As mentioned above, the free assets (that is, assets which, as  yet, have not been distributed to policyholders) help meet the  cost of guarantees and provide a buffer to deal with adverse  events. These free assets are partly invested in equity puts and  fixed interest swaps/swaptions to protect against adverse  market movements. Aegon UK has an exposure only once these  free assets are exhausted. The risk of exposure has been  assessed by Aegon UK as remote, based on applying the risk- based capital approach now required for solvency reporting in  the United Kingdom. As the Scottish Equitable with-profit fund is now closed to new  business with investment guarantees, the free assets are being  distributed gradually to with-profit policyholders through the  bonus system outlined above. This includes ensuring that any  surpluses in the with-profit fund from other (historic) business  lines can be distributed to existing with-profit policyholders at  a suitable rate, helping to prevent a tontine effect as the number  of with-profit policyholders’ declines. Aegon UK’s reinsurance strategy is aimed at limiting the overall  volatility of mortality and morbidity when managing risk, and  maximizing the financial benefits of reinsurance. The actual  percentage of business reinsured varies, depending largely on the  appropriateness and value of reinsurance available in the market. Aegon UK prefers to work with reinsurance companies with  a strong credit rating, subject to an economic assessment of the  terms on offer. Using a reinsurer with a credit rating below AA  requires approval under Aegon UK’s governance process, and by  Aegon’s Group Reinsurance Use Committee in The Hague. Aegon  UK uses a range of reinsurers across the reinsurance market. Reinsurance ceded 61