Notes to the consolidated financial statements of Aegon N.V.  Note 4 188 AFS RMBS by quality AAA AA A BBB <BBB Total  amortized  cost Total fair  value GSE guaranteed - 1,336 193 - - 1,529 1,632 Prime Jumbo 10 11 3 14 252 290 290 Alt-A 18 43 - 10 571 642 735 Negative Amortization Floaters - 36 18 44 728 826 858 Reverse Mortgage RMBS - - - 222 77 299 213 Subprime mortgage  1) 177 285 61 69 644 1,236 1,124 Manufactured housing  1) 22 15 12 24 7 80 80 Other housing  1) 46 - - - - 46 47 At December 31, 2012 273 1,726 287 383 2,279 4,948 4,979 Of which insured 5 174 13 16 284 492 427 1  Reported as part of asset backed securities in the table on page 186. RMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and  capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and stress-case scenarios.  Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach  to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key  assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-to- value, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is  utilized. Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of  them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral  attributes and historical performance. Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for  vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications. Prepayments were estimated  by examining historical averages of prepayment activity on the underlying collateral. Quantitative ranges of significant assumptions  within Aegon’s modeling process for Prime Jumbo, Alt-A and Negative Amortization RMBS are as follows: prepayment assumptions  range from approximately 0.5% to 25% with a weighted average of approximately 4.8% (2012: 4.8%), assumed defaults on delinquent  loans range from 50% to 100% with a weighted average of approximately 84.3% (2012: 84.6%), assumed defaults on current loans  are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions range from  approximately 13.9% to 75%, with a weighted average of approximately 54.5% (2012: 54.3%). Additionally, quantitative ranges of  significant assumptions within Aegon’s modeling process for the RMBS subprime mortgage portfolio are as follows: prepayment  assumptions range from approximately 2% to 6% with a weighted average of approximately 5.2% (2012: 5.2%), assumed defaults on  delinquent loans range from 60% to 100% with a weighted average of approximately 87.2% (2012: 87.2%), assumed defaults on  current loans are dependent on the specific security’s collateral attributes and historical performance, while loss severity assumptions  range from approximately 65% to 103%, with a weighted average of approximately 72.6% (2012: 72.9%). Once the entire pool is modeled, the results are closely analyzed by Aegon’s asset specialists to determine whether or not Aegon’s  particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of  the tranches held. Aegon impaired its particular tranche to fair value where it would not be able to receive all contractual cash flows. The total gross unrealized loss on AFS RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amount to EUR 210 million  (2012: 397 million), of which EUR 190 million (2012: EUR 351 million) relates to positions of Aegon USA, and the total net unrealized  gain on available-for-sale RMBS is EUR 229 million (2012: EUR 157 million), including a EUR 192 million (2012: EUR 31 million) net  unrealized gain relating to positions of Aegon USA. The unrealized loss in the sector is primarily a result of the housing downturn in the  United States that started in 2007. The housing market in the United States has shown signs of improvement as evidenced by rising  home prices and sales volume. Positive trends in the housing market have led to improvements in borrower delinquencies and  prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated for subprime loans but are  starting to show signs of improvement for other RMBS sectors. The improving home prices and credit performance led to credit spread  tightening across the asset class.  There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than EUR  25 million. Annual Report 2013