89 Aegon defines total financial leverage as borrowings issued to  fund the capital employed in insurance activities. Total financial  leverage includes hybrid leverage, subordinated and senior debt,  and short term debt such as commercial paper. Aegon’s fixed  charge coverage is a measure of the company’s ability to service  its total financial leverage and is calculated as the ratio of  underlying earnings before tax and prior to the payment of  interest expenses on total financial leverage to interest  payments on total financial leverage and preferred dividends.  The numbers include the impact of hedging.  At the end of 2013, Aegon’s total capitalization was EUR 25.5 billion (EUR 27.3 billion at end 2012). Its gross  financial leverage was 30.1% (31.9% at end 2012) and its fixed  charge coverage was 5.1x (4.5x at end 2012). Aegon targets a  gross financial leverage ratio of 26-30% and a fixed charge  coverage of 6.0-8.0x and expects a continued deleveraging in  2014 supporting Aegon’s commitment to these targets. Most of Aegon’s debt is issued by Aegon N.V., the parent  company. A limited number of other Aegon companies have also  issued debt securities, but for the most part these securities are  guaranteed by Aegon N.V.  Debt funding and back-up facilities Aegon N.V. has regular access to international capital markets  under a USD 6 billion debt issuance program. Access to  the capital market in the United States is made possible by  a separate shelf registration. Aegon also has access to domestic and international money  markets through its USD 4.5 billion commercial paper programs.  At December 31, 2013, Aegon had EUR 135 million outstanding  under these programs. To support its commercial paper programs and need for letters  of credit (LOCs), and to enhance its liquidity position, Aegon  maintains backup credit and LOC facilities with international  lenders. The company’s principal arrangement is a EUR 2 billion  syndicated revolving credit facility maturing in 2019, and  additional LOC facilities of USD 2 billion, of which USD 1.5 billion  matures in 2015 and USD 0.5 billion matures in 2017. In  addition, Aegon also maintains various shorter-dated bilateral  backup liquidity and LOC facilities in both committed and  uncommitted format. Although operational leverage is not considered part of Aegon’s  total capitalization, it is an important source of liquidity and  funding. Operational leverage relates primarily to financing  Aegon’s mortgage portfolios through securitizations and  warehouse facilities, and the funding of US Regulation XXX and  Guideline AXXX redundant reserves. Operational leverage Sources and uses of liquidity Aegon’s subsidiaries are primarily engaged in the life insurance  business, which is a long-term business with relatively illiquid  liabilities and generally matching assets. Liquidity consists  of both liquid assets held in investment portfolios, as well as  inflows generated by premium payments and customer deposits.  These are used primarily to purchase investments, as well as  to fund benefit payments to policyholders, policy surrenders,  operating expenses, and, if the subsidiary’s capital position so  allows, to pay dividends to the holding. Liquidity is coordinated centrally and managed both at Aegon  N.V. and at country unit levels. Aegon maintains a liquidity policy  that requires all operating units to project their sources and  uses of liquidity over a two year period under normal and severe  business and market scenarios. This policy ensures that liquidity  is measured and managed consistently across the company and  the liquidity stress management plans are in place. Liquidity management is a fundamental building block of Aegon’s  overall financial planning and capital allocation processes. Aegon  aims to have sufficient liquidity to meet cash demands even  under extreme conditions. The company’s liquidity risk policy sets  guidelines for its operating companies and the holding in order  achieve a prudent liquidity profile. Liquidity management Strategic importance All external financing provided to captives to support statutory  reserves is disclosed in note 41 (Borrowings) to the consolidated  financial statements to the extent that it has been funded.  Letters of credit issued by third parties provided to captives to  provide collateral to affiliated insurers are disclosed in note 51  (Commitments and contingencies). These letters of credit have  been provided by third parties for the benefit of the affiliated  company whose liabilities are reinsured. ■ Financing term life insurance (subject to Regulation XXX  reserves) and universal life insurance with secondary  guarantees (subject to Regulation AXXX reserves) to support  lower-risk statutory reserves at a lower cost for policyholders  and shareholders; ■ Managing variable annuity hedging programs; ■ Managing and segregating risks; ■ Monetizing embedded value. The captives are utilized for a number of purposes which  may include: Aegon enters into reinsurance agreements for risk and capital  management purposes with several affiliated captive insurance  companies (captives). All captives are fully consolidated for  IFRS reporting.