44 ❏ RISK MANAGEMENT As an insurance company, AEGON manages risk on behalf of its  customers and other stakeholders. As a result, the company is  exposed to a variety of underwriting, operational and financial  risks. AEGON’s risk management and control systems are designed  to ensure that these risks are managed effectively and efficiently. For AEGON, risk management involves:  Defi nition and tolerances  Types of risk  Objectives of risk management  Risk management in 2010 1 Please note that the information here is intended as an overview only. A more detailed explanation of credit risk, equity and other  investment risk, interest rate risk, currency exchange rate risk, liquidity risk, underwriting risk and operational risk, as well as other  company-wide risk management policies may be found in the consolidated financial statements, note 4. Further information on  sensitivity analyses may also be found on these pages. ■ Continuity:  Ensure a high likelihood that AEGON will  meet policyholder obligations, even under plausible  extreme events.  ■ and an internal view, based on the company’s  economic requirements.  ■ the European Union’s Insurance Group Directive  capital ratio;  ■ the company’s internal Excess Capital Requirement; ■ Financial strength:  Ensure AEGON meets long-term  obligations to policyholders. AEGON uses three  measures to determine its approach to fi nancial strength:  ■ Understanding which risks the company is able to  underwrite. ■ Establishing a firm framework through which the risk- return trade-off associated with these risks can be  assessed. ■ Establishing risk tolerances and supporting policies  limiting the level of exposure to a particular risk or  combination of risks. ■ Measuring and monitoring risk exposures and actively  maintaining oversight over the company’s overall risk  and solvency positions. ■  Culture:  Encourage a strong risk culture by stressing  the company’s low tolerance for operational risk. This  will help improve operational excellence and ensure  the company treats its customers and other  stakeholders fairly.  ■  Risk balance:  Manage the concentration of risk and  encourage risk diversification within AEGON.  The effects of the global crisis that began in 2008  continued to be felt throughout 2010. Equity markets  increased but remained volatile. Interest rates, already  at historic lows, declined during the year, improving in  the fourth quarter but ending at levels lower than the  end of the previous year. After initially narrowing during  the first part of the year, credit spreads later widened,  reverting to levels seen at the start of 2010. General  economic and business conditions remained difficult.  During the year, AEGON carried out regular sensitivity  analyses to determine the impact of different economic  and business scenarios, particularly on the company’s  As an international provider of life insurance, pensions  and asset management products, AEGON faces a  number of risks, including underwriting, operational and  financial. Some of these risks may arise from internal  factors, such as inadequate compliance systems. Others,  such as movements in interest rates or unexpected  changes in longevity or mortality trends, are external in  nature. AEGON’s most significant risk is to changes in  financial markets, related particularly to movements in  interest rates, equity and credit markets. These risks,  whether internal or external, may affect the company’s  operations, its earnings, its share price, the value of its  investments, or the sale of certain products and services. By setting certain pre-defined tolerances and adhering  to policies that limit the overall risk the company is  exposed to, AEGON is able to accept risk with the knowledge of potential returns and losses. AEGON must, at all times, maintain a solvency and  liquidity position such that no plausible scenario would  cause the company to default on its obligations to  policyholders. To accomplish this, AEGON has  established a number of basic objectives for its risk  management strategy: