Form 6-K
Table of Contents

 

 

Securities and Exchange Commission

Washington, D.C. 20549

Form 6-K

Report of Foreign Issuer

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

the Securities Exchange Act of 1934

August 2009

AEGON N.V.

AEGONplein 50

2591 TV THE HAGUE

The Netherlands

 

 

 


Table of Contents

AEGON’s Embedded Value 2008 Report, dated May 14, 2009, is attached as an appendix and incorporated herein by reference. The Embedded Value 2008 Report, as included in the appendix, reflects some minor adjustments to the Embedded Value 2008 Report as referred to in our Report on Form 6-K furnished to the SEC on May 14, 2009.

SIGNATURE

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

 

   

AEGON N.V.

(Registrant)

Date: August 13, 2009     By   /s/    E. Lagendijk
        E. Lagendijk
        Executive Vice President and General Counsel


Table of Contents

Table of contents

 

1.

       Highlights    1

1.1    Introduction

   1

1.2    Overview of embedded value life insurance and total embedded value

   2

1.3    New business

   3

2.

       Economic Assumptions    4

3.

       Reconciliation of total capital base to adjusted net worth    5

4.

       Outcome    7

4.1    Value components

   7

4.2    Movement analysis of embedded value life insurance

   10

5.

       Sensitivities    15

5.1    Embedded value life insurance sensitivity

   15

5.2    Value of new business sensitivity

   16
Addendum 1: Movement analysis per region and product segment    17
   AEGON Group    18
   Americas    19
   The Netherlands    20
   United Kingdom    21
   Asia    22
   Central and Eastern Europe    23
   Other European Countries    24
Addendum 2: Outcome based on the regulatory surplus requirement    25
Addendum 3: Recoverability of DPAC    26
Addendum 4: Exchange rates    27
Addendum 5: Methodology    28
   Scope    28
   Methodology and definitions    29
   Operating assumptions    30
   Economic assumptions    31
   Embedded options and guarantees    32
   Required capital    32
Addendum 6: Detailed economic assumptions    33
Glossary and abbreviations    37
   Glossary    37
   Abbreviations    40
Disclaimers    41


Table of Contents

1.  Highlights

1.1  Introduction

AEGON has long used embedded value as a management tool for its life insurance operations. AEGON’s management believes that embedded value, in conjunction with other publicly disclosed financial information, can provide valuable additional information for investors and shareholders to assess a reasonable range of values inherent in the business. The disclosure includes sensitivity analyses reflecting certain risks and drivers of the realization of embedded value.

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

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

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

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

The methodology AEGON uses to calculate EVLI is described in addendum 5. This methodology is consistent with EEV Principles. This disclosure document is in compliance with the additional guidance on minimum required disclosures of sensitivities and other items under EEV, as published by the CFO Forum in October 2005.

 

      Embedded value 2008    - 1 -            


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1.2  Overview of embedded value life insurance and total embedded value

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

Table 1

 

Embedded value

(amounts in millions unless stated otherwise, after tax)

   Year-end
2008
EUR
    Year-end
2007
EUR
    %  

Life business

        

Adjusted net worth (ANW)

   11,123      11,751      (5

Free surplus (FS)

   2,335      1,025      128   

Required surplus (RS)

   8,788      10,725      (18
   

Value of in-force life business (ViF)

   11,813      14,138      (16

Present value future profits (PVFP)

   14,184      17,127      (17

Cost of capital (CoC)

   (2,371   (2,989   (21
   

Embedded value life insurance (EVLI)

   22,936      25,889      (11

 

Other activities

        

IFRS book value

   948      191      396   
   

Total embedded value before holding activities

   23,883      26,079      (8
   

Holding activities

   (5,346   (4,385   22   

Market value of debt, capital securities & other net liabilities

   (4,840   (4,063   19   

Present value holding expenses

   (506   (322   57   

Total embedded value (TEV)

   18,538      21,694      (15

Value of preferred share capital

   (1,343   (1,527   (12

Total embedded value (TEV) attributable to common shareholders

   17,194      20,167      (15

TEV attributable to common shareholders per share (EUR)

   11.35      13.44      (16

The most important items impacting the change in embedded value life insurance during 2008 are1:

  ¿  

The weakening of the British pound against the euro was partially offset by the strengthening of the US dollar. This had a negative impact of EUR 0.3 billion on the EVLI. If the figures in this table had been prepared on a constant currency basis, the decreases in EVLI and TEV would have been 10% and 13% respectively.

  ¿  

Embedded value operating return2 of EUR 1.7 billion, consisting of EUR 0.9 billion for in-force performance and EUR 0.8 billion for new business value.

  ¿  

A negative investment variance of EUR (3.2) billion and an adverse impact of EUR (2.0) billion from economic assumption changes.

  ¿  

Net capital movements into the life operations increased the EVLI by EUR 0.5 billion.

The value of other activities increased by EUR 0.8 billion mainly due to an injection of capital from group.

1 For a more detailed analysis, please refer to section 4.2 ‘Movement analysis of embedded value life insurance’.

2 For embedded value operating margins on a constant currency basis, please refer to addendum 1: ‘Movement analysis per region and product segment’.

 

      Embedded value 2008    - 2 -        


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The value of debt, capital securities and other net liabilities, which includes EUR 3 billion convertible core capital securities from Vereniging AEGON funded by the Dutch State, decreased (i.e. became more negative) by EUR 0.8 billion as a result of net capital distributions from holdings (EUR (0.6) billion), dividends to shareholders (EUR (0.7) billion) and interest payments on holding debt (EUR (0.3) billion), the change in other net liabilities (EUR (0.8) billion) somewhat offset by changes in market value of debt (EUR 1.7 billion). The change in other net liabilities was largely a result of a capital contribution of EUR 0.5 billion to the US – previously this amount had been treated as a loan.

1.3  New business

The profitability of the policies sold in 2008 can be measured by the gross value of new business, which is equal to the value of new business (VNB) generated by new business sold during the reporting period, grossed up at the relevant corporate tax rate and adjusted for the cost of carrying required capital on the internal surplus basis.

Table 2

 

Value of new business

(amounts in millions)

   2008
EUR
     2007
EUR
     %  

Gross value of new business

   1,369       1,546       (11

Tax

   (317    (381    (17

Cost of capital

   (215    (237    (9

Value of new business

 

   837       927       (10

The regional groupings used in table 3 below and throughout the report are as follows:

  ¿  

Americas consists of AEGON Canada, AEGON USA and AEGON’s 49% interest in Seguros Argos (Mexico);

  ¿  

Asia consists of AEGON Taiwan and AEGON’s 50% interest in its partnership in China;

  ¿  

Central and Eastern Europe consists of AEGON’s operations in the Czech Republic, Hungary, Poland, Slovakia, and AEGON’s 90% interest in its partnership in the Czech Republic and 50% partnership in Romania; and

  ¿  

Other European Countries consists of AEGON Spain, AEGON’s interests in four partnerships in Spain and AEGON’s 35% interest in La Mondiale Participations (France).

Table 3

 

Value of new business

(amounts in millions, after tax)

   2008
EUR
   2007
EUR
   %  

Americas

   412    425    (3

The Netherlands

   43    51    (16

United Kingdom

   234    230    2   

Asia

   20    78    (74

Central and Eastern Europe

   74    72    3   

Other European Countries

   54    71    (24

Total

 

   837    927    (10

Value of new business decreased 10% from 2007 (2% if calculated on a constant currency basis).3

3 For a more detailed analysis, please refer to section 4.2 ‘Movement analysis of embedded value life insurance’.

 

      Embedded value 2008    - 3 -        


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2.  Economic Assumptions

The economic assumptions for AEGON’s main markets in 2008 and 2007 are presented in table 4. The assumptions are set using a market based approach with rates that can vary by country unit and change from year to year taking into account available empirical data.

Further detail on the setting of discount rates and the economic assumptions in other countries is described in addendum 5 and 6 respectively.

Table 4

 

Economic assumptions 2008

 

   United States    The Netherlands    United Kingdom

Discount rate

   7.2%    7.0%    7.9%

Equity returns

   7.2%    7.0%    7.9%

Property returns

   6.5%    6.7%    7.9%

Risk free fixed interest returns (A)

   2.3%    3.4%    3.4%

Net credit spread on fixed interest (bps) (B)

   606    527    388

Inflation rate

   2.0%    2.0%    2.0%

Tax rate

   35.5%    25.5%    28.0%
   
                

Economic assumptions 2007

 

   United States    The Netherlands    United Kingdom

Discount rate

   7.70%    7.60%    7.60%

Equity returns

   7.70%    7.60%    7.60%

Property returns

   6.50%    6.70%    7.60%

Risk free fixed interest returns (A)

   4.04%    4.40%    4.60%

Net credit spread on fixed interest (bps) (B)

   211    126    131

Inflation rate

   2.0%    2.0%    2.0%

Tax rate

   35.5%    25.5%    28.0%

(A) Risk free fixed interest returns correspond to the 10-year government bond yield. The table above shows start rates only. Refer to table 23 for more detail.

(B) Average net credit spread in basis points (bps) of all corporate bonds, mortgages, loans, etc. over the 'fixed interest returns'. The table above shows start rates only. Refer to table 23 for more detail.

All economic assumptions are reviewed each year and adjusted if appropriate. All assumptions reflect a going concern. The currency exchange rates are summarized in addendum 4: Exchange rates.

The main changes for 2008 have been a decrease in the short-term risk free fixed interest return across all countries. Additionally the risk margin to determine equity returns and the discount rate was increased from 3% in 2007 to 4% in 2008 – the exception to this was the Netherlands where the risk margin remained at 3% to reflect the substantial de-risking of their business profile. The other feature across all countries has been a substantial increase in initial corporate spreads.

 

      Embedded value 2008    - 4 -        


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3.  Reconciliation of total capital base to adjusted net worth

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

Table 5

 

Reconciliation of total capital base to ANW

(amounts in EUR millions)

   2008      2007      %  

 

Total capital

          
   

AEGON shareholders’ equity (A)

   6,055       15,151       (60
   

Capital securities & subordinated debt & (B)

   7,901       4,972       59   
   

Minority interest

   6       16       (63
   

Senior debt related to insurance activities (C)

   69       1,255       (95
                        
   

Total capital base

   14,031       21,394       (34
   

Other net liabilities (D)

   (180    (1,003    (82
                        
   

Total capital base and other net liabilities

   13,851       20,391       (32
   

Capital in units

          
   

Americas

   7,629       12,945       (41
   

The Netherlands

   2,954       3,079       (4
   

United Kingdom

   1,320       2,954       (55
   

Asia

   397       326       22   
   

Central and Eastern Europe

   645       497       30   
   

Other European Countries

   906       590       54   
                        
   

Total

   13,851       20,391       (32
   

Allocated to

          
   

Life subsidiaries

   12,903       20,200       (36
   

Other activities

   948       191       396   
                        
   

Total

   13,851       20,391       (32
   

Reconciliation capital in life subsidiaries to adjusted net worth

          
   

Capital in life subsidiaries

   12,903       20,200       (36
   

Adjustments to local equity

   (1,780    (8,450    (79
                        
   

Adjusted net worth (ANW)

   11,123       11,751       (5

(A) Including the preferred share capital (2008: EUR 2,114 million, 2007: EUR 2,114 million).

(B) Including EUR 3 billion convertible core capital securities

(C) Borrowings (of which related to insurance activities): EUR 5,339 million (EUR 69 million) in 2008 and EUR 6,021 million (EUR 1,255 million) in 2007.

(D) Carried at the holding companies.

The change in other net liabilities was largely a result of a capital contribution of EUR 0.5 billion to the US – previously this amount had been treated as a loan.

 

      Embedded value 2008    - 5 -        


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The capital base is largely invested in the life subsidiaries. The remaining capital allocated to other activities is included in total embedded value at IFRS book value. In the reconciliation, the capital allocated to life subsidiaries is adjusted to local regulatory accounting. The largest part of the adjustment relates to the non-admissibility on a regulatory basis of DPAC/VOBA of the modeled life business4. The life insurance DPACs in certain countries, most significantly the Netherlands (EUR 0.5 billion), are not eliminated, as they are admissible assets under their regulatory accounting. The impact of the elimination of inadmissible DPAC/VOBA relating to the modeled life business equals EUR (14.7) billion, asset related differences amount to EUR 8.8 billion, reserve related differences amount to EUR 5.1 billion and the balance of the adjustments, EUR (1.0) billion, is explained by a number of smaller adjustments, including deferred tax and goodwill on moving from IFRS to regulatory accounting. The asset valuation differences are up substantially from 2007 and arise primarily in the Americas - they reflect the inclusion of unrealized losses in IFRS which is not required under regulatory reporting. The reserve valuation differences are down on 2007 with the main fall in the Americas resulting from certain liabilities being adjusted to reflect market changes under regulatory accounting but remaining fixed under IFRS. This is partially offset by a rise in the UK as only statutory reserves for annuities reflect the impact of higher bond yields.

The differences between embedded value and the accounting treatment of DPAC are discussed in addendum 3.

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

 

      Embedded value 2008    - 6 -        


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4. Outcome

This section presents the EVLI and TEV as of December 31, 2008. All profits are in millions of euro and based on local regulatory accounting net of reinsurance and after tax. The level of required surplus is based on internal surplus requirements.

4.1  Value components

The values under the internal surplus requirements are:

Table 6

 

Embedded value components

 

(amounts in EUR millions, after tax)

  Americas     The
Netherlands
    United
Kingdom
    Asia     Central and
Eastern
Europe
    Other
European
Countries
    Total 2008  
   

Life business

               

Adjusted net worth (ANW)

  6,615      2,794      748      194      337      435      11,123   

Free surplus (FS)

  600      971      364      82      250      67      2,335   

Required surplus (RS)

  6,015      1,823      383      112      87      368      8,788   
   

Value of in-force life business (ViF)

  6,265      2,940      1,869      (96   566      270      11,813   

Present value future profits (PVFP)

  7,691      3,567      1,920      (3   612      396      14,184   

Cost of capital (CoC)

  (1,426   (628   (51   (94   (46   (126   (2,371
   

Embedded value life insurance (EVLI)

  12,879      5,734      2,617      97      903      705      22,936   
   

Other activities

               

IFRS book value

  681      160      (275   36      135      210      948   
   

Total embedded value per region

  13,561      5,894      2,342      134      1,038      915      23,883   
   

Holding activities

              (5,346

Market value of debt, capital securities & other net liabilities

              (4,840

Present value holding expenses

              (506

Total embedded value (TEV)

              18,538   

Value of preferred share capital

              (1,343
   

 

Total embedded value (TEV) attributable to common shareholders

 

                                     

 

17,194

 

 

  

 

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

The main areas covered by other activities are banking (EUR 0.2 billion), distribution (EUR 0.1 billion), general insurance (EUR 0.4 billion) and pensions and employee benefits (EUR 0.2 billion).

Other activities increased by EUR 0.8 billion. The increase is mainly driven by capital contributions from group to the Americas (EUR 0.5 billion) and the inclusion of a new joint venture in Spain (EUR 0.2 billion). Other activities for the UK is negative as a result of the staff pension scheme deficit and inter company lending activities.

The embedded value life insurance decreased due to positive performance on the in-force business and the contribution from value of new business being more than offset by the negative impact of investment experience and changes in economic assumptions. For a detailed discussion of the change in embedded value life insurance from end of year 2007 to end of year 2008 refer to section 4.2

 

      Embedded value 2008    - 7 -        


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Non-recurring expenses

For all countries, any expected efficiency gains from restructuring programs have not been reflected in the expense assumptions.

In established operations, certain incurred expenses are considered non-recurring. For newer operations, such as China or Czech Republic, the value of new business and the projection of expenses in the embedded value life insurance reflect longer term expected run rate acquisition and maintenance expenses. In total an amount of EUR 33 million, after tax, was considered as exceptional expenses (Americas EUR 11 million, UK EUR 5 million, Asia EUR 10 million and CEE EUR 7 million), and not included in the derivation of acquisition and maintenance expense assumptions.

Employee pension plan costs

Expense assumptions in the embedded value include the cost of providing employee pension benefits where appropriate. The allowance for these costs fully reflects the long-term cost of providing pensions and is consistent with the allowance for pensions elsewhere in the calculation of the total embedded value. Any pension asset or liability has been included at the IFRS book value. For the Americas, where a pension asset is already reflected in IFRS book value (in other activities), no contribution holidays with respect to this pension asset are taken into account in the pension contribution expenses in the embedded value.

 

            Embedded value 2008    - 8 -            


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Free surplus

Table 7

 

Reconciliation of free surplus

(amounts in EUR millions, after tax)

   Americas     The
Netherlands
    United
Kingdom
    Asia     Central and
Eastern
Europe
    Other
European
Countries
    Total 2008  
   

Free surplus (BOY)

   397      155      183      12      250      27      1,025   

Change in MV adjustment on FS

   (16   -        -        0      (11   (5   (32

Return on free surplus

   12      69      4      (1   (2   1      82   

Earnings on in-force

   (1,159   456      (85   (65   73      25      (755

Release of required surplus on inforce

   2,232      662      414      (38   8      (12   3,267   

Investment in new business

   (1,381   (113   (358   (32   (65   (8   (1,958

New business first year strain

   (407   (24   (207   (27   (45   (2   (712

Required surplus on new business

   (974   (89   (151   (5   (20   (5   (1,246

Capital movements

   489      5      (293   149      141      27      518   

Currency exchange differences

   25      (0   (77   2      (29   (0   (80

Other

   0      (261   576      55      (115   12      267   

Free surplus (EOY)

   600      971      364      82      250      67      2,335   

The economic value of free surplus in the life business increased during 2008 mainly due to:

  ¿  

Return on free surplus of EUR 0.1 billion.

  ¿  

Overall release of required surplus on in-force business of EUR 3.3 billion.

  ¿  

In the Americas the high release of EUR 2.2 billion reflected substantial releases from fixed annuities and IGP partially offset by an increase in required capital for variable annuities.

  ¿  

In the Netherlands the above average earnings of EUR 0.5 billion reflected gains on investments including hedge results linked to falls in interest rates. The above average release of required surplus of EUR 0.7 billion reflected the lower S&P requirements at the end of 2008 and de-risking the business.

  ¿  

Net capital injections of EUR 0.5 billion.

partially offset by

  ¿  

Overall earnings on in-force of EUR (0.7) billion.

  ¿  

In the Americas the adverse earnings of EUR (1.2) billion were driven by market impacts on variable annuities, guarantee costs, and IGP.

  ¿  

In the UK the adverse earnings of EUR (0.1) billion mainly reflected a combination of the impact of market falls and a strengthening of default assumptions in statutory reserving.

  ¿  

Investment in new business including new business strain and required capital on new business of EUR (2.0) billion.

  ¿  

Currency exchange differences of EUR (0.1) billion.

The main components of other are related to the impact of unrealized losses in the Netherlands and the combination of financial reinsurance and securitization arrangements in the UK.

 

            Embedded value 2008    - 9 -            


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4.2 Movement analysis of embedded value life insurance

The change in embedded value life insurance from year to year is split into the following components5. The main items per region are explained in further detail after table 8 and table 10.

Table 8

 

Movement analysis 2008

(amounts in EUR millions, after tax)

   Americas     The
Netherlands
    United
Kingdom
    Asia     Central and
Eastern
Europe
    Other
European
Countries
    Total 2008  

Embedded value life insurance BoY

   15,175      5,040      3,692      436      835      710      25,889   

Value of new business (VNB)

   412      43      234      20      74      54      837   

Gross value of new business

   703      86      347      30      105      98      1,369   

Tax

   (140   (22   (97   (7   (20   (30   (317

Cost of capital (after tax)

 

   (151   (20   (15   (3   (12   (14   (215

In-force performance

   458      192      231      (36   67      (31   880   

Unwind of discount

   1,048      449      250      30      75      39      1,891   

Operating variances

   (239   58      4      (19   (2   (46   (244

Mortality/morbidity

   74      43      5      (1   3      (2   122   

Persistency

   34      (9   15      (11   (14   (32   (17

Maintenance expenses

   2      (61   0      (1   (9   (2   (70

Exceptional expenses

   (11   0      (5   (10   (7   0      (33

Other

   (338   84      (11   4      24      (10   (246

Changes in operating assumptions

   (352   (314   (23   (47   (6   (25   (766

Mortality/morbidity

   90      (133   22      5      15      1      0   

Persistency

   (288   (27   (38   (15   (13   (4   (386

Maintenance expenses

   4      (8   (2   (13   (32   1      (49

Other

   (159   (146   (5   (24   25      (22   (331

Embedded value operating return

   870      236      465      (16   141      23      1,718   

Variance from long-term inv. return

   (3,696   1,043      (479   (5   (79   (27   (3,244

Change in economic assumptions

   (647   (779   (50   (460   (30   (35   (2,002

Currency exchange differences

   526      0      (799   18      (59   0      (315

Miscellaneous impacts

   163      189      81      (23   (46   8      372   

Embedded value total return

   (2,785   689      (782   (487   (73   (32   (3,471

Capital movements

   489      5      (293   149      141      27      518   

Embedded value life insurance EoY

 

   12,879      5,734      2,617      97      903      705      22,936   

Other activities

 

               948   

Holding activities

               (5,346

Total embedded value

                                       18,538   

Embedded value operating margin (A)

   5.7   4.7   13.7   (3.6 )%    16.6   3.2   6.8

(A) Embedded value operating margin is calculated on a constant currency basis. See addendum 1, tables 14 to 19 for details.

 

5 Refer to addendum 1 ’Movement analysis per region and product segment’, tables 14 to 19, for a split per region and per product segment.

 

      Embedded value 2008    - 10 -        


Table of Contents

Return on embedded value

The overall embedded value operating margin was 6.8% in 2008 (8.8% in 2007). The embedded value total margin was (13.4)% in 2008 (2.2% in 2007).

Currency exchange differences

A negative currency variance of EUR 315 million was primarily caused by a weakening of the British pound and a number of the CEE currencies against the euro. This was partially offset by a strengthening of the US dollar.

Capital movements

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

Americas

 

  ¿  

The embedded value operating margin on a constant currency basis was 5.7%.

  ¿  

In-force variance on mortality and morbidity was favorable across most lines of business. However this was more than offset by adverse spread experience, shown under other, with some offset from various small items including tax and reserving changes.

  ¿  

The change in operating assumptions was driven by lower lapses in Variable Annuities resulting in higher guarantee costs, reduced prepayment rates on certain general account assets, offset partially by the adoption of updated mortality tables

  ¿  

The large negative long-term investment variance reflected losses linked to the decline in equity markets and the impact of widening credit spreads. There was also a smaller adverse impact from the reduction in fixed interest rates.

  ¿  

The net change in economic assumptions was largely driven by lower fixed interest returns. Adverse impacts from default losses and equity returns were offset by the lower discount rate.

  ¿  

The miscellaneous impacts reflected a combination of modeling improvements and a change in S&P requirements.

The Netherlands

 

  ¿  

The embedded value operating margin was 4.7%.

  ¿  

The main components of the in-force variance were unfavorable expense experience in the Life business due to a combination of a reallocation of costs and a number of short term project costs, in particular system development linked to policyholder compensation.

  ¿  

The change in operating assumptions reflected a large negative impact from longer assumed longevity in Pensions which more than offset a positive mortality adjustment in Life. The changes under other mainly related to the impact of the change in asset mix away from equities to bonds and the impact on future costs related to policyholder compensation mentioned above.

  ¿  

The main component of the positive variance on long-term investments was the impact of a hedge program related to traditional policies with profit sharing and unit linked policies with guarantees. This was partially offset by the adverse impacts from lower equity markets and lower fees on separate account business.

  ¿  

For economic assumption changes, the reduction in fixed interest rates had a substantial adverse impact, particularly for Pensions. There was a partial offset here from higher credit spreads. The impact of changes to discount rate and equity returns were small and largely offsetting.

  ¿  

The miscellaneous impacts reflected a combination of modeling improvements and a change in S&P requirements.

 

      Embedded value 2008    - 11 -        


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United Kingdom

 

  ¿  

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

  ¿  

The in-force variance included a small positive from persistency.

  ¿  

While the lapse experience observed in 2008 was better than expected some adverse experience is anticipated in the shorter term. As a result a lapse provision was established to allow for continuing adverse persistency rates in 2010 and this was the principal component of the change in operating assumptions.

  ¿  

The other significant component of the operating return of 13.7% was the strong contribution from new business which generated more than 6%.

  ¿  

Falling market values were the main component of the variance from long-term investment returns, in particular resulting in lower fees.

  ¿  

On economic assumptions, the adverse impact of a higher discount rate and a lower risk free fixed interest return was partially offset by higher credit spreads.

  ¿  

Miscellaneous covers a refinement in the S&P capital calculation and a smaller impact from modeling improvements.

Asia

 

  ¿  

The embedded value operating margin on a constant currency basis was (3.6)%.

  ¿  

The in-force variance arose from a negative impact from adverse persistency in Taiwan and exceptional expenses in China.

  ¿  

The change in operating assumptions was mainly due to a change in assumed persistency and maintenance expenses in Taiwan. The changes under other were mainly tax related in Taiwan.

  ¿  

The significant negative change in economic assumptions was almost entirely due to the reduction in fixed interest rates in Taiwan.

Central and Eastern Europe

 

  ¿  

The embedded value operating margin was 16.6%.

  ¿  

The most significant item under in-force variance related to adverse persistency in Hungary and Poland, expense overruns including those linked to development costs for the newer countries, offset partially by a combination of spread experience and higher than expected premiums in Hungary and Poland.

  ¿  

Changes to operating assumptions saw positive mortality changes in Hungary and Slovakia, improved funding margins from mortgages in Hungary and increased asset charges in Poland more than offset by persistency in Hungary and higher expenses across most countries.

  ¿  

The variance in long-term investment return related to a combination of equity returns and fixed interest rates - the change in assumptions was almost entirely driven by the higher discount rate.

  ¿  

The largest component of miscellaneous relates to moving the Polish pension funds from IFRS to covered business with the loss of a goodwill component under embedded value.

Other European Countries

 

  ¿  

The embedded value operating margin was 3.2%

  ¿  

The in-force variance was adversely affected by higher levels of withdrawals and lower top up rates for existing policies in Spain. To the extent that they are expected to re-occur, these items were reflected in operating assumption changes.

  ¿  

On changes in economic assumptions the main components of the adverse variance were higher discount rate and lower risk free rates. The main driver of long term investment variance was market falls resulting in a reduction in fees.

 

      Embedded value 2008    - 12 -        


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Value of new business

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

Table 9

 

Modeled new business    Premium business    Deposit business    VNB        
APE(A) and deposits                            
(amounts in EUR millions)    APE (A)    Deposits (B)                 
      2008    2007    2008    2007    2008    2007    %  

 

Americas

   1,097    1,362    30,151    36,337    412    425    (3

The Netherlands

   300    278    -    -    43    51    (16

United Kingdom

   1,514    1,705    -    -    234    230    2   

Asia

   63    168    24    7    20    78    (74

China

   16    11    -    -    3    3    0   

Taiwan

   47    157    24    7    16    75    (79

Central and Eastern Europe

   109    122    65    27    74    72    3   

Czech Republic

   10    2    21    2    3    1    200   

Hungary

   32    26    25    22    37    36    3   

Poland

   58    90    11    3    20    32    (38

Romania

   -    -    7    -    8    -    -   

Slovakia

   9    4    0    0    7    3    133   

Other European Countries

   237    234    10    10    54    71    (24

France

   96    89    -    -    4    7    (43

Spain

   141    146    10    10    50    65    (23

Total

 

   3,321    3,869    30,249    36,381    837    927    (10

VNB

 

   592    705    246    222                 

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

(B) Including on and off balance sheet deposits.

 

 

6 Refer to addendum 1 ‘Movement analysis per region and product segment’ for the split of VNB per region and per reporting segment.

 

      Embedded value 2008    - 13 -        


Table of Contents

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

Table 10

 

2008 VNB summary    Premium business     Deposit business               
(amounts in EUR millions)                        
     

VNB

 

  

PVNBP

 

  

VNB/
PVNBP

 

  

VNB/ APE

 

   

VNB

 

  

PVNBP

 

  

VNB/
PVNBP

 

  

VNB/
Deposits

 

    Total VNB    Total IRR  

Americas

   193    5,496    3.5%    17.6%      219    34,251    0.6%    0.7%      412    12.4%   

The Netherlands

   43    2,324    1.9%    14.4%      -    -    -    -      43    10.8%   

United Kingdom

   234    10,322    2.3%    15.5%      -    -    -    -      234    13.5%   

Asia

   19    344    5.6%    30.5%      1    179    0.4%    2.7%      20    18.5%   

China

   3    102    3.4%    21.1%      -    -    -    -      3    26.2%   

Taiwan

   16    241    6.6%    33.8%      1    179    0.4%    2.7%      16    16.9%   

Central and Eastern Europe

   48    674    7.2%    44.3%      25    835    3.0%    39.4%      74    44.8%   

Czech Republic

   1    64    2.3%    14.8%      1    116    1.2%    6.3%      3    13.2%   

Hungary

   24    210    11.2%    74.3%      13    286    4.6%    51.7%      37    >50.0%   

Poland

   18    339    5.4%    31.6%      1    94    1.3%    11.1%      20    >50.0%   

Romania

   -    -    -    -      8    314    2.4%    106.8%      8    21.6%   

Slovakia

   5    61    8.2%    53.5%      2    25    8.5%    N.M.      7    41.4%   

Other European Countries

   54    1,884    2.8%    22.6%      0    10    3.3%    3.3%      54    46.7%   

France

   4    1,097    0.4%    4.5%      -    -    -    -      4    8.9%   

Spain

   49    787    6.3%    35.0%      0    10    3.3%    3.3%      50    >50.0%   

Total

   592    21,043    2.8%    17.8%      246    35,275    0.7%    0.8%      837    17.8%   

In the Americas, VNB increased 4% in US dollars (down 3% in euros). The main contributors to this were Life, Fixed Annuities and Pensions. For Fixed Annuities the increase, driven by higher sales, included a reduction to reflect higher than normal liquidity in the asset portfolio. Overall IRR in the Americas decreased slightly from 13.0% in 2007 to 12.4% in 2008.

The decrease in VNB in the Netherlands reflected a small increase in sales, offset by a reduction in margins in Pensions due to the very competitive market. The IRR in the Netherlands increased very slightly from 10.7% in 2007 to 10.8% in 2008 mainly due to a change in the mix of business.

The increase in VNB in the UK was driven by the movement in product mix towards higher margin products, such as annuities and protection business, with partial offset from slightly lower sales growth in the Pensions area. VNB was also adversely impacted by currency with growth in sterling up 19%. The VNB growth was also reflected in an improved IRR from 13.0% in 2007 to 13.5% in 2008.

The decrease in VNB in Asia reflected substantially lower production in Taiwan.

The growth in VNB within Central and Eastern Europe reflected the strong performance from Slovakia and the first year inclusion of Romania. This was partially offset by lower VNB, driven by lower sales, in Poland.

The key driver of the lower VNB in respect of Other European Countries was reduced margins in both Spain and France.

 

      Embedded value 2008    - 14 -        


Table of Contents

5.  Sensitivities

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

5.1  Embedded value life insurance sensitivity

Table 11

 

Sensitivity analysis -

Embedded value life insurance

(amounts in EUR millions, after tax)

   Americas    The
Netherlands
   United
Kingdom
   Asia    Central and
Eastern
Europe
   Other
European
Countries
   Total
2008

Base case embedded value life insurance 2008

   12,879    5,734    2,617    97    903    705    22,936

 

Required surplus at regulatory solvency

   7%    1%    0%    25%    3%    2%    5%

 

100 bps decrease in risk discount rate

   7%    11%    8%    15%    7%    8%    8%

 

100 bps increase in risk discount rate

   -6%    -10%    -7%    -12%    -6%    -7%    -7%

 

100 bps decrease in risk-free rate, all asset returns and RDR

   -4%    15%    5%    -1136%    3%    -1%    -2%

 

100 bps increase in risk-free rate, all asset returns and RDR

   2%    -10%    -4%    461%    -2%    0%    0%

 

100 bps decrease in equity and property returns

   -1%    -6%    -3%    -57%    -1%    -1%    -3%

 

100 bps increase in equity and property returns

   1%    5%    4%    54%    1%    1%    3%

 

10% fall in equity markets

   -3%    -3%    -4%    -39%    -1%    0%    -3%

 

100 bps decrease in fixed interest

   -8%    12%    2%    -1078%    -3%    -6%    -6%

 

100 bps increase in fixed interest

   8%    -8%    -1%    512%    3%    6%    5%

 

10% decrease in lapse rates

   6%    0%    2%    -40%    3%    3%    4%

 

5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business

   7%    0%    0%    5%    0%    0%    4%

 

5% decrease in mortality/ morbidity rates for longevity exposure business

   0%    -3%    -1%    0%    0%    0%    -1%

 

1% mortality/ morbidity improvement per year for the entire projection period

   9%    -5%    -3%    5%    0%    0%    3%

 

10% decrease in maintenance expenses

 

 

   3%    2%    2%    15%    2%    2%    2%

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

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

 

      Embedded value 2008    - 15 -        


Table of Contents

Asia shows an asymmetric value change for the decrease and increase in investment returns. This reflects the level of guarantees underlying much of the business in Taiwan. However, the impact is much higher than last year, reflecting the substantial reduction in assumed investment returns in the base case..

5.2  Value of new business sensitivity

Table 12

 

Sensitivity analysis -

Value of new business

(amounts in EUR milions, after tax)

   Americas    The
Netherlands
   United
Kingdom
   Asia    Central and
Eastern
Europe
   Other
European
Countries
   Total
2008

Base case value of new business 2008

   412    43    234    20    74    54    837

 

100 bps decrease in risk discount rate

   19%    19%    20%    13%    17%    17%    19%

 

100 bps increase in risk discount rate

   -16%    -15%    -17%    -10%    -14%    -14%    -16%

 

100 bps decrease in risk-free rate, all asset returns and RDR

   -6%    -5%    3%    -7%    6%    3%    -2%

 

100 bps increase in risk-free rate, all asset returns and RDR

   0%    -3%    -3%    4%    -5%    -2%    -1%

 

100 bps decrease in equity and property returns

   -3%    -5%    -8%    -1%    -2%    -1%    -4%

 

100 bps increase in equity and property returns

   3%    7%    9%    1%    2%    1%    4%

 

100 bps decrease in fixed interest

   -27%    -17%    -5%    -16%    -7%    -11%    -17%

 

100 bps increase in fixed interest

   22%    12%    5%    15%    8%    11%    15%

 

10% decrease in lapse rates

   15%    5%    7%    6%    9%    10%    11%

 

5% decrease in mortality/ morbidity rates for mortality/ morbidity exposure business

   17%    4%    2%    2%    1%    1%    9%

 

5% decrease in mortality/ morbidity rates for longevity exposure business

   0%    1%    -3%    0%    0%    0%    -1%

 

1% mortality/ morbidity improvement per year for the entire projection period

   37%    3%    -11%    3%    1%    0%    15%

 

10% decrease in acquisition expenses

   11%    9%    8%    1%    4%    2%    8%

 

10% decrease in maintenance expenses

 

   6%

 

   15%

 

   4%

 

   2%

 

   6%

 

   2%

 

   6%

 

In general, the value of new business is more sensitive to changes in parameters than the in-force.

A relatively small change in future profits can have a relatively large impact on a small VNB compared to the EVLI. The exception is Taiwan where the new business mix does not include the products with guarantees which gave rise to the high sensitivities seen for the in-force portfolio. The size and sign of the sensitivities depend on the profitability of the individual products as well as the composition of the new business portfolio within a region. However it should be noted that these sensitivities do not provide indication of future new business profitability under alternative conditions, as no allowance is made for the potential to re-price products.

 

      Embedded value 2008    - 16 -        


Table of Contents

Addendum 1: Movement analysis per region and product segment

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

 

            Embedded value 2008    - 17 -            


Table of Contents

AEGON Group

Table 13

 

Movement analysis 2008  

Pensions and asset
management

 

      

Life and
protection

 

   

Individual savings and retirement

 

        

Institutional products

 

    Re-     Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
    Variable
annuities
    Saving
products
    Mutual
funds
         Institutional
guaranteed
products
    BOLI/
COLI
    insurance         

Embedded value life insurance BoY

  7,614      -     8,229      2,135      1,715      1,390      294      86        1,746      601      2,079      25,889   

 

Value of new business (VNB)

  148      -     397      28      113      (13   2      10        75      (1   78      837   

 

Gross value of new business

  233      -     644      46      181      1      14      13        113      (1   124      1,369   

Tax

  (57   -     (160   (10   (36   (0   (5   (2     (22   0      (24   (317

Cost of capital (after tax)

  (28   -     (86   (8   (33   (14   (7   -        (15   (1   (22   (215

 

In-force performance

  234      -     736      207      35      (382   8      -        (35   (23   100      880   

 

Unwind of discount

  585      -     627      159      115      95      11      -        109      46      144      1,891   

Operating variances

  47      -     132      120      (148   (295   (2   -        (23   (29   (47   (244

Changes in operating assumptions

  (398   -     (23   (71   68      (183   (1   -        (121   (39   3      (766

 

Embedded value operating return

  382      -     1,133      235      148      (395   11      10        40      (24   178      1,718   

 

Variance from long-term inv. return

  570      -     (870   (25   (70   (1,323   (24   (46     (1,122   (61   (273   (3,244

 

Change in economic assumptions

  (885   -     (877   (73   (3   (125   (12   1        13      (3   (38   (2,002

 

Currency exchange differences

  (591   -     (63   53      111      (8   0      3        67      29      85      (315

 

Miscellaneous impacts

  33      -     326      44      12      (93   (1   (0     47      (5   8      372   

 

Embedded value total return

  (490   -     (351   234      198      (1,944   (25   (33     (955   (64   (40   (3,471

 

Capital movements

  (272   -     (399   (306   145      1,277      4      1        380      (22   (290   518   

 

Embedded value life insurance EoY

  6,852      -       7,479      2,062      2,058      723      273      54          1,172      515      1,749      22,936   

Other activities

                            948   

Holding activities

                            (5,346

Total embedded value

                                                                          18,538   

Embedded value operating margin (A)

 

  5.1%

 

  

 

  -

 

      14.1%

 

  

 

  11.0%

 

  

 

  8.6%

 

  

 

  (28.3

 

)% 

 

  3.7%

 

  

 

  11.7%

 

  

 

      2.3%

 

  

 

  (4.0

 

)% 

 

  8.5%

 

  

 

  6.8%

 

  

 

VNB, PVNBP and APE  

Pensions and asset
management

 

      

Life and
protection

 

   

Individual savings and retirement

 

        

Institutional products

 

    Re-     Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
    Variable
annuities
    Saving
products
    Mutual
funds
         Institutional
guaranteed
products
    BOLI/
COLI
    insurance         

Value of new business 2008

  148      -     397      28      113      (13   2      10        75      (1   78      837   

Present value of new business premiums

  18,889      -     8,128      978      4,291      2,744      990      1,909        16,558      210      1,621      56,318   

APE (B)

  1,398      -     1,179      482      -      -      77      -        -      23      162      3,321   

Deposits

 

  4,912

 

  

 

  -

 

      -

 

  

 

  -

 

  

 

  4,270

 

  

 

  2,589

 

  

 

  11

 

  

 

  1,909

 

  

 

      16,558

 

  

 

  -

 

  

 

  -

 

  

 

  30,249

 

  

 

 

(A)

Embedded value operating margin is calculated on a constant currency basis. See tables 14 to 19 for details.

(B)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 18 -        


Table of Contents

Americas

Table 14

 

Movement analysis 2008   Pensions and asset        Life and protection     Individual savings and retirement          Institutional products     Re-     Total  
(amounts in USD milions unless stated
otherwise, after tax)
  Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
    Variable
annuities
    Saving
products
  Mutual
funds
         Institutional
guaranteed
products
    BOLI/
COLI
    insurance         

Embedded value life insurance BoY (EUR millions)

  1,223      -       4,455      1,885      1,715      1,385      -   86          1,746      601      2,079      15,175   

Embedded value life insurance BoY

  1,800      -     6,559      2,776      2,525      2,039      -   126        2,570      884      3,061      22,339   

 

Value of new business (VNB)

  51      -     146      25      165      (20   -   15        110      (2   114      604   

 

Gross value of new business

  70      -     288      44      266      (2   -   18        165      (1   182      1,031   

Tax

  (14   -     (60   (9   (52   0      -   (4     (32   0      (36   (205

Cost of capital (after tax)

  (5   -     (82   (10   (48   (18   -   0        (23   (1   (33   (221

 

In-force performance

  12      -     796      307      52      (557   -   0        (51   (33   147      671   

 

Unwind of discount

  119      -     469      203      169      139      -   0        160      67      211      1,537   

Operating variances

  24      -     215      203      (217   (431   -   0        (33   (43   (69   (350

Changes in operating assumptions

  (131   -     112      (99   100      (266   -   0        (178   (58   4      (516

 

Embedded value operating return

  63      -     942      332      217      (577   -   15        59      (35   260      1,275   

 

Variance from long-term inv. return

  (394   -     (760   (21   (102   (1,940   -   (67     (1,645   (89   (400   (5,418

 

Change in economic assumptions

  (145   -     (513   (63   (4   (183   -   1        19      (5   (55   (948

 

Currency exchange differences

  0      -     (118   (68   (1   (74   -   0        0      0      (18   (279

 

Miscellaneous impacts

  48      -     215      21      18      (136   -   (1     70      (7   11      239   

 

Embedded value total return

  (428   -     (234   201      127      (2,910   -   (52     (1,498   (136   (202   (5,132

 

Capital movements

  (128   -     (870   (466   213      1,866      -   1        558      (32   (425   717   

 

Embedded value life insurance EoY

  1,245      -     5,455      2,511      2,864      994      -   75        1,631      716      2,434      17,924   
   
                                                                             

Embedded value life insurance EoY (EUR millions)

  894      -     3,920      1,804      2,058      715      -   54        1,172      515      1,749      12,879   

Other activities (EUR millions)

                            681   

Total embedded value for Americas (EUR millions)

                                                                        13,561   

Embedded value operating margin

 

  3.5%

 

  

 

  -

 

    14.4%

 

  

 

  12.0%

 

  

 

  8.6%

 

  

 

  (28.3

 

)% 

 

  -

 

  11.7%

 

  

 

    2.3%

 

  

 

  (4.0

 

)% 

 

  8.5%

 

  

 

  5.7%

 

  

 

VNB, PVNBP and APE   Pensions and asset        Life and protection     Individual savings and retirement          Institutional products     Re-     Total  
(amounts in USD millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
    Variable
annuities
    Saving
products
  Mutual
funds
         Institutional
guaranteed
products
    BOLI/
COLI
    insurance         

Value of new business 2008

  51      -     146      25      165      (20   -   15        110      (2   114      604   

Present value of new business premiums

  13,088      -     4,048      1,323      6,291      3,760      -   2,799        24,273      309      2,377      58,268   

APE (A)

  -      -     648      689      -      -      -   -        -      33      237      1,608   

Deposits

  7,108      -       -      -      6,260      3,760      -   2,799          24,273      -      -      44,201   

 

(A)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 19 -        


Table of Contents

The Netherlands

Table 15

 

Movement analysis 2008   Pensions and asset        Life and protection     Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
  Variable
annuities
  Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Embedded value life insurance BoY (EUR millions)

  2,810      -       1,983      247      -   -   -   -       -   -   -   5,040   

Embedded value life insurance BoY

  2,810      -     1,983      247      -   -   -   -     -   -   -   5,040   

 

Value of new business (VNB)

  12      -     22      9      -   -   -   -     -   -   -   43   

 

Gross value of new business

  32      -     39      14      -   -   -   -     -   -   -   86   

Tax

  (8   -     (10   (4   -   -   -   -     -   -   -   (22

Cost of capital (after tax)

  (12   -     (7   (1   -   -   -   -     -   -   -   (20

 

In-force performance

  160      -     34      (1   -   -   -   -     -   -   -   192   

 

Unwind of discount

  251      -     177      20      -   -   -   -     -   -   -   449   

Operating variances

  187      -     (111   (17   -   -   -   -     -   -   -   58   

Changes in operating assumptions

  (278   -     (32   (4   -   -   -   -     -   -   -   (314

 

Embedded value operating return

  172      -     56      8      -   -   -   -     -   -   -   236   

 

Variance from long-term inv. return

  1,421      -     (366   (11   -   -   -   -     -   -   -   1,043   

 

Change in economic assumptions

  (716   -     (33   (31   -   -   -   -     -   -   -   (779

 

Currency exchange differences

  0      -     0      0      -   -   -   -     -   -   -   0   

 

Miscellaneous impacts

  (85   -     244      30      -   -   -   -     -   -   -   189   

 

Embedded value total return

  792      -     (99   (4   -   -   -   -     -   -   -   689   

 

Capital movements

  (6   -     0      11      -   -   -   -     -   -   -   5   

 

Embedded value life insurance EoY

  3,596      -       1,884      254      -   -   -   -       -   -   -   5,734   

Embedded value life insurance EoY (EUR millions)

  3,596      -     1,884      254      -   -   -   -     -   -   -   5,734   

Other activities (EUR millions)

                            160   

Total embedded value for the Netherlands (EUR millions)

                                                            5,894   

Embedded value operating margin

 

  6.1%      -     2.8%      3.1%      -   -   -   -     -   -   -   4.7%   
VNB, PVNBP and APE   Pensions and asset        Life and protection     Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
  Variable
annuities
  Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Value of new business 2008

  12      -     22      9      -   -   -   -     -   -   -   43   

Present value of new business premiums

  1,424      -     831      68      -   -   -   -     -   -   -   2,324   

APE (A)

  191      -     99      10      -   -   -   -     -   -   -   300   

Deposits

 

  -      -       -      -      -   -   -   -       -   -   -   -   

 

(A)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 20 -        


Table of Contents

United Kingdom

Table 16

Movement analysis 2008   Pensions and asset        Life and protection   Individual savings and retirement        Institutional products   Re-   Total  
(amounts in GBP milions unless stated
otherwise, after tax)
  Pensions     Asset
management
       Life     Accident
and health
  Fixed
annuities
  Variable
annuities
  Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Embedded value life insurance BoY (EUR millons)

  3,189      -       503      -   -   -   -   -       -   -   -   3,692   

Embedded value life insurance BoY

  2,339      -     369      -   -   -   -   -     -   -   -   2,708   

 

Value of new business (VNB)

  60      -     126      -   -   -   -   -     -   -   -   186   

 

Gross value of new business

  88      -     188      -   -   -   -   -     -   -   -   276   

Tax

  (25   -     (53   -   -   -   -   -     -   -   -   (77

Cost of capital (after tax)

  (3   -     (9   -   -   -   -   -     -   -   -   (12

 

In-force performance

  18      -     166      -   -   -   -   -     -   -   -   184   

 

Unwind of discount

  170      -     29      -   -   -   -   -     -   -   -   199   

Operating variances

  (124   -     128      -   -   -   -   -     -   -   -   3   

Changes in operating assumptions

  (27   -     9      -   -   -   -   -     -   -   -   (18

 

Embedded value operating return

  78      -     292      -   -   -   -   -     -   -   -   370   

 

Variance from long-term inv. return

  (438   -     56      -   -   -   -   -     -   -   -   (382

 

Change in economic assumptions

  (37   -     (3   -   -   -   -   -     -   -   -   (40

 

Currency exchange differences

  5      -     0      -   -   -   -   -     -   -   -   5   

 

Miscellaneous impacts

  87      -     (22   -   -   -   -   -     -   -   -   65   

 

Embedded value total return

  (305   -     323      -   -   -   -   -     -   -   -   18   

 

Capital movements

  (253   -     20      -   -   -   -   -     -   -   -   (233

 

Embedded value life insurance EoY

  1,781      -       712      -   -   -   -   -       -   -   -   2,493   

Embedded value life insurance EoY (EUR millions)

  1,870      -     747      -   -   -   -   -     -   -   -   2,617   

Other activities (EUR millions)

                            (275

Total embedded value for United Kingdom (EUR millions)

                                                          2,342   

Embedded value operating margin

 

  3.3%      -     79.1%      -   -   -   -   -     -   -   -   13.7%   
VNB, PVNBP and APE   Pensions and asset        Life and protection   Individual savings and retirement        Institutional products   Re-   Total  
(amounts in GBP millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
  Fixed
annuities
  Variable
annuities
  Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Value of new business 2008

  60      -     126      -   -   -   -   -     -   -   -   186   

Present value of new business premiums

  6,074      -     2,144      -   -   -   -   -     -   -   -   8,218   

APE (A)

  953      -     253      -   -   -   -   -     -   -   -   1,205   

Deposits

 

  -      -       -      -   -   -   -   -       -   -   -   -   

 

(A)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 21 -        


Table of Contents

Asia

Table 17

Movement analysis 2008   Pensions and asset        Life and protection     Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions   Asset
management
       Life     Accident
and health
    Fixed
annuities
  Variable
annuities
    Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Embedded value life insurance BoY (EUR millons)

  -   -       428      3      -   5      -   -       -   -   -   436   

Embedded value life insurance BoY

  -   -     428      3      -   5      -   -     -   -   -   436   

BoY adjustment (A)

  -   -     -      -      -   -      -   -     -   -   -   -   

Embedded value life insurance BoY

  -   -     428      3      -   5      -   -     -   -   -   436   

 

Value of new business (VNB)

  -   -     19      0      -   1      -   -     -   -   -   20   

 

Gross value of new business

  -   -     27      1      -   2      -   -     -   -   -   30   

Tax

  -   -     (7   (0   -   (1   -   -     -   -   -   (7

Cost of capital (after tax)

  -   -     (1   (0   -   (1   -   -     -   -   -   (3

 

In-force performance

  -   -     (33   (1   -   (2   -   -     -   -   -   (36

 

Unwind of discount

  -   -     29      0      -   0      -   -     -   -   -   30   

Operating variances

  -   -     (17   (1   -   (1   -   -     -   -   -   (19

Changes in operating assumptions

  -   -     (45   (0   -   (2   -   -     -   -   -   (47

 

Embedded value operating return

  -   -     (14   (0   -   (2   -   -     -   -   -   (16

 

Variance from long-term inv. return

  -   -     (5   (0   -   0      -   -     -   -   -   (5

 

Change in economic assumptions

  -   -     (461   (0   -   0      -   -     -   -   -   (460

 

Currency exchange differences

  -   -     17      0      -   0      -   -     -   -   -   18   

 

Miscellaneous impacts

  -   -     (23   0      -   0      -   -     -   -   -   (23

 

Embedded value total return

  -   -     (486   0      -   (1   -   -     -   -   -   (487

 

Capital movements

  -   -     144      0      -   4      -   -     -   -   -   149   

 

Embedded value life insurance EoY

  -   -       86      3      -   9      -   -       -   -   -   97   

Embedded value life insurance EoY (EUR millions)

  -   -     86      3      -   9      -   -     -   -   -   97   

Other activities (EUR millions)

                            36   

Total embedded value for Asia (EUR millions)

                                                            134   

Embedded value operating margin

 

  -   -     (3.2 )%    (9.1 )%    -   (29.7 )%    -   -     -   -   -   (3.6 )% 
VNB, PVNBP and APE   Pensions and asset        Life and protection     Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions   Asset
management
       Life     Accident and
health
    Fixed
annuities
  Variable
annuities
    Saving
products
  Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Value of new business 2008

  -   -     19      0      -   1      -   -     -   -   -   20   

Present value of new business premiums

  -   -     339      4      -   179      -   -     -   -   -   522   

APE (A)

  -   -     61      2      -   -      -   -     -   -   -   63   

Deposits

 

  -   -       -      -      -   24      -   -       -   -   -   24   

 

(A)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 22 -        


Table of Contents

Central and Eastern Europe

Table 18

Movement analysis 2008   Pensions and asset        Life and protection   Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
  Fixed
annuities
  Variable
annuities
  Saving
products
    Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Embedded value life insurance BoY (EUR millons)

  347      -       485      -   -   -   3      -       -   -   -   835   

Embedded value life insurance BoY

  347      -     485      -   -   -   3      -     -   -   -   835   

 

Value of new business (VNB)

  25      -     48      -   -   -   0      -     -   -   -   74   

 

Gross value of new business

  42      -     63      -   -   -   0      -     -   -   -   105   

Tax

  (8   -     (12   -   -   -   (0   -     -   -   -   (20

Cost of capital (after tax)

  (9   -     (3   -   -   -   (0   -     -   -   -   (12

 

In-force performance

  45      -     23      -   -   -   (0   -     -   -   -   67   

 

Unwind of discount

  36      -     39      -   -   -   0      -     -   -   -   75   

Operating variances

  4      -     (6   -   -   -   (1   -     -   -   -   (2

Changes in operating assumptions

  4      -     (10   -   -   -   0      -     -   -   -   (6

 

Embedded value operating return

  70      -     71      -   -   -   (0   -     -   -   -   141   

 

Variance from long-term inv. return

  (30   -     (49   -   -   -   (0   -     -   -   -   (79

 

Change in economic assumptions

  (21   -     (9   -   -   -   0      -     -   -   -   (30

 

Currency exchange differences

  (29   -     (30   -   -   -   0      -     -   -   -   (59

 

Miscellaneous impacts

  (24   -     (22   -   -   -   0      -     -   -   -   (46

 

Embedded value total return

  (34   -     (39   -   -   -   (0   -     -   -   -   (73

 

Capital movements

  139      -     3      -   -   -   (0   -     -   -   -   141   

 

Embedded value life insurance EoY

  451      -       449      -   -   -   3      -       -   -   -   903   

Embedded value life insurance EoY (EUR millions)

  451      -     449      -   -   -   3      -     -   -   -   903   

Other activities (EUR millions)

                            135   

Total embedded value for Central and Eastern Europe (EUR millions)

                                                            1,038   

Embedded value operating margin

 

  19.9%      -     14.4%      -   -   -   (4.2 )%    -     -   -   -   16.6%   
VNB, PVNBP and APE   Pensions and asset        Life and protection   Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
  Fixed
annuities
  Variable
annuities
  Saving
products
    Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Value of new business 2008

  25      -     48      -   -   -   0      -     -   -   -   74   

Present value of new business premiums

  828      -     674      -   -   -   7      -     -   -   -   1,509   

APE (A)

  -      -     109      -   -   -   -      -     -   -   -   109   

Deposits

 

  64      -       -      -   -   -   1      -       -   -   -   65   

 

(A)

APE = recurring premium + 1/10 single premium.

 

      Embedded value 2008    - 23 -        


Table of Contents

Other European Countries

Table 19

Movement analysis 2008   Pensions and asset        Life and protection     Individual savings and retirement        Institutional products   Re-   Total  
(amounts in EUR millions, after tax)   Pensions     Asset
management
       Life     Accident
and health
    Fixed
annuities
  Variable
annuities
  Saving
products
    Mutual
funds
       Institutional
guaranteed
products
  BOLI/
COLI
  insurance       

Embedded value life insurance BoY (EUR millons)

  45      -       374      0      -   -   291      -       -   -   -   710   

Embedded value life insurance BoY

  45      -     374      0      -   -   291      -     -   -   -   710   

 

Value of new business (VNB)

  1      -     50      1      -   -   2      -     -   -   -   54   

 

Gross value of new business

  1      -     81      2      -   -   14      -     -   -   -   98   

Tax

  (0   -     (25   (1   -   -   (5   -     -   -   -   (30

Cost of capital (after tax)

  (0   -     (7   (0   -   -   (7   -     -   -   -   (14

 

In-force performance

  (2   -     (38   0      -   -   9      -     -   -   -   (31

 

Unwind of discount

  3      -     25      0      -   -   11      -     -   -   -   39   

Operating variances

  (5   -     (40   0      -   -   (1   -     -   -   -   (46

Changes in operating assumptions

  (0   -     (23   0      -   -   (1   -     -   -   -   (25

 

Embedded value operating return

  (1   -     11      1      -   -   11      -     -   -   -   23   

 

Variance from long-term inv. return

  (1   -     (2   0      -   -   (24   -     -   -   -   (27

 

Change in economic assumptions

  (2   -     (21   (0   -   -   (12   -     -   -   -   (35

 

Currency exchange differences

  0      -     0      0      -   -   0      -     -   -   -   0   

 

Miscellaneous impacts