March 4 2011 203 203
Interest rate 7 5/8%, coupon date July 10 2008 114 114
Interest rate 7 1/4%, coupon date October 14 2008 136 136
Interest rate 6 7/8%, coupon date December 20 2005 450 -
------ ------
Total perpetual cumulative subordinated loans 1,267 817
/1/ Year of first possibility for redemption.
The coupons of the NLG 250 million 8% bonds, NLG 450 million 7 1/8% bonds and
NLG 300 million 7 1/4% bonds are set at 8% until June 8, 2005, at 7 1/8% until
March 4, 2011 and at 7 1/4% until October 14, 2008 respectively. On these dates,
and after every consecutive period of ten years, the coupons will be reset at
the then prevailing yield of 9-10 years Dutch State Loans plus a surcharge of
0.85%. The coupon of the other four loans is fixed.
The loans have the same subordination provisions as dated subordinated debt. The
conditions of the loans contain certain provisions for interest deferral and for
the availability of principal amounts to meet losses.
Although the loans have no stated maturity, AEGON has the right to call the
loans for redemption at par for the first time on the coupon date in the years
as specified above, and thereafter on the coupon date after every consecutive
period of ten years, with the exception of the 6 7/8% bonds, which are callable
every year on the coupon date after the initial call date in 2005.
The fair value of these loans amounts to EUR 1,356 million (1999: EUR 871
million).
Trust Pass-through Securities
This item comprises the following loans
USD 100 mln 7 4/5% Capital Trust Pass-through Securities 1996/26 107 100
USD 225 mln 7 13/20% Capital Trust Pass-through Securities 1996/26 242 224
USD 190 mln 7 5/8% Capital Trust Pass-through Securities 1997/37 204 188
------ ------
553 512
Capital Trust Pass-through Securities (TRUPS) are securities through which the
holders participate in a trust. The assets of these trusts consist of junior
subordinated deferrable interest debentures of Transamerica. The trusts have
been included in the consolidated financial statements. The TRUPS carry certain
provisions with regard to deferral of distributions. The TRUPS have maturity
terms of 30 to 40 years with a fixed coupon. Earlier redemption is possible for
the USD 100 million 7 4/5% Capital Trust Pass-through Securities on or after
December 1, 2006.
The fair value of these loans amounts to EUR 658 million (1999: EUR 539
million).
-88-
2000 1999
(l) Subordinated (convertible) loans
Subordinated loans 667 683
Subordinated convertible loan 16 20
----- -----
Total subordinated loans 683 703
These loans are subordinated to all other liabilities and borrowings.
The subordinated loans have an average remaining term of five years. For an
amount of EUR 360 million the remaining term is (more than) 5 years. The coupons
vary from 4.75% to 8.25%.
The subordinated convertible loan is a USD 600 million 4.75% loan 1994-2004,
convertible into AEGON common shares on or after May 15, 1995 up to and
including November 1, 2004 at a conversion rate of 720 common shares with a
nominal value of EUR 0.12 per USD 5,000 principal amount, and an exchange rate
of NLG 1.728 per US dollar. Early redemption is allowed on or after November 1,
2001, against an amount that will give an effective yield of 7.5% per year, with
a premium of 1.43% decreasing to 0% in 2004. Redemption at maturity will be at
138.9%.
Full conversion at the balance sheet date would result in the issuance of
2,940,480 EUR 0.12 common shares, increasing the number of outstanding common
shares by 0.2%.
The fair value of these loans amounts to EUR 796 million (1999: EUR 873
million).
Balance Increase Exchange rate Balance
at charged to fluctuations at
January 1, the income and other December 31
2000 statement changes 2000
(m) Technical provisions
Life insurance:
Life insurance 40,628 2,049 6,451 49,128
Annuities 49,836 2,486 770/1/ 53,092
------- ------- ------- -------
90,464 4,535 7,221 102,220
Deferred policy acquisition costs (10,992) (13,459)
Unamortized interest rate rebates (486) (432)
------- -------
Subtotal life insurance 78,986 88,329
Non-life insurance:
Unearned premiums and unexpired risks 972 218 54 1,244
Deferred policy acquisition costs (472) (545)
------- -------
500 699
Claims outstanding 1,535 (41) 320 1,814
------- -------
Subtotal non-life insurance 2,035 2,513
Profit sharing and rebates 222 219
Other 626 37 87 750
------- ------- -------
Total 81,869 4,749 91,811
/1/ Of which the balance of deposits and withdrawals is EUR 904 million.
-89-
Life insurance
The provision for life insurance is calculated according to the assumptions on
which the premiums have been based. Regularly the assumptions are tested against
actual data. If these tests reveal a negative outcome, the provision is
recalculated according to the actual data. Future costs of processing benefits
are included in the provision. This provision also includes the provision for
unearned premiums and unexpired risks as well as the provision for claims
outstanding, both as far as related to the life insurance business.
The average interest rate used is 5.39% (1999: 5.24%). Taking into account the
capitalized interest rate rebates, the average interest rate used is 5.67%
(1999: 5.59%).
Provisions for annuities are for annuity and GIC products sold in the United
States. Annuities are single premium payment insurance products which have
significant savings characteristics. Guaranteed investment contracts (GICs)
provide protection of principal and a guaranteed rate of interest and are issued
on both a fixed rate and a floating rate basis to retirement savings plans. Both
benefit reserves are equal to the full accumulated contract values.
2000 1999
Deferred policy acquisition costs
Balance at January 1 10,992 5,421
Deferred during the year 2,232 1,363
Amortization charged to the income statement (1,143) (774)
Other changes/1/ 1,378 4,982
----- -----
Balance at December 31 13,459 10,992
/1/ Mainly caused by currency exchange rate differences.
Policy acquisition costs are costs that are directly or indirectly related to
the conclusion of insurance contracts. Part of the acquisition costs is deferred
and deducted from the technical provision life insurance.
Deferred policy acquisition costs of insurance contracts with fixed premiums are
generally amortized over periods not to exceed the premium-paying periods or the
contract periods. For flexible insurance contracts and investment type contracts
the amortization is generally in proportion to emerging gross profits.
Unamortized interest rate rebates
Balance at January 1 486 576
Rebates granted during the year 61 17
Amortization charged to the income statement (118) (115)
Other changes 3 8
----- -----
Balance at December 31 432 486
Interest rate rebates granted are amortized over the period of the contracts
concerned in yearly increasing amounts.
The provision for pension regarding own employees amounts to EUR 1,450 million
(1999: EUR 1,533 million).
Non-life insurance
Unearned premiums represent the unearned part of premiums received. Furthermore,
when necessary this item also includes a special provision to compensate for the
increasing age of persons insured under health and personal accident policies.
-90-
The provision for unexpired risks amounts to EUR 32 million (1999: EUR 30
million).
2000 1999
Deferred policy acquisition costs
Balance at January 1 472 405
Deferred during the year 161 117
Amortization charged to the income statement (141) (111)
Other changes 53 61
----- -----
Balance at December 31 545 472
Policy acquisition costs are costs that are directly or indirectly related to
the conclusion or renewal of insurance contracts.
The deferred policy acquisition costs are deducted from the technical provision
for unearned premiums and include both renewal commission paid related to
unearned premiums, amortized over the related premium period, and first year
commission on health insurance policies, amortized over the contract period.
Claims outstanding
Balance at January 1 1,794 1,680
Less reinsurance recoverables (259) (257)
------ ------
Net balance 1,535 1,423
Incurred related to:
- - current year 1,600 1,036
- - prior years 33 78
------ ------
Total incurred 1,633 1,114
Paid related to:
- - current year (669) (596)
- - prior years (690) (487)
------ ------
Total paid (1,359) (1,083)
Other changes 5 81
Net balance at December 31:
- - current year 931 440
- - prior years 883 1,095
------ ------
1,814 1,535
Plus reinsurance recoverables 593 259
------ ------
Balance at December 31 2,407 1,794
The provision for claims outstanding relates to claims incurred in the current
and previous years, still unsettled at year-end. Calculation takes place either
on an item by item basis or on the basis of statistical information, taking into
account claims incurred but not yet reported. In calculating the provision, the
future costs of processing claims are considered.
A different method is applied to marine, aviation and transport insurance. The
calculation is based on the 'underwriting years system' with premiums deferred
and claims combined in a fund.
-91-
Profit sharing and rebates
This provision consists of the amounts earmarked for insured or beneficiaries,
as far as their accounts have not yet been credited.
Other technical provisions
This consists mainly of insurance deposits under Dutch group life contracts,
which are designated for improvement of retirement benefits under such
contracts. Maturity is undetermined. Interest credited to such deposits is
linked with the average yield on long-term Dutch government bonds.
Reinsurance amount
The following amounts on account of reinsurance have been deducted from the
technical provisions:
2000 1999
Life insurance 4,744 4,058
Unearned premiums and unexpired risks 16 34
Claims outstanding 593 259
----- -----
5,353 4,351
Exchange
rate
Balance Decrease fluctua- Balance
at credited to tions and at
January 1, the income other December 31
2000 statement changes 2000
(n) Technical provisions with investments for
the account of policyholders
Provisions gross 108,603 114,637
Ceded to reinsurers (327) (351)
------- -------
Provisions for insurance of which the policyholder
bears the investment risk and for insurance-linked
savings deposits 108,276 (731) 6,741 114,286
This provision includes unit-linked insurance contracts, separate investment
funds Group Life, insurance-linked savings deposits and the liabilities of AEGON
UK related to the non-participating funds as well as the participating funds
(EUR 26,931 million). The amount of EUR 731 million credited to the income
statement is the total of premium receipt and benefits of EUR 2,764 million and
the investment income for the account of policyholders amounting to EUR (3,495)
million. Also the liabilities of the acquired pension business of Diversified
Investment Advisors are recognized under this heading to the extent that the
contractholder bears the economic risk.
The provisions are generally shown at book value of the related investments.
(o) Provisions
Provisions for taxation 2,748 2,237
The provisions for taxation are of a long-term nature. This caption includes
both deferred taxation as well as other long-term tax liabilities.
The deferred taxation is calculated on the basis of the difference between book
value and valuation for tax purposes of the appropriate assets and liabilities.
-92-
The provision is equal to the discounted value of the future tax liabilities. In
the calculation discounted tax rates ranging from 0% to nominal rates are used.
Nominal value of these tax liabilities amounts to EUR 3,383 million.
The deferred tax assets included in the balance sheet at December 31, 2000 are
immaterial, except for a EUR 628 million tax asset on deferred acquisition costs
in the USA.
At December 31, 2000 subsidiaries of AEGON USA had net operating loss carry-
forwards for US tax purposes expiring at various dates through 2020.
Subsidiaries in Germany and Spain also had net operating loss carry-forwards.
These total loss carry-forwards of approximately EUR 800 million have not been
recognized in the provision.
more than 2000 1999
1-5 years 5 years Total Total
EUR EUR EUR EUR
(p) Long-term liabilities
Capital market:
Borrowings 2,675 886 3,561 3,216
Other:
Miscellaneous long-term liabilities 170 294 464 487
----- ----- ----- -----
Total long-term liabilities 2,845 1,180 4,025 3,703
Redemptions due in 2001/2000 506 401
Redemptions are shown under long-term liabilities.
The repayment periods of borrowings vary from in excess of one year up to a
maximum of 37 years. The coupons vary from 2.5% to 10% per annum. Borrowings
include debenture loans for EUR 969 million The fair value of the long-term
liabilities amounts to EUR 4,013 million (1999: EUR 3,727 million).
(q) Other payables
Investment payables 300 247
Taxes and social security 283 24
Dividend 583 460
Other 2,417 2,268
----- -----
Total other payables 3,583 2,999
(r) Accruals and deferred income
Accrued interest 453 450
Deferred gains and losses on fixed rate investments 200 570
----- -----
Total accruals and deferred income 653 1,020
Commitments and contingencies
Investments contracted
Real estate (25) 16
Mortgage loans 535 117
Bonds and registered debentures:
Purchase 1,683 143
Sale 1,083 189
Private placements 218 323
-93-
2000 1999
Other:
Purchase 678 358
Sale 0 0
Derivatives Notional Fair Book Notional Fair Book
amounts value value amounts value value
2000 2000 2000 1999 1999 1999
Interest rate contracts
Interest rate swaps 31,058 (150) 0 27,254 56 0
Swaptions 8,780 107 0 8,232 34 0
Caps/floors 1,501 16 0 1,149 10 0
Forward rate agreements 800 (12) 0 836 1 0
Other derivative contracts
Cross currency swaps 6,546 (476) (446) 3,879 (59) (51)
Foreign exchange contracts 1,766 26 26 2,474 27 27
Equity swaps 70 2 2 - - -
OTC options 407 47 47 5,832 995 995
Exchange traded options/futures 8,158 3 3 4,895 57 57
Collateral and guarantees given
to third parties
Bonds and registered debentures 739 2,353
Private placements 35 306
Letters of credit 1,284 85
These function mainly as collateral granted by AEGON subsidiaries abroad, to
meet legal requirements. This item also includes collateral guarantees given by
subsidiaries under reciprocal insurance contracts.
Off balance sheet managed assets
In the United States commitments prevail related to Guaranteed Investment
Contracts, which in the form of Trust GICs have been issued to plan sponsors,
pursuant to which the plan sponsor retains legal title to the assets and
receives the investment performance related to these contracts. Guarantees have
been given to provide benefit responsiveness, which may take the form of
annuities, in the event that qualified plan benefit requests exceed plan cash
flows. The plan sponsor agrees to reimburse for such benefit payments with
interest. In return for this guarantee, a premium is received that varies based
on such elements as benefit responsive exposure and contract size. Funding
requirements to date have been minimal and management does not anticipate any
future funding requirements that would have a material effect on reported
financial results.
Per December 31, 2000 the value of the outstanding GICs together with the value
of all other off balance managed assets amount to EUR 47 billion (USD 43.7
billion), (1999: EUR 39.5 billion).
Obligations regarding acquisitions
AEGON's obligations related to the acquisition of Diversified Investment
Advisors from the Mutual of New York, consist of payments relating to the assets
and liabilities for a remaining period of two years. AEGON will then purchase
the remaining business in force based on a formula described in the agreement.
The agreement between AEGON and Grupo Financiero Banamex-Accival (Banacci)
provides for the purchase by AEGON of aggregate 49% participations in the
equities of Seguros Banamex AEGON and Afore Banamex. The equity consideration to
be paid by AEGON to Banacci will be adjusted in either direction based upon the
growth and profitability of the joint ventures over the years up to and
including 2005.
-94-
(2) NOTES TO THE CONSOLIDATED INCOME STATEMENTS
Amounts in million EUR
Determination of results
The principles for the determination of results are described in the notes to
the balance sheets.
(a) Analysis of premiums life insurance 2000
Life insurance Investments for the
account of policyholders
------------------------------- -------------------------------
Gross Reinsurance Own account Gross Reinsurance Own account
Incoming reinsurance 1,226 (247) 979 186 (1) 185
Recurring:
Individual
- - without profit sharing 2,615 (507) 2,108 2,187 (13) 2,174
- - with profit sharing 373 (15) 358 203 (1) 202
----- ---- ----- ----- ----- -----
Total 2,988 (522) 2,466 2,390 (14) 2,376
Group
- - without profit sharing 421 (92) 329 756 (32) 724
- - with profit sharing 318 (6) 312 651 (8) 643
----- ----- ----- ----- ----- -----
Total 739 (98) 641 1,407 (40) 1,367
Total recurring 3,727 (620) 3,107 3,797 (54) 3,743
Single:
Individual
- - without profit sharing 1,586 (86) 1,500 3,851 (103) 3,748
- - with profit sharing 162 0 162 1,253 (58) 1,195
----- ----- ----- ----- ----- -----
Total 1,748 (86) 1,662 5,104 (161) 4,943
Group
- - without profit sharing 94 0 94 1,017 0 1,017
- - with profit sharing 382 (3) 379 702 (38) 664
----- ----- ----- ----- ----- -----
Total 476 (3) 473 1,719 (38) 1,681
Total single 2,224 (89) 2,135 6,823 (199) 6,624
----- ----- ----- ----- ----- -----
Total premiums 7,177 (956) 6,221 10,806 (254) 10,552
Grand total 17,983 (1,210) 16,773
-95-
1999
Life insurance Investments for the
account of policyholders
------------------------------- -------------------------------
Gross Reinsurance Own account Gross Reinsurance Own account
Incoming reinsurance 482 (191) 291 224 (4) 220
Recurring:
Individual
- - without profit sharing 1,873 (82) 1,791 1,265 (7) 1,258
- - with profit sharing 329 (5) 324 195 (1) 194
----- ----- ----- ----- ----- -----
Total 2,202 (87) 2,115 1,460 (8) 1,452
Group
- - without profit sharing 869 (324) 545 554 (6) 548
- - with profit sharing 328 (21) 307 517 (9) 508
----- ----- ----- ----- ----- -----
Total 1,197 (345) 852 1,071 (15) 1,056
Total recurring 3,399 (432) 2,967 2,531 (23) 2,508
Single:
Individual
- - without profit sharing 842 (38) 804 2,524 (1) 2,523
- - with profit sharing 130 - 130 1,128 (102) 1,026
----- ----- ----- ----- ----- -----
Total 972 (38) 934 3,652 (103) 3,549
Group
- - without profit sharing 63 0 63 663 0 663
- - with profit sharing 283 (2) 281 533 (54) 479
----- ----- ----- ----- ----- -----
Total 346 (2) 344 1,196 (54) 1,142
Total single 1,318 (40) 1,278 4,848 (157) 4,691
----- ----- ----- ----- ----- -----
Total premiums 5,199 (663) 4,536 7,603 (184) 7,419
Grand total 12,802 (847) 11,955
-96-
1998
Life insurance Investments for the
account of policyholders
------------------------------- -------------------------------
Gross Reinsurance Own account Gross Reinsurance Own account
Incoming reinsurance 110 (6) 104 150 - 150
Recurring:
Individual
- - without profit sharing 1,274 (32) 1,242 958 - 958
- - with profit sharing 261 - 261 165 (1) 164
----- ----- ----- ----- ----- -----
Total 1,535 (32) 1,503 1,123 (1) 1,122
Group
- - without profit sharing 365 (31) 334 423 - 423
- - with profit sharing 324 (7) 317 466 (5) 461
----- ----- ----- ----- ----- -----
Total 689 (38) 651 889 (5) 884
Total recurring 2,224 (70) 2,154 2,012 (6) 2,006
Single:
Individual
- - without profit sharing 738 (50) 688 2,051 - 2,051
- - with profit sharing 128 - 128 707 (5) 702
----- ----- ----- ----- ----- -----
Total 866 (50) 816 2,758 (5) 2,753
Group
- - without profit sharing 67 - 67 643 - 643
- - with profit sharing 303 (2) 301 280 - 280
----- ----- ----- ----- ----- -----
Total 370 (2) 368 923 - 923
Total single 1,236 (52) 1,184 3,681 (5) 3,676
----- ----- ----- ----- ----- -----
Total premiums 3,570 (128) 3,442 5,843 (11) 5,832
Grand total 9,413 (139) 9,274
-97-
(b) Analysis of technical results non-life insurance
Marine,
Legal transport
Accident liability Other and General Other
& health motor motor aviation Fire liability branches Total
2000
Gross premiums 2,067 180 157 38 268 65 13 2,788
Gross premiums earned 1,869 184 155 38 266 65 13 2,590
Gross claims incurred (1,512) (167) (110) (32) (168) (33) (2) (2,024)
Gross operating expenses (636) (52) (44) (10) (96) (23) (5) (866)
Balance of reinsurance ceded 201 0 0 4 (6) (6) (1) 192
------- ------- ------- -------- -------- --------- -------- --------
(78) (35) 1 0 (4) 3 5 (108)
Investment income 263 29 18 4 23 13 2 352
Investment charges (9) 0 0 0 0 0 0 (9)
Balance of other items (4) 0 0 0 0 0 1 (3)
Investment income allocated
to the non-technical account (15) (5) (2) (1) (3) (1) 0 (27)
------- ------- ------- -------- -------- --------- -------- --------
Result technical account non-life 157 (11) 17 3 16 15 8 205
1999
Gross premiums 1,453 191 153 39 265 65 12 2,178
Gross premiums earned 1,321 189 148 39 261 63 12 2,033
Gross claims incurred (888) (184) (127) (24) (173) (37) (2) (1,435)
Gross operating expenses (477) (59) (39) (10) (94) (23) (7) (709)
Balance of reinsurance ceded 4 (1) (1) (2) (10) (5) (2) (17)
------- ------- ------- -------- -------- --------- -------- --------
(40) (55) (19) 3 (16) (2) 1 (128)
Investment income 195 35 17 4 28 11 2 292
Investment charges (11) (3) (1) (1) (2) (1) (1) (20)
Balance of other items 0 (1) (1) 0 0 0 0 (2)
Investment income allocated
to the non-technical account (37) (6) (2) (2) (2) (1) (1) (51)
------- ------- ------- -------- -------- --------- -------- --------
Result technical account non-life 107 (30) (6) 4 8 7 1 91
1998
Gross premiums 1,391 191 143 40 284 73 15 2,137
Gross premiums earned 1,305 185 148 40 283 73 11 2,045
Gross claims incurred (904) (173) (113) (25) (173) (28) (7) (1,423)
Gross operating expenses (449) (52) (51) (10) (100) (31) (3) (696)
Balance of reinsurance ceded 2 0 5 (1) (5) (17) (2) (18)
------- ------- ------- -------- -------- --------- -------- --------
(46) (40) (11) 4 5 (3) (1) (92)
Investment income 156 32 18 3 28 11 3 251
Investment charges (2) (1) 0 0 (2) - (1) (6)
Balance of other items 4 0 0 (2) (5) (3) (2) (8)
Investment income allocated
to the non-technical account (40) (6) (3) (2) (3) (1) (1) (56)
------- ------- ------- -------- -------- --------- -------- --------
Result technical account non-life 72 (15) 4 3 23 4 (2) 89
-98-
Marine,
Legal transport
Accident liability Other and General Other
& health motor motor aviation Fire liability branches Total
Combined ratios in percentages
2000
Americas 101 - - - 33 - - 101
The Netherlands 96 126 90 98 110 110 49 104
Other countries 97 116 111 371 93 61 - 102
Total 101 121 99 101 102 94 49 102
1999
Americas 98 - - - 31 - - 98
The Netherlands 100 121 90 94 98 108 69 101
Other countries 101 138 140 97 118 101 - 123
Total 99 129 112 94 106 105 69 104
1998
Americas 102 - - - 69 - - 102
The Netherlands 107 117 97 90 96 108 108 102
Other countries 99 125 124 95 100 93 - 111
Total 103 121 108 90 97 105 108 104
The combined ratio is the sum of the ratio of net incurred claims to net
premiums earned and the ratio of net commissions and expenses to premiums own
account. Although a ratio over 100% suggests a loss, the ratio does not include
investment income. With the inclusion of investment income in the calculation,
all of AEGON's major product lines except legal liability motor were profitable.
-99-
(c) Investment income
Non-
Life Non-life technical Total
2000
Income from participations 15 0 37 52
Group companies:
Income from other investments
Real estate/1/ 115 2 2 119
Shares 159 7 0 166
Bonds and other fixed rate securities 4,242 216 0 4,458
Loans guaranteed by mortgages 1,301 4 0 1,305
Other loans 1,741 21 39 1,801
Deposits with credit institutions 9 6 0 15
Other financial investments 176 2 0 178
Interest on liquid assets and other 847 76 0 923
Indirect income real estate and shares 577 18 0 595
----- ----- ----- -----
Total 9,182 352 78 9,612
1999
Income from participations 14 2 40 56
Group companies:
Income from other investments
Real estate/1/ 144 3 1 148
Shares 121 6 0 127
Bonds and other fixed rate securities 2,973 173 0 3,146
Loans guaranteed by mortgages 969 3 0 972
Other loans 1,085 23 49 1,157
Deposits with credit institutions 49 11 0 60
Other financial investments 117 4 0 121
Interest on liquid assets and other 460 49 0 509
Indirect income real estate and shares 376 18 0 394
----- ----- ----- -----
Total 6,308 292 90 6,690
1998
Income from participations 2 0 24 26
Group companies:
Income from other investments
Real estate/1/ 134 3 1 138
Shares 114 6 5 125
Bonds and other fixed rate securities 2,067 148 0 2,215
Loans guaranteed by mortgages 850 2 0 852
Other loans 775 25 68 868
Deposits with credit institutions 58 3 0 61
Other financial investments 85 2 0 87
Interest on liquid assets and other 319 46 1 366
Indirect income real estate and shares 249 16 0 265
----- ----- ----- -----
Total 4,653 251 99 5,003
/1/ Of which allocated internal rent for real estate in own use an amount of EUR
17 million (1999: EUR 14 million and 1998: EUR 10 million), based on market
conditions.
-100-
In the income statement the structural total return on investments in real
estate and shares is recognized. This total return includes the realized direct
income (rents and dividends) of the reporting period and an amount of indirect
income.
The total return is calculated by determining the average of the total return
yield over the last 30 years and multiplying this average yield by the average
value of these investments over the last 7 years, adjusted for investment
purchases and sales.
The indirect income from these investments is then calculated as the difference
between the total return and the realized direct income. As a measure of
conservatism, the indirect income is capped at a level of 7% after tax on the
average investment portfolio. As a consequence, an amount of EUR 108 million was
not released to earnings in 2000 (EUR 49 million in 1999 and EUR 26 million in
1998).
2000 1999 1998
(d) Income from banking activities
Participations 0 1 1
Bonds and other fixed rate securities 63 95 111
Loans guaranteed by mortgage 33 28 24
Other loans 95 86 90
Other investments and liquid assets 181 438 338
Commissions 0 56 62
----- ------- ------
Total 372 704 626
(e) Change in technical provisions
Technical provisions 4,749 3,531 2,897
Technical provisions with investments for the
account of policyholders (731) 16,338 10,823
----- ------- ------
4,018 19,869 13,720
Investment income for the account of policyholders 3,495 (13,533) (8,466)
----- ------- ------
Change in technical provisions 7,513 6,336 5,254
(f) Profit sharing and rebates
Amortization of interest rate rebates 118 115 118
Surplus interest bonuses 204 761 393
Profit appropriated to policyholders 48 56 60
----- ------- ------
Total 370 932 571
Granted interest rate rebates amount to EUR 61 million (1999: EUR 17 million and
1998: EUR 47 million), almost entirely relating to the Dutch companies.
-101-
(g) Operating expenses Non-
Life Non-life technical Total
2000
Acquisition costs 2,548 538 - 3,086
Deferred policy acquisition costs (2,232) (161) - (2,393)
Amortization of deferred policy acquisition costs 1,143 141 - 1,284
----- ----- ----- -----
1,459 518 - 1,977
Administrative expenses 1,934 348 - 2,282
Commissions and profit sharing from reinsurers (335) (128) - (463)
Banking and other activities - - 85 85
----- ----- ----- -----
Total operating expenses 3,058 738 85 3,881
Investment expenses 219
------
Commissions and expenses 4,100
1999
Acquisition costs 1,685 435 - 2,120
Deferred policy acquisition costs (1,363) (117) - (1,480)
Amortization of deferred policy acquisition costs 774 111 - 885
----- ----- ----- -----
1,096 429 - 1,525
Administrative expenses 1,357 280 - 1,637
Commissions and profit sharing from reinsurers (205) (94) - (299)
Banking and other activities - - 211 211
----- ----- ----- -----
Total operating expenses 2,248 615 211 3,074
Investment expenses 145
------
Commissions and expenses 3,219
1998
Acquisition costs 1,180 398 - 1,578
Deferred policy acquisition costs (937) (94) - (1,031)
Amortization of deferred policy acquisition costs 560 94 - 654
----- ----- ----- -----
803 398 - 1,201
Administrative expenses 874 298 - 1,172
Commissions and profit sharing from reinsurers (37) (79) - (116)
Banking and other activities - - 147 147
----- ----- ----- -----
Total operating expenses 1,640 617 147 2,404
Investment expenses 81
------
Commissions and expenses 2,485
-102-
Technical and non-technical accounts include the following:
2000 1999 1998
Salaries 1,066 730 526
Pension premiums (82) (22) 13
Other social security charges 173 134 120
Other expenses 1,167 1,080 775
----- ----- -----
Total expenses 2,324 1,922 1,434
Commissions 3,348 2,191 1,544
Deferred policy acquisition costs (2,393) (1,480) (1,031)
Amortization of deferred policy acquisition costs 1,284 885 654
Commissions and profit sharing from reinsurers (463) (299) (116)
----- ----- -----
Commissions and expenses 4,100 3,219 2,485
Expenses include allocated housing expenses from real estate in own use for an
amount of EUR 17 million (1999: EUR 14 million and 1998: EUR 10 million), based
on market conditions. Claims processing costs are included in benefits and
surrenders and claims for own account; investment expenses are included in
investment charges.
AEGON has non-contributory defined benefit plans and defined contribution plans
covering substantially all AEGON employees. In a number of countries retirement
benefits are insured with our life insurance companies based on the usual
actuarial formulas. In the other countries the provisions for pension
obligations are vested in separate legal entities, primarily consisting of
defined benefit pension plan trusts, not forming part of AEGON. In The
Netherlands benefits are based on past service and final pay. Regular
improvements of benefits and increases in pensions are fully funded yearly and
immediately charged to the income statements. In the United States and in the
United Kingdom benefits are based on past and future service, taking into
account future salary and benefit levels as well as estimated inflation in
future years. Regular improvements of benefits are allocated to future service
years. In the United States, because of the consolidation of Transamerica, the
present overfunding of the pension plans and the related interest benefit on
pension plan assets cause pension expense to be credit.
In the other countries pension costs are fully charged to the income statements
in the years in which they occur.
Remuneration of active and retired members of the Executive Board
(in thousands of EUR)
Performance
related Total Total
Salary payments/1/ Pension 2000 1999
P. van de Geijn 458 402 80 940 948
D.J. Shepard /2/ 1,083 1,201 746 3,030 2,503
K.J. Storm 617 543 108 1,268 1,280
J.B.M. Streppel (as of May 4, 2000) 306 - 53 359 -
------ ------ ------ ------ -----
Total active members 2,464 2,146 987 5,597 4,731
Retired members 519 402 172 1,093 1,417
------ ------ ------ ------ -----
Total 2,983 2,548 1,159 6,690 6,148
-103-
/1/ Under an annual bonus scheme of EUR 22,700 (NLG 50,000) per member per
percent point increase in the preceding year earnings per share over the rate of
inflation, with a maximum of that year's salary. The USA boardmembers have an
additional short term incentive plan based on prior year's earnings increase.
/2/ The increase is mainly due to the EUR/USD currency effect.
Remuneration of members of the Supervisory Board amounted to EUR 336,000 (1999:
EUR 355,000 1998: EUR 0.3 million), of which EUR 16,000 was related to retired
members of the Supervisory Board.
Stock options and interests in the company of active members
Stock options Stock options Shares held
Balance at Exercise Exercise Market Balance at Exercise in the company
January, 1 price Granted price Exercised Date price December, 31 price December, 31
EUR EUR EUR EUR
P. van de Geijn 120,000 9.79 120,000 4-12 44.33 - - 226,722
200,000 17.36 0 - - 200,000 17.36
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
D.J. Shepard 200,000 9.79 200,000 8-18 45.15 - - 276,170
200,000 17.36 0 - - 200,000 17.36
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
K.J. Storm 200,000 17.36 0 - - 200,000 17.36 261,181
200,000 29.02 0 - - 200,000 29.02
200,000 46.95 0 - - 200,000 46.95
200,000 34.50 0 - - 200,000 34.50
J.B.M. Streppel 50,000 17.36 0 - - 50,000 17.36 -
50,000 29.02 0 - - 50,000 29.02
40,000 46.95 0 - - 40,000 46.95
40,000 34.50 0 - - 40,000 34.50
The criteria for the number of options offered to the members of the Executive
Board are as follows: 4. Comparison of the AEGON share price with a peer group
of 9 Financials (AIG, Allianz, AXA, Generali, Prudential, Zurich, ABN Amro,
Fortis, ING). The comparison is based on a moving average over the last three
years.
5. When AEGON finishes in the top three each person receives the maximum of
200,000 options, in the bottom three 50,000 per person and in the middle four
100,000 per person.
6. If there is no increase in earnings per share, no options will be offered.
At the balance sheet date, J.B.M. Streppel had a 5% mortgage loan of EUR
680,700. According to the contract no redemptions were received on this loan in
2000.
-104-
(h) Investment charges Non-
Life Non-life technical Total
2000
Investment expenses and interest charges 296 9 710 1,015
1999
Investment expenses and interest charges 223 20 661 904
1998
Investment expenses and interest charges 158 6 655 819
(i) Miscellaneous income and expenditure
2000
Addition to provision for doubtful debts 132 3 7 142
Currency exchange rate differences 1 (1) 10 10
Other income and expenditure (4) 1 (14) (17)
--- --- --- ---
Total 129 3 3 135
1999
Addition to provision for doubtful debts 83 7 10 100
Currency exchange rate differences 2 1 10 13
Other income and expenditure 9 (6) (11) (8)
--- --- --- ---
Total 94 2 9 105
1998
Addition to provision for doubtful debts 72 1 8 81
Currency exchange rate differences (1) (1) (3) (5)
Other income and expenditure (9) 8 10 9
--- --- --- ---
Total 62 8 15 85
-105-
(j) Investment income allocated to the non-technical account
Investment income from shareholders' equity does not form part of the technical
results. The amounts transferred to the non-technical account include direct
yield on allocated investments or are based on the average direct yield of the
investment portfolio.
(k) Corporation tax
The tax burden for AEGON as a group is made up of the direct and future taxes
payable on profits of the Group units operating in the various countries. The
taxes of these units reflect tax benefits available in the local environment and
therefore could be below nominal rates.
The tax burden in the Netherlands reflects the benefit of special tax rules for
which the Company and its subsidiaries qualify, including an equalization
reserve and tax exempt investment in subsidized housing and certain
participations.
Breakdown: 2000 1999 1998
Taxes currently due 486 324 317
Taxes deferred due to temporary differences 364 287 70
---- ---- ----
Total 850 611 387
The following is a reconciliation of the expected tax on income with the actual
tax expense.
Statutory tax rate 986 748 559
Increases (decreases) in taxes resulting from:
Dividend income exclusions and credits (109) (41) (38)
Depreciation of equipment and real estate (3) (19) (10)
Valuation of technical provisions 0 (6) (40)
Other, net (24) (71) (84)
---- ---- ----
Actual tax expense 850 611 387
(l) Net income unconsolidated group companies
Transamerica non insurance businesses
Since their acquisition, AEGON has been accounting for the non insurance
businesses of Transamerica as participations and has recorded them at cost.
Following a change in accounting, resulting from the decision to retain and
continue to develop these businesses as operating units of the group, these
businesses are carried at net asset value in the balance sheet as of June 30,
2000.
From July 21, 1999 up to the first six months of 2000 dividends declared were
included in earnings for an amount that offset the funding cost. Effective July
1, 2000, net income of the non insurance businesses has been included in
consolidated earnings.
The non-insurance businesses of Transamerica include lending, leasing and real
estate information services. The lending business makes commercial loans through
three operations: distribution finance, business credit and equipment financial
services. Leasing is comprised of the company's marine container and European
trailer operations. Real estate information provides tax and flood hazard
services primarily to mortgage originators and servicers.
Due to their diversity in operations in relation to the operations of AEGON,
these group companies have not been consolidated.
Following are the consolidated balance sheets, consolidated income statements
and notes thereto of Transamerica Finance Corporation, established in Delaware
and operating from San Francisco, California, USA. Valuation and determination
of results are based on Dutch accounting principles.
-106-
Consolidated balance sheets at December 31
2000 1999
Cash 51 24
Finance receivables 8,916 8,526
Equipment 186 191
Other assets 4,529 5,909
------ ------
Total 13,682 14,650
Long-term borrowings 5,956 6,221
Short-term borrowings 4,248 3,252
Other liabilities 1,146 1,229
Accruals and deferred income 331 353
Provisions 443 361
Shareholders' equity 1,558 3,234
------ ------
Total 13,682 14,650
Consolidated income statements
July 21 -
December 31
2000 1999
Finance charges 1,134 439
Leasing revenues 683 329
Real estate information 286 130
Other revenues 209 93
---- ----
Total revenues 2,312 991
Interest and debt expense 660 226
Salaries and other employee expenses 384 160
Depreciation on equipment held for lease 307 143
Addition to the provision for doubtful accounts 149 45
Miscellaneous income and expenditure 589 280
---- ----
Total expenses 2,089 854
Income before tax 223 137
Corporation tax (70) (50)
---- ----
Net income from operations 153 87
Income reported by AEGON:
Dividend declared through June 30, 2000 82 57
Net income reported from July 1, 2000 66 -
Funding costs on the related raised debt (119) (57)
---- ----
Net income reported by AEGON 29 0
-107-
Notes to the consolidated balance sheets
Where not otherwise stated, balance sheet items are carried at face value . If
necessary a provision for bad and doubtful debts has been deducted.
Cash
All cash is at free disposal
2000 1999
Finance receivables
The contractual maturity is:
Within three months 2,520 2,127
Between three months and one year 1,871 1,557
Between one and five years 3,574 3,299
Over five years 951 1,543
----- -----
Total 8,916 8,526
This item includes receivables from lending and leasing activities after
deduction of unearned finance charges.
Equipment
Balance at January 1 191
Investments 27
Depreciation (33)
Disposals and other changes (15)
Currency rate differences 16
------
Balance at December 31 186
Accumulated depreciation 48
Total cost of equipment 234
Equipment is shown at cost less depreciation over the estimated useful life.
Other assets
Equipment held for lease 2,174 3,006
Assets held for sale 1,346 24
Other 1,009 2,879
------- -------
Total 4,529 5,909
Equipment held for lease is shown at cost less depreciation over the estimated
useful life. Assets held for sale consists primarily of consumer mortgage and
retail finance receivables.
Long-term borrowings
The contractual maturity is:
Within three months 521 219
Between three months and one year 2,070 782
Between one and five years 3,025 4,849
Over five years 340 371
------- -------
Total 5,956 6,221
-108-
2000 1999
Short-term borrowings
Commercial Paper 4,132 2,962
Banks 116 290
------- -------
Total 4,248 3,252
Other liabilities
Creditors 875 841
Taxes 31 25
Other liabilities 240 363
------- -------
Total 1,146 1,229
Provisions
Deferred taxes 443 361
Shareholders' equity
Capital 16 15
Reserves 1,542 3,219
------- -------
Total 1,558 3,234
Reserves
Balance at January 1 3,219
Net income 29
Capital contributions 322
Dividends paid (272)
Goodwill (2,059)
Currency exchange rate differences 270
Other changes 33
------
Balance at December 31 1,542
Commitments and contingencies
The business credit unit of the commercial lending operation provides revolving
lines of credit, letters of credit and standby letters of credit. At December 31
borrowers' unused credit available under such arrangements totaled EUR 2,569
million.
Off balance sheet
The company has entered into arrangements in which it securitized and services
inventory floorplan, equipment finance and leasing, insurance premium finance
receivables and residential mortgage as well as small business administration
loans. Securitized assets at December 31 totaled EUR 3,481 million.
-109-
Notes to the consolidated income statements
July 21 -
December 31
2000 1999
Breakdown of net income from operations by segment
Commercial lending 139 76
Leasing 8 5
Real estate information services 24 17
Other (18) (11)
---- ----
Net income from operations 153 87
Salaries and other employee costs
Salaries 306 130
Pension expenses (4) (2)
Social security charges 18 7
Other employee costs 64 25
---- ----
Total 384 160
-110-
(3) SEGMENT INFORMATION
(in million EUR)
Results
2000 The United Other Total
Americas Netherlands Kingdom Hungary Spain countries
Traditional Life 924 577 52 30 8 (10) 1,581
Fixed Annuities 461 - - - - - 461
GICs and Funding agreements 179 - - - - - 179
Life for account policyholders 103 150 295 (4) (3) 2 543
Variable Annuities 141 - - - - - 141
Fee business 80 - 13 5 - - 98
- -------------------------------------------------------------------------------------------------------
Life insurance 1,888 727 360 31 5 (8) 3,003
Accident & Health insurance 134 34 - 0 4 0 172
General insurance 3 32 - 21 4 0 60
Total insurance 2,025 793 360 52 13 (8) 3,235
- -------------------------------------------------------------------------------------------------------
of which General Account 1,701 643 52 51 16 (10) 2,453
of which Policyholders Account 324 150 308 1 (3) 2 782
Other Financial products - 47 - - - - 47
Banking activities Labouchere - 48 - - - - 48
Interest charges & Other (443)
- -------------------------------------------------------------------------------------------------------
Income before tax business units 2,025 888 360 52 13 (8)
Income before tax 2,887
Corporation tax business units (686) (204) (98) (8) 0 (1)
Corporation tax (850)
- -------------------------------------------------------------------------------------------------------
Net income business units 1,339 684 262 44 13 (9)
Transamerica Non Insurance 29
Net income 2,066
1999
Traditional Life 580 513 50 34 4 (5) 1,176
Fixed Annuities 338 - - - - - 338
GICs and Funding agreements 132 - - - - - 132
Life for account policyholders 51 134 190 (3) (5) 5 372
Variable Annuities 55 - - - - - 55
Fee business 56 - (3) 0 - - 53
- -------------------------------------------------------------------------------------------------------
Life insurance 1,212 647 237 31 (1) 0 2,126
Accident & Health insurance 123 20 - 1 0 0 144
General insurance 2 39 - 12 (55) 0 (2)
Total insurance 1,337 706 237 44 (56) 0 2,268
- -------------------------------------------------------------------------------------------------------
of which General Account 1,175 572 50 47 (51) (5) 1,788
of which Policyholders Account 162 134 187 (3) (5) 5 480
Other Financial products - 29 - - - - 29
Banking activities Labouchere - 126 - - - - 126
Interest charges & Other (242)
Income before tax business units 1,337 861 237 44 (56) 0
- -------------------------------------------------------------------------------------------------------
Income before tax 2,181
Corporation tax business units (463) (189) (60) (4) 5 0
Corporation tax (611)
- -------------------------------------------------------------------------------------------------------
Net income business units 874 672 177 40 (51) 0
Transamerica Non Insurance 0
Net income 1,570
-111-
Revenues and premiums
(in million EUR) The United Other Total
2000 Americas Netherlands Kingdom Hungary Spain countries EUR
Gross premiums
Life general account single 1,427 553 160 4 76 4 2,224
Life general account recurring 4,190 602 16 82 38 25 4,953
Life policyholders account single 1,073 739 4,859 34 97 21 6,823
Life policyholders account recurring 723 1,429 1,703 18 38 72 3,983
- -------------------------------------------------------------------------------------------------------------
Total Life insurance 7,413 3,323 6,738 138 249 122 17,983
Accident & Health insurance 1,865 129 - 1 72 0 2,067
General insurance 5 408 - 84 218 6 721
- -------------------------------------------------------------------------------------------------------------
Total gross premiums 9,283 3,860 6,738 223 539 128 20,771
- -------------------------------------------------------------------------------------------------------------
Investment income life insurance 7,522 1,418 145 59 28 10 9,182
Investment income non-life 232 84 - 18 18 - 352
Income from banking activities - 372 - - - - 372
- -------------------------------------------------------------------------------------------------------------
Total revenues business units 17,037 5,734 6,883 300 585 138 30,677
Income from other activities 78
- -------------------------------------------------------------------------------------------------------------
Total revenues 30,755
Investment income for the account
of policyholders (3,981) 333 181 2 (26) (4) (3,495)
Commissions and expenses business units 2,991 534 329 74 96 42
Commissions and expenses 4,100
Gross Margin business units/1/ 5,016 1,422 689 126 109 34
Gross Margin/1/ 6,987
Average number of employees 14,987 3,059 4,404 717 789 421 24,377
1999
Gross premiums
Life general account single 671 456 157 0 18 16 1,318
Life general account recurring 3,032 692 34 86 33 4 3,881
Life policyholders account single 457 535 3,713 10 118 15 4,848
Life policyholders account recurring 103 1,329 1,238 6 36 43 2,755
- -------------------------------------------------------------------------------------------------------------
Total Life insurance 4,263 3,012 5,142 102 205 78 12,802
Accident & Health insurance 1,264 118 - 1 70 - 1,453
General insurance 4 402 - 88 231 - 725
- -------------------------------------------------------------------------------------------------------------
Total gross premiums 5,531 3,532 5,142 191 506 78 14,980
- -------------------------------------------------------------------------------------------------------------
Investment income life insurance 4,756 1,362 99 65 20 6 6,308
Investment income non-life 164 85 - 26 17 - 292
Income from banking activities - 704 - - - - 704
- -------------------------------------------------------------------------------------------------------------
Total revenues business units 10,451 5,683 5,241 282 543 84 22,284
Income from other activities 90
- -------------------------------------------------------------------------------------------------------------
Total revenues 22,374
Investment income for the account
of policyholders 7,216 2,478 3,783 3 23 30 13,533
Commissions and expenses business units 2,039 664 284 76 99 25
Commissions and expenses 3,219
Gross Margin business units/1/ 3,376 1,525 521 120 43 25
Gross Margin/1/ 5,400
Average number of employees 12,857 3,786 3,255 1,048 753 371 22,070
/1/ Calculated as the sum of income before tax and commissions and expenses.
-112-
Deposits and new premium production
(in million EUR)
2000 The United Other Total
Americas Netherlands Kingdom Hungary Spain countries EUR
Deposits
Fixed Annuities 4,972 - - - - - 4,972
Fixed GICs and funding agreements 11,547 - - - - - 11,547
Variable Annuities 8,987 - - - - - 8,987
- --------------------------------------------------------------------------------------------------------------------------------
Total 25,506 - - - - - 25,506
- --------------------------------------------------------------------------------------------------------------------------------
Savings deposits - 3,528 - - - - 3,528
- --------------------------------------------------------------------------------------------------------------------------------
Total production on balance sheet 25,506 3,528 - - - - 29,034
Investment contracts/1/ - 938 - - - - 938
- --------------------------------------------------------------------------------------------------------------------------------
Synthetic GICs 6,379 - - - - - 6,379
Mutual Funds/Collective Trusts &
other managed assets 8,040 1,451 952 64 - - 10,507
- --------------------------------------------------------------------------------------------------------------------------------
Total production off balance sheet 14,419 1,451 952 64 - - 16,886
- --------------------------------------------------------------------------------------------------------------------------------
Standardized new premium production life insurance
Single 2,129 1,292 4,896 38 184 26 8,565
Recurring annualized 1,050 172 394 18 46 37 1,717
Total recurring plus 1/10 single 1,263 301 884 22 64 40 2,574
1999
Deposits
Fixed Annuities 3,645 - - - - - 3,645
Fixed GICs and Funding agreements 9,062 - - - - - 9,062
Variable Annuities 4,738 - - - - - 4,738
- --------------------------------------------------------------------------------------------------------------------------------
Total 17,445 - - - - - 17,445
- --------------------------------------------------------------------------------------------------------------------------------
Savings deposits - 3,661 - - - - 3,661
- --------------------------------------------------------------------------------------------------------------------------------
Total production on balance sheet 17,445 3,661 - - - - 21,106
Investment contracts/1/ - 465 - - - - 465
- --------------------------------------------------------------------------------------------------------------------------------
Synthetic GICs 4,888 - - - - - 4,888
Mutual Funds/Collective Trusts &
other managed assets 3,843 250 446 60 - - 4,599
- --------------------------------------------------------------------------------------------------------------------------------
Total production off balance sheet 8,731 250 446 60 - - 9,487
- --------------------------------------------------------------------------------------------------------------------------------
Standardized new premium production life insurance
Single 990 948 3,645 11 136 18 5,748
Recurring annualized 566 263 308 13 32 55 1,237
Total recurring plus 1/10 single 665 358 673 14 45 57 1,812
/1/ Labouchere excluded
-113-
Investments
(amounts in millions)
December 31, 2000 The United Other in %
Americas Netherlands Kingdom countries Total of
in USD in EUR in GBP in EUR in EUR total
General account
Fixed rate securities
Treasuries/Agencies 5,155 } 266 630 6,595 6
High Quality (AAA/AA) 19,814 5,848 } 264 276 27,841 25
Investment grade (A/BBB) 38,527 990 249 115 42,909 38
High yield (BB+ or less) 4,321 41 0 10 4,694 4
Mortgages 11,691 5,062 0 5 17,632 15
- -----------------------------------------------------------------------------------------------------------------------------------
Total fixed rate securities 79,508 11,941 779 1,036 99,671 88
Equity securities 2,895 5,326 94 78 8,665 8
Other assets
Real estate 744 1,217 0 72 2,089 2
Others 2,196 104 3 67 2,537 2
- -----------------------------------------------------------------------------------------------------------------------------------
Total other assets 2,940 1,321 3 139 4,626 4
- -----------------------------------------------------------------------------------------------------------------------------------
Total General account 85,343 18,588 876 1,253 112,962 100
- -----------------------------------------------------------------------------------------------------------------------------------
Investments for the
account of policyholders
Fixed income 15,908 7,103 14,371 306 47,533 42
Equities & real estate 26,528 9,425 17,857 207 66,753 58
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments for
account policyholders 42,436 16,528 32,228 513 114,286 100
- -----------------------------------------------------------------------------------------------------------------------------------
Total Insurance activities 127,779 35,116 33,104 1,766 227,248
Banking activities/1/ - 5,490 - - 5,490
Synthetic GICs, mutual funds
and other off balance sheet
investments 39,003 3,287 1,003 154 46,964
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments
business units 166,782 43,893 34,107 1,920 279,702
Other investments 985
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments 280,687
-114-
Investments (continued)
December 31, 1999 The United Other in %
Americas Netherlands Kingdom countries Total of
in USD in EUR in GBP in EUR in EUR total
General account
Fixed rate securities
Treasuries/Agencies 6,989 } 333 647 8,139 8
High Quality (AAA/AA) 15,809 6,319 } 161 216 22,531 22
Investment grade (A/BBB) 37,509 929 127 72 38,542 38
High yield (BB+ or less) 4,616 27 0 4 4,626 4
Mortgages 10,162 5,420 0 6 15,542 15
- ----------------------------------------------------------------------------------------------------
Total fixed rate securities 75,085 12,695 621 945 89,380 87
Equity securities 3,407 4,804 155 65 8,509 8
Other assets
Real estate 559 1,888 0 90 2,535 3
Others 1,907 92 4 88 2,084 2
- ----------------------------------------------------------------------------------------------------
Total other assets 2,466 1,980 4 178 4,619 5
- ----------------------------------------------------------------------------------------------------
Total General account 80,958 19,479 780 1,188 102,508 100
- ----------------------------------------------------------------------------------------------------
Investments for the
account of policyholders
Fixed income 12,036 7,445 13,898 216 41,997 39
Equities & real estate 30,195 8,032 17,429 156 66,279 61
- ----------------------------------------------------------------------------------------------------
Total investments for
account of policyholders 42,231 15,477 31,327 372 108,276 100
- ----------------------------------------------------------------------------------------------------
Total insurance activities 123,189 34,956 32,107 1,560 210,784
Banking activities/1/ - 5,451 - - 5,451
Synthetic GICs, mutual funds
and other off balance sheet
investments/2/ 37,047 986 980 96 39,535
- ----------------------------------------------------------------------------------------------------
Total investments
business units 160,236 41,393 33,087 1,656 255,770
Other investments 1,029
- ----------------------------------------------------------------------------------------------------
Total investments 256,799
/1/ Labouchere not included
/2/ The 1999 UK amount has been restated
-115-
Face value and total sums insured
Year 2000 The United Other Total
Life Insurance Americas Netherlands Kingdom Hungary Spain countries EUR
New insurance written
Individual 113,896 4,571 5,106 140 374 459 124,546
Group 16,349 7,662 2,293 126 172 - 26,602
- --------------------------------------------------------------------------------------------------------------
Total 2000 130,245 12,233 7,399 266 546 459 151,148
Total 1999 173,278 12,807 9,114 377 542 357 196,475
Net increase/1/
Individual 168,286 1,482 (3,019) (59) 698 292 167,680
Group 16,003 6,348 639 (52) 265 - 23,203
- --------------------------------------------------------------------------------------------------------------
Total 2000 184,289 7,830 (2,380) (111) 963 292 190,883
Total 1999 598,504 6,021 65,764 108 408 419 671,224
Total sums insured at year-end
Individual 867,657 48,650 76,258 1,358 2,207 1,348 997,478
Group 79,951 65,497 19,578 156 783 - 165,965
- --------------------------------------------------------------------------------------------------------------
Total 2000 947,608 114,147 95,836 1,514 2,990 1,348 1,163,443
Total 1999 763,319 106,317 98,216 1,625 2,027 1,056 972,560
/1/ Includes one-time effect of acquisitions in Americas and United Kingdom.
-116-
(4) PARENT COMPANY
(a) Balance Sheets of AEGON N.V. at December 31
(after profit appropriation) Note 2000 1999
number
Investments
Group companies
Shares in group companies 4(d)(1) 11,251 12,620
Loans to group companies 4(d)(2) 3,392 2,774
Other loans 4(d)(3) 524 674
------- -------
15,167 16,068
Receivables
Receivables from group companies 2,753 2,335
Other receivables - -
------- -------
2,753 2,335
Other assets
Liquid assets 24 9
Other assets 36 33
------- -------
60 42
Prepayments and accrued income
Accrued interest and rent 61 62
Other prepayments and accrued income 0 3
------- -------
61 65
------- -------
Total assets 18,041 18,510
Capital and reserves
Share capital 4(d)(4) 215 216
Tax-free paid-in surplus 4(d)(5) 3,395 3,397
Revaluation account 4(d)(5) 6,177 6,682
Other surplus fund 4(d)(5) 3,057 3,248
------- -------
12,844 13,543
Perpetual cumulative subordinated loans 1,267 817
Subordinated (convertible) loans 683 703
Provisions 167 388
Long-term liabilities 4(d)(6) 1,146 1,495
Current liabilities
Amounts owed to credit institutions 1,225 937
Other payables 600 525
------- -------
1,825 1,462
Accruals and deferred income 109 102
------- -------
Total liabilities 18,041 18,510
-117-
(b) Income Statements of AEGON N.V.
and the Appropriation of Profit
2000 1999 1998
Net income group companies 2,053 1,513 1,189
Other income 13 57 58
----- ----- -----
Net income 2,066 1,570 1,247
Appropriation of profit:
Dividend on preferred shares 3 3 3
Dividend on common shares 973 794 585
Retained earnings 1,090 773 659
----- ----- -----
2,066 1,570 1,247
(c) Cash Flow Statements of AEGON NV
Cash flow from operations
Net income 2,066 1,570 1,247
Equity in earnings of group companies (2,053) (1,513) (1,189)
Change in provisions (221) 25 -
Change in current liabilities 247 (646) (112)
Change in receivables 1 20 14
Other items 280 (24) (249)
----- ----- -----
320 (568) (289)
Cash flow from investing activities
Investments in group companies (1,396) (139) -
Dividends from group companies 1,753 942 1,025
Amounts due to group companies (418) (99) (956)
Change in loans to group companies (593) (631) 952
Change in other loans 150 203 951
Divestitures of group companies 847 - -
----- ----- -----
343 276 1,972
Cash flow from financing activities
Issuance of common shares - 681 -
Issuance of preferred shares - 12 -
Withdrawal of preferred shares (15) - (9)
Change in long-term liabilities 81 382 (851)
Options exercised 7 5 16
Repurchased own shares (423) (315) (491)
Dividend paid (298) (487) (378)
----- ----- -----
(648) 278 (1,713)
----- ----- -----
Change in liquid assets 15 (14) (30)
-118-
(d) Notes to the Balance Sheets of AEGON N.V.
Amounts in million EUR
Accounting principles
Unless otherwise stated, balance sheet items are valued in accordance with the
accounting principles described in the Notes to the Consolidated Balance Sheets.
2000 1999
(1) Shares in group companies
Balance at January 1 12,620 7,794
Capital contribution and acquisitions 1,396 5,526
Divestitures (847) 0
Net income for the financial year 2,053 1,513
Dividend distributed (1,753) (942)
Cash settlement subordinated convertible loan (24) (69)
Goodwill (2,254) (3,133)
Revaluations 60 1,931
------ ------
Balance at December 31 11,251 12,620
The group companies are stated at their net asset value.
(2) Loans to group companies
Balance at January 1 2,774 1,976
Additional loans 649 1,772
Repayments or payments received (56) (1,141)
Other changes 25 167
------ ------
Balance at December 31 3,392 2,774
-119-
2000 1999
(3) Other loans
Balance at January 1 674 877
Repayments or payments received (150) (203)
----- -----
Balance at December 31 524 674
Common Preferred
shares shares Total
(4) Share capital
Authorized 312 168 480
Unissued 150 115 265
------ ------ ------
Issued and outstanding, including repurchased own shares 162 53 215
Vereniging AEGON, based in The Hague, holds all the issued preferred shares.
In the financial year 130 million preferred shares with the nominal value of EUR
0.12 per share were called in.
Number of common shares
Balance at January 1 668,426,144 583,180,340
Stock split 668,426,144 -
Issuance of shares - 82,545,584
Stock dividend 13,194,117 2,318,840
Exercise of options 477,500 381,380
------------- -----------
Balance at December 31 1,350,523,905 668,426,144
The 2000 weighted average number of EUR 0.12 common shares was 1,315,381,814
(1999: 1,225,362,569 recalculated to reflect the stock split). The repurchased
own shares, although included in the issued and outstanding number of shares,
are eliminated in the calculation of the weighted average number of share.
Stock options
Senior executives of AEGON companies as well as other AEGON employees have been
offered the possibility to acquire AEGON stock options in 2000. In previous
years similar possibilities were offered. The options have been granted at an
exercise price equal to the market price of the shares at the date of the grant.
The options granted in 2000 can only be exercised three years after being
granted and then during a period of two years, as was the case in the 1997, the
1998 and the 1999 stock option plans. Stock options plans can only be
established after the prior consent of the Annual General Meeting. If
subsequently the Executive Board decides to implement stock option plans, that
decision has to be approved by the Supervisory Board. Options granted in earlier
years can generally be exercised during a period of five years. Options granted
on behalf of the purchase agreement with Providian have various expiration
dates. The subsequently granted options to senior executives of former Providian
business units fully vest in three years and the exercise period is up to ten
years, the latest ending in August 2008. In compliance with regulations stock
options cannot be exercised in black-out periods.
The following tables set forth the changes in the years 1998, 1999 and 2000 as
well as the breakdown of the options outstanding.
-120-
Number of Weighted average
options/1/ exercise price
Balance at January 1, 1998 32,670,664 10.80
Issued 11,518,000 29.02
Issued options Providian 484,700 38.65
Exercised (12,780,946) 7.25
Lapsed (417,666) 13.44
----------
Balance at December 31, 1998 31,474,752 19.23
Issued 8,925,300 46.95
Exercised (2,769,578) 7.74
Lapsed (274,846) 21.17
----------
Balance at December 31, 1999 37,355,628 26.25
Issued 10,609,700 34.50
Exercised (5,891,026) 12.74
Lapsed (148,018) 21.75
----------
Balance at December 31, 2000 41,926,284 30.22
/1/ Adjusted for the stock split and including bonus rights.
Outstanding
Original January 1 December 31 Exercise price/1/
Stock options number/1/ 2000/1/ 2000/1/ EUR Exercise period/3/
1994 9,696,120 94,500 - 4.73
1995 10,169,500 2,103,000 217,500 6.80 until January 1, 2002
1996 9,886,700 3,544,000 2,485,500 9.79 until November 1, 2001
1997 9,479,500 9,478,500 6,848,000 17.36 until November 1, 2002
Providian 7,204,384 1,693,328 1,324,684 23.17/2/ until August 6, 2008
1998 11,518,000 11,517,000 11,516,000 29.02 until March 23, 2003
1999/4/ 8,925,300 8,925,300 8,924,900 46.95 until March 6, 2004
2000/4/ 10,609,700 - 10,609,700 34.50 until March 14, 2005
---------- --------- ---------
77,489,204 37,355,628 41,926,284
/1/ Adjusted for the stock splits in 1995, 1998 and 2000 as appropriate.
/2/ Weighted average exercise price of the outstanding options in USD calculated
at the closing rate.
/3/ As of the 1995 series the exercise period for a small
part of the options is 74 months.
/4/ Including bonus rights, which do not entitle
to buy AEGON shares but provide the same financial benefits.
Stock options exercisable as of December 31, 2000 amount to 10,760,566 (1999:
6,996,094) and their weighted average exercise price amounts to EUR 13.45 (1999:
EUR 9.02).
The fair value of the stock options granted during the year amounts to EUR 74
(1999: EUR 67). This value was estimated using the binomial option pricing
model, taking into account that the options granted cannot be exercised within
the first three years.
The breakdown of the stock options granted in 2000 is as follows: Executive
Board 640,000, other senior executives 4,125,300 other employees 5,844,400
(1999: 800,000, 3,335,300 and 4,790,000 respectively), adjusted for the stock
split in May 2000.
-121-
Paid-in Revaluation Other
surplus account surplus fund Total
(5) Surplus funds
Balance at January 1, 2000 3,397 6,682 3,248 13,327
Net income 2,066 2,066
Repurchased own shares (423) (423)
Exercised options 7 7
Stock dividend (1) (1)
Dividend interim and final (976) (976)
Optional dividend 2000/1999 555 555
Revaluation group companies (505) 565 60
Currency exchange rate differences (105) (105)
Cash settlement subordinated convertible loan (24) (24)
Goodwill (2,254) (2,254)
Settlement stock option plans (200) (200)
Other movements (8) 605 597
------- ------- ------- -------
Balance at December 31, 2000 3,395 6,177 3,057 12,629
The minimum of the revaluation account for the consolidated investments as
required by law amounts to EUR 1,214 million (1999: EUR 3,763 million). The
legal reserve for currency differences on foreign subsidiaries refers to
accumulated translation differences amounting to EUR 1,217 million (1999: EUR
652 million) and is included in the other surplus fund.
2000 1999
Consolidated revaluation real estate and shares in group companies
Balance of revaluations at January 1 6,682 4,501
Unrealized gains and losses on real estate and shares (33) 1,380
Unrealized gains and losses in previous years
on real estate and shares sold in the reporting year (2,604) (726)
Realized gains and losses on real estate and shares 2,612 717
Transfer to the income statements of indirect income
on real estate and shares (595) (394)
Changes in the provision for deferred taxation 71 139
Other changes 44 1,065
------ ------
Balance at December 31 6,177 6,682
Unrealized gains and losses on investments are due to changes in stock exchange
quotations and reappraisal of real estate of all activities. The indirect income
is released from these revaluations if and as far as the balance is positive.
Moreover, the minimum reserve as required by law should be maintained. This
reserve consists of the unrealized difference between the bookvalue and the cost
price of real estate and shares. In relation to this, as at December 31, 2000,
an amount of EUR 4,963 million after tax is presently available for release from
the revaluations whereas the remainder is only available after realization.
Other surplus fund
By virtue of acquisition in accordance with article 98, paragraph 5 of Book 2 of
the Dutch Civil Code, per balance sheet date AEGON kept 31,407,080 own common
shares with a face value of EUR 0.12 each. The shares have been purchased to
hedge stock option rights granted to executives and employees.
-122-
Movements in the numbers of shares were as follows:
Balance at January 1 10,407,281
Stock split 10,407,281
Purchase: 24 transactions, average price EUR 40.14 (NLG 88.46) 10,601,650
Sale: 1 transaction, price EUR 44.50 (NLG 98.07) (9,132)
----------
Balance at December 31 31,407,080
The purchase value of the shares acquired has been deducted from the other
surplus fund.
Goodwill is the difference between acquisition price and net asset value, based
on AEGON accounting principles. The calculated amount is charged to
shareholders' equity in the year of acquisition. The amount largely relates to
the required accounting change regarding Transamerica's non-insurance operations
following the decision to retain these businesses.
Other movements include EUR 574 million book profit from the sale of Labouchere.
In the offering circular of the USD 600,000,000 4.75% convertible subordinated
bonds 1994-2004 it is stated that "Holders may elect upon conversion to receive
either Ordinary Shares or New York Shares. The Company may elect to pay holders
upon conversion cash in lieu of Shares based upon the opening and closing price
of the Shares on the five trading days prior to and including the day of
conversion (the `Conversion Date')." As AEGON is at this time not aiming to
strengthen its equity by increasing the outstanding number of shares through
conversions of this bond, it elected to pay part of the conversion in cash in
lieu of shares. The accompanying release of surplus has been charged to the
general surplus fund resulting in the same effect as would have occurred in case
the conversion had taken place in shares and an equal number of shares had been
purchased by AEGON and then cancelled.
2000 1999
(6) Long-term liabilities
Remaining terms 1-5 years 828 1,175
Remaining terms more than 5 years 318 320
----- -----
Total long-term liabilities 1,146 1,495
Redemptions due in 2001/2000 357 391
Redemptions are included in long-term liabilities.
The repayment periods of borrowings vary from in excess of one year up to a
maximum of 31 years. The interest rates vary from 2.5% to 9.9% per annum.
-123-
Commitments and contingencies
AEGON N.V. has guaranteed and is severally liable for the following:
Due and punctual payment of payable by AEGON Funding Corp. I as well as AEGON
Funding Corp. II in respect of bonds and notes issued by AEGON Funding Corp. I
and II as well as notes issued in connection with AEGON Funding Corp. I and
II`s Commercial Paper Programs.
Due and punctual payment of payable by Transamerica Finance Corp. in respect of
notes issued in connection with Transamerica Finance Corp.'s Commercial Paper
Program.
FGH BANK N.V., for the sake of
a. all creditors, to whom FGH BANK owes from deeds prior to February 27, 1987,
and from all loans contracted by FGH BANK after February 27, 1987, up to
March 30, 1998 as far as not privileged or subordinated;
b. those whom FGH BANK guaranteed or assumed several liability prior to
February 27, 1987.
The sales agreement with Hypo-Vereinsbank includes recourse against that bank
for liabilities emerging from above guarantees.
The Hague, March 8, 2001
Supervisory Board Executive Board
M. Tabaksblad K.J. Storm
H. de Ruiter P. van de Geijn
D.G. Eustace D.J. Shepard
Sir Michael Jenkins J.B.M. Streppel
O.J. Olcay
J.F.M. Peters
K.M.H. Peijs
G.A. Posthumus
T. Rembe
W.F.C. Stevens
F.J. de Wit
-124-
(5) EXPLANATION OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES USED BY AEGON AND
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of AEGON N.V. have been prepared in
accordance with Dutch Accounting Principles. Dutch Accounting Principles differ
in certain respects from accounting principles generally accepted in the United
States ("US GAAP"). The following is a summary of differences between Dutch
Accounting Principles and US GAAP which have an impact on reported Shareholders'
Equity or Net Income. The description of the Dutch Accounting Principle is shown
first followed by a description of US GAAP.
DESCRIPTION OF DIFFERENCES IN ACCOUNTING PRINCIPLES
(In million EUR) Shareholders' Equity
US GAAP
higher (lower) than
Dutch Accounting Principles
December 31,
Dutch Accounting Principles/US GAAP 2000 1999
Shareholders' Equity in accordance with Dutch Accounting Principles 12,844 13,543
Adjustments:
Real estate; (742) (793)
Carried at original cost for a maximum of five years;
appraisal increments recognized thereafter;
Carried at historical cost less accumulated depreciation.
Debt securities; (202) (816)
Debt securities are valued at amortized cost;
Debt securities are classified as available for sale and valued at fair
value. The impact is shown net of EUR 207 million to satisfy policyholder
commitments, EUR (9) million adjustment of deferred policy acquisition
costs and EUR (109) million applicable taxes (1999: EUR 119 million, (333)
million and (440) million, respectively).
Goodwill (arising from acquisitions); 5,880 3,986
Directly charged to shareholders' equity in year of acquisition;
Capitalized and amortized over various periods not exceeding 20 years.
Technical provisions (including deferred policy acquisition costs/acquired
insurance in force); 1,339 901
Calculated on recent assumptions;
Calculated on assumptions when the policy was issued or on recent
assumptions.
-125-
Shareholders' Equity
US GAAP
higher (lower) than
Dutch Accounting Principles
December 31,
2000 1999
Realized gains and losses on debt securities; (78) 33
Realized investment gains and losses on debt securities are
deferred and released to income over the estimated average
remaining maturity term;
Recognized as income when realized.
Deferred taxation; (635) (312)
Calculated using discounted tax rates;
Calculated using nominal tax rates.
Deferred taxation on US GAAP adjustments;
Tax impact on the adjustments. (226) (200)
Stockholder dividends; 583 460
Accrued as a liability;
Not recognized until they become irrevocable.
Balance of other items; 202 248
Certain items are recorded differently or in different periods on
the two bases of accounting.
------ ------
Approximate Shareholders' Equity in accordance with US GAAP 18,965 17,050
-126-
DESCRIPTION OF DIFFERENCES IN ACCOUNTING PRINCIPLES
(In million EUR) Net Income
US GAAP
higher (lower) than Dutch
Accounting Principles
Years ended December 31,
Dutch Accounting Principles/US GAAP 2000 1999 1998
Net Income in accordance with Dutch Accounting Principles 2,066 1,570 1,247
Adjustments:
Real estate; (59) (41) (36)
Carried at original cost for a maximum of five years;
appraisal increments recognized thereafter;
Carried at historical cost less accumulated depreciation.
Goodwill (arising from acquisitions); (433) (183) (80)
Directly charged to shareholders' equity in year of acquisition;
Capitalized and amortized over various periods not exceeding 20 years.
Technical provisions (including deferred policy acquisition costs/acquired
insurance in force); (34) 21 (54)
Calculated on recent assumptions;
Calculated on assumptions when the policy was issued or on recent
assumptions.
Realized gains and losses on debt securities; (348) (261) 196
Realized gains and losses on debt securities are deferred and
released to income over the estimated average remaining maturity
term;
Recognized as income when realized.
Realized gains and losses on shares and real estate; 999 408 690
Realized gains and losses on shares and real estate are added to
the revaluation reserve. From this reserve amounts are released
to income, so that together with the direct yield, a 30 year
moving average total rate of return is recognized;
Recognized as income when realized.
-127-
(In million EUR) Net Income
US GAAP
higher (lower) than Dutch
Accounting Principles
Years ended December 31,
2000 1999 1998
Deferred taxation; (10) 44 (55)
Calculated using discounted tax rates;
Calculated using nominal tax rates.
Deferred taxation on US GAAP adjustments; 165 218 (14)
Tax impact on the adjustments.
Cash settlements of convertible loan and stock options; (24) (116) (444)
Charged to shareholders' equity;
Charged to income.
Balance of other items; 266 (59) 21
Certain items are recorded differently or in different periods on
the two bases of accounting.
----- ----- -----
Approximate Net Income in accordance with US GAAP 2,588 1,601 1,471
Other comprehensive income, net of tax:
Foreign currency translation adjustments 659 1,342 (472)
Unrealized gains (losses) on available for sale securities 212 (114) 547
Reclassification adjustment for (gains) included in net income (821) (401) (870)
----- ----- -----
Approximate Comprehensive Income in accordance with US GAAP 2,638 2,428 676
In 2000 major differences between amounts on Dutch accounting principles and
those on US GAAP compared to the amounts of 1999 are explained as follows:
Goodwill increased primarily because of the change in accounting for the
non-insurance businesses of Transamerica.
Realized and unrealized gains and losses by their nature can show large
fluctuations.
The cash settlement of the convertible loan is related to the repurchase and
early redemption of the company's convertible debt.
The balance of other items includes primarily provisions not accounted for under
US GAAP such as for euro and general default reserves, as well as in 2000 the
result of the sale of Labouchere and of other divestitures, which also includes
businesses of Transamerica non-insurance.
Comprehensive income is the change in shareholders' equity during the year from
transactions and other events and circumstances from non-owner sources. It
includes all changes in shareholders' equity during the year except those
resulting from investments by owners and distributions to owners.
-128-
Dutch Accounting Principles/US GAAP
The following is a summary of classification differences between Dutch
Accounting Principles and US GAAP, which have no effect on reported Net Income
or Shareholders' Equity. The description of the Dutch Accounting Principle is
shown first followed by a description of US GAAP.
Earnings of affiliates;
Classified as investment income and other income;
Classified as a specific item in the income statement net of appropriate
income tax.
Deferred acquisition costs;
Classified as a reduction of technical provisions;
Classified as an asset.
Premiums collected on Universal Life-type contracts;
Classified as revenues;
Accounted for as deposit in the technical provisions.
Premiums to reinsurers;
Classified as a separate expense item;
Reflected as a reduction of premium revenues.
Change in unearned premiums;
Reflected as a change in the technical provisions;
Reflected as a reduction in revenues.
Owned and occupied real estate;
Reflected as investment;
Reflected as property and equipment.
Reinsurance recoverable;
Recorded as an offset to the claim liabilities;
Classified as an asset.
Real estate rentals, owner occupied property;
Included as offsetting rental income and rental expense;
Transactions eliminated.
Liquid assets;
Includes liquid assets with a maturity of one year or less at the date of
acquisition. AEGON estimates that approximately 85% of its liquid assets
at year-end 2000 have a maturity of three months or less;
Includes liquid assets with a maturity of three months or less at the date
of acquisition.
-129-
Joint ventures (Amvest, AEGON Mexico);
Accounted for using proportionate consolidation, reflecting the share in
ownership;
Recorded as an equity investment using the equity method.
Unconsolidated holdings;
Includes businesses with dissimilar operations;
Such businesses are consolidated if more than 50% ownership of the equity.
Closed block of business;
Reported in detail in the income statement;
Reported on a net basis in the income statement.
-130-
(6) ADDITIONAL INFORMATION
The following information represents additional disclosures required by US
reporting rules. The information has been prepared following Dutch Accounting
Principles unless it specifically states that it is based upon US GAAP. All
amounts are in million EUR, except per share data.
(a) Earnings per share
FASB Statement No. 128 "Earnings Per Share", (EPS), requires dual presentation
of basic EPS and diluted EPS for entities with complex capital structures. Basic
EPS excludes dilution and is computed by dividing income available to common
shareholders, which is after deduction of dividends on the preferred shares, by
the weighted average number of common shares (EUR 0.12 par value) outstanding.
Diluted EPS is computed based on the weighted average number of common shares
outstanding during the year, plus dilutive potential common shares considered
outstanding during the year (treasury stock method). The weighted average number
of common shares have been adjusted retroactively for all periods presented, to
reflect stock dividends and the two for one stock-splits in 2000 and 1998. As a
result per share amounts have changed to reflect such adjustments.
2000 1999 1998
Net income per share, based on US GAAP (in EUR)
Basic 1.97 1.31 1.28
Diluted 1.94 1.29 1.25
Per share amounts for net income were calculated using (1) an earnings per
common share basic calculation and (2) an earnings per common share-assuming
dilution calculation. A reconciliation of the factors used in the two
calculations and between the Dutch and US accounting basis is as follows:
Numerator:
Dutch accounting principles:
Net income 2,066 1,570 1,247
Less: dividends on preferred shares (2) (2) (3)
Net income used in basic calculation 2,064 1,568 1,244
Plus: interest on convertible debt 1 2 3
Net income used in diluted calculation 2,065 1,570 1,247
US GAAP:
Net income on Dutch accounting principles used in basic calculation 2,064 1,568 1,244
US adjustments to net income 522 31 224
Net income on US GAAP used in basic calculation 2,586 1,599 1,468
Net income on Dutch accounting principles used in diluted calculation 2,065 1,570 1,247
US adjustments to net income 522 31 224
Net income on US GAAP used in diluted calculation 2,587 1,601 1,471
Denominator: (number of shares, in millions)
Weighted average shares, as used in basic calculation 1,315.4 1,225.4 1,154.6
Shares to cover conversion of convertible debt 3.3 4.6 8.6
Addition for stock options outstanding during the year 13.0 15.8 17.0
Weighted average shares, as used in diluted calculation 1,331.7 1,245.8 1,180.2
-131-
(b) Pension plans and other post retirement benefits
Pension expense, based on the requirements of FAS 87, was EUR (118) in 2000, EUR
(48) in 1999 and EUR 4 in 1998 (EUR (82), EUR (22) and EUR 13 million for DAP).
2000 1999 1998
Net periodic expense consisted of the following:
Service cost for benefits earned during the year 95 75 54
Interest cost on projected benefit obligation 189 124 89
Expected return on plan assets (383) (230) (131)
Amortization of transition asset (4) (3) (3)
Amortization of unrecognized prior service costs 2 0 0
Amortization of unrecognized gain (17) (14) (5)
---- --- ----
Net pension expense (benefit) (118) (48) 4
Assumptions used in the accounting for United States plans were:
Discount rate 7.0% 7.75% 7.0%
Rates of increase in compensation levels 5.5% 5.5% 5.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Assumptions used in the accounting for non-United States plans were:
Discount rate 5.5-6.0% 6.0% 5.25-5.5%
Rates of increase in compensation levels 2.5-2.75% 2.0-3.0% 1.5-2.25%
Expected long-term rate of return on assets 6.5-8.0% 6.0-8.0% 5.25-5.5%
The reconciliation of the beginning and ending balances of the projected benefit
obligation and the fair value of the plan assets is as follows:
2000 1999
Projected benefit obligation at beginning of year 2,485 1,492
Service costs 95 75
Interest costs 189 124
Amendments 125 2
Actuarial gain 366 (103)
Acquisition/sale of businesses 0 871
Benefits paid (197) (112)
Currency exchange rate differences 101 136
----- -----
Projected benefit obligation at end of year 3,164 2,485
Fair value of plan assets at beginning of year 4,178 1,978
Actual return on plan assets 265 66
Contribution 22 16
Benefits paid (197) (112)
Acquisition/sale of businesses 105 2,044
Currency exchange rate differences 181 186
----- -----
Fair value of plan assets at end of year 4,554 4,178
-132-
2000 1999
Funded status 1,390 1,693
Unrecognized prior service cost 187 6
Unrecognized net actuarial (gain) 98 (239)
Unrecognized transition (asset) (23) (24)
----- -----
Prepaid benefit cost 1,652 1,436
As of January 1, 2001, the pension plan in The Netherlands has been amended,
reducing the retirement age by 3 years to 62 or 61.
AEGON provides, primarily in the US and The Netherlands, health care benefits to
retired employees, which are predominantly unfunded.
2000 1999
Net periodic expense consisted of the following:
Service cost for benefits earned during the year 4 2
Interest cost on projected benefit obligation 14 10
Expected return on plan assets 0 0
Amortization of transition asset 2 2
Amortization of unrecognized prior service costs 1 0
Amortization of unrecognized gain (1) 0
--- ---
Net expense 20 14
The reconciliation of the beginning and ending balances of the benefit
obligation and the fair value of the plan assets is as follows:
Projected benefit obligation at beginning of year 198 114
Service costs 4 2
Interest costs 14 10
Amendments 0 6
Actuarial gain (4) (4)
Acquisition/sale of businesses 0 65
Benefits paid (14) (10)
Currency exchange rate differences 12 15
---- ----
Projected benefit obligation at end of year 210 198
Fair value of plan assets at beginning of year 0 0
Actual return on plan assets 0 0
Contribution 32 10
Benefits paid (14) (10)
---- ----
Fair value of plan assets at end of year 18 0
Funded status (194) (198)
Unrecognized prior service cost 4 7
Unrecognized net actuarial (gain)/loss 6 5
Unrecognized transition (asset)/liability 4 6
---- ----
(Accrued) benefit cost (180) (180)
-133-
An increase of 1% in the health care costs would have resulted in an additional
accumulated projected benefit obligation of EUR 18 million (1999: 17 million)
and an increase in service costs and interest cost of EUR 1 million (1999: EUR 1
million). A decrease of 1% in the health care costs would have resulted in a
lower accumulated projected benefit obligation of EUR 15 million (1999: EUR 15
million) and a decrease in service costs and interest cost of EUR 1 million
(1999: EUR 1 million).
(c) Investments
The carrying value and fair value of bonds and private placements are as
follows:
Carrying Unrealized Fair
value gains (losses) value
Fixed maturities at December 31, 2000
US Government 2,965 75 (37) 3,003
Dutch Government 3,614 160 (34) 3,740
Foreign Government 4,382 120 (48) 4,454
Mortgage backed securities 23,300 319 (317) 23,302
Other bonds and private placements 50,959 1,406 (1,757) 50,608
------ ----- ------ ------
Total 85,220 2,080 (2,193) 85,107
Fixed maturities at December 31, 1999
US Government 2,578 38 (94) 2,522
Dutch Government 4,798 186 (97) 4,887
Foreign Government 4,040 160 (96) 4,104
Mortgage backed securities 16,974 56 (572) 16,458
Other bonds and private placements 49,834 1,111 (2,162) 48,783
------ ----- ------ ------
Total 78,224 1,551 (3,021) 76,754
The carrying value and fair value of bonds and private placements by contractual
maturity at December 31, 2000 are as follows:
Carrying Fair
value value
Due in one year or less 5,861 5,857
Due after one year through five years 27,208 27,402
Due after five years through ten years 21,454 21,495
Due after ten years 30,697 30,353
------ ------
85,220 85,107
Cost Unrealized Fair
price gains (losses) value
Equity securities at December 31,
2000 7,653 1,657 (644) 8,666
1999 4,983 3,818 (291) 8,510
-134-
Proceeds, gross gains and gross losses from sales of available for sale
securities for the three years ended December 2000 were:
2000 1999 1998
Proceeds 51,595 37,243 25,651
Gross gains 2,275 1,386 1,668
Gross losses (1,303) (810) (147)
Gross gains and losses are determined as the difference between proceeds and
(average) cost price, before taking into account the tax effect.
At December 31, 2000 the Company's impaired mortgage loans amounted to EUR 91
million. A specific valuation allowance of EUR 7 million was established to
reduce the carrying value of the mortgage loans to the present value of expected
future cash flows for these loans. Investment income related to impaired
mortgage loans is recognized when received. Interest foregone on these loans was
not material for 2000.
(d) Financial instruments and risk management
As an international life insurance company, AEGON is exposed to currency
fluctuations, to changes in the fair value of its investments and the impact of
interest rate changes. In the normal course of business, AEGON employs
established policies and procedures to manage its exposures to changes in
interest rates and fluctuations in the value of currencies using a variety of
financial instruments. AEGON uses common derivative financial instruments such
as interest rate swaps, options, futures and foreign exchange contracts to hedge
its exposures related to both investments and borrowings. Derivatives included
in the balance sheet are valued at fair value or at the amounts received on
written options. Foreign currency amounts are converted at the year-end exchange
rates. Realized and unrealized results on derivative financial instruments are
recognized in the same period and likewise as the results of the related
investments and debt.
AEGON does not hold or issue derivative instruments for speculative trading
purposes.
Interest rate contracts, which include swaps, swaptions, caps, floors and
forward rate agreements are used to alter interest rate types in order to match
assets and liabilities. The contracts are designated to specific liabilities at
the inception of the contracts. Amounts, receivable or payable, related to
interest rate contracts are recognized in the income statement as an adjustment
to interest expense.
Under interest rate swaps, the company agrees with other parties to exchange, at
specific intervals, the difference between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional amount. Interest rate
swaps agreements generally involve the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal amount. The
use of interest rate swaps is, among others, to change the interest type of an
unused portion of the long-term fixed rate into floating rate until the funds
are allocated. Upon allocation the debt is swapped from a floating rate to a
fixed rate again. The differential to be paid or received is accrued as interest
rates change and recognized as an adjustment to interest expense related to the
debt. These agreements expire at various times from 2001 to 2049.
Swaptions are options on interest rate swaps which exchanged the fixed and
floating rate interest.
Interest rate cap and floor agreements involve the payment of a maximum fixed
interest rate when an indexed rate exceeds or falls below a fixed rate. Premiums
paid for purchased interest rate cap or floor agreements are amortized to
interest expense over the term.
Forward rate agreements are commitments to purchase or sell a financial
instrument at a future date for a specific price and are used to hedge short-
term interest movements, in particular, for future investments or short-term
borrowings. Forward rate agreements settle in cash at a specific future date
based on the differential
-135-
between agreed interest rates applied to a notional amount. Payments or receipts
are recognized as interest income or interest charge at the moment of cash
settlement.
The cross currency swaps allow borrowings to be made in foreign currencies,
gaining access to additional sources of funding while limiting foreign exchange
risk. Under cross currency swaps, parties initially exchange a principal amount
in two currencies, agreeing to re-exchange the currencies at a future date and
at an agreed exchange rate. Cross currency swaps are recognized in the balance
sheet under long-term liabilities and in the income statement under
miscellaneous income and expenditure - currency exchange rate differences. The
amount recognized represents the currency exchange difference on the notional
amount at period-end rates. The agreements expire at various times from 2001
through 2012.
Foreign exchange contracts are primarily used to hedge foreign currency risk of
investments.
Options are contracts that give the option purchaser the right, but not the
obligation, to buy or sell, within a specified period of time, a financial
instrument at a specified price. The contracts are carried at market, cost or
the premium received, with unrealized gains (losses) recognized in equity or
current liabilities.
Forwards and futures are contracts that call for the delayed delivery of
securities in which the seller agrees to deliver on a specified date a specified
instrument at a specified price. They are among others used for pre-investment
purposes.
The Company's exposure to credit risk is the risk of loss from a counter-party
failing to perform according to the terms of the contract. Interest rate swap,
cap, and floor agreements are subject to replacement cost risk, which is the
possibility that future changes in market prices may make the instruments less
valuable. The credit risk on all financial instruments is controlled by an
ongoing credit approval and the Company does not expect any counter-parties to
fail to meet their obligations given their high credit ratings and our strict
counter-party risk policy. The credit exposure of interest rate and foreign
exchange contracts is represented by the fair value of contracts.
The following table represents aggregate notional amount of derivatives. The
amounts listed for interest rate contracts will not be exchanged by parties and,
thus, do not reflect an exposure of the Company to market movements. The amounts
listed for foreign currency contracts will be exchanged at amounts calculated on
the bases of the notional amounts and the terms of the derivatives, which
related to interest rates, exchange rates, or financial or other indexes.
Notional amounts
2000 1999
Interest rate contracts
- - interest rate swaps 31,058 27,254
- - swaptions 8,780 8,232
- - caps/floors 1,501 1,149
- - forward rate agreements 800 836
Foreign currency contracts
- - cross currency swaps 6,546 3,879
- - foreign exchange contracts 1,766 2,474
- - equity swaps 70 -
- - OTC options 407 5,832
- - exchange traded options/futures 8,158 4,895
-136-
(e) Fair value of financial instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following table reflects the disclosure of fair values and carrying amounts
of assets and liabilities as provided for in SFAS 107 and SFAS 119. All assets
and liabilities are held for other than trading purposes.
December 31, 2000 December 31, 1999
---------------------- ----------------------
Carrying Fair Carrying Fair
amount value amount value
Real estate 2,116 2,116 2,559 2,559
Shares 8,666 8,666 8,510 8,510
Bonds and private placements 85,220 85,107 78,224 76,754
Loans guaranteed by mortgage 18,244 18,791 16,135 15,952
Investments for the account of policyholders 114,286 114,286 108,276 108,276
Cash and short term investments 725 725 964 964
Current liabilities and accruals and deferred income 15,999 15,999 17,148 17,148
Long-term liabilities 4,025 4,013 3,703 3,727
Subordinated loans 2,503 2,810 2,032 2,283
Investment contract liabilities 53,624 52,528 50,374 48,161
Interest rate contracts
- - interest rate swaps 0 (150) 0 56
- - swaptions 0 107 0 34
- - caps/floors 0 16 0 10
- - forward rate agreements 0 (12) 0 1
Foreign currency contracts
- - cross currency swaps (446) (476) (51) (59)
- - foreign exchange contracts 26 26 27 27
- - equity swaps 2 2 - -
- - OTC options 47 47 995 995
- - exchange traded options/futures 3 3 57 57
The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:
Real estate
Real estate is reported in the balance sheet at appraisal value based on fair
value when leased. At least 20% of property is revalued annually, so that each
unit is revalued once in every 5-year period. New property is valued at
construction cost including interest during the construction period, or at
purchase price.
-137-
Shares
The fair values for shares are based on quoted market prices or, if unquoted, at
estimated fair value and are recognized in the balance sheet.
Bonds and Private placements
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturities not actively traded, fair values are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investment.
Loans guaranteed by mortgage
The fair value for loans guaranteed by mortgage is estimated using discounted
cash flow analyses, using interest rates currently being offered for similar
loans to borrowers with similar credit ratings. Loans with similar
characteristics are aggregated for purposes of the calculations.
Investments for the account of policyholders
Investments for the account of policyholders and insurance-linked savings
deposits are generally valued at fair value.
Cash and Short term investments
The carrying amounts reported in the balance sheet for these instruments
approximate their fair values.
Current liabilities and accruals and deferred income
The carrying amounts of the Company's current liabilities and accruals and
deferred income approximate their fair value.
Long-term liabilities and subordinated loans
The fair value of the Company's long-term liabilities and subordinated loans is
based on quoted market prices, where available, or is estimated using discounted
cash flow analyses, based on the Company's current borrowing rates for similar
types of borrowing arrangements.
Investment contract liabilities (included in technical provisions)
Fair values for the company's liabilities under investment-type insurance
contracts are estimated using discounted cash flow calculations, based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Derivatives
The fair value of the derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts on reporting date.
Market quotes are available for many derivatives; for those products without
readily available market quotes generally accepted valuation models are used to
estimate fair value.
(f) Taxes
Income before tax derived from The Netherlands and foreign sources is as
follows:
2000 1999 1998
The Netherlands 888 861 742
Foreign 2,442 1,562 1,090
Interest charges and other (443) (242) (198)
----- ----- -----
Total 2,887 2,181 1,634
Amounts paid in cash in 2000 for income taxes were EUR 227 million (1999: EUR
461 million and 1998: EUR 246 million).
-138-
(g) Debt.
The following table lists AEGON's long-term liabilities, subordinated loans and
capital securities at December 31, 2000. All loans that are shown separately
relate to AEGON NV except when stated otherwise. All items of EUR 50 million or
more are shown separately.
Period Coupon date Book value
2000 1999
Long-term liabilities
NLG 225 mln 8 3/4% Eurobonds 1991/01 December 16 90 90
USD 100 mln 9 3/8% Domestic Debentures (Transamerica Corp.) 1996/08 March/Sept 1 107 100
USD 200 mln 6 3/4% Domestic Debentures (Transamerica Corp.) 1996/06 May/Nov 15 215 199
USD 200 mln 6 1/4% Eurobonds 1997/00 August 29 - 174
USD 200 mln 6 1/4% Eurobonds 1997/01 October 1 215 199
CHF 150 mln 3 1/4% Bonds 1997/04 June 24 98 93
DEM 150 mln 2 1/2% Eurobonds 1998/03 February 24 77 77
USD 500 mln 7% Eurobonds (AEGON Funding Corp.) 1999/04 September 10 537 398
USD 450 mln 6 3/4% Eurobonds (AEGON Funding Corp.) 1999/02 November 15 484 348
CHF 300 mln 3 1/8% Eurobonds 1999/04 September 27 197 187
GBP 250 mln 6 1/8% Eurobonds 1999/31 December 15 401 402
USD 250 mln 7 3/8% Eurobonds (AEGON Funding Corp.) 2000/05 July 25 269 -
Other/1/ 1,335 1,436
----- -----
4,025 3,703
Subordinated loans
NLG 500 mln Floating Rate/Fixed Rate subordinated Eurobonds 1992/04 September 15 160 161
NLG 275 mln 6 1/2% subordinated Eurobonds 1993/03 September 15 102 102
USD 400 mln 8% subordinated Notes 1994/06 Feb/Aug 15 285 293
USD 600 mln 4 3/4% subordinated convertible Eurobonds 1994/04 November 1 16 20
Other subordinated loans 120 127
----- -----
683 703
Capital Securities
Perpetual cumulative subordinated loans Year/2/
NLG 250 mln 8% 2005 June 8 114 114
NLG 250 mln 7 7/8% 2005 September 29 114 114
NLG 300 mln 7 3/4% 2005 December 15 136 136
NLG 450 mln 7 1/8% 2011 March 4 203 203
NLG 250 mln 7 5/8% 2008 July 10 114 114
NLG 300 mln 7 1/4% 2008 October 14 136 136
EUR 450 mln 6 7/8% 2005 December 20 450 -
----- -----
1,267 817
Trust Pass-through Securities
USD 100 mln 7 4/5% (Transamerica Corp.) 1996/26 Jun/Dec 1 107 100
USD 225 mln 7 13/20% (Transamerica Corp.) 1996/26 Jun/Dec 1 242 224
USD 190 mln 7 5/8% (Transamerica Corp.) 1996/37 May/Nov 15 204 188
----- -----
553 512
----- -----
Total long-term liabilities, subordinated loans and capital securities 6,528 5,735
/1/of which EUR 68 million relate to AEGON NV (1999: EUR 273 million)
/2/year of first possibility for redemption
-139-
In the years 2001 through 2005 the following amounts are due: EUR 465 million in
2001, EUR 815 million in 2002, EUR 179 million in 2003, EUR 1,109 in 2004 and
EUR 419 million in 2005.
Amounts paid in cash in 2000 for interest were EUR 794 million (1999: EUR 852
million and 1998: EUR 661 million).
(h) Restrictions, commitments and contingencies
AEGON is subject to legal restrictions on the amount of dividends it can pay to
its shareholders. Under Dutch law dividends can only be paid up to an amount
equal to the excess of the Company's reserves over the sum of paid-up capital
and reserves required by law (see Note 4(d)(5)). At December 31, 2000, AEGON
NV's restricted net assets amounted to EUR 2.4 billion and the net amount of
capital and surplus available for dividends was EUR 10.2 billion.
However, certain of the Company's subsidiaries, principally insurance companies,
are subject to restrictions on the amount of funds they may transfer in the form
of cash dividends or otherwise to their shareholders. Insurance subsidiaries in
the United States are subject to prior approval by statutory authorities for
certain payments of dividends to the Company, which exceed specified
limitations. The insurance subsidiaries are also subject to risk based capital
standards, established by the National Association of Insurance Commissioners,
which prescribe required capital levels and may restrict the amount of dividends
which can be paid.
Under the Insurance Industry Supervision Act 1993 in The Netherlands, life
insurance companies are required to maintain an equity of approximately 5% of
general account technical provisions and, in case of no interest guarantee, of
approximately 1% of technical provisions with investments for the account of
policyholders. Management does not believe such restrictions on the Company's
subsidiaries will affect its ability to pay dividends in the future.
The Company and its subsidiaries are parties to a number of legal proceedings
incidental to its business. It is management's opinion, after consultation with
legal counsel, that damages arising from such litigation will not be material to
either the financial position or the results of operations of the Company.
Pursuant to the 1983 merger agreement the Company is obligated to permit the
Association to acquire preferred shares in such amounts as are necessary to
maintain a majority voting interest in the Company in the event of any future
issuance of either common or preferred shares.
(i) Business segment information
Pursuant to Financial Accounting Standard No. 131 'Disclosures about segments of
an enterprise and related information' (FAS 131) business segments are defined
on the same basis that the company is managed. AEGON has the following
reportable geographic segments: Americas, The Netherlands, United Kingdom and
Other countries, which include Hungary, Spain and other units. Crucial
differences exist in local markets and for this reason AEGON emphasizes a
decentralized organization structure. The operating companies, with
knowledgeable and highly experienced local management and employees, market
their own, unique products using tailored distribution channels. Close to 90% of
AEGON's core business is life insurance, pension and related savings and
investment products. The Group is also active in accident and health insurance,
property and casualty insurance and limited banking activities.
AEGON evaluates performance and allocates resources based on income before
interest charges and taxes, based on Dutch accounting principles. The accounting
policies of the reportable segments are the same as those used for the
consolidated financial statements. Intersegment revenue and expenditures for
additions to long-lived assets are not significant.
For more information on reportable segments see Note 3 Segment information.
-140-
2000 1999 1998
---- ---- ----
Revenues:
Americas 17,037 10,451 7,038
The Netherlands 5,734 5,683 5,160
United Kingdom 6,883 5,241 4127
Other Countries 1,023 909 755
Other 78 90 99
----- ----- -----
30,755 22,374 17,179
Income before tax:
Americas 2,025 1,337 917
The Netherlands 888 861 742
United Kingdom 360 237 145
Other Countries 57 (12) 28
Interest charges and other (443) (242) (198)
----- ---- ----
2,887 2,181 1,634
Identifiable assets
Americas 144,729 131,261 60,823
The Netherlands 43,802 43,417 42,488
United Kingdom 53,631 52,304 26,571
Other Countries 2,054 1,826 1,314
------ ------ ------
244,216 228,808 131,196
The tables below show the Company's revenues, income before tax and identifiable
assets by line of business.
Revenues:
Life insurance 27,165 19,110 14,066
Non-life insurance 3,140 2,470 2,388
Banking activities 372 704 626
Other non-insurance activities 78 90 99
----- ----- -----
30,755 22,374 17,179
Income before tax:
Life insurance 3,003 2,126 1,581
Non-life insurance 232 142 145
Banking activities 95 155 106
Interest charges and Other (443) (242) (198)
----- ----- -----
2,887 2,181 1,634
Identifiable Assets:
Insurance 237,414 218,182 120,220
Banking activities 5,760 5,787 9,059
Other non-insurance activities 1,042 4,839 1,917
------ ------ ------
244,216 228,808 131,196
-141-
(j) Revenue recognition
Life insurance premiums are reported as earned when due or, for short duration
contracts, over the contract period. Benefits and expenses are associated with
earned premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the technical provision
and the deferral and amortization of acquisition costs. Acquisition costs
consist principally of commissions, premium taxes and certain variable policy
issuance, underwriting and agency expenses. Deferred policy acquisition costs of
insurance contracts with fixed premiums are generally amortized over periods not
to exceed the premium paying periods or the contract periods. For flexible
insurance contracts and investment type contracts the amortization is generally
in proportion to emerging gross profits.
General insurance premiums are recognized on a monthly pro rata basis over the
terms of the policies. Acquisition costs, consisting of commissions, premium
taxes and other costs that vary with and are primarily related to the production
of business are deferred by major product groups and amortized over the terms of
the policies.
Deferred policy acquisition costs are reviewed to determine that they do not
exceed recoverable amounts, after allowing for anticipated investment income.
(k) Capital and reserves
Set forth below are changes in capital and reserves for the past three years.
2000 1999 1998
Preferred Shares
Balance at January 1 65 52 61
Issued 4 13 -
Repurchased (16) - (9)
--- -- --
Balance at December 31 53 65 52
Vereniging AEGON holds all the issued preferred shares. From the net profit
first of all a preferred dividend will be paid out, based on the official rate
of disbursement. For the years under review the dividends were 4.75% in all
years. Apart from this no additional dividend is to be paid on the preferred
shares.
2000 1999 1998
Common Shares
Balance at January 1 151 133 131
Change in par value 9 - -
Issuance of shares - 18 -
Stock dividend 2 0 1
Exercised options 0 0 1
--- --- ---
Balance at December 31 162 151 133
-142-
Paid-in Revaluation Other
surplus account surplus fund Total
Surplus funds
Balance at January 1, 1998 2,103 3981 1,950 8,034
Net income 1,247 1,247
Repurchased own shares (491) (491)
Exercised options 16 16
Stock dividend 0 0 0
Dividends paid (588) (588)
Optional dividend 1998/1997 153 153
Revaluation group companies 520 (334) 186
Currency exchange rate differences (56) (56)
Cash settlement subordinated convertible loan (171) (171)
Goodwill (310) (310)
Settlement stock option plan (273) (273)
Other movements 2 2
------- ------- ------- -------
Balance at January 1, 1999 2,119 4,501 1,129 7,749
Net income 1,570 1,570
Issuance of new shares 1,273 4,776 6,049
Repurchased own shares (315) (315)
Exercised options 5 5
Stock dividend 0 0
Dividends paid (797) (797)
Optional dividend 1999/1998 194 194
Revaluation group companies 1,080 851 1,931
Currency exchange rate differences 200 200
Cash settlement subordinated convertible loan (69) (69)
Goodwill (3,133) (3,133)
Settlement stock option plan (47) (47)
Other movements 1,101 (1,111) (10)
------- ------- ------- -------
Balance at January 1, 2000 3,397 6,682 3,248 13,327
Net income 2,066 2,066
Repurchased own shares (423) (423)
Exercised options 7 7
Stock dividend (1) (1)
Dividends paid (976) (976)
Optional dividend 2000/1999 555 555
Revaluation group companies (505) 565 60
Currency exchange rate differences (105) (105)
Cash settlement subordinated convertible loan (24) (24)
Goodwill (2,254) (2,254)
Settlement stock option plan (200) (200)
Other movements (8) 605 597
------- ------- ------- -------
Balance at December 31, 2000 3,395 6,177 3,057 12,629
-143-
(l) Approximate Comprehensive income in accordance with US GAAP
The related tax effects allocated to each component of Other comprehensive
income are as follows:
(In million EUR) 2000 1999 1998
Foreign currency translation adjustment pretax 659 1,342 (472)
tax 0 0 0
net of tax 659 1,342 (472)
Unrealized gains (losses) during period pretax 384 (465) 687
tax (172) 351 (140)
net of tax 212 (114) 547
Less: reclassification adjustment pretax (969) (457) (1,131)
tax 148 56 261
net of tax (821) (401) (870)
---- ---- ----
Other comprehensive income (loss) 50 827 (795)
Accumulated other comprehensive income consists of:
December 31, December 31,
2000 1999
Accumulated foreign currency adjustment 1,765 1,106
Unrealized gains (losses) 730 1,623
----- -----
Total 2,495 2,729
(m) New accounting standards
In June 1998, the Financial Accounting Standards Board (the FASB) issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
(SFAS 133), subsequently amended by SFAS No. 137 and SFAS No. 138, which is
required to be adopted in fiscal years beginning after June 15, 2000. AEGON will
adopt the new Statement effective January 1, 2001. The Statement will require us
to recognize all derivatives, including embedded in other contracts, as either
assets or liabilities on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through income or recognized in other
comprehensive income until the hedged item is recognized in income. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in income. A one-time opportunity to reclassify available for sale
investments to trading is allowed without tainting the remaining securities in
the available for sale portfolio. The Company has elected to take this
opportunity to reclass approximately EUR 2 billion available for sale
investments to trading. As of January 1, 2001, the cumulative impact of applying
the Statement's accounting requirements is not expected to have a significant
impact on the Company's financial position or results of operations.
-144-
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. SFAS No. 140
replaces SFAS No. 125 with the same title. It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. SFAS No. 140 is effective for
transfers and servicing of financial assets and extinguishment of liabilities
occurring after March 31, 2001 and for recognition and reclassification of
collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000. Based on current
circumstances, the Company believes the application of this standard will not
have a material impact on its financial statements.
(n) Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", provides guidance on
accounting and reporting for the cost of stock-based compensation. Compensation
costs related to stock options are permitted to be recorded under the intrinsic
value method provided certain fair value information is disclosed. AEGON has
elected to follow the intrinsic value method of Accounting Principles Board
Opinion No. 25, "Accounting for Stock issued to Employees" (APB 25) and related
interpretations in accounting for its stock options for purposes of the
reconciliation of net income from DAP to US GAAP. Under APB 25, because the
exercise price of AEGON's stock options equals the market price of the
underlying stock at the date of the grant, no compensation cost is recognized at
the grant date. However, subsequent cash settlements of stock options have
resulted in compensation costs of EUR 0, EUR 47, and EUR 273 million,
respectively, for the three years ended December 31, 2000 recognized in
approximate net income based on US GAAP, of which EUR 0, EUR 21, and EUR 165
million for the three years ended December 31, 2000, respectively, relate to
options granted after December 15, 1994.
Had compensation costs for AEGON's stock options granted in 2000, 1999 and 1998
been determined based on the fair value of the options at the grant dates
consistent with the method of FAS 123, pro forma net income and earnings per
share, adjusted for stock splits, based on US GAAP would have been:
2000 1999 1998
Approximate net income based on US GAAP
as reported 2,588 1,601 1,471
pro forma 2,529 1,563 1,596
Basic earnings per share (in EUR)
as reported 1.97 1.31 1.28
pro forma 1.92 1.28 1.38
Diluted earnings per share (in EUR)
as reported 1.94 1.29 1.25
pro forma 1.90 1.26 1.35
The fair value of the stock options at the date of grant was estimated using the
binomial option pricing model with the following assumptions for the three years
ended December 31, 2000: risk-free interest rates of 4.9%, 3.5%, and 3.5/5.5%,
expected dividend growth rate of 10% for each year, expected lives of 4.2 years
for 2000, 4.2 years for 1999, and 4.2/6.5 years for 1998, and expected
volatility of 38%, 26%, and 18%, respectively. The calculation takes into
account that the options granted cannot be exercised within the first three
years.
2000 1999 1998
Fair value of options/1/ granted during the year 59 59 40
/1/ excluding bonus rights in 2000 and 1999, for which the expenses have been
included in approximate net income based on US GAAP.
-145-
(o) Use of estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Such estimates and assumptions
could change in the future as more information becomes known, which could impact
the amounts reported and disclosed herein.
Significant estimates and assumptions are utilized in the calculation of
deferred policy acquisition costs, value of business acquired, technical
provisions and accruals, valuation allowances on investments and deferred taxes.
It is reasonably possible that actual experience could differ from the estimates
and assumptions utilized.
(p) Foreign currency translation
Assets and liabilities are converted at year-end rates. Income statement items
are converted at the average currency rates for the reported period. The
financial statements are not comparable to the financial statements of other
companies that report in euros that restated their prior periods from currencies
other than the Dutch guilder.
(q) AEGON UK's With Profit Funds
The assets and liabilities of the with-profits funds of Scottish Equitable and
Guardian are included in AEGON's historical Dutch accounting basis balance sheet
at fair value in the line items, "Investments for the account of policyholders"
and "Technical provisions with investment risk for the account of
policyholders." The assets and liabilities are equal in amount since the with-
profit funds are held for the sole benefit of the participating policyholders.
In respect of Guardian there is a 10% profit participation in those surpluses
distributed to policyholders. The fair value adjustment for investment assets is
recorded through the income statement in investment income for the account of
policyholders in the technical account life insurance with an offsetting amount
recorded in benefits paid and provided. The income statement activity of the
with-profits funds is reported in each of the applicable line items in AEGON's
historical Dutch accounting basis income statement with no net income effect for
Scottish Equitable PLC.
For US GAAP purposes the with-profits fund is treated similar to a closed block
of business. A closed block of business is established for the benefit of a
class of policyholders and is designed to give them reasonable assurance after a
reorganization that assets will be available to maintain the benefits under
their policies. The Scottish Equitable with-profits fund was established as part
of the regulatory requirement to allow AEGON to acquire an interest in the non-
participating business of Scottish Equitable. The with-profits fund is treated
as a closed block of business since at the time Scottish Equitable PLC was
formed the participating policies were allocated specific assets and the
business was segregated within Scottish Equitable PLC. The participating
policyholders are entitled to receive 100% of the financial performance of this
segregated with-profits fund. The Guardian with-profit fund is treated
similarly, with the exception of a profit share to the shareholders of 10%.
Under the terms of the agreement Scottish Equitable PLC remains obligated to the
participating policyholders of Scottish Equitable PLC for the guaranteed
benefits under their policies should their be a financial short-fall in the
with-profits fund.
Pursuant to US GAAP the investment assets are classified as available for sale
and accordingly are carried at fair value. Because the with-profits funds are
maintained for the sole benefit of the participating policyholders, the fair
value adjustment is recorded directly to the policyholder liability account. In
addition, for US GAAP reporting rules, the income statement activity would be
reported on a net basis as a single line item. Under this arrangement the
policyholders receive all of the benefits from the with-profit fund and to the
extent there is any excess earnings a policyholder dividend liability is
established such that the net income result is zero.
-146-
Summarized financial information on a Dutch accounting basis for the with-
profits funds as of and for the year ended December 31, 2000, is as follows
(amounts in EUR millions):
Assets:
Property 161
Fixed maturities at fair value 16,419
Equity securities at fair value 8,985
Other assets 1,907
Total assets 27,472
Liabilities:
Technical provisions 24,427
Other liabilities 3,045
Total Liabilities 27,472
Revenues and expenses:
Gross premiums 1,656
Investment income 1,276
Revenue 2,932
Benefits paid and provided 1,599
Change in Technical Provisions 1,233
Commissions and expenses 100
Benefits and expenses 2,932
Net income 0
-147-
SCHEDULE I
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 2000
-----------------------------------------------
Cost/1/ Fair value Book value
------- ---------- ----------
(In million EUR)
Shares 7,653 8,666 8,666
Bonds-available for sale:
Dutch government 1,175 1,168 1,159
US government 2,892 2,991 2,953
Foreign government 3,567 3,642 3,574
Mortgage backed securities 15,798 15,904 15,798
Other 37,817 37,486 37,756
------ ------ ------
Sub-total 61,249 61,191 61,240
Private placements-available for sale:
Dutch government 2,463 2,572 2,455
U.S. government 12 12 12
Foreign government 808 812 808
Mortgage backed securities 7,502 7,398 7,502
Other 13,184 13,122 13,203
------ ------ ------
Sub-total 23,969 23,916 23,980
Deposits with credit institutions 1,215 1,215
Loans guaranteed by mortgage/2/ 18,439 18,244
Real estate 1,724 2,116
Other 4,023 3,976
------ ------
Grand total 118,272 119,437
/1/ Cost is defined as original cost for shares and amortized cost for bonds and
private placements, less allowances for doubtful debts.
/2/ Includes real estate acquired in satisfaction of debt amounting to EUR 59
million at cost and book value.
-148-
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
Segment deferred future unearned other premium net benefits, amortization other premiums
policy policy premiums policy revenue investment claims, of operating written
acquisi- benefits claims income losses deferred expenses
tion cost and policy
benefits acquisition
costs
(In million EUR)
2000
Life insurance 13,459 217,043 NA NA 17,983 9,182 19,099 1,143 1,915 17,983
Non-life insurance/1/ 545 NA 1,244 2,024 2,788 352 1,549 141 597 2,788
1999
Life insurance 10,992 199,102 NA NA 12,802 6,308 12,640 774 1,474 12,802
Non-life insurance/1/ 472 NA 972 1,435 2,178 292 1,332 111 504 2,178
1998
Life insurance 5,421 106,617 NA NA 9,413 4,653 9,915 560 1,080 9,413
Non-life insurance/1/ 405 NA 745 1,423 2,137 251 1,226 94 523 2,137
/1/ Includes Accident and Health insurance
-149-
SCHEDULE IV
REINSURANCE
Column A Column B Column C Column D Column E Column F
Gross Ceded to Assumed Net Percentage
amount other from amount of amount
companies other assumed
companies to net
Life insurance in force
(In million EUR)
2000 781,347 481,238 382,096 682,205 56.0%
1999/1/ 630,408 389,648 342,152 582,912 58.7%
1998/2/ 294,538 5,928 300,466 2.0%
/1/ Assumed from other companies has been restated to reflect the TA
Reinsurance business.
/2/ Reinsurance ceded has not been deducted but is not material
-150-
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
(In million EUR)
Years ended December 31,
----------------------------------------------
2000 1999 1998
---- ---- ----
Balance January 1 432 377 353
Addition charged to earnings 142 100 81
Amounts written off and other changes (110) (45) (57)
--- --- ---
Balance December 31 464 432 377
The provisions can be analyzed as follows:
December 31,
----------------------------------------------
2000 1999 1998
---- ---- ----
Bonds and other fixed rate securities 110 137 116
Loans guaranteed by mortgages 184 166 134
Other loans 74 67 19
Other financial investments 34 32 36
Receivables 62 30 72
--- --- ---
Total 464 432 377
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SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.
AEGON N.V.
s/b/ J.B.M. Streppel
J.B.M. Streppel
Member of the
Executive Board.
Date: March 28, 2001