163 Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs  are reasonable and produce a reasonable estimate of fair value. Aegon’s asset specialists and investment valuation specialists consider  both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are  not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent  relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include  validation checks such as exception reports which highlight significant price changes, stale prices or un-priced securities. Additionally,  Aegon performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices  in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and  the transaction price are investigated to explain the cause of the difference. Credit ratings are also an important consideration in the valuation of securities and are included in the internal process for determining  Aegon’s view of the risk associated with each security. However, Aegon does not rely solely on external credit ratings and there is an  internal process, based on market observable inputs, for determining Aegon’s view of the risks associated with each security.  Aegon’s portfolio of private placement securities (held at fair value under the classification of available-for-sale or fair value through  profit or loss) is valued using a matrix pricing methodology. The pricing matrix is obtained from a third-party service provider and  indicates current spreads for securities based on weighted average life, credit rating, and industry sector. Each month, Aegon’s asset  specialists review the matrix to ensure the spreads are reasonable by comparing them to observed spreads for similar bonds traded  in the market. Other inputs to the valuation include coupon rate, the current interest rate curve used for discounting and an illiquidity  premium to account for the illiquid nature of these securities. The illiquidity premiums are determined based upon the pricing of  recent transactions in the private placements market; comparing the value of the privately offered security to a similar public security.  The impact of the illiquidity premium for private placement securities to the overall valuation is insignificant. Aegon's portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgage- backed securities (CMBS), Asset backed securities (ABS), Corporate bonds and Sovereign debt. Below relevant details in the valuation  methodology for these specific types of debt securities are described. Valuations of RMBS, CMBS and ABS are monitored and reviewed on a monthly basis. Valuations per asset type are based on a pricing  hierarchy which uses a waterfall approach that starts with market prices from indices and follows with third-party pricing services or  brokers. The pricing hierarchy is dependent on the possibilities of corroboration of the market prices. If no market prices are available,  Aegon uses internal models to determine fair value. Significant inputs included in the internal models are generally determined based  on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles. Market standard  models may be used to model the specific collateral composition and cash flow structure of each transaction. The most significant  unobservable input is illiquidity premium which is embedded in the discount rate. Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility  of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash  flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases  the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking  an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs. These  unobservable inputs may include subordination, liquidity and maturity differences. When available, Aegon uses quoted market prices in active markets to determine the fair value of its sovereign debt investments. When  Aegon cannot make use of quoted market prices, market prices from indices or quotes from third-party pricing services or brokers are used. The fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique  takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits  of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate  is determined based on the cash outflows for the investments and the cash inflows from the tax credits/tax benefits (and the timing of  those cash flows). These inputs are unobservable in the market place. Tax credit investments Sovereign debt Corporate bonds Residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and asset backed securities (ABS)