INSIGHT Looking at AEGON’s approach to capital leverage Current status on IFRS implementation AEGON’s approach to risk management The move to reporting embedded value AEGON GROUP ANNUAL REPORT 2003 16 In August 2003, we reported our embedded value for the first time, which also included a comprehensive sensitivity analysis and valuation of our product guarantees, which provided more detail than most of the disclosure that was already in the market. The response from the investment community has been very encouraging. With international financial reporting standards and regulations constantly evolving to higher levels, the move to reporting embedded value is part of our overall commitment to providing high quality disclosure and to increase the transparency of AEGON. AEGON will report on its 2003 embedded value  on June 7, 2004. Over the past several years, AEGON has been strengthening its global risk management framework. Capital management has been a central function within AEGON for many years. AEGON has been and will continue to closely align its capital management with the risk management performed by the country units. These efforts continued in 2003, and now allow for a more proactive and coordinated approach to risk and capital management within AEGON, which is demonstrated by the activities of the Group Risk and Capital Committee. Among other things, the committee monitors the risks of the AEGON Group, makes recommendations and oversees remedial action where exposures are deemed excessive. In June 2002, the European Union (EU) endorsed proposals that all exchange-listed companies in the EU should report under International Financial Reporting Standards (IFRS) by 2005. This is a further step forward in increasing transparency and harmonization in financial reporting, which AEGON fully supports. The overall objective of AEGON’s conversion from Dutch accounting principles to IFRS is to enable AEGON to prepare a full set of consolidated IFRS financial statements for the 2005 financial year. Conversion teams in each of the business units have project plans in place to ensure that AEGON meets this deadline. This conversion process is controlled and monitored centrally and takes into account the effect of on-going developments in accounting for financial instruments and insurance liabilities. The opportunity seems obvious and can be summed up in one word: comparability. As we approach IFRS, our main interest is to ensure a level playing field, allowing fair comparison of all companies competing for capital. For the life insurance industry in particular, it is our interest to have a system, which takes into account the long-term nature of life insurance and pension products. We are committed to a strategy that will ensure the continued financial strength of the AEGON Group.  This is demonstrated by the AA ratings from Standards & Poor’s for our operating companies in our core markets of the United States, the Netherlands, and the United Kingdom. We manage the capital adequacy of our operating units according to regulatory requirements, self-imposed standards, and taking into account local capital adequacy models from Standards & Poor’s. Capital adequacy consistent with an AA rating on the local Standard & Poor’s models exceed those of the regulatory bodies and other self-imposed requirements in most of the countries in which we operate. For the AEGON Group, we manage leverage within certain tolerance levels: targeting shareholders’ equity to exceed a minimum of 70% of total capital, while limiting dated subordinated and senior debt to 25%. Capital securities are managed within a minimum of 5% and a maximum 15% of total capital. In 2003, shareholders’ equity and debt were influenced by currency exchange rates, but the equity to total capital base ratio was not materially affected as we manage the debt to be in proportion to the local currency of invested capital in our subsidiaries.