ANNUAL REPORT 2010 101 another financial asset to settle its contractual obligation.  In addition to common shares and preferred shares, the Group  has issued perpetual securities and convertible core capital  securities. Perpetual securities have no final maturity date,  repayment is at the discretion of AEGON and for junior  perpetual capital securities AEGON has the option to defer  coupon payments at its discretion. Convertible core capital  securities can be converted into ordinary shares of AEGON,  through a predetermined formula, or repaid at the discretion  of AEGON and coupon payments are payable only if AEGON  pays dividends on ordinary shares. Both the perpetual and  convertible core capital securities are classified as equity rather  than debt, are measured at par and those that are denominated  in US dollars are translated using historical exchange rates. Incremental external costs that are directly attributable to the  issuing or buying back of own equity instruments are  recognized in equity, net of tax. Dividends and other distributions to holders of equity  instruments are recognized directly in equity, net of tax. A  liability for non-cumulative dividends payable is not recognized  until the dividends have been declared and approved.  Treasury shares are own equity instruments reacquired by the  Group. They are deducted from Group equity, regardless of  the objective of the transaction. No gain or loss is recognized in  the income statement on the purchase, sale, issue or  cancellation of the instruments. If sold, the difference between  the carrying amount and the proceeds is reflected in retained  earnings. The consideration paid or received is recognized  directly in shareholders’ equity. All treasury shares are  eliminated in the calculation of earnings per share and dividend  per common share. A financial instrument issued by the Group is classified as a  liability if the contractual obligation must be settled in cash or  another financial asset or through the exchange of financial  assets and liabilities at potentially unfavorable conditions for  the Group.  NOTE 2.18 TRUST PASS-THROUGH SECURITIES AND  OTHER BORROWINGS Trust pass-through securities and other borrowings are initially  recognized at their fair value including directly attributable  transaction costs and are subsequently carried at amortized  cost using the effective interest rate method, with the exception  of specific borrowings that are designated as at fair value  through profit or loss to eliminate, or significantly reduce, an  accounting mismatch, or specific borrowings which are carried  as at fair value through the profit and loss as part of a fair value  hedge relationship. The liability is derecognized when the  Group’s obligation under the contract expires, is discharged  or is cancelled.  NOTE 2.19 INSURANCE CONTRACTS Insurance contracts are accounted for under IFRS 4 –  Insurance  Contracts . In accordance with this standard AEGON continues to  apply the existing accounting policies that were applied prior to  the adoption of IFRS, with certain modifications allowed by  IFRS 4 for standards effective subsequent to adoption. AEGON  applies non-uniform accounting policies for insurance liabilities  and related deferred acquisition costs and intangible assets,  as was allowed under Dutch Accounting Principles. As a result,  specific methodologies applied may differ between our  operations as they may reflect local regulatory requirements  and local practices for specific product features in these local  markets. In the United States we apply US GAAP and in the  Netherlands and the United Kingdom we apply Dutch  Accounting Principles, both with consideration of standards  effective subsequent to the date of transition to IFRS. Insurance contracts are contracts under which the Group  accepts a significant risk – other than a financial risk – from a  policyholder by agreeing to compensate the beneficiary on the  occurrence of an uncertain future event by which he or she will  be adversely affected. Contracts that do not meet this definition  are accounted for as investment contracts. The Group reviews  homogeneous books of contracts to assess whether the  underlying contracts transfer significant insurance risk on an  individual basis. This is considered the case when at least one  scenario with commercial substance can be identified in which  the Group has to pay significant additional benefits to the  policyholder. Contracts that have been classified as insurance  are not reclassified subsequently. Insurance liabilities are recognized when the contract is entered  into and the premiums are charged. The liability is derecognized  when the contract expires, is discharged or is cancelled.  Insurance assets and liabilities are valued in accordance with  the accounting principles that were applied by the Group prior  to the transition to IFRS, as further described in the following  paragraphs. In order to reflect the specific nature of the  products written, subsidiaries are allowed to apply local  accounting principles to the measurement of insurance  contracts. All valuation methods used by the subsidiaries  are based on the general principle that the carrying amount  of the net liability must be sufficient to meet any reasonably  foreseeable obligation resulting from the insurance contracts.  SHARPENING OUR FOCUS