ANNUAL REPORT 2010   OUR BUSINESSES  CAPITAL AND LIQUIDITY 49 Measures taken during 2010 included lowering the  company’s exposure to equity markets by increased  hedging of variable annuity back books in the  United States.  AEGON’s aim over the next few years is to reallocate  capital toward markets offering strong growth and  higher returns. This includes markets in Latin America,  Asia, Spain and Central & Eastern Europe, as well as  specific, high-growth segments in the company’s more  established markets – the United States, the Netherlands  and the United Kingdom. To achieve this goal, AEGON  has put a number of measures in place over the  past year: AEGON’s goal is to ensure that all units maintain a  strong financial position, now and into the future, and  are able to sustain losses from adverse business and  market conditions. The company’s overall capital  management depends on the following factors: Capital adequacy is managed at company-wide, country  and operating unit levels, as well as at the level of  individual legal entities within the organization. As a  matter of policy, AEGON maintains operating companies’  capital adequacy at whichever is higher of the following: ■ Regulatory requirements. ■ Relevant requirements for AA capital adequacy. ■ Any additionally self-imposed internal requirements. ■ Capital adequacy ■ Capital quality ■ Capital leverage Capital adequacy Capital requirements and leverage  Reallocating capital ■ Discontinuation of sales of executive non-qualifi ed  benefit plans and associated Bank-Owned and  Corporate-Owned Life Insurance (BOLI-COLI) in  the United States.  ■ In the United States, AEGON is also shifting its focus  from spread-based to fee-based products, expanding  its pension business, running off its spread-based  institutional business, as well as de-emphasizing  fi xed annuities.  ■ AEGON has, in the meantime, continued to invest in  growth markets in Asia, Latin America and Central &  Eastern Europe.  ■ Core capital, which comprises shareholders’ equity  (excluding the revaluation reserve), and convertible  core capital securities issued in December 2008. ■ Perpetual capital securities (including currency  revaluations). ■ Dated subordinated and senior debt. In 2010, AEGON’s capital position remained strong. At the  end of the year, AEGON had an excess over and above its  capital adequacy requirements of EUR 3.8 billion, an  improvement from EUR 3.7 billion twelve months earlier.  AEGON’s Insurance Group Directive ratio – a common  measure of capital adequacy in the European Union –  was 198%, down from 204% at the end of 2009. This  was mainly due to an increase in capital requirements in  the Americas. AEGON’s capital position in 2010 was  strengthened by increased earnings from the company’s  operating units. Over the past year, these units have  generated a total of EUR 1.4 billion in cash flow to the  group. Excess capital increased despite a revision to  Standard & Poor’s risk factors, which led to a rise in  capital requirements in 2010. As a result, capital  adequacy requirements in the Americas rose by an  estimated USD 1.8 billion during the year. AEGON’s capital base consists of the following  components: AEGON places limits on the amount of non-core capital  in its overall capital base. Currently, the company’s aim is  to ensure that core capital comprises at least 70% of the  capital base, and that perpetual capital securities and  dated subordinated and senior debt account for no more  than 25% and 5% respectively. At the end of 2010,  AEGON’s capital base consisted of 75% core capital and  19% perpetual capital securities. Dated subordinated and  Capital quality and leverage AEGON’s capital base 2010 In % SHARPENING OUR FOCUS Core capital Net debt Perpetual capital  securities 75% 19% 6%