<PAGE>
-1-
FORM 20-F
(Mark One)
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-------------------------------------------------------
Commission file number 0-14071
----------------------------------------------------------
AEGON N.V.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Not applicable
- --------------------------------------------------------------------------------
(Translation of Registrant's name into English)
The Netherlands
- --------------------------------------------------------------------------------
(Jurisdiction of incorporation or organization)
Mariahoeveplein 50, 2591 TV The Hague, The Netherlands
- --------------------------------------------------------------------------------
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12 (b) of the Act.
Title of each class Name of each exchange on which registered
Common shares, NLG 0.50 per share New York Stock Exchange
- --------------------------------- ----------------------
Number of common shares outstanding: 668,426,144
- --------------------------------------------------------------------------------
Securities registered or to be registered pursuant to Section 12 (g) of the Act.
Not applicable
- --------------------------------------------------------------------------------
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
Not applicable
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirement for
the past 90 days.
X YES NO
----- -----
Registrant elects to follow: item 18
<PAGE>
-2-
TABLE OF CONTENTS
Page
----
Item 1 Description of Business 3
Item 2 Description of Property 29
Item 3 Legal Proceedings 29
Item 4 Control of Registrant 29
Item 5 Nature of Trading Market 30
Item 6 Exchange Controls and Other Limitations 31
Affecting Security Holders
Item 7 Taxation 31
Item 8 Selected Financial Data 32
Item 9 Management's Discussion and Analysis of
Financial Condition
and Results of Operations 36
Item 9A Market Risk 59
Item 10 Directors and Officers of Registrant 62
Item 11 Compensation of Directors and Officers 64
Item 12 Options to Purchase Securities from 64
Registrant or Subsidiaries
Item 13 Interest of Management in Certain 65
Transactions
Item 14 Description of Securities to be Registered 66
Item 15 Defaults Upon Senior Securities 66
Item 16 Changes in Securities and Changes in 66
Security for Registered Securities
Item 18 Financial Statements 66
Item 19 Financial Statements and Exhibits 66
Signatures 148
<PAGE>
-3-
ITEM 1. DESCRIPTION OF BUSINESS
Introduction
Since its foundation in 1983 AEGON NV, through its member companies collectively
referred to herein as AEGON, the Company or Group, has emerged as an
international insurer with a major presence in five key countries: The
Netherlands, the USA, the United Kingdom, Hungary and Spain. The Group is also
present in a number of other countries, Belgium, Canada, Germany, Hong Kong,
Italy, Luxembourg, Mexico, the Philippines and Taiwan, and has representative
offices in China and India. With roots dating back 150 years, the AEGON Group -
with its international headquarters in The Netherlands - has extensive
experience in the insurance industry. Crucial differences exist in local markets
and for this reason AEGON emphasizes a decentralized organization structure. The
operating companies, with knowledgeable and highly experienced local management
and employees, market their own, unique products using tailored distribution
channels.
Close to 90% of AEGON's core business is life insurance, pension and related
savings and investment products. With these products AEGON has the edge in
markets that are large, growing and international. The Group is also active in
accident and health insurance, property and casualty insurance and limited
banking activities. Consistent with a policy of spreading risks to achieve
reliable performance, AEGON seeks to maintain a good balance of business within
the Group, both geographically and among product groups.
On July 21, 1999 AEGON completed the acquisition of Transamerica Corporation
(Transamerica). AEGON exchanged 89.5 million shares plus USD 2,918 million in
cash for all outstanding shares of Transamerica. 74.2 million (about 83%) of the
exchanged shares were newly issued, while the other 15.3 million (approximately
17%) were purchased from Vereniging AEGON, AEGON's largest shareholder. The
shares purchased from Vereniging AEGON and the cash payment to shareholders has
been funded with existing capital resources and senior debt. The transaction
also included the assumption of approximately USD 1.1 billion of Transamerica's
holding company debt.
On October 7, 1999 the acquisition of the UK life insurance operations of
Guardian Royal Exchange was completed. The transaction was paid in cash of GBP
700 million. Related to this transaction AEGON NV issued 8,300,829 new common
shares in a private placement to Vereniging AEGON. The results of the acquired
businesses are included into AEGON's accounts as from July 1, 1999 and had an
immaterial effect on the earnings and earnings per share.
On December 24, 1999 AEGON reached an agreement with Alleanza Assicurazioni
(Generali) on the acquisition of the life insurance company Covadonga S.A.,
headquartered in Madrid. The acquired company is included in the consolidated
balance sheet at year-end.
Business Segment information
- ----------------------------
Please see Note 23(i) 'Business segment information' in the financial statements
included in Item 19 for information on our Business segments. The business
activities of the principal subsidiaries are more fully described within the
country sections which follow.
The Americas coordinates management activities in the United States and Canada
through the Agency, Alternative Markets and Pension Groups. Twelve operating
divisions of the subsidiary companies serve consumers and institutional clients
with specialized insurance and retirement and savings products (AEGON USA).
Utilizing a multi-channel distribution system, products are offered through
agents, financial institutions, brokers and direct marketing, as well as through
business partners. The Transamerica acquisition in July of 1999 made AEGON one
of the largest life insurance companies in the US and expanded the product
portfolio by adding a life reinsurance business and a Canadian life insurance
company. The acquisition of the Providian life
<PAGE>
-4-
insurance business in 1997 added the country's leading traditional and synthetic
guaranteed investment contract (GIC) provider, and expanded market size in home
service life insurance sales and direct-marketed life and supplemental health
insurance product sales. AEGON USA is also active in the Mexican market through
two joint ventures with Grupo Financiero Banamex Accival SA de C.V., Mexico's
largest commercial bank.
AEGON The Netherlands operates through independent intermediaries and other
distribution channels. Its Dutch business units each serve their own market
within the insurance field. One business unit is active in the German market.
Focus on cost control and productivity, enhanced customer data bases, product
offerings and distribution methods led to increased premium income and net
profits. AEGON is also present in Belgium.
AEGON UK, through its subsidiary Scottish Equitable plc, in the United Kingdom,
is a leading provider of pension and personal investment products, distributed
via Independent Financial Advisors. Scottish Equitable Asset Management provides
asset management services and institutional and retail asset management
products. Scottish Equitable International, a Luxembourg-based subsidiary,
provides international investment products primarily for the UK market but also
for the offshore market. The Guardian acquisition in 1999 broadened AEGON UK's
product range and distribution, generating economies of scale and adding a
leading provider of protection products.
AB-AEGON in Hungary offers an expanded line of life and non-life products under
both the AB brand and AEGON brand. Distribution is accomplished via professional
intermediaries and its own sales force.
AEGON Spain markets individual and business customers life and non-life products
through three distinctive profit centers: life insurance, general insurance and
health insurance. The products are sold through a network of tied and career
agents.
AEGON has established experimental greenfield activities in Taiwan (1994) and
the Philippines (1996) as well as representative offices opened in New Delhi,
India in 1997 and in Beijing, China in 1998. Collectively, these provide the
Group with useful insight and experience in serving key Asian cultures, while
respecting its decentralized organizational structure and focus on profitable
growth. Transamerica has operated a branch in Hong Kong for more than 50 years.
The branch focuses on universal life products and sells its products through
independent brokers.
All tables included in this section contain financial information derived from
the Company's consolidated financial statements and are presented on the basis
of Dutch Accounting Principles (DAP). All note references refer to notes to the
consolidated financial statements. Because of the acquisitions of Transamerica
Corporation in July 1999 and Providian Corporation in June 1997, the results are
not directly comparable with prior periods. Group overhead expenses are included
in the line Interest charges & Other and are no longer allocated to the lines of
business and country units. Prior years' figures have been restated accordingly.
<PAGE>
-5-
The tables below show the distribution of the Company's revenues, including
investment income, and income before tax (losses) by lines of business.
Reinsurance assumed has been included; reinsurance ceded has not been deducted.
Revenues (see Note 21a)
- --------
(EUR in millions) Years ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
EUR % EUR % EUR %
Life insurance
Premiums 12,802 57 9,413 55 7,489 53
Investment income 6,308 28 4,653 27 3,729 26
------ --- ------ --- ------ ---
19,110 85 14,066 82 11,218 79
Accident & Health insurance
Premiums 1,453 6 1,391 8 1,267 9
Investment income 195 1 156 1 128 1
------ --- ------ --- ------ ---
1,648 7 1,547 9 1,395 10
General insurance
Premiums 725 3 746 4 776 5
Investment income 97 1 95 1 80 1
------ --- ------ --- ------ ---
822 4 841 5 856 6
Banking activities 704 3 626 3 674 5
Other activities 90 1 99 1 64 -
------ --- ------ --- ------ ---
Revenues 22,374 100 17,179 100 14,207 100
Income before tax
- -----------------
(EUR in millions) Years ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
EUR % EUR % EUR %
Life insurance 2,126 97 1,581 97 1,219 95
Accident & Health insurance 144 7 112 7 99 8
General insurance (2) 0 33 2 50 4
Banking activities 155 7 106 6 111 8
Interest charges & Other (242) (11) (198) (12) (192) (15)
------ --- ------ --- ------ ---
Total 2,181 100 1,634 100 1,287 100
<PAGE>
-6-
The following table shows the geographical distribution of AEGON's revenues. For
all premium income amounts below, reinsurance assumed has been included and
reinsurance ceded has not been deducted.
Geographical distribution of revenues
- -------------------------------------
(EUR in millions)
Years ended December 31,
----------------------------------
1999 1998 1997
---------- --------- ---------
EUR % EUR % EUR %
Americas
Life insurance
Premium income 4,263 2,509 1,824
Investment income 4,756 3,175 2,301
------ ----- -----
9,019 40 5,684 33 4,125 29
Accident & Health insurance
Premium income 1,264 1,219 1,106
Investment income 163 131 106
------ ----- -----
1,427 7 1,350 8 1,212 9
General insurance
Premium income 4 4 16
Investment income 1 0 1
------ ----- -----
5 * 4 * 17 *
------ -- ----- -- ----- --
Sub-total 10,451 47 7,038 41 5,354 38
The Netherlands
Life insurance
Premium income 3,012 2,626 2,313
Investment income 1,362 1,295 1,241
------ ----- -----
4,374 20 3,921 23 3,554 25
Accident & Health insurance
Premium income 118 102 90
Investment income 30 22 19
------ ----- -----
148 1 124 1 109 1
General insurance
Premium income 402 437 442
Investment income 55 52 43
------ ----- -----
457 2 489 3 485 3
Banking activities 704 3 626 3 674 5
------ -- ----- -- ----- --
Sub-total 5,683 26 5,160 30 4,822 34
<PAGE>
-7-
Geographical distribution of revenues (cont'd)
- ----------------------------------------------
(EUR in millions)
Years ended December 31,
---------------------------------------
1999 1998 1997
----------- ---------- ------------
EUR % EUR % EUR %
United Kingdom
Life insurance
Premium income 5,142 4,026 3,178
Investment income 99 101 101
------ ------ ------
5,241 23 4,127 24 3,279 23
General insurance
Premium income - - -
Investment insurance - - -
------ ------ ------
- - -
------ -- ------ -- ------ --
Sub-total 5,241 23 4,127 24 3,279 23
Other countries
Life insurance
Premium income 385 252 174
Investment income 91 82 86
------ ------ ------
476 2 334 2 260 2
Accident & Health insurance
Premium income 71 70 71
Investment income 2 3 3
------ ------ ------
73 * 73 * 74 1
General insurance
Premium income 319 305 318
Investment income 41 43 36
------ ------ ------
360 2 348 2 354 2
------ --- ------ --- ------ ---
Sub-total 909 4 755 4 688 5
Other activities
Investment income 90 * 99 1 64 *
------ --- ------ --- ------ ---
Total 22,374 100 17,179 100 14,207 100
* Less than 1%.
<PAGE>
-8-
Strategy
AEGON's growth flows from a consistent, clear strategy with four key elements:
Commitment to Core Business:
Insurance, with a strong emphasis on life and pension insurance and related
savings and investment products. AEGON focuses on the financial protection and
asset accumulation needs of its clients.
Decentralized Organization:
Multi-domestic and multi-branded approach, giving a high degree of autonomy to
the management of the individual business units, encouraging entrepreneurial
spirit and action. AEGON requires local management to run local businesses.
Emphasis on Profitability:
Target earnings per share growth of at least 10% per annum; the minimum return
on investment is set at 12% or more after tax on the pricing of new business and
at a long-term average of 11% or more after tax for acquisitions. Divestment of
non-core activities and underperformers, and disciplined expense management are
key to the achievement of these objectives.
International Expansion:
AEGON supplements its autonomous growth with selective acquisitions.
Acquisitions are preferred in countries where AEGON already has a presence in
order to build scale and enhance distribution. AEGON limits its annual
investment in greenfield and start-up operations to 3% of net income.
Americas
Under the heading Americas, the Company's US, Canadian and Mexican activities
are reported.
In North America, AEGON's life insurance operations are managed by AEGON USA.
Business operations are conducted through life insurance subsidiaries of AEGON
USA, Inc. and Transamerica Corporation. Products are offered through several
primary life insurance subsidiaries, with licenses in all states of the United
States, the District of Columbia, Puerto Rico, the Virgin Islands, Guam and
Canada. Operationally, subsidiary companies are organized into twelve divisions,
and activities are coordinated through three operating Groups of AEGON USA:
Agency, Alternative Markets and Pensions. The group structure enables AEGON USA
to more easily look across the organization to reduce redundancies, identify
business synergies, pursue cross-selling opportunities and improve operating
efficiencies. Coordinated support services provide expertise in systems
technology, investment management, regulatory compliance, and various corporate
functions to complement the divisional operations.
The Agency Group, which includes Monumental Agency Group, the Equity Group, the
Individual Division, Transamerica Insurance and Investment Group, and
Transamerica Canada, sells life insurance, savings and asset accumulation
products through employee and independent agents, as well as third-party
marketing organizations.
The Alternative Markets Group provides customers with a variety of means to
access insurance products through five operating divisions: Financial Markets,
Special Markets, Worksite Marketing, Long Term Care, and Reinsurance. The
divisions of the Alternative Markets Group encompass several distribution
channels, including financial institutions, brokers, direct sales, third-party
marketers and partners. The distribution diversity of this group, combined with
a strong agent force, continues to drive AEGON USA's sales by ensuring that
customers can purchase products and services through their preferred venues.
The Pension Group is composed of Diversified Investment Advisors and Diversified
Financial Products.
<PAGE>
-9-
Diversified Investment Advisors is an investment advisory firm serving the mid-
sized retirement plans of companies, state and local governments and not-for-
profit organizations. Diversified Financial Products serves the institutional
retirement and savings marketplace. The divisions of the Pension Group remain
committed to helping individual and institutional clients save and invest wisely
to achieve their retirement goals. The Pension Group is solidly positioned to
take advantage of consumers increasing responsibility for personal retirement
planning.
Expanding its product portfolio and distribution penetration through targeted
acquisitions continues to be an integral part of AEGON USA's long-term strategy.
Building on competitive products, strong distribution and talented people, the
operations that have joined AEGON USA through acquisitions remain very
successful additions that continue to deliver strong performance and foster new
growth opportunities.
The combination of AEGON USA and Transamerica in 1999 is an aggregation of
strengths. The addition of Transamerica's successful US life reinsurance and
Canadian insurance operations represents an immediate leadership position in
exciting new markets for AEGON USA. The acquisition also significantly
strengthened US agent penetration of higher income customer segments and
enhanced scale in the fixed annuity, long-term care, worksite marketing, 401(k)
pension and structured settlements businesses. Transamerica's insurance and
investment, reinsurance and Canadian operations have become new divisions of
AEGON USA, while Transamerica's other life insurance, retirement and savings
businesses are being integrated into existing AEGON USA divisions. Assets under
management attributable to Transamerica's insurance activities were USD 52.9
billion in total.
On 1 March 2000 the decision was announced to sell the majority of
Transamerica's non-insurance operations. Integration of the Transamerica
insurance businesses, as well as the strategy to leverage the Transamerica brand
where it adds value, will be a priority during 2000. The Transamerica
acquisition not only brings breadth and depth to distribution, enhances product
offerings and offers cost reduction opportunities to AEGON USA, but also
contributes valuable expertise, extensive market knowledge and successful
business practices.
Early in 2000, Transamerica Life Insurance Company of Canada and ING Canada
established a strategic marketing alliance under which Transamerica acquired
100% of NN Life Insurance Company and ING Canada will distribute life insurance
products manufactured by Transamerica. Additionally, a joint venture mutual
fund/segregated fund broker dealer operation was established, catering
specifically to life insurance intermediaries. The alliance creates the Canadian
market leader in new sales of individual life insurance and segregated funds.
The 1997 acquisition of Providian added the country's leading traditional and
synthetic GIC provider, Diversified Financial Products, to the AEGON USA family.
It also propelled AEGON USA to top market positions in home service life
insurance sales and direct-marketed life and supplemental health insurance
product sales.
AEGON USA entered the pension market in 1993 with the purchase of Mutual of New
York's group pension operation. Now called Diversified Investment Advisors, this
business continues to distinguish itself among competitors with its unique
'manager of managers' approach which places pension funds with leading
institutional money managers that are typically unavailable to individual
investors.
Currently a leading provider of variable universal life insurance in the United
States, Western Reserve Life, the primary operating company of AEGON USA's
Equity Group, was acquired in 1991. The Equity Group remains one of AEGON USA's
fastest growing divisions.
AEGON USA continues to innovate to meet changing consumer demands. The
flexibility fostered by our
<PAGE>
-10-
decentralized operating strategy enables individual divisions to continually
monitor their industries, identify new growth opportunities and position
themselves to take advantage of them.
During 1999, the Special Markets Group identified and targeted a new market,
created by the growing trend for employers to outsource all or part of their
human resource functions. A cross-divisional initiative provided Professional
Employer Organizations (PEOs) with an innovative 'one-stop shop' for all their
supplemental insurance and retirement products. A further cross-divisional
initiative between the Special Markets Group and Financial Markets Division
created the AEGON Financial Services Group in 1996. This team provides a co-
ordinated and comprehensive approach to the financial institution market. With
several divisions offering insurance products through financial institutions and
certain other marketing organizations, it became clear that a coordinated
approach would serve this marketplace more effectively.
This innovative approach is nothing new to AEGON USA. The Worksite Marketing
Division, formed in 1998 to allow individuals to purchase insurance products at
work, continues to achieve aggressive growth targets and build market presence,
while the Long-Term Care Division, established as long ago as 1991, has
continually modified its business strategy to stay ahead.
Life insurance
- --------------
AEGON's subsidiaries offer a variety of group and individual, nonparticipating
life insurance products. Various underwriting requirements must be met before
the issuance of a policy depending upon the size of the policy and age of the
insured. The maximum retention limit on any one life is generally USD 500,000
with certain companies retaining up to USD 2,000,000. Products include whole
life, universal life, variable life, variable universal life, term life, fixed
and variable annuity, guaranteed investment contracts, funding agreements,
accidental death and dismemberment and premium waiver disability insurance.
Whole life policies provide options for level, flexible or modified (providing
for higher first year payments) premiums, with various rider coverages including
deferred annuity riders. Universal life products have either a flexible or
single premium option. Both whole life and universal life products build cash
values which are paid to the policyholder upon surrender.
Term life policies are predominantly ordinary term policies, mortgage insurance
and credit life insurance and provide no cash value. Mortgage and credit life
insurance provides for payment of a mortgage or consumer loan in the event of
the death of the borrower. Mortgage insurance is offered through financial
institutions, primarily banks and credit unions. Credit life insurance is
offered through credit unions, banks and automobile dealerships.
Fixed annuity products offered include deferred or immediate annuities, which
may be purchased on either a flexible or single premium basis. Deferred
annuities are offered at a fixed interest rate on either a fixed or indexed
basis. In addition, flexible premium deferred annuities are offered on a
variable contract basis.
Variable annuities and variable universal life products have several investment
options and are maintained in a separate account. The investment risk on
variable products is retained by policyholders and the company earns a return
from investment management fees and mortality and expense charges.
A broad array of financial products, including floating and fixed rate GICs and
Trust GICs (synthetic GICs) are offered. The Trust GIC product, an off-balance
sheet fee-based product, permits the plan sponsor to own and retain assets
related to these contracts and provide benefit responsiveness in the event that
qualified plan benefit requests exceed plan cash flows.
In addition, the Company provides investment products and administrative
services for various types of pension arrangements. The retirement plan markets
served include Corporate Defined Contribution plans (401-K), Not-for-Profit
organizations qualifying for tax qualified annuities under section 403 (b) of
the US Internal Revenue Code, and asset allocation services for Defined Benefit
and Defined Contribution plans. AEGON USA
<PAGE>
-11-
subsidiaries market and administer the IDEX family of mutual funds, which
invests primarily in common stocks. The funds are sold by NASD licensed
registered representatives.
In October of 1995, AEGON and the Mexican banking group Grupo Financiero Banamex
Accival SA de C.V. (Banacci), the largest commercial bank in Mexico, formed a
strategic alliance to capitalize on insurance opportunities in Mexico. The joint
venture, named Seguros Banamex AEGON, distributes insurance products through a
large network of bank branches throughout Mexico. The terms of the agreement
provide for the purchase by AEGON of a forty-nine percent participation in the
equity of Seguros Banamex AEGON. The ultimate consideration to be paid by AEGON
to Banacci will be based upon the growth and profitability of the venture over
ten years. The AEGON USA companies are providing insurance expertise to support
the developing operations of Seguros Banamex AEGON.
Mexico's decision to privatize its retirement system in 1997 spurred rapid
growth in the Mexican private pension market. In a partnership extension
agreement forged in June 1998, Afore Banamex AEGON combined the complementary
strengths of AEGON and Banacci to meet emerging market needs. Offering quality
retirement fund management products to Mexican consumers, Afore Banamex AEGON
already commands a 12 percent market share and has quickly become one of
Mexico's leading pension fund managers. AEGON, in partnership with Banamex, has
high expectations for future opportunities in Mexico.
The table below shows the face value of life insurance in force in the Americas.
(in USD million)
Total Total
Individual Group 1999 1998
New insurance written 165,096 18,665 183,761 42,575
Net increase in sums insured/1/ 562,602 11,936 574,538 4,722
Total sums insured at year-end 702,588 64,242 766,830 192,292
/1/ Including effect of acquisitions
New premium production developed as follows:
(in USD million) Weighted/1/ Weighted/1/
Recurring total total
Single annualized 1999 1998
New premium production 1,050 600 705 469
/1/ Weighted means measured according to the definition of recurring annualized
plus 1/10 single premiums.
Accident and Health insurance
- -----------------------------
As the health care industry began to undergo fundamental changes and
restructuring a few years ago, AEGON USA made a strategic decision to
concentrate its health insurance presence in the supplemental and specialized
markets.
In early 1996, AEGON USA completed the sale of the Insurance Center, a division
in its Agency Group which administered small group health plans. This resulted
in the transfer of the divisions administrative facility including its 700
employees located in the Dallas-Fort Worth area. The existing business and
earnings will remain with AEGON USA for a period of five years. As of January 1,
2001, what remains of the coinsurance block will be ceded 100% to the United
Insurance Companies, Inc. in return for a lump sum payment. The
<PAGE>
-12-
business will be considered sold once the cession has occurred and the company
is no longer contingently liable for the business.
This action reflected management's strategic decision to move away from primary
health coverages and to concentrate health operations in the supplemental
coverage sector. Market forces have continued to alter the way primary health
care coverage is delivered in the United States and is marked by a continuing
shift toward managed care with health care providers assuming more of the risk.
AEGON USA has chosen not to compete in this changing and highly competitive
market which is facing continued pressure on profit margins and a complicated
regulatory environment.
Supplemental group health coverages are offered through financial institutions,
affinity groups and auto dealers. Direct response marketing techniques are used
to distribute products through endorsed relationships with banks, credit unions,
mortgage lending institutions and associations. Catastrophic illness coverages
are sold to individuals through agency groups. Cancer treatment, heart disease
and intensive care policies are sold to individuals through payroll deduction
and provide specified daily amounts for the period the patient is hospitalized
or receiving outpatient treatment. Individual and group coverage include: income
payment during hospitalization periods, scheduled benefits for specific
hospital/surgical expenses and cancer treatments, hospice care, deductible and
co-payment amounts not covered by other health insurance and Medicare supplement
products.
Also included in the supplemental health coverage, is long-term care insurance.
Long-term care policies offered include nursing home coverage, home health care,
assisted living and adult day-care services. Long-term care products are sold
individually by brokers and captive agents, and they are also marketed to large
groups such as major associations, professional organizations, and employers.
The passage of the Health Insurance Portability and Accountability Act by the US
Congress in August 1996, a bill which includes long-term care insurance
incentives, provided an additional boost to product credibility and perceived
customer need.
Reinsurance
- -----------
The Transamerica life companies assume life insurance from several external
direct writing companies on both an automatic and case by case basis.
Transamerica Reinsurance is a leading provider of reinsurance and consulting
services for companies underwriting life, annuity and accident & health
business. It maintains reinsurance treaties with approximately 500 ceding
companies in the United States, Latin America and Asia-Pacific.
The reinsurance business developed is closely related to the underlying form of
insurance (life, annuity, A&H) and the specific risks covered by such types of
policies, including mortality, morbidity, persistence, longevity, investment and
expense. In addition to reinsurance capacity, Transamerica Reinsurance provides
the following value added services: product development, third party
administration and a case underwriting facility.
Transamerica Reinsurance writes reinsurance directly with its ceding companies
rather than through brokers. This direct relationship produces an expense
advantage and a more complete understanding of risks. It also contributes to
more favorable underwriting results and deeper, longer-lasting client
relationships. In today's highly competitive reinsurance environment,
Transamerica Reinsurance distinguishes itself through a consultative, value-
added services strategy.
Based in Charlotte, North Carolina, Transamerica Reinsurance has offices in
Addison, Texas, Stamford, Connecticut, and Taipei, Taiwan. In April, the
company will open a liaison office in Seoul, Korea. An offshore affiliate,
Transamerica International Re, is located in Bermuda.
Transamerica non-insurance operations
- -------------------------------------
The non-insurance operations of Transamerica consist of commercial lending,
leasing and real estate services. Transamerica Finance Corporation, a wholly
owned subsidiary of Transamerica Corporation, includes Transamerica's commercial
lending and leasing operations and is a separate SEC registrant as a result of
its publicly held debt securities. The commercial lending business makes
commercial loans through three operations:
<PAGE>
-13-
distribution finance, business credit, and equipment financial services and
makes consumer loans through its retail operations. It has branch lending
offices in the United States, Mexico, Canada, Europe and Asia. Transamerica
leasing leases, services and manages containers, chassis and trailers throughout
the world. The real estate services comprise Transamerica's real estate
information businesses as well as certain real estate and other investments. The
most significant real estate service is real estate tax services which includes
parcel identification services, reporting annual tax amount or delinquency
information, assisting in the actual creation of tax payments, forwarding
payment to taxing authorities, completing related ancillary functions and
insulating servicers from many penalty risks associated with the property tax
process. As previously discussed AEGON announced on March 1, 2000 an intention
to sell the majority of the finance operations.
The Netherlands
Life insurance
- --------------
For more than twenty years, AEGON has offered a variety of interest sharing life
insurance products in The Netherlands which have become the predominant form in
which new group and individual insurance policies are written. Since 1990 AEGON
has offered a variety of excess interest profit sharing products which includes
profit sharing based upon the performance of the underlying investment funds.
These products account for an increasing part of the new individual insurances.
AEGON's group policies insure pension benefits provided by a wide range of
businesses and institutions. Under Dutch law, all employers who offer private
pension plans must provide for the operation of such plans by an independent
third party, such as an insurance company. Since most employers offer private
pension plans, there is a relatively stable demand for such group policies in
The Netherlands.
AEGON's group policies are generally tailor-made to the individual employer's
needs with respect to conditions for eligibility for benefits, level and type of
benefits provided and premiums payable. Tailor-made policies are principally
marketed to businesses and institutions having from 200 to 5,000 employees. In
addition, AEGON offers a variety of standardized group policies which provide
specified levels of benefits and are marketed principally to businesses and
institutions having fewer than 200 employees. All of the group policies
currently offered are interest sharing and provide yields which are based on the
average return on an assumed portfolio of Dutch government bonds. Although the
Dutch life insurance business units have not specifically segmented their
investments against their liabilities, they have sufficient investments in fixed
maturities (bonds, private placements and residential mortgage loans) to fully
cover the liabilities for those policies. The investments in fixed maturities
generally have the same characteristics as the assumed portfolio with higher
yields than the risk free rate of the assumed portfolio and only marginal
additional risk.
The yields on group policies can be reflected in reductions of premiums due
under the group contracts or cash payments. In other cases, the premiums
received are placed in segregated investment funds of which the employer is the
beneficial owner and receives almost the full amount of the interest sharing
income. Also a part of the outstanding group policies are participating.
Premiums on group policies are generally paid in level annual installments,
often in connection with non-recurring premiums for prior service benefits.
Apart from group life, AEGON also insures retirement benefits on an individual
basis. These policies generally combine endowment and term life. The face value
at maturity at the pension date or at premature death is used to purchase a
fixed annuity for the insured and/or beneficiary. The level premium policies
have a face value which generally ranges between NLG 200,000 and NLG 600,000.
They are either participating or interest sharing. All policies provide a
guaranteed minimum return. In addition, the face value of such policies
increases annually to reflect additional interest which predominantly is based
on the average return on an assumed portfolio of Dutch government bonds. In the
case of policies which include profit sharing based on the return of investment
funds, the degree of guarantee of this profit sharing depends on the specific
funds in which the policyholder participated - subject to the choice of the
policyholder.
<PAGE>
-14-
AEGON's individual endowment policies are generally designed to maximize the
advantages of saving through life insurance and are often connected with tax
incentives provided under Dutch law. AEGON offers level premium endowment
policies which provide for lump sum payments after a fixed term or at death and
generally range between NLG 50,000 and NLG 220,000 in face amount. AEGON and
other life insurance institutions which offer mortgage financing typically
advise the borrower to obtain such insurance and, as a result, sales of level
premium endowment policies are dependent to some extent on the level of activity
in the Dutch housing market. Level premium endowment policies are also offered
separately from mortgages. All of the level premium endowment policies are
either participating or interest sharing. These policies have guarantees similar
to those described in the previous paragraphs. If the term of such policies
exceeds fifteen years, as is typical, the excess of the cash value over the
premiums paid, up to a certain ceiling, is non-taxable to the insured.
AEGON also offers single premium endowment policies which are purchased
primarily as individual retirement plans and which are marketed as supplements
to government-sponsored retirement programs. The policies are typically payable
at age 60 to 65 or premature death and provide that the amount payable at that
time will be used to purchase a fixed annuity for the insured and/or
beneficiary. Single premium endowment policies are predominantly interest
sharing and may also be participating. The interest sharing feature of such
policies is based on, and generally close to, the average return on an assumed
portfolio of Dutch government bonds. Single premium endowment policies that are
interest sharing are in general sold at a calculated discount. Under Dutch law,
premiums on such single premium endowment policies are tax-deductible by the
insured up to an annual indexed maximum amount (in 1999 NLG 6,075) or married
couples double this amount. Furthermore, conventional life recurring premium and
single premium annuities are tax-deductible to higher amounts for individuals
who, by reason of their employments, do not build up a satisfactory pension.
In addition to its endowment policies AEGON markets term and whole life
insurance with fixed face values. The average face amount of a term life policy
is NLG 100,000 and premium payments are generally made in level annual
installments. The average face amount of whole life policies is NLG 5,000. Such
policies, which are principally used for burial expenses, are decreasing in
importance to the Company's business.
Two of AEGON's subsidiaries also receive fees for administering savings deposit
life insurance plans in which participants surviving after a fixed term from the
commencement of the plan participate in the value of the savings deposits and
accrued interest at that time. Only a minimum return is guaranteed. Under a term
insurance policy which must be purchased by participants in each plan, either
the total amount of a participant's contribution (with interest) or a
predetermined amount is paid on death.
Sales of individual life policies are generally limited to persons under 60
years of age, although policies may be written for persons above that age. For
policies exceeding NLG 300,000 in value, medical information (including an HIV-
test) from a physician is required before the policy is issued. For policies of
lesser sums, medical information is supplied by the insured. Van Nierop
Assuradeuren, an authorized agent, has a leading position in the Dutch market
for universal life products.
<PAGE>
-15-
The table below shows the face value of life insurance in force in The
Netherlands.
(in NLG millions) Total Total
Individual Group 1999 1998
New insurance written 15,028 13,195 28,223 29,311
Net increase in sums insured 9,377 3,892 13,269 24,578
Total sums insured at year-end 103,944 130,347 234,291 221,022
New premium production developed
as follows:
(in NLG millions) Weighted/1/ Weighted/1/
Recurring total total
Single annualized 1999 1998
New premium production 2,089 581 790 750
/1/ Weighted means measured according to the definition of recurring annualized
plus 1/10 single premiums.
Accident & health insurance
- ---------------------------
AEGON The Netherlands offers health insurance through close cooperation with the
Dutch health insurer ONVZ. The Company also offers additional health care
insurance which supplements the minimum benefits that are available to employees
under Dutch law and disability coverages which provide income benefits in case
of disability. With the exception of the supplementary health coverage and
disability coverages where physical examinations are required, the Company does
not generally require information on physical condition other than information
supplied by the insured.
General insurance
- -----------------
In The Netherlands a number of business units offer general insurance products.
AEGON Personal Lines markets products and services for the individual customer,
both in the life and non-life segment. AEGON Non-life Commercial Lines markets
products to clients in the commercial market. The product range includes fire,
motor, liability and agriculture insurance. The units work very closely with
professional independent intermediaries to ensure proper support through both
product development and service. The NOWM unit was sold in 1999, because this
specialized industrial risk insurer does not fit into our core business.
Banking activities
- ------------------
In keeping with its strategic focus on core insurance, pensions and savings
activities, AEGON realigned its Dutch banking interests in 1998. AEGON Bank
(formerly known as Spaarbeleg Bank), a wholly owned `branchless bank'
subsidiary, remains the chief banking unit, offering a range of specialized
products to support and supplement AEGON The Netherlands' various other business
units. In 1998, FGH BANK, specialized in real estate finance, was sold to
Bayerische Hypotheken- und Vereinsbank in Germany. On March 14, 2000 AEGON
announced that Dexia, the European banking group and AEGON N.V have entered into
exclusive negotiations concerning Dexia's acquisition of Labouchere, specialized
in private banking and investment banking.
<PAGE>
-16-
United Kingdom
Life insurance
- --------------
The UK is the third largest life insurance, pension and savings market in the
world, behind the US and Japan. Well developed and sophisticated, the sector
stands to benefit from the strong underlying demand for pensions and long term
investment, fuelled by a healthy economy, Government incentives to savings and
favorable demographics. The UK is a highly dynamic market, both in terms of
competitive structure and product mix. On the distribution side, new entrants
such as retailers and mutual fund providers have begun to vie with traditional
insurers for a slice of the personal pension market. On the product side,
changing consumer needs have led to the emergence and rapid growth of a host of
new special purpose investment products and the waning of some traditional
stalwarts, such as endowment mortgages and defined benefit corporate pension
plans. For Scottish Equitable plc, which joined the group in 1993, this level of
change has brought with it exciting new growth opportunities.
In recent years regulatory developments have, however, made the market more
difficult for all providers. On the one hand, there has been a strong trend
towards fuller disclosure which has substantially increased both price
competition and the cost of compliance. On the other hand, allegations of
misselling and highly publicized actions against a number of major firms have
shaken the confidence of insurers and consumers alike.
On 1 January 1999, a new holding company, AEGON UK plc, was formed and initially
contains three operating companies:
. Scottish Equitable plc - insured pension and investment products for the
corporate and personal investment markets via Independent Financial
Advisors in the UK.
. Scottish Equitable Asset Management plc - asset management services and
development of third-party investment management activities and retail
mutual funds.
. Scottish Equitable International Holdings plc - developing businesses
outside the UK.
These operations were supplemented by the October 1999 purchase of the UK life
and pensions activities of Guardian Royal Exchange. AEGON UK is now the holding
company for Scottish Equitable, Scottish Equitable Asset Management, Scottish
Equitable International Holdings and Guardian.
With the acquisition of the life and pensions activities of UK life activities
of Guardian Royal Exchange, AEGON UK has expanded the range of products
available to Independent Financial Advisors (IFAs) to include group and
individual protection business. Both of these had previously been identified by
the AEGON UK management team as desired product areas to enhance the group's
offering to the IFA sector.
Organizational scale and breadth is emerging as a critical factor in securing
quality business from UK IFAs. These customers, who remain a key audience, want
to meet the diverse needs of their investors by placing business with a few
strong providers. The Guardian deal has added business lines with good profit
potential and a range of products for the group and individual protection
markets which takes AEGON UK into a market segment with considerable growth
opportunities. AEGON UK has also established a teleservicing center in
Manchester to support its existing branch network and ensure the highest levels
of service and specialist support.
Providing pension products and services, distributed through IFAs, continues to
be the cornerstone of Scottish Equitable's business. In the fast-changing and
increasingly complex UK pensions market, the IFA has proved to be an excellent
and highly competitive distribution channel. By providing consumers with
convenient value-added guidance through a thicket of competing product options,
IFAs have collectively continued to gain market share, even as the growing
burden of automation, compliance and pricing transparency have led to a
consolidation in their numbers. Scottish Equitable has contributed to the
success of its IFA partners by providing attractive new products, superior
investment performance and client servicing support.
<PAGE>
-17-
Over the course of 1999 the Government's consultation process for the
introduction of Stakeholder Pensions was completed. The Government's aim is to
increase individual pension provision, particularly to include lower earners.
Scottish Equitable, as one of the largest providers of group pension products in
the United Kingdom, was amongst the key respondents throughout the process,
which covered proposed charging structures and payment mechanisms, regulation,
advice, governance and the tax regime behind the proposals.
The table below shows the face value of life insurance in
force in the United Kingdom.
(in GBP million)
Total Total
Individual Group 1999 1998
New insurance written 4,930 1,072 6,002 3,371
Net increase in sums
insured/1/ 26,396 11,774 38,170 1,973
Total sums insured at
year-end 49,287 11,774 61,061 22,891
/1/Including effect of
acquisitions
New premium production
developed as follows:
(in GBP million) Weighted/1/ Weighted/1/
Recurring total total
Single annualized 1999 1998
New premium production 2,400 203 443 373
/1/ Weighted means measured according to the definition of recurring annualized
plus 1/10 single premiums.
Other Countries
Hungary
- -------
Since joining the Group in 1992, AB-AEGON has systematically transformed itself
from a state-owned bureaucracy to a market-driven organization. This process has
affected every employee and every aspect of AB-AEGON's operations. Over the past
several years, the company's management and compensation systems have been
completely overhauled; its extensive national branch network streamlined, re-
equipped and reoriented from administration to sales and service; regional
processing centers replaced by a central state-of-the-art IT system; sales
agents retrained and moved off the payroll and onto a commission basis; the
product line modernized and refocused on life, pensions and household coverages.
As a result of these actions, AB-AEGON has revitalized its culture and business
base while retaining market leadership and excellent profitability. In 1998, as
the renewal process neared its conclusion, AB-AEGON adopted a holding company
structure, with three operating business units and two investment units
specializing respectively in securities and real estate, all backed up by a lean
headquarters staff.
AB-AEGON's three operating business units are:
. AB: offers an expanded line of life and non-life products, designed to meet
the needs of most households, under the AB brand. Products are distributed
through its own sales force, which can call in assistance from specialized
marketing teams.
. AEGON Life: markets more complex high value added life and savings products
under the AEGON brand for the upscale individual market.
. AEGON Corporate: offers group life product, including health coverage,
pensions, corporate property and
<PAGE>
-18-
fire under the AEGON brand. Distribution is accomplished via professional
intermediaries.
With the installation of a new management team and a significant reduction in
headquarters staff, the latest steps in AB-AEGON's transformation from state-
owned monopoly to competitive, profit-oriented market leader were achieved in
1999. The new team will spearhead a renewed drive for profitable growth based on
a more productive and market-responsive organization. This will be supported by
the utilization of new low cost distribution channels, such as the internet and
bancassurance, to supplement the more personalized services of the growing agent
network. In 1999 AB-AEGON developed a secure internet site for the sale of a
specially designed unit-linked product, in response to the demands of a younger
customer segment. The AEGON Online project will be launched during April 2000.
The unit-linked product adapted for the internet is simple and user friendly.
The table below shows the face value of life insurance in force in Hungary.
(in HUF million)
Total Total
Individual Group 1999 1998
New insurance written 88,644 6,836 95,480 87,188
Net increase in sums
insured 26,678 5,839 32,517 31,237
Total sums insured at
year-end 361,233 53,022 414,255 381,738
New premium production
developed as follows:
(in HUF million) Weighted(1) Weighted(1)
Recurring total total
Single annualized 1999 1998
New premium production 2,715 3,170 3,442 4,296
1 Weighted means measured according to the definition of recurring annualized
plus 1/10 single premiums.
Spain
- -----
AEGON Spain, headquartered in Madrid, offers individual and business customers
specialized life and non-life products through three distinct profit centers:
life insurance, health insurance and general insurance. The products are sold
through a network of tied and career agents while AEGON Spain is also using the
concept of affinity centers with specific products specially designed for their
groups of customers.
AEGON Spain has grown its life insurance premium business by over 60% in each of
the past three years. By marketing unit-linked variable life products to younger
professionals through multiple distribution channels, it has made significant
inroads into a market traditionally dominated by the banks.
AEGON Spain identified an opportunity to enter this market by offering
attractive, branded fee-based products through purpose built channels such as
financial institutions, dedicated life agents and the internet. Drawing on the
experience of its sister units in the US, the UK and the Netherlands, AEGON
Spain has led the industry in introducing new universal life products backed by
a wide and growing range of investment options. This leadership position should
continue, as the division rolls out new life and investment products specially
designed for particular distribution channels: career and general agents,
financial institutions, affinity groups, e-commerce and MoneyMaxx.
At the end of 1999, AEGON Spain announced the acquisition of Covadonga, a life
insurer based in Madrid. It is expected that the integration will be completed
in the first half of 2000. Covadonga is included in the consolidated balance
sheet at year end 1999.
<PAGE>
-19-
Having strengthened its central data processing systems to provide improved
measurement and control, AEGON Spain's general insurance division is devolving
more responsibilities to profitable agents, branches and regional headquarters.
The objective of these decentralization moves is to lower costs and to sustain
service levels in a difficult, volatile market climate.
In 1999 the health unit reorganized its commercial management and administrative
systems to increase responsiveness. It has also begun to prepare the way for a
centralized health division back office separate from the general insurance
activities and based on a new administrative system.
The table below shows the face value of life insurance in force in Spain.
(in ESP million)
Total Total
Individual Group 1999 1998
New insurance written 40,186 8,674 48,860 69,743
Net increase (decrease) in sums
insured 71,559 (13,329) 58,230 49,036
Total sums insured at year-end 234,965 86,277 321,242 263,012
New premium production developed
as follows:
(in ESP million) Weighted/1/ Weighted/1/
Recurring total total
Single annualized 1999 1998
New premium production 22,632 5,248 7,511 5,465
/1/ Weighted means measured according to the definition of recurring annualized
plus 1/10 single premiums.
Other units
- -----------
In September 1995 AEGON The Netherlands established a satellite of its
Spaarbeleg unit in Belgium to offer savings and life insurance products through
direct marketing and a franchised sales force.
AEGON Lebensversicherungs-AG, located in Dusseldorf, is a venture in Germany,
exclusively selling a unit linked product named MoneyMaxx. This product, modeled
from a product for the Dutch market and marketed there by Spaarbeleg, is sold
through direct marketing and advisors.
AEGON Taiwan, based in Taipei, offers a full range of individual life and health
insurance products for middle and upper income markets through a growing network
of tied and independent agents. AEGON's Taiwan branch began operations in 1994
and its premiums have since seen marked growth.
AEGON Philippines received a life insurance license in November 1996. The office
was set up in 1997, and has already started to sell ordinary individual life
policies through the World Marketing Alliance (WMA), an independent broker with
a strong and successful production record in the USA.
AEGON opened a representative office in New Delhi, India in 1997 and in Beijing,
China in 1998. India's new government has passed the IRDA bill, allowing foreign
ownership up to 26% in new companies. AEGON is in talks with potential local
partners to explore the opportunities to establish a life insurance operation.
<PAGE>
-20-
AEGON's representative office in Beijing was joined by Transamerica offices in
Beijing, Shanghai and Tianjing. The prospect of opening of China's life
insurance market improved in 1999 with China's entry to the World Trade
Organization.
Transamerica has operated a branch in Hong Kong for more than 50 years. The
branch focuses on universal life products and sells its products through
independent brokers. Transamerica Hong Kong had strong performance in 1999, as
the recovering Hong Kong economy and an expanded brokerage network resulted in a
significant increase in sales.
Reinsurance
Ceded
- -----
AEGON The Netherlands has concentrated its reinsurance ceded business with a
relatively small number of international firms of recognized standing. Such non-
life reinsurance is generally ceded on an excess of loss basis. AEGON also cedes
reinsurance to a much lesser extent on its life insurance policies. AEGON Group
companies outside The Netherlands, cede reinsurance on a company by company
basis. AEGON remains contingently liable with respect to the amounts ceded if
the reinsurer fails to meet the obligations it assumed. The credit and health
operations in the United States cede a large portion of their business.
Assumed
- -------
The Transamerica life companies have solicited life reinsurance from other
companies for many years. Business is accepted under automatic reinsurance
agreements from the majority of customers and on a case by case basis for
others.
Technical Provisions
AEGON maintains a provision for life, accident & health and general insurance
policy liabilities.
In the case of life insurance, the provision includes the amounts that are
estimated to be required to meet future policy obligations and is calculated
according to the assumptions made at the time the gross premiums were calculated
as to future investment yield, mortality rates applicable to the population as a
whole and morbidity.
Yearly the total of applied assumptions is tested against recent data. If these
tests reveal a negative outcome, the provision is recalculated according to the
actual data or an extra technical provision will be added.
Policy acquisition costs are costs that directly or indirectly are related to
the conclusion of insurance contracts. Part of the acquisition costs is deferred
and deducted from the technical provision life insurance. Deferred Policy
Acquisition Costs are accounted for under the caption Technical Provisions.
Deferred policy acquisition costs of insurance contracts with fixed premiums are
generally amortized over periods not to exceed the premium paying periods or the
contract periods. For flexible insurance contracts and investment type contracts
the amortization is generally in proportion to emerging gross profits.
Interest rate rebates are premium discounts provided on the basis of the
difference between interest rates assumed in the premium structure and the
current market interest rate. The capitalized portion of interest rate rebates
is accounted for under the caption Technical Provisions. Interest rate rebates
granted are capitalized and amortized over the period of the contracts concerned
in proportion to anticipated investment income.
The technical provisions for general and accident & health insurance consist
partly of the unearned portion of premiums received and a provision for
unexpired risks. Furthermore, when necessary, this item also includes a special
provision to compensate for the increasing age of persons insured under health
and personal accident policies.
<PAGE>
-21-
The deferred policy acquisition costs include renewal commission paid related to
unearned premiums, amortized over the related premium period, and first year
commission on health insurance policies, amortized over the contract period.
Both for accident and health insurance and for general insurance a reserve for
claims reported but not settled at year-end and an IBNR (Incurred But Not
Reported) provision is determined, partly based on estimation procedures
utilizing statistical data of prior experiences and for the large unsettled
claims on an item by item basis.
The Company's ability to predict the size of claims under certain types of
general insurance policies is enhanced by the absence of any provision for
punitive damages under Dutch law and by various provisions of Dutch law which
restrict damages for pain and suffering. Nonetheless, the estimation of the
provision for insurance applicable to general insurance is a more difficult
process than with respect to life and accident & health insurance, and the
above-described statistical projection techniques are subject to more subjective
considerations and a greater degree of managerial judgement. The methods for
determining estimates for reported losses and claims incurred but not yet
reported and establishing the resulting provision are continually reviewed and
updated and adjustments resulting therefrom are reflected in income currently.
The Company's periodic re-estimation of the provision for insurance includes
implicit consideration and reevaluation of the effects of inflation.
Investments
AEGON's United States subsidiaries are subject to regulation under the laws of
the states in which they are domiciled, which prescribe the nature, quality and
percentage of various types of investments which may be made by the
subsidiaries. Such laws generally permit investments in qualified state,
municipal and federal government obligations, corporate debt, preferred and
common stock, real estate and real estate mortgages for less than the value of
the mortgaged property. AEGON is not subject to formal limitations in The
Netherlands on the type of investments it is permitted to make. Government
supervision of insurance companies in Hungary, Spain and Portugal is more
significant than regulation of insurance companies in the United Kingdom, which
is comparable to regulations in The Netherlands.
The key investment strategy for traditional insurance-linked portfolios is Asset
Liability Management (ALM), whereby high quality investment assets are matched
in an optimal way to the corresponding insurance liability, taking into account
currency, yield and maturity characteristics. Investment-grade fixed income
securities are the main vehicle for ALM and all of AEGON's investment centers
are highly skilled and experienced in these investments. However, the fastest
growing portion of AEGON's investment portfolio is money managed for the account
of third parties, where the client's performance objectives frequently call for
higher risk, higher return investment strategies. The different country units
have all responded to this trend by increasing their ability to help clients
make the right asset allocation decisions and broadening the range of investment
options offered.
The ALM process is designed to monitor product and asset characteristics. The
strategy represents an appropriate matching of assets and liabilities taking
into account asset and liability risk, maturity and liquidity risk, as well as
asset diversification and quality considerations on the one hand and the
policyholders' guaranteed or reasonably expected excess interest sharing on the
other hand. Each country unit approaches the ALM process in it's own way,
depending upon the structure and characteristics of it's financial markets and
depending upon the profiles of the liability portfolios.
The AEGON USA companies manage their ALM process through the work of several
committees. These committees review strategies, define risk measures, define and
review ALM studies, examine risk hedging techniques, including the use of
derivatives and analyze the potential use of new asset classes. Cash flow
testing analysis is performed using computer simulations which model assets and
liabilities under stochastically projected interest rate scenarios and commonly
used stress-test interest rate scenarios. Based on the results of
<PAGE>
-22-
these computer simulations, the investment portfolio has been structured with a
view to maintaining a desired investment spread between the yield on the
portfolio assets and the rate credited on the policy liabilities. Interest rate
scenario testing is a continual process and the analysis of the expected values
and variability for three critical risk measures (cash flows, present value of
profits and interest rate spreads) forms the foundation for modifying investment
strategies, adjusting asset duration and mix, and exploring hedging
opportunities. On the liability side the company has some offsetting risks: some
liabilities perform better in rising rate environments while others perform well
in a falling rate environment. On the asset side, hedging instruments are
continuously studied to determine if their cost is commensurate to the risk
reduction they offer.
The Netherlands investment division manages an extensive ALM program for its
business units. Most liabilities in the Dutch market are nominal and long-term.
Based on their characteristics a long-term liability driven benchmark is
derived. This fixed income representation leads to a scenario and optimalization
analysis with the introduction of the various asset classes. An efficient
frontier of optimal asset allocations representing different risk-return
profiles is the result. Given the scenario results the individual business units
then choose a strategic asset allocation which serves as the input and benchmark
for the investment process. Portfolio managers are allowed to deviate from the
strategic composition based on their short and medium term investment outlook.
Risk based restrictions are in place to control the composition of the actual
investment portfolio as compared to the strategic portfolio. All stipulations
and benchmarks are formalized in a client contract between the business unit and
the investment department. An extensive measurement and reporting system is in
place for both portfolio returns and risks.
Scottish Equitable of the United Kingdom maintains an ALM Committee. The
committee is chaired by the Appointed Actuary and includes members of the
finance, actuarial and investment teams. The committee's responsibility is to
ensure assets and policyholder liabilities are appropriately matched and
tactical investments decisions are made to improve matching. Actions arising
from the Committee are independently monitored after an appropriate period of
time has elapsed, to ensure they have been carried out. The ALM Committee
reports to the Investment Committee of the Board, which meets quarterly. The
Actuarial Department monitors the nature of the Company's liabilities and this
information is provided to the ALM Committee. It is the responsibility of the
ALM Committee to monitor and report monthly on the appropriateness of assets
with regard to these liabilities. The ALM Committee meets monthly and considers
matching and investment policy.
A policy of close matching applies to the non-profit business, which splits into
two components, linked and non-linked. The matching policy relating to linked
assets involves daily monitoring and adjustments of the asset units to match
liability units. It is the purpose of the ALM Committee to propose, implement
and monitor an appropriate investment strategy for non-linked investments,
subject to control by the Investment Committee of the Board. The ALM Committee
has available to it appropriate information derived from investment accounts,
financial accounts and actuarial departments to allow it to fulfill its purpose.
The investment strategy has due regard to the relevant sections of the Insurance
Companies Act, Regulations and Department of Trade and Industry Guidance Notes.
Within the With Profits business the intended investment policy is tested for
the impact on the financial health and strength of the business. Exposure to
specific categories of assets is monitored and approved at the monthly ALM
Committee meeting e.g. it may reduce equity exposure outside normal guidelines
because of solvency constraints.
In Europe, and particularly in The Netherlands and UK, the investment centers
have relied on broad in-house expertise in all relevant forms of investment,
including equities, while in the US the emphasis has been more on `managing
money managers' - helping customers choose among the profusion of investment
choices that dominate US retail investment in equities. The different approaches
have been equally successful in their respective markets.
<PAGE>
-23-
In view of the growing importance to AEGON of asset management activities, the
Group is continuing to explore how best to encourage coordination among the
various investment centers and build a clearer identity for AEGON Asset
Management. Among the prospective benefits being sought: creation of a powerful
brand offering high quality global investment management based on a successful
track record, local research and sizable market presence; critical mass and
significant economies of scale; elimination of overlaps and filling in of gaps;
an asset management growth platform established at a reasonable cost and sharing
the culture of the AEGON country units.
<PAGE>
-24-
<TABLE>
<CAPTION>
Investments December 31,1998
----------------------------------------------------------------------
(Amounts in millions) The United Other
Americas Netherlands Kingdom Countries Total Total
in USD in EUR in GBP in EUR in EUR in %
<S> <C> <C> <C> <C> <C> <C>
General account
Fixed rate securities
Treasuries/Agencies 3,049 0 201 455 3,353 6
High Quality (AAA/AA) 11,311 7,847 104 104 17,794 30
Investment grade (A/BBB) 18,082 237 83 43 15,896 27
High yield (BB+ or less) 2,630 17 0 4 2,274 4
Mortgages 7,315 4,677 0 7 10,954 19
----------------------------------------------------------------------
Total fixed rate securities 42,387 12,778 388 613 50,271 86
Equity securities 812 4,058 125 63 4,995 8
Other assets
Real estate 241 1,755 0 97 2,058 4
Others 1,264 80 37 76 1,292 2
Total other assets 1,505 1,835 37 173 3,350 6
----------------------------------------------------------------------
Total General account 44,704 18,671 550 849 58,616 100
Account of policyholders
Fixed income 8,877 7,706 9,015 88 28,183 48
Equities & Real estate 15,224 4,361 8,995 0 30,161 52
----------------------------------------------------------------------
Total account policyholders 24,101 12,067 18,010 88 58,344 100
--------------------------------------------------------------
Total Insurance activities 68,805 30,738 18,560 937 116,960
Banking activities - 6,707 - - 6,707
Synthetic gics, mutual funds and
other off-balance sheet investments 21,612 0 1,149 38 20,191
--------------------------------------------------------------
Total investments business units 90,417 37,445 19,709 975 143,858
Other investments 1,072
-----------
Total investments 144,930
</TABLE>
<TABLE>
<CAPTION>
Investments December 31,1999
--------------------------------------------------------------------
(Amounts in millions) The United Other
Americas Netherlands Kingdom Countries Total Total
in USD in EUR in GBP in EUR in EUR in %
<S> <C> <C> <C> <C> <C> <C>
General account
Fixed rate securities
Treasuries/Agencies 6,989 0 333 647 8,139 8
High Quality (AAA/AA) 15,809 6,319 161 216 22,531 22
Investment grade (A/BBB) 37,509 929 127 72 38,542 38
High yield (BB+ or less) 4,616 27 0 4 4,626 4
Mortgages 10,162 5,420 0 6 15,542 15
--------------------------------------------------------------------
Total fixed rate securities 75,085 12,695 621 945 89,380 87
Equity securities 3,407 4,804 155 65 8,509 8
Other assets
Real estate 559 1,888 0 90 2,535 3
Others 1,907 92 4 88 2,084 2
Total other assets 2,466 1,980 4 178 4,619 5
--------------------------------------------------------------------
Total General account 80,958 19,479 780 1,188 102,508 100
Account of policyholders
Fixed income 12,036 7,445 13,898 216 41,997 39
Equities & Real estate 30,195 8,032 17,429 156 66,279 61
--------------------------------------------------------------------
Total account policyholders 42,231 15,477 31,327 372 108,276 100
-------------------------------------------------------------
Total Insurance activities 123,189 34,956 32,107 1,560 210,784
Banking activities - 5,451 - - 5,451
Synthetic gics, mutual funds and
other off-balance sheet investments 37,047 986 1,604 96 40,539
-------------------------------------------------------------
Total investments business units 160,236 41,393 33,711 1,656 256,774
Other investments 1,029
------------
Total investments 257,803
</TABLE>
<PAGE>
-25-
Marketing
AEGON USA markets its insurance products through three groups: Pension, Agency
and Alternative Markets. Divisions within each group focus on a specific product
or market and are accountable for sales distribution, product development and
performance. Whole life and universal life insurance, variable universal life,
association group and annuity products are primarily sold through independent
sales representatives and career agents. Marketing methods include television
and print media as well as direct mail and telephone solicitation. Products are
also sold to active duty military personnel on military bases through
independent agents/counselors. Fixed and variable annuities are distributed
primarily through financial institutions. Career agents through association
groups sell supplemental health products and employer sponsored payroll
deduction. Credit insurance coverage is sold through financial institutions and
automobile dealerships. Pension products, such as GICs, are sold through a small
sales force, bank trustees, municipal GIC brokers, GIC fund managers, brokers
and direct marketing. Individual pension products are marketed through financial
planners, stock brokerage firms, independent agents, pension consultants,
savings and loan associations, banks and other financial institutions and direct
mail programs.
AEGON The Netherlands markets its insurance products predominantly through
independent brokers, agents and banking institutions which are compensated on a
commission basis. AEGON's marketing staff is principally responsible for
providing technical and marketing expertise and for maintaining a close working
relationship with the professional intermediaries who sell its products. To a
lesser extent products are also sold using direct marketing techniques as well
as through a network of tied agents.
AEGON's life and pension products in the United Kingdom are distributed
predominantly through IFAs. In Hungary, Spain and Portugal predominantly local
tied agents market its products.
Supported by the Group Technology Inner Circle and by its national internet
strategy teams, each business unit is as a top priority implementing its own
specific internet strategy - ranging from internet-enabling information and
logistics support for existing sales and service channels to developing
facilitator alliances and launching new cutting-edge internet-centric sales
initiatives. Though financial services e-commerce is still in its infancy, the
early results of AEGON's enthusiastic multilevel response can be seen in a few
dozen functioning AEGON web sites and we participate in a great number of third-
party internet initiatives. These include www.covernadirect.com, a new US direct
writer, www.spaarbeleg.nl, a convenient home-banking service, www.divinvest.com,
which provides participants in group pension plans with secure, up-to-the-minute
information on their investments, and www.aegon.com the Group's web site aimed
at the financial community and the press.
Competition
In general, the insurance industry competes on the basis of the price of the
products offered, the terms of the products, the capacity of the products to
meet the specific needs of the insured and the quality of service rendered to
the insured. The life insurance industry, particularly in the United States, has
experienced increased competition from other financial service institutions
which offer pension plan management and alternative investments for individuals.
The Financial Services Modernization Act was passed in November 1999 and repeals
the Glass-Steagall Act of 1933 and expands the Bank Holding Company Act of 1956.
This new act allows cross-ownership by banks, securities firms and insurance
companies. As a result, it is likely that there will be business combinations
among banks, securities firms and insurance companies. However, there are a
number of unresolved regulatory issues associated with the authority of banks
and other financial institutions to compete directly with the Company in the
sale of life insurance products, including interest-sensitive products.
<PAGE>
-26-
The existing legal barriers between Dutch insurers and banks were removed in
1990 to allow both to diversify their financial products into each other's
markets. Several banks and insurers have merged. The Company does not expect
these mergers to have a material effect on its operations.
Also see the Management's discussion and analysis for a discussion of the effect
of competition on AEGON's business.
Regulation
AEGON's United States insurance subsidiaries are subject to regulation and
supervision in the states in which they transact business. Supervisory agencies
in the various states have broad powers to grant or revoke licenses to transact
business, regulate trade and marketing practices, license agents, approve policy
forms and certain premium rates, set reserve requirements, determine the form
and content of required financial reports, examine the companies and prescribe
the type and amount of investments permitted. Insurance companies are subject to
a mandatory audit every three to five years by the regulatory authorities and
every year by the independent auditors.
Scrutiny is placed on the insurance industry from a marketing, compliance and
regulatory view. Tightened standards have caused the industry to reevaluate past
practices as substantial liability has been incurred by insurance companies
based upon their past sales and marketing practices. AEGON has been and
continues to be focused on these compliance issues.
The National Association of Insurance Commissioners (NAIC) adopted, in December
of 1992, a "Risk Based Capital for Life and/or Health Insurers Model Act" (the
"Model Act") which was designed to identify inadequately capitalized life and
health insurers. Should an insurer's Adjusted Capital, based upon statutory
accounting principles, fall below certain prescribed levels (defined in terms of
its Risk Based Capital), the Model Act provides for various actions. The
Adjusted Capital levels of the Company's United States insurance subsidiaries
currently exceed all of the regulatory action levels as defined by the NAIC's
Model Act.
The Gramm-Leach-Bliley Act passed in November 1999 included the most extensive
consumer privacy provisions ever enacted by Congress. These provisions, among
other things, require full disclosure of the Company's privacy policy to
consumers and mandate offering the customer the ability to opt out of having
customer information disclosed to third parties. In addition, these provisions
require the federal banking regulators to adopt more extensive privacy
protections through legislation or regulation.
Insurance holding company statutes and regulations of each insurer's domiciliary
state in the United States require periodic disclosure concerning the ultimate
controlling person (i.e., the corporation or individual which controls the
domiciled insurer in each state). Such statutes also impose various limitations
on investments in affiliates and may require prior approval of the payment of
certain dividends by the registered insurer to the Company or several of its
affiliates. AEGON is subject, by virtue of its ownership of insurance companies,
to certain of these statutes and regulations. Since the Company's primary source
of income is dividends from its insurance company subsidiaries, the Company's
ability to meet its obligations and pay dividends to its shareholders may be
affected by any such required approval.
Insurance companies in The Netherlands are supervised by the Verzekeringskamer,
the regulatory body for insurance companies (the "Board") under the mandate of
the Insurance Industry Supervision Act 1993. The Company files with the Board
its annual report and, under this Act, the Company's life and general insurance
subsidiaries in The Netherlands are required to file detailed annual reports.
Such reports are audited by the Company's independent auditors and include
balance sheets, profit and loss statements and actuarial statements. The annual
reports are prepared in accordance with accounting principles which are based on
the "net level
<PAGE>
-27-
premium method", combined with the deferral of a part of the acquisition costs.
Insurance companies are initially licensed by the Board and then monitored
closely through the annual filings. In addition, the Board may require an
insurer and/or its ultimate holding company to submit any other information the
Board requests and may conduct an audit at any time. Under the Insurance
Industry Supervision Act, general insurance companies are required to maintain
shareholders' equity equal to not less than 18% of gross premiums written in the
previous year, subject to other possible limitations.
Life insurance companies are required to maintain an equity of approximately 5%
of general account technical provisions and, in case of no interest guarantee,
of approximately 1% of technical provisions with investments for the account of
policyholders. As of December 31, 1999, the capital and reserves of AEGON's
insurance subsidiaries substantially exceeded the minimum solvency requirement.
Even when the net deferred policy acquisition cost was subtracted from capital
and reserves, these were still more than 3 times the minimum standard
requirement.
Banking activities in The Netherlands are supervised by De Nederlandsche Bank
N.V. (The Dutch Central Bank) under the mandate of the "Wet toezicht
kredietwezen 1992" (Credit Industry Supervision Act). The Company's banking
subsidiaries are in compliance in all material respects with applicable banking
regulations and capitalization requirements. Bank Labouchere and AEGON Bank
(formerly Spaarbeleg Bank) file with The Dutch Central Bank their monthly and
annual reports. These reports are consolidated as far as it concerns their
subsidiaries in The Netherlands, unless the subsidiaries file their own reports
with The Dutch Central Bank. The annual reports are audited by independent
auditors.
As a group of companies in The Netherlands may be engaged in both insurance and
banking, apart from direct mergers which are not permitted, The Dutch Central
Bank and the "Board", in consultation with the Ministry of Finance and with
representatives of the banking and insurance industry, have entered into a
protocol for the purpose of jointly regulating groups with interests in banks
and insurance companies (the "Protocol"). The Protocol became effective on
January 1, 1990 and was amended in July 1994. In a group of companies consisting
of at least one bank and one insurance company (a "Mixed Group"), the banks
continue to be regulated by De Nederlandsche Bank and the insurers continue to
be regulated by the Board. AEGON, as the holding company of a Mixed Group in
which banking and insurance operations account for a considerable proportion of
total operations (a "Mixed Financial Group"), which group is primarily engaged
in insurance, must furnish financial information to the Board twice a year,
including information as to (1) equity of the banks, (2) the solvency margins of
the insurance companies, (3) capital, reserves, and subordinated loans of the
other subsidiary companies and (4) information as to the solvency of the group
on a consolidated basis, and shall state the investments, loans, and comparable
undertakings (except for insurance agreements) by a bank or insurance company
within the group, in respect of other companies in the group. The Dutch Central
Bank and the Board meet periodically to monitor holding companies of a Mixed
Financial Group and will contact one another when a reporting institution
encounters difficulties.
Regulation of insurance companies in the United Kingdom is generally comparable
to the regulation of insurance companies in The Netherlands while regulation of
insurance companies in the remaining countries in which the Company operates is
more significant. Regulation of insurance companies in the United Kingdom is
carried out by the Department of Trade and Industry (DTI) under Insurance
Companies Act 1982. UK Insurance Companies have to supply financial information
to the DTI for supervisory purposes, in the form of annual returns, within 6
months of the company's financial year-end. The content of these returns is
defined by legislation and includes, for example, detailed analysis of solvency,
assets, liabilities and a detailed actuarial valuation report prepared by the
Appointed Actuary. The Appointed Actuary is normally an employee of the company
but appointment is approved by DTI. The returns are filed at the official
Companies Registry and are therefore available for inspection to the general
public. Copies are available on demand to policyholders and shareholders. The
returns are subject to audit by external independent auditors. In addition the
returns and, in particular, the annual
<PAGE>
-28-
valuation report of the appointed actuary, are subject to scrutiny by the
Government Actuary's Department who advise the DTI on Actuarial matters
concerning Insurance Companies. The DTI examine the returns and, in conjunction
with the Government Actuary's Department, may raise queries with the company.
The DTI has wide-ranging power to intervene if a company fails to comply with
its legal obligations and can order it to cease writing new business. The
returns are of course a retrospective picture of the company; The Appointed
Actuary also has a statutory duty to ensure that he is satisfied with the
financial position of the company at all times, if not, he must advise the Board
of Directors and the DTI.
Solvency margins are imposed by law on both life and non life insurers. The
solvency margins required by the Insurance Companies Act 1982, and elaborated in
statutory regulations are monitored by the DTI, and vary with the type of
company, the classes of cover and certain other factors.
On January 1, 1995, new requirements and regulations were introduced in the
United Kingdom covering the disclosure of sales expenses and commission at the
point of sale.
The Company has not been subject to any significant regulatory proceedings
involving its operations in the countries in which it operates and is in
compliance in all material respects with all regulatory requirements applicable
to it.
Since the Company is a holding company, the rights of the Company to participate
in any distribution of assets of any subsidiary upon its liquidation, or in the
case of its United States subsidiaries, in reorganization or other similar
proceedings (and thus the ability of holders of Common Shares to benefit
indirectly from such distribution) are subject to regulatory actions and the
prior claims of creditors of that subsidiary. Claims on the Company's
subsidiaries by creditors may include claims of policyholders, holders of
indebtedness and claims of creditors in the ordinary course of business. Such
claims may increase or decrease and additional claims may be incurred in the
future.
Employees and Labor Relations
At the end of 1999, AEGON had 24,316 employees. Approximately 62% are employed
in America, 13% in The Netherlands, 17% in the United Kingdom and 3% in Hungary.
All of the Company's employees in The Netherlands, other than senior management,
are covered by collective labor agreements which are generally renegotiated
annually on an industry wide basis. In The Netherlands, employment agreements
are generally collectively negotiated by all companies within a particular
industry and then individual companies enter into employment agreements with
their employees based on the relevant collective agreement. Since its founding,
AEGON has participated in collective negotiations in the insurance industry and
has based its employment agreements with its employees on the relevant
collective agreement. The collective agreements are generally for one year
duration. The Company has experienced no significant strike, work stoppage or
labor dispute in recent years.
Under Dutch law, the Central Works Council of the undertakings of AEGON in The
Netherlands, whose members are elected by the employees, has certain defined
powers, including the right to make non-binding recommendations for appointments
to the Company's Supervisory Board and the right to enter objections against
proposals for appointments to the Supervisory Board.
<PAGE>
-29-
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns predominantly all of the buildings (partly in combination with
the joint venture, see below) which are used in the normal course of its
business, primarily as headquarters and offices for the Company and its
subsidiaries. The Company's headquarters and principal offices in The
Netherlands are located in The Hague and Leeuwarden; in the United States its
principal offices are located in Baltimore, Maryland, Cedar Rapids, Iowa, St
Petersburg, Florida and Los Angeles, California. Other principal offices are
located in Budapest, Hungary and Madrid, Spain. The Company believes that such
properties are suitable and adequate to meet the requirements of its businesses.
As of January 2, 1997, the Company's headquarters and principal offices in The
Netherlands were transferred to a joint venture (AMVEST) in which the Company
participates for 50%. See also MD&A-Subsequent events.
ITEM 3. LEGAL PROCEEDINGS
Some of the Company's subsidiaries and affiliates are parties to litigation in
the ordinary course of their business, including litigation where compensatory
or punitive damages are sought. The Company believes that resolution of these
suits will have no material impact on the Company.
ITEM 4. CONTROL OF REGISTRANT
Vereniging AEGON
The aim of Vereniging AEGON is, in a well-balanced fashion, to serve the direct
and indirect interests of AEGON N.V. and the companies associated with AEGON
N.V. in a group, insured parties, employees, shareholders and other parties
associated with these companies.
Vereniging AEGON controls the majority of votes in AEGON N.V. through its
minority holding of common shares (33%) and its holding of all issued preferred
shares. It intends to maintain its majority of voting rights by increasing its
percentage holding of common shares to a level of approximately 40% by
purchasing shares. Its shareholding will gradually be replenished so that
influence on the price of the AEGON share will be avoided as much as possible.
The preferred shares will gradually be repurchased by AEGON N.V., so that
Vereniging AEGON regains its 40% holding of common shares whilst continually
maintaining its majority of voting rights. As per December 31, 1999, the
Vereniging, according to its annual report, held 53% of the total number of
voting rights.
Number of Percent of
shares owned class
------------- ----------
Number of common shares as at January 1, 1999 209,695,861
Sold to AEGON NV (15,303,427)
Purchase for an average price of EUR 86.26 19,178,685
Acquired out of a share issue dated August 19, 1999
at EUR 82.04 8,300,829
-----------
Number of common shares as at December 31, 1999 221,871,948 33
Number of preferred shares as at December 31, 1999 285,000,000 100
The General Meeting of Members of the Vereniging consists of 21 elected members.
Seventeen of these are not, nor have been, an employee or former employee of
AEGON N.V., nor an employee or former employee of a company associated with
AEGON N.V. in a group, nor a (former) member of the Supervisory Board or the
Executive Board of AEGON N.V. They hold the majority of the voting rights. Of
the four other members, two
<PAGE>
-30-
are elected from among the members of the Supervisory Board and two are elected
from among the members of the Executive Board of AEGON N.V.
The Vereniging has an Executive Committee consisting of eight members, half of
whom, including the chairman and vice chairman, are not, nor have been,
associated with the AEGON Group; the other half consists of the four above-
mentioned members who hold a position within AEGON N.V. When a vote in the
Executive Committee results in a tie, the General Meeting of Members has the
deciding vote.
Directors and officers
Members of the Executive Board and Supervisory Board as a group own 625,836
shares (0.09%) of common stock.
ITEM 5. NATURE OF TRADING MARKET
Since the merger of AGO and Ennia in November 1983, the principal market for
AEGON's Common Shares has been the Amsterdam Exchanges. The Company's Common
Shares are also listed on the New York Stock Exchange (NYSE) and the Frankfurt,
London, Tokyo and Zurich stock exchanges.
The table below sets forth, for the calendar periods indicated, the high and low
closing prices of AEGON's Common Shares on the Amsterdam Exchanges as reported
by the "Officiele Prijscourant", the official daily newspaper of the association
of brokers and securities dealers in The Netherlands and the high and low sales
prices on the New York Stock Exchange.
Amsterdam New York
Exchanges (EUR) Stock Exchange (USD)
-------------- -------------------
High Low High Low
1998(1)
first quarter 58.20 40.95 62.37 44.56
second quarter 80.32 57.45 86.50 60.97
third quarter 101.37 60.35 110.19 71.06
fourth quarter 106.23 59.90 125.75 72.25
1999
first quarter 110.95 82.30 130.00 89.00
second quarter 91.20 70.35 97.06 73.94
third quarter 85.20 69.50 89.00 72.13
fourth quarter 95.90 79.50 96.88 85.00
2000
first quarter 96.45 67.15 98.25 64.25
(1) Trading on Amsterdam Exchanges is in euros as per January 4, 1999. The 1998
figures have been translated at a rate of EUR 1 = NLG 2.20371.
AEGON's common shares (668.4 million outstanding at December 31, 1999) are held
by shareholders worldwide in bearer and registered form. In The Netherlands
243.3 million shares are in registered form (of which 221.9 million shares are
held by Vereniging AEGON). In the United States 70.3 million shares are "Shares
of New York Registry" (New York shares). Based on information that has been
collected from custodians and registers, AEGON estimates that American
shareholders in total hold approximately 127 million AEGON shares (New York
shares and bearer shares) at December 1999.
<PAGE>
-31-
Bearer shares and registered shares may be exchanged on a one for one basis. On
the Amsterdam Exchanges only bearer shares may be traded and on the New York
Stock Exchange only New York shares may be traded.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no legislative or other legal provisions currently in force in The
Netherlands or arising under the Company's Articles of Incorporation restricting
remittances to holders of securities of the Company not resident in The
Netherlands. Cash dividends payable in euros on Common Shares of the Company may
be officially transferred from The Netherlands and converted into any other
convertible currency.
There are no limitations, either by the laws of The Netherlands or in the
Company's Articles of Incorporation, on the right of non-residents of The
Netherlands to hold or vote the Company's Common Shares.
ITEM 7. TAXATION
The Netherlands impose a withholding tax on dividends of 25%. The withholding
tax does not apply to stock dividends which are payable out of the for tax
purposes recognized paid-in surplus capital of the Company.
A tax treaty between the Kingdom of the Netherlands and the United States of
America for the avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income signed on December 18, 1992 and modified
by the protocol of October 13, 1993 (collectively the "1992 Treaty") replaced
the 1948 Treaty as of January 1, 1994.
A person can only claim the benefits of the 1992 Treaty (i) if such person is a
resident of the United States as defined therein and (ii) such person's
entitlement to such benefits is not limited by the limitations of benefits
provisions of article 26 of the 1992 Treaty.
Under the 1992 Treaty, dividends paid by the Company to a resident of the United
States (other than an exempt organization or exempt pension trust, as described
below) are generally eligible for a reduction of the 25% Dutch withholding tax
to 15%, provided that such holder does not carry on business in The Netherlands
through a permanent establishment and to which business the Common Shares are
attributable. The 1992 Treaty provides for a complete exemption for dividends
received by exempt pension trusts and certain exempt organizations that are
operated exclusively for religious, charitable, scientific, educational or
public purposes. Except in the case of exempt organizations, such reduced
dividend withholding rate (or exemption from withholding) can be applied for at
the source upon payment of the dividend; exempt organizations would remain
subject to the statutory withholding tax rate of 25% and would be required to
file for a refund of such withholding.
A holder of Common Shares will not be subject to Netherlands net wealth tax
provided that such holder is not an individual or, if he is an individual,
provided that:
(i) such holder is not a resident or a deemed resident of The Netherlands; or
(ii) such holder does not have an enterprise, or an interest in an enterprise,
which carries on business in The Netherlands through a permanent
establishment or a permanent representative to which or to whom the Common
Shares are attributable.
A holder of Common Shares will not be subject to Netherlands taxes on income or
capital gains provided that the conditions mentioned under (i) and (ii) above
are met and provided that such holder does not have, directly or indirectly, a
substantial or deemed substantial interest in the share capital of the Company,
or, in the event that such holder does have such a substantial interest, such
interest belongs to an enterprise.
<PAGE>
-32-
No gift, estate or inheritance tax will arise in The Netherlands on a gift of
Common Shares by, or on the death of, a holder neither resident nor deemed
resident in The Netherlands, unless the Common Shares are attributable to a
permanent establishment or permanent representative in The Netherlands.
ITEM 8. SELECTED FINANCIAL DATA
The selected financial data for the years 1995 through 1999 set forth below are
derived from previously published financial information of the Company. The data
should be read in conjunction with, and are qualified in their entirety by
reference to, such financial statements, including the notes thereto.
All per share amounts have been calculated based on the weighted average number
of common shares outstanding after giving effect to all stock dividends and
stock-splits through December 31, 1999.
As from the financial year 1995, AEGON applies the indirect return method of
accounting for the calculation of the results on investments in real estate and
shares related to life insurance. Effective 1997 this method has also been
applied to non-life insurance and other activities, excluding the banking
activities. This represents only a minor part of total real estate and shares
investments.
See Note 10 to the consolidated financial statements for further information.
<PAGE>
-33-
Years ended December 31,
--------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(in million EUR, except per share amounts and ratios)
Consolidated income
statement information:
amounts in accordance with
Dutch accounting
principles (a)
Premium income 14,980 11,550 9,532 7,579 6,248
Investment income 6,690 5,003 4,001 2,985 2,715
Total revenues (b,c) 22,374 17,179 14,207 11,112 9,520
Income before tax 2,181 1,634 1,287 913 780
Net income (c) 1,570 1,247 1,001 712 600
Data per common share (d)
Net income 2.56 2.16 1.79 1.35 1.15
Net income, fully diluted 2.52 2.11 1.76 1.29 1.11
Dividends per common share see following page
amounts based upon US
accounting principles (e)
Premium income 5,784 4,928 4,506 3,833 3,393
Investment income 7,013 5,656 4,762 3,210 2,715
Total revenues (b,c) 13,501 11,210 9,943 7,365 6,694
Income before tax 1,950 1,928 1,826 810 626
Net income 1,601 1,471 1,518 625 465
Net income per common
share (d)
Basic 2.61 2.55 2.72 1.18 0.88
Diluted 2.57 2.49 2.65 1.13 0.87
Consolidated balance sheet
information:
amounts in accordance with
Dutch accounting
principles (a)
Total assets 228,808 131,196 123,762 83,099 68,341
Technical provisions 190,145 102,959 95,447 62,360 51,553
Long-term liabilities
(including current
portion) 5,735 3,891 5,434 4,761 4,781
Capital and reserves 13,543 7,934 8,227 5,121 3,709
amounts based upon US
accounting principles (e)
Total assets 262,694 138,083 130,705 86,827 71,576
Technical provisions 206,007 108,355 100,822 65,397 53,884
Long-term liabilities
(including current
portion) 14,770 3,804 5,338 4,761 4,781
Trust pass-through
securities (TRUPS) and
monthly income preferred
stock (MIPS) 512 87 96 - -
Shareholders' equity (f) 17,050 9,612 9,764 5,739 4,542
Other:
Life insurance in force 972,558 300,466 292,604 205,199 179,546
Investment income for the
account
of policyholders (b) 13,533 8,466 6,523 2,839 3,476
Annuity deposits (b) 17,445 6,723 4,679 2,779 2,546
Combined underwriting-
expense ratio (g) 104% 104% 103% 98% 108.9%
Because of the acquisitions of Transamerica Corporation in July 1999 and
Providian Corporation in June 1997, the figures for 1999, 1998 and 1997 are not
directly comparable with prior periods.
<PAGE>
-34-
(a) The consolidated financial statements of the Company were prepared in
accordance with Dutch Accounting Principles, which differ in certain
respects from US GAAP. See Note (e) below.
(b) Excluded from the income statements in accordance with Dutch accounting
principles are receipts related to investment type annuity products and
investment income for the account of policyholders. In addition, also
Universal Life type deposits are excluded from the income statements in
accordance with US accounting principles.
(c) Foreign currency items in the consolidated income statements have been
converted at the weighted average annual rates.
(d) Per share data have been computed in conformity with US GAAP requirements.
Such data are calculated based on the weighted average number of Common
Shares outstanding after giving effect to all stock dividends and stock-
splits through December 31, 1999. Diluted per share data give effect to all
dilutive securities. In 1996, the calculation of the weighted average
number of common shares outstanding has been adjusted in accordance with
the guidelines from the Dutch Council for Annual Reporting. Prior years'
figures have been recalculated.
(e) See Note 22 for information concerning the differences between Dutch
Accounting Principles and US GAAP.
(f) Figures for 1998 and earlier have been adjusted from previously reported
for the change in balance sheet allocation of proposed dividends.
(g) The Combined Underwriting-Expense Ratio refers to general insurance and is
the sum of the ratio of losses and loss adjustment expenses incurred to net
premiums earned and the ratio of policy acquisition costs and other
underwriting expenses to net premiums written. The investment income of
general insurance is not taken into account when calculating the ratio.
This ratio has been computed on a basis similar to that used in reporting
to insurance regulatory authorities in the United States and is consistent
with US GAAP.
Dividend
- --------
Since the merger of AGO and Ennia in 1983, the Company has declared interim and
final dividends which for the years 1995 through 1999 are set forth in the table
below. The amounts have been translated into dollars per Common Share based on
the Midpoint Rate (the rate settled each working day at 14.15 hours by the Dutch
Central Bank) on each of the respective payment dates for interim and final
dividends.
EUR per Common share/1/ Translated into
USD per Common share
Years ended December 31,
Interim Final Total Interim Final Total
------- ------- ------- ------- ------- -------
1995 0.14 0.40 0.54 0.19 0.51 0.70
1996 0.27 0.37 0.64 0.35 0.43 0.78
1997 0.32 0.52 0.84 0.34 0.58 0.92
1998 0.42 0.59 1.01 0.46 0.62 1.08
1999 0.51 0.69/2/ 1.20 0.54 NA. NA.
/1/ Paid, at each shareholder's option, in cash or in stock.
/2/ Proposed.
<PAGE>
-35-
Upon approval of the annual accounts, which contain the profit appropriation, a
dividend for the year 1999 of EUR 1.20 per common share of NLG 0.50 par value
will be paid, which after taking into account the EUR 0.51 interim dividend,
leads to a final dividend of EUR 0.69 per common share.
It is proposed that the final dividend will be made available entirely in cash
or entirely in stock to be paid out of the paid-in surplus or, if so requested,
out of the 1999 net income. The value of the final dividend in shares will be
approximately equal to that of the final dividend in cash.
In order to take full advantage of the prevailing market price of AEGON N.V.
common shares within the indication provided, the number of dividend coupons
that gives entitlement to a new common share of NLG 0.50 will be determined on
May 23, 2000, based upon the average share price (quotation Amsterdam Exchanges)
in the five trading days from May 16 up to and including May 22, 2000.
Exchange rates
- --------------
On January 1, 1999, the euro was introduced as a new currency in the following
11 European Union member states (the "Participating Member States"): Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain. The respective currencies of the Participating Member
States, including the Dutch Guilder, will be nondecimal subdivisions of the euro
until January 1, 2002 and to up to six months thereafter. The exchange rate at
which the Guilder has been irrevocably fixed against the euro is EUR 1 = NLG
2.20371.
Fluctuations in the exchange rate between the euro and the dollar will affect
the dollar equivalent of the euro price of the Common Shares traded on Amsterdam
Exchanges and, as a result, are likely to affect the market price of the Common
Shares in the United States. Such fluctuations will also affect any dollar
amounts received by holders of Common Shares on conversion of any cash dividends
paid in euros on the Common Shares.
The following table sets forth for the periods indicated the high, low, average
and period-end noon buying rate in New York City for cable transfers in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York, which are not materially different from the Midpoint Rate (the rate
settled each working day at 14.15 hours by the Dutch Central Bank), used in
computing the company's financial statements. The average rate means the average
of the exchange rates on the last day of each month during a year.
The figures for the years 1995 through 1998 have been recalculated using the
exchange rate of EUR 1= NLG 2.20371.
(USD per EUR) High Low Average Period-End
-----------------------------------
1995 1.2597 1.4506 1.3794 1.3743
1996 1.2550 1.3709 1.3048 1.2760
1997 1.0406 1.2738 1.1252 1.0867
1998 1.0549 1.2147 1.1116 1.1741
1999 1.1812 1.0016 1.0588 1.0070
January 1 through March 31, 2000 1.0335 0.9524 0.9658 0.9574
Beginning January 1, 2002, the Participating Member States will issue new euro-
denominated bills and coins for use in cash transactions. By July 1, 2002, the
Participating Member States will withdraw all bills and coins denominated in
their respective currencies from circulation, and they will no longer be legal
tender for any transactions.
<PAGE>
-36-
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
AEGON operates in various countries throughout the world, offering a variety of
products including those having investment risk characteristics, life insurance
protection, health and casualty insurance protection and retirement benefit
programs. These products are offered to and acquired by individuals, of a
variety of ages, as well as corporations and other institutions.
The sale of the former Providian property and casualty business to American
Financial Group was closed at April 8, 1999.
On March 30, 1999 AEGON called off the announced merger of Labouchere N.V. and
AOT N.V. As this business is considered being non-core, in anticipation of its
sale, Labouchere was deconsolidated in the balance sheet at year end and
included as unconsolidated holding. The consolidated income statements fully
reflect the results from this subsidiary over the financial year. On March 14,
2000 AEGON announced that Dexia, the European banking group, and AEGON have
entered into exclusive negotiations concerning Dexia's acquisition of
Labouchere.
On July 21, 1999 AEGON completed the acquisition of Transamerica Corporation,
established in the United States. The acquisition was realized through a cash
payment of EUR 22.50 (USD 23.40) plus 0.71813 AEGON shares in exchange for each
Transamerica Corporation share. In total, the number of AEGON common shares
exchanged was 89,548,182. Of this, AEGON N.V. issued 74,244,755 new shares and
obtained 15,303,427 shares from Vereniging AEGON. As part of the transaction new
preferred shares with a total par value of NLG 27.5 million (USD 13.0 million)
were issued to Vereniging AEGON. AEGON also assumed Transamerica's holding
company debt for an amount of EUR 1.0 billion (USD 1.1 billion), which has been
recognized partly under capital securities and partly under long term
liabilities. As of the date of completion of the acquisition, the results of the
insurance activities have been included in the Group's annual accounts. The
effect on the growth in net income per share amounts to 3%.
As of the date of completion of the acquisition, the Transamerica non-insurance
businesses have not been consolidated, but are included in the balance sheet as
a single line presentation in "Group companies and participations". AEGON's core
business focus led to the announced intention to sell these activities. The
value in the balance sheet reflects the fair value of the acquired business. In
the income statement dividends declared have been recognized to offset funding
costs on the related raised debt, resulting in a neutral effect on AEGON's
earnings.
On October 7, 1999 the acquisition of the UK life insurance operations of
Guardian Royal Exchange was completed. The acquisition was paid in cash. Related
to this transaction AEGON N.V. issued 8,300,829 new common shares in a private
placement to Vereniging AEGON. The results of the acquired businesses are
included into AEGON's accounts as from July 1, 1999 and had an additional small
effect on the earnings and earnings per share.
On December 24, 1999 AEGON reached an agreement with Alleanza Assicurazioni
(Generali) on the acquisition of the life insurance company Covadonga S.A.,
established in Madrid. The acquired company is included in the consolidated
balance sheet at year end.
In recent years there has been considerable discussion over the settlement of
unclaimed Holocaust-era policies. In the post-war restoration of rights, the
vast majority of the insurance policies were restored in the Netherlands.
<PAGE>
-37-
However, some of the insurance policies could not be paid out as no entitled
parties had filed a claim. Around 1955, the surrender values of these insurance
policies were transferred to the State as `bona vacantia'. At the end of 1999,
the Dutch Verbond van Verzekeraars (Association of Insurers), of which AEGON is
a prominent member, has reached agreement with the Central Jewish Board in the
Netherlands for the foundation of the Shoah Foundation for Individual Insurance
Claims to settle any possible remaining and yet unclaimed Holocaust-era
insurance policies for Holocaust survivors, their heirs or beneficiaries,
wherever in the world they live. We consider this settlement a top priority and
are committed to honoring verified claims as quickly as possible. In addition, a
humanitarian fund has been established and a donation has been made to finance a
monument in commemoration of Holocaust victims. AEGON also reached agreement
with the State Insurance Department in California acknowledging that claims from
Californian residents would also be settled through the Shoah Foundation in the
Netherlands. We continue to support the Jewish community in our joint efforts to
uphold policyholder rights.
Year 2000/Euro
In 1999 EUR 60 million was invested in ICT projects related to remedying the
`millennium bug' and preparing our administrative systems for the introduction
of the euro. These costs were provisioned for in previous years. The total
expenses related to these projects since their start in 1996 amounted to EUR 190
million, including the expenses for the acquired operations. AEGON believes that
an increased level of technology expenditures will continue in the coming years,
which will be offset by higher revenues and lower relative general and
administrative costs. Based upon operations since the "rollover event" of
December 31, 1999, to January 1, 2000, AEGON does not expect any significant
impact to its ongoing business as a result of the "millennium bug". However, it
is possible that there may be unrecognized issues associated with the
"millennium bug" which have not yet been discovered. AEGON will continue to
monitor its systems and operations, in addition to its ongoing business
continuity planning, in order to minimize the effects, if any, of these issues.
Results of operations
1999 compared to 1998
- ---------------------
Net income
- ----------
Net income in 1999 showed a 26% increase from EUR 1,247 to EUR 1,570 million and
a 19% increase per share from EUR 2.16 to EUR 2.56. The 11% autonomous increase
in net income (i.e. excluding the impact of acquisitions, divestitures and
currency exchange rate differences) and earnings per share in 1999 reflects the
continuing growth of AEGON's core operations. The autonomous increase before tax
was 16%. The inclusion of the earnings from acquisitions during 1999
(Transamerica and the former UK life insurance operations from Guardian Royal
Exchange) account for a larger part of the difference between the autonomous and
reported increase in earnings. Currency exchange rate differences had a positive
effect of 2% on consolidated earnings reported in euro. The positive effect of
the Transamerica transaction on earnings per share was 3%.
Transamerica's accounts have been included as from 21 July 1999. On a Dutch
Accounting Principles basis Transamerica's non-insurance operations are
accounted for as equity participations. Declared dividends from these activities
are recognized in AEGON's earnings and offset AEGON's funding costs of these
operations.
Results of the UK life insurance businesses of Guardian Royal Exchange (GRE)
have been included in AEGON N.V.'s consolidated accounts as from 1 July 1999.
The Guardian acquisition and the related share issue had a slightly positive
effect on reported net income per share for 1999.
Beginning 1999, Group overhead expenses are included in the line Interest
charges & Other and are no longer allocated to the lines of business and country
units. Prior year figures have been restated accordingly.
<PAGE>
-38-
<TABLE>
<CAPTION>
Net income The United Other Total Total Increase
in EUR million Americas Netherlands Kingdom Countries 1999 1998 %
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life insurance (including annuities) 1,212 647 237 30 2,126 1,581 34
Accident & Health insurance 123 20 - 1 144 112 29
General insurance 2 39 - (43) (2) 33 -
Banking activities - 155 - - 155 106 46
Interest charges & Other (242) (198) 22
- -------------------------------------------------------------------------------------------------------------------
Income before tax Business units 1,337 861 237 (12)
Income before tax 2,181 1,634 33
Corporation tax Business Units (463) (189) (60) 1
Corporation tax (611) (387) 58
- -------------------------------------------------------------------------------------------------------------------
Net income 1999 Business Units 874 672 177 (11)
Net income 1,570 1,247 26
Net income 1998 Business Units 621 597 105 28
</TABLE>
Revenues
- --------
Total revenues in 1999 rose to EUR 22.4 billion (USD 23.7 billion), an increase
of 30% (9% autonomous). Premium income from life insurance and pension sales
grew 36% to EUR 12.8 billion (USD 13.6 billion). Total premium income grew 30%
(10% autonomous) to EUR 15 billion (USD 16 billion), with the majority of the
difference accounted for by Transamerica and GRE. Annuity, GIC and savings
deposits, not included in premium income and revenues, increased by 100% to EUR
21.1 billion (USD 22.4 billion), also driven by increased production from AEGON
USA's autonomous operations. Investment income increased by 34% (5% autonomous).
<TABLE>
<CAPTION>
Revenues The United Other Total Total
in EUR million Americas Netherlands Kingdom Countries 1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross premiums
Life general account single 671 456 157 34 1,318 1,236
Life general account recurring 3,032 692 34 123 3,881 2,334
Life policyholders account single 457 535 3,713 143 4,848 3,681
Life policyholders account recurring 103 1,329 1,238 85 2,755 2,162
- -------------------------------------------------------------------------------------------------------------
Total life insurance 4,263 3,012 5,142 385 12,802 9,413
Accident and Health insurance 1,264 118 - 71 1,453 1,391
General insurance 4 402 - 319 725 746
- -------------------------------------------------------------------------------------------------------------
Total gross premiums 5,531 3,532 5,142 775 14,980 11,550
Investment income insurance activities 4,920 1,447 99 134 6,600 4,904
Income from banking activities - 704 - - 704 626
- -------------------------------------------------------------------------------------------------------------
Total revenues business units 10,451 5,683 5,241 909 22,284 17,080
Income from other activities 90 99
Total revenues 22,374 17,179
Investment income for the account
of policyholders 7,216 2,478 3,783 56 13,533 8,466
Gross deposits in:
Annuities and GICs 17,445 - - - 17,445 6,723
Savings accounts - 3,661 - - 3,661 3,804
</TABLE>
<PAGE>
-39-
Americas
- --------
(Americas comprises the results of AEGON in the USA, Canada and Mexico)
1999 1999 1998 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Gross premiums life 9,395 4,263 2,509 70
Gross premiums non-life 2,794 1,268 1,223 4
Gross premiums 12,189 5,531 3,732 48
Investment income 10,842 4,920 3,306 49
Total revenues 23,031 10,451 7,038 48
Commissions and expenses 4,493 2,039 1,480 38
Income before tax 2,946 1,337 917 46
Corporation tax (1,020) (463) (296) 56
Net income 1,926 874 621 41
Average exchange rate (USD per EUR) 1.061 1.111 (4.5)
Number of employees (including agents) 14,938 11,631 28
Net income in the Americas rose 34% to USD 927 million. Full year income before
tax rose 39% to USD 1,418 million (+46% in euro). The earnings increase resulted
from the inclusion of Transamerica (USD 259 million before tax), an increase in
assets under management, rising fee income and expense savings in the home
service operations.
The Transamerica transaction accounts for 3% of the increase in AEGON's earnings
per share in euro in 1999. New production of the Transamerica business units has
been stronger than originally anticipated and technical results were slightly
better than expected. Integration efforts are progressing and are on schedule.
Overall, the gross margin in the Americas increased 34%, while commissions and
expenses rose 32%.
Life insurance results, including annuities and GICs, in the Americas totaled
USD 1,285 million in 1999 (USD 921 million in 1998), marking an increase of 40%.
Gross annuity and GIC deposits rose 148% to USD 18,501 million. Life insurance
premium income (excluding annuity and GIC deposits) totaled USD 4,521 million
(USD 2,787 million in 1998). The 62% increase in life premium income was mainly
a result of the consolidation of the Transamerica activities. Life single
premiums rose 17%, whereas life recurring premium income advanced 89%.
Accident and health insurance result rose 38% to USD 131 million. Health
premiums totaled USD 1,341 million (USD 1,354 million in 1998), which reflects
the influence of run-off activities.
The earnings contribution from our joint ventures in Mexico were higher than in
1998 due to an increase in fee income at Afore Banamex AEGON (established mid-
1998) and continued good results of our life insurance joint venture Seguros
Banamex AEGON.
AEGON USA achieved another year of record performance in 1999 marked by solid
earnings growth in each division and the acquisition of Transamerica Corporation
in July. Valued at USD 10.8 billion, the Transamerica acquisition was the second
largest insurance transaction to date in US history. In addition to obtaining
one of the most widely recognized brands in the US insurance industry, AEGON USA
will benefit from various product and distribution enhancements, cost savings
and operating efficiencies.
The Transamerica acquisition made AEGON one of the largest life insurers in the
US and boosted the Americas 1999 earnings before tax to USD 1.4 billion.
Earnings growth before tax for 1999 was 39% (34% after tax), reflecting the
Transamerica acquisition, growth in the variable life and annuity markets and
further expense savings in the consolidation of the acquired Providian
activities. Sustained growth in the equity markets throughout the year continued
to drive consumer demand for equity-linked products. With growing responsibility
for retirement planning, institutions and consumers continue to benefit from
financial accumulation and protection products provided by quality insurance
companies.
<PAGE>
-40-
The highly rated operating companies of AEGON USA will continue to offer high
quality products that meet institutional and retail consumer needs in changing
market conditions.
US growth opportunities are accelerating, as baby boomers move into their
earning and retirement planning years and the country enjoys record prosperity.
The pace and scale of consolidation is also on the rise, fueled in part by the
repeal of the Glass-Steagall Act, which is increasing competition in financial
services. Thus, AEGON USA has unprecedented opportunity to harness the power of
the addition of a nationally known brand to its growing range of retail-oriented
insurance, savings and investment products. Its core business focus led to the
disposal, for USD 162 million, of the property & casualty activities acquired
with the insurance operations of Providian Corporation in 1997.
AEGON USA continues to coordinate management activities in the United States and
Canada through the Agency, Alternative Markets and Pension Groups. Growth in
earnings during 1999 for the three Groups was 8%, 7% and 24%, respectively.
Representing 41% of earnings in 1999, the Agency Group is AEGON USA's single
largest distribution channel. Customers of the Agency Group seek customized
financial planning advice from knowledgeable experts, and the professional
employee and general agents of AEGON USA excel at meeting these demands.
The divisions of the Alternative Markets Group, which produced 38% of 1999 AEGON
USA's earnings, encompass several distribution channels, including financial
institutions, brokers, direct sales, third-party marketers and partners. The
distribution diversity of this group, combined with a strong agent force,
continues to drive AEGON USA's sales by ensuring that customers can purchase
products and services through their preferred venues.
The divisions of the Pension Group remain committed to helping individual and
institutional clients save and invest wisely to achieve their retirement goals.
Producing 12% of AEGON USA's earnings in 1999, the Pension Group is solidly
positioned to take advantage of consumers increasing responsibility for personal
retirement planning.
Canada
Transamerica Canada sells universal and term life insurance and a variety of
investment products through independent agents and brokerage firms. During the
1990's, the Canadian life insurance market stagnated as the aging population
continued to shift their focus to asset accumulation. Despite this trend,
Transamerica Canada maintained solid sales growth with the introduction of a
variable universal life product designed to fill the emerging consumer needs.
Early in 2000, Transamerica Life Insurance Company of Canada and ING Canada
established a strategic marketing alliance under which Transamerica acquired
100% of NN Life Insurance Company and ING Canada will distribute life insurance
products manufactured by Transamerica. Additionally, a joint venture mutual
fund/segregated fund broker dealer operation was established, catering
specifically to life insurance intermediaries. The alliance creates the Canadian
market leader in new sales of individual life insurance and segregated funds.
Mexico
AEGON USA continues to serve Mexican consumers through its partnership with
Banamex, Mexico's largest bank. In 1999, Seguros Banamex AEGON successfully
introduced term life insurance through Banamex's 1,200 bank branches. Several
additional products followed, including variable universal life, accidental
death, group life, an immediate annuity, major medical and managed health
insurance.
Established in 1998, Afore Banamex AEGON provides pensions, savings and
investment products to Mexican employees who participated in Mexico's social
security system prior to its privatization. This business is achieving very
strong results with a 12% market share after just one year.
Producing 3% of the 1999 earnings of the Americas, the Mexican operations are
the fastest growing segment of the Americas.
<PAGE>
-41-
The Netherlands
- ---------------
1999 1999 1998 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Gross premiums life 6,638 3,012 2,626 15
Gross premiums non-life 1,146 520 539 (4)
Gross premiums 7,784 3,532 3,165 12
Investment income 3,189 1,447 1,369 6
Income from banking activities 1,551 704 626 12
Total revenues 12,524 5,683 5,160 10
Commissions and expenses 1,463 664 611 9
Income before tax 1,897 861 742 16
Corporation tax (416) (189) (145) 30
Net income 1,481 672 597 13
Increase on 1998, excluding Labouchere 10
Number of employees (including agents) 3,048 3,633 (16)
Net income in the Netherlands totaled EUR 672 million, up 13% from 1998 (10%
excluding Bank Labouchere). The increase in total pre-tax results amounted to
16%.
Life insurance and pensions activities accounted for 75% of 1999 pre-tax income.
The growth in life insurance and pensions results was mainly due to increased
production and a related improved coverage of fixed costs together with higher
investment results. Overall gross margins increased 13%, while commissions and
expenses increased 9%.
Life insurance premium income totaled EUR 3,012 million (up 15%). The increase
in life single premium income was 17%, to a total of EUR 991 million. Recurring
life premiums increased 13% to EUR 2,021 million.
Non-life insurance income before tax totaled EUR 59 million (up 23%). Although
the underwriting results improved, the lower accident & health results are
attributable to a write-off of a reinsurance receivable. General insurance
results showed a significant increase, supported by a release of Y2K claims
provisions that proved to be unnecessary.
Pre-tax results from the banking operations were up 46% compared to 1998,
totaling EUR 155 million. The continued margin improvement contributed to the
increase in earnings from AEGON Bank.
AEGON The Netherlands had a successful year, increasing its net income by 13%,
representing 39% of the consolidated total. The Dutch Government's proposed tax
reforms are prompting a widespread review of existing pensions and insurance
coverage. AEGON The Netherlands' reorganized corporate pension activities were
able to capitalize on this, as were the various other units serving individual
consumers. AEGON The Netherlands' energetic multi-channel market approach is
typified by the innovative venture begun last year to offer easy to use in-store
financial service to customers of Albert Heijn, the country's leading
supermarket chain. Nevertheless, professional intermediaries remain its
distribution channel of choice, particularly for pensions and more complex
investment and savings products. To reinforce its relationships with its
intermediaries and improve returns, AEGON The Netherlands has acquired
Kamerbeek, one of the country's leading brokers.
Continuing the trend in recent years, Dutch consumers are increasingly taking
responsibility for financial planning into their own hands. AEGON The
Netherlands' ability to stay on top of this key trend, fielding the right
products through the right marketing channels, resulted in another year of
increased growth. The business units serving individuals - principally AEGON
Personal Lines, Spaarbeleg, Van Nierop, AXENT/AEGON and NVG - all enjoyed
buoyant demand throughout 1999 and were all able to achieve further increases in
profitability. In addition, AEGON The Netherlands' units worked hard to
capitalize on important new developments in the market. For example, a strong
housing market created renewed opportunities for mortgage-linked insurance
products, and AEGON The Netherlands' success in this area accounted for a
substantial part of the new life business generated in 1999. Conversely, though
overall savings and demand for unit-linked products
<PAGE>
-42-
grew strongly, there was a slowing down in demand for certain more mature
products such as Spaarbeleg's Koersplan installment savings.
The significant tax reforms embodied in the Dutch Government's 2001 fiscal
program are causing investors to review their portfolios and consumers to review
their pension needs. This is creating opportunities for the professional
intermediaries, traditionally the main distribution channel for the AEGON
labeled units, to provide value-adding advice on new financial products and
services. Through training, financial and technical support and product
innovation, AEGON The Netherlands is assisting its units and its partners in
exploiting these opportunities.
The Personal Lines Competence Center, a production platform formed to provide
product and service support and expertise for AEGON Personal Lines, AXENT/AEGON
and NVG, successfully rolled out a range of general insurance and savings
products distributed also through the tied agent networks of AXENT/AEGON and
NVG. Spaarbeleg has already developed a powerful range of new products that are
"tax proof". With these products Spaarbeleg will continue its sales successes in
the years to come. Finally, in the fourth year of their existence, the direct
insurance units serving neighboring markets, MoneyMaxx Belgium and MoneyMaxx
Germany, continued to gain ground, while the start-up in Spain looks very
promising. Belgium and Germany are now profitable and the German company ranks
among the leaders in unit-linked products, the fastest growing segment of the
German market.
Since May 1999, three business units, organized along market segment lines, have
divided responsibility for the group pension, insurance and investment products
formerly amalgamated within AEGON Commercial Lines Life: Pensions and Advisory,
which works directly with major employers; the Corporate Pensions business unit,
working through agents to serve smaller and mid-sized companies; and the Asset
Management Products business unit specializing in products and services for
owner-managers, top executives and other higher income individuals affiliated
with AEGON group pension programs. Increased focus, flexibility and
responsiveness is paying off, as intensified marketing and improved service
delivery are powering a renewed increase in market share and profitable growth
despite heated competition.
Non-life Commercial Lines continued to emphasize profitability, focusing on
value-adding non-traditional approaches that differentiate AEGON The Netherlands
in this market. The innovative Prevention-Insurance-Restart (PIR) programs,
aimed at helping clients to avoid losses and to contain their impact when they
do occur, have given AEGON Non-Life Commercial Lines a distinctive market
profile and pricing consistent with the Group's return objectives. As a result,
PIR programs have been extended to cover a growing proportion of the general
insurance offering.
The NOWM unit was sold in 1999, because this specialized industrial risk insurer
does not fit into our core business.
Banking
Bank Labouchere had an excellent year, increasing its earnings by 37%. This
securities and investment-oriented bank serves both retail and institutional
clients, offering a growing range of innovative investment products, backed up
by high quality research, settlement and customer services. After attempts to
merge Bank Labouchere and AOT in the year under review failed, we have
reconsidered the position of Bank Labouchere within the Group. It has been
decided to divest this bank, a non-core holding, and therefore not consolidate
Labouchere in AEGON's accounts any longer.
AEGON Bank, a specialized branchless banking subsidiary devoted to supporting
the Dutch, German, Spanish and Belgian insurance and savings units, also
achieved solid profitability.
<PAGE>
-43-
United Kingdom
- --------------
1999 1999 1998 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Gross premiums life 11,331 5,142 4,026 28
Gross premiums non-life - - -
Gross premiums 11,331 5,142 4,026 28
Investment income 219 99 101 (2)
Total revenues 11,550 5,241 4,127 27
Commissions and expenses 626 284 174 63
Income before tax 522 237 145 63
Corporation tax (132) (60) (40) 50
Net income 390 177 105 69
Average exchange rate (GBP per EUR) 0.659 0.670 (1.7)
Number of employees (including agents) 4,240 2,756 54
Net income from AEGON UK totaled GBP 116 million (EUR 177 million), as compared
to GBP 70 million in 1998. The two main factors behind the 66% increase are the
inclusion of results from the acquired Guardian Royal Exchange businesses and
the fact that AEGON's share in Scottish Equitable's profits went up from 95% to
100% at the end of 1998. The growth of the in-force block of business supported
the underlying earnings growth of the AEGON UK operations. The increase in funds
under management resulted in higher income for the UK pensions and asset
management operations. The overall increase in gross margin and commissions and
expenses was 60%.
AEGON UK reported a 26% higher premium income, totaling GBP 3,386 million in
1999. Single premiums increased 24%, while recurring premiums rose 31%. New
premium production, excluding Guardian Royal Exchange, increased by 14%, based
on the industry standard of new annual premiums plus 1/10 of the single
premiums, reflecting the success of unitized pensions and other investment
products.
AEGON UK had a good year, boosting net income by 66% in GBP Scottish Equitable
developed its services to the IFA market. The acquisition of Guardian Royal
Exchange's life and pensions activities reflects our drive for strategically
balanced growth by increasing overall assets under management and adding a
leading provider of group and individual protection products, creating a
stronger capability to serve all major IFA segments. AEGON UK is therefore well
positioned to participate in the Government's Stakeholder Pensions initiative to
extend private pension coverage more broadly throughout the UK.
Scottish Equitable considers that the future of the group pension market holds
considerable potential in the new `Stakeholder' world. The key for success lies
as much with the flow of quality information and advice and the role of the
advisor as with the pricing structure of the products themselves. Scottish
Equitable has been at the forefront of delivering quality pension solutions and
believes that the advisor channel has the major role to play in delivering top
level solutions to the employer market in line with the Government's objectives
of extending the private pension provision of all individuals within the UK. The
success of this lies with the promotion, quality and accessibility of the
product supported by an appropriate level of advice. The move towards more
transparency and flexibility in pension product design has been in motion in the
UK for some time now, driven and shaped by the bigger companies. At the same
time the methods used in the delivery of group pension business are moving
firmly into the technological age. Scottish Equitable is currently supporting a
number of industry-wide technology initiatives and is playing a leading role in
their development. Additionally Scottish Equitable delivered a major group
pension technology initiative - SmartScheme - in the course of the year.
SmartScheme sets an electronic standard for group pension business in terms of a
fast, accurate, accessible and confidential information exchange among advisor,
employer, employee and provider. The vast majority of Scottish Equitable's group
<PAGE>
-44-
pension business is now dealt with electronically.
Scottish Equitable also made strides forward in other market segments in
particular with its investment bond product which saw an increase in new
business volume of 130% resulting in a significant increase in market share.
Scottish Equitable Asset Management
Scottish Equitable Asset Management, formed as a separate company on 1 January
1999, focuses on providing asset management services and institutional and
retail asset management products. It recorded a significant increase in assets
under management in 1999, reflecting impressive increases in new business volume
flowing through the Scottish Equitable sales channel, bolstered by the GBP 10
billion of new funds gained as part of the Guardian transaction. The new funds
were added at a modest incremental cost as the Guardian Asset Management
infrastructure was not acquired as part of the transaction. The larger book of
assets is delivering an increased revenue stream, a stronger profile and more
bargaining power in the market - particularly for investment only services, a
key growth target for the team over the coming year.
Scottish Equitable International Holdings
1999 saw further growth in both the UK market (+23%) and the Italian business
activity (+25%) of Scottish Equitable International Holdings. Its Italian
business was slow in the first half of 1999 as market uncertainties reduced
investor confidence, but recovered strongly in the last quarter as new products
came on stream. The business, with assets approaching GBP 1 billion, is now
generating good profits for AEGON UK.
Other Countries
- ---------------
Hungary
- -------
1999 1999 1998 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Gross premiums life 225 102 93 10
Gross premiums non-life 196 89 91 (2)
Gross premiums 421 191 184 4
Investment income 200 91 84 8
Total revenues 621 282 268 5
Commissions and expenses 167 76 80 (5)
Income before tax 97 44 40 10
Corporation tax (9) (4) (2) 100
Net income 88 40 38 5
Average exchange rate (HUF per EUR) 253.020 237.725 6.4
Number of employees (including agents) 845 1,591 (47)
Powered by strengthening economic recovery in Continental Europe, and
particularly Germany, the Hungarian economy performed well in 1999. Inflation
continued to fall while increased modernization and integration into the world
economy accelerated as the country prepared to join the European Union. Foreign
investment remained at high levels, and the local financial services and
security markets continued to develop.
The AB Composite division, Hungary's leading household insurer with a market
share of about 50%, saw its 1999 results burdened by extraordinary storm and
flood damage. Despite increased claims, however, the quality of customer service
increased and complaints fell. During the year, AB Composite enjoyed
considerable success in emphasizing its individual life and pension activities
to its mass-market clientele and today it is Hungary's second largest provider
of individual pensions. New product introductions, particularly the Euro 2000
unit-linked product line, have driven volume growth in the life segment and have
enabled AB Composite to improve portfolio quality and accelerate conversion of
unprofitable policies dating back to its days as a state-owned insurer.
<PAGE>
-45-
Following last year's shift in sales agents from employment status to
entrepreneurs, the network distribution infrastructure was further strengthened.
In addition, renewed agent recruitment, continued investment in repositioning
and revitalizing the AB Composite brand and new modes of distribution, including
internet and new cooperative ventures with several foreign banks operating in
Hungary, should all contribute to further progress by AB Composite in the years
to come.
AEGON Corporate, serving the corporate pension market, continued to build its
clientele among larger local and international companies. The AEGON Pension Fund
Management unit works closely with AEGON Life and AB Composite in providing
comprehensive coverage in Hungary's partially privatized pension market.
AEGON Life further expanded its sales force from 180 to about 300 and was able
to meet its ambitious growth targets. Competition from international insurers is
hottest in its segment, modern life insurance and savings products aimed at
Hungary's emerging upper middle class, and success depends on the quality of
marketing as well as on the design of the product itself. Product enhancement in
1999 included a variety of new health insurance riders available as options on
high value life policies.
With its infrastructure modernized and under an aggressive new management team
AB-AEGON expects to accelerate its growth in 2000.
Spain
- -----
1999 1999 1998 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Gross premiums life 447 203 113 80
Gross premiums non-life 650 295 280 5
Gross premiums 1,097 498 393 27
Investment income 80 36 37 (3)
Total revenues 1,177 534 430 24
Commissions and expenses 216 98 92 7
Income before tax (123) (56) (8) -
Corporation tax 11 5 3 -
Net income (112) (51) (5) -
Average exchange rate (ESP per EUR) 166.386 165.942 0.3
Number of employees (including agents) 750 733 2
For the industry and consequently also for AEGON Spain, continued, rapid
deterioration of the motor insurance business more than offset progress in other
areas during the past few years and resulted in a loss.
The net loss in Spain amounted to EUR 51 million, resulting from a necessary
strenghtening of the technical provisions to an amount of EUR 53 million.
Improvements in underwriting and reserving policies have been implemented.
The Spanish motor segment has suffered extreme price competition, predatory
pricing and mounting claims losses. To cope with this AEGON Spain has pursued a
strategy of greater selectivity and further internal cost reduction,
particularly through information management and automation. With the latest
downward lurch of the market in 1999, the scope of both these efforts has
expanded into an all-out campaign to eliminate unprofitable business. This has
required a real culture shift among AEGON Spain's branch managers who are
focusing now more than ever on the bottom line results.
Principally reflecting the entry of direct insurers other general insurance
lines besides motor have also suffered price erosion, but to a more manageable
degree.
Health insurance activities continued to achieve profitable growth in a highly
fragmented market. Anticipating the reform of Spain's troubled National Health
System, the health division is concentrating on developing a solid product, a
professional sales network and a good administrative base to support future
growth.
<PAGE>
-46-
In contrast to general insurance, life insurance activities continued to record
exceptional growth and solid profitability. AEGON Spain continued to
successfully expand its life insurance activities. Growth in new life insurance
production was higher than the market average. Premium income in 1999 rose by
79% and accounted for 41% for AEGON Spain's total premiums, versus 29% in 1998.
MoneyMaxx
- ---------
The MoneyMaxx operations in Germany and Belgium, which offer unit-linked
insurance using phone, mail and internet direct marketing, were both profitable
in 1999. The German operation is now selling over 40,000 insurance contracts a
year, making it one of the country's top providers of unit-linked insurance.
Encouraged by successes in the Netherlands, Belgium, Germany and the promising
start of these activities in Spain, this concept is being launched in other
European countries.
Asia
- ----
AEGON's commitment to Asia continued to develop in 1999, with existing AEGON
units in Taiwan and the Philippines bolstered by the addition of Transamerica
units in Taiwan and Hong Kong. In addition, the Group maintains representative
offices in two of the region's highly populated countries, China and India.
AEGON Taiwan
AEGON Taiwan achieved strong organic growth in 1999, offering individual life
insurance through an agency network. In contrast to many of its Asian neighbors,
Taiwan's economy has remained strong, but consolidation pressures continue to
build in the insurance sector following the large-scale entry of foreign
competitors in the wake of deregulation. AEGON Taiwan is positioning itself to
benefit from the consolidation process by developing a solid base and a well
regarded brand name.
AEGON Philippines
The cooperation with the local arm of the World Marketing Alliance, a key
partner of AEGON USA, to offer variable life insurance to Filipino consumers,
continued to develop, as the Philippine economy showed signs of recovery in
1999.
Investments
- -----------
AEGON's general account investment assets increased 75% to EUR 102.5 billion
(USD 103.0 billion) during 1999 and now represent 49% of total investments
insurance activities. In the Americas, the increase in both fixed income and
equity securities is for the largest part the result of including Transamerica.
The majority of the rise in the general account portfolio in the UK is
attributed to the addition of the former Guardian UK life businesses. The
general account portfolios in The Netherlands and the America's, which comprise
98% of total general account investments, outperformed their relevant
benchmarks.
Investments for the account of policyholders, which include unit-linked products
and separate accounts, increased by EUR 49.9 billion to EUR 108.3 billion and
represent now 51% of total investments insurance activities. The gradual shift
from investments in fixed income securities to equity securities in this
category continued during 1999. The largest part (61%) of the investments for
the account of policyholders are now allocated to equities. Off-balance sheet
investments (including synthetic GICs and mutual funds) doubled to EUR 40.5
billion and now form 16% of total investments. The investment portfolio for
banking activities decreased in 1999 from EUR 6.7 billion to EUR 5.4 billion at
year-end, representing 2% of the total investment portfolio. The decrease was
due to the deconsolidation of Labouchere.
Total assets under management at 31 December 1999 of the Americas were USD 160
billion (USD 42 billion for the account of policyholders), an increase of 77%
over year-end 1998. The Americas continue to maintain a high quality investment
portfolio with investment grade bonds representing 93% of the fixed rate
portfolio.
<PAGE>
-47-
Funds under management of The Netherlands increased by EUR 3.9 billion to EUR
41.4 billion, including EUR 1 billion managed on behalf of third parties.
Performance once again generally matched or exceeded the relevant benchmarks.
Both the increase in assets and the satisfactory performance reflect the
Investment division's success in institutionalizing its investment approach.
Drawing on traditional insurance expertise in risk management and asset
liability management, AEGON Asset Management offers third-party clients
disciplined, transparent and structured investment programs based on investment
criteria and objectives determined individually with each client. The Investment
division continued to develop its expertise in European equities, fixed income
securities and balanced mandates, with a group of 100 investment professionals.
Equity and subordinated loans
- -----------------------------
During 1999 AEGON's capital base changed substantially, mainly as a result of
acquisitions. Shareholders' equity increased from EUR 7.9 billion (USD 9.3
billion) to EUR 13.5 billion (USD 13.6 billion). Most of the increase resulted
from issuance of new shares to Transamerica shareholders (EUR 5.4 billion) and a
private placement to Vereniging AEGON (EUR 0.7 billion) to fund part of the
Guardian acquisition. Realized and unrealized results on the equity and real
estate investment portfolio (EUR 1,371 million), retained earnings (EUR 773
million) and exchange rate differences (EUR 1,051 million) also contributed to
the increase. Shareholders' equity was negatively effected by goodwill (EUR
3,133 million) mainly with respect to the acquisition of Transamerica, share
repurchases to hedge AEGON's staff and management option plans (EUR 315 million)
and cash settlement of stock option plans (EUR 47 million) and convertible
subordinated loans (EUR 69 million).
To facilitate the debt funding related to the Transamerica acquisition, AEGON
founded AEGON Funding Corp. during 1999. Funding raised by this entity enjoys a
full and unconditional guarantee from AEGON N.V. AEGON Funding Corp. raises
funds through a USD 4.5 billion Global Commercial Paper program. In addition,
AEGON Funding Corp. issued USD 400 million of 7% bonds due in 2004 and USD 350
million of 6 3/4% bonds due in 2002 in several tranches in the second half of
1999. AEGON N.V. issued two public bonds in 1999. In August, CHF 300 million of
3 1/8% bonds due in 2004 was issued. AEGON accessed the long dated Sterling
market in December with GBP 250 million of 6 1/8% bonds due in 2031. With regard
to other funding activities operational funding requirements were lower in 1999
than in preceding years as a result of securitization programs carried out by
Labouchere.
AEGON has further employed its excellent access to the capital markets through
private placements issued under its USD 1,500 million Euro Medium Term Notes
Program. Additionally, a USD 2,000 million Euro Commercial Paper Program
facilitates access to international and domestic money markets when required.
AEGON maintains back-up credit facilities for outstanding debt under its
Commercial Paper programs.
The composition of the capital base changed during 1999. As a percentage of
total capital, equity decreased to 71% from 75% at year-end 1998. AEGON's
financial policies require that shareholders' equity makes up at least 70% of
total capital in order to maintain strong capitalization. These self-imposed
standards substantially exceed those of regulatory bodies in the various
countries. We manage to these standards through application of our financial
strategies and policies, including acquisition funding and dividend policies. We
remain committed to a strategy, which assures continued financial strength. In
addition to our strong credit ratings, this is reflected in the excellent
insurance financial strength ratings assigned by both Standard & Poor's and
Moody's to our operating units in the USA, the Netherlands, and the UK.
<PAGE>
-48-
Capital Base
in EUR million 1999 in % 1998 in %
- ---------------------------------------------------------------------------
Shareholders' Equity 13,543 71 7,934 75
Capital securities 1,329 7 904 9
Dated subordinated debt 703 3 684 6
Senior debt allocated to insurance activities 3,583 19 1,041 10
- --------------------------------------------------------------------------
Total Capital Base 19,158 100 10,563 100
Certain effects of US Accounting Principles
- -------------------------------------------
Net income for 1999 based on US Accounting Principles was EUR 1,601 million
compared to EUR 1,471 million in 1998.
An analysis of the difference between Dutch and US Accounting Principles is
provided in Note 22 to the consolidated financial statements.
1998 compared to 1997
- ---------------------
Net income
- ----------
AEGON reported an increase in net income of 25%, from EUR 1,001 million to EUR
1,247 million and 21% in net income per share from EUR 1.79 to EUR 2.16. With an
autonomous growth rate (i.e. growth excluding the impact of acquisitions,
divestitures and currency) of 13% for net income and 14% for net income per
share AEGON continued its strong performance throughout a year of considerable
volatility in financial markets around the world, comfortably exceeding the
company's long-term goal of at least 10% per annum. Except for Spain, each of
the major country units showed an improved profit performance. Compared to the
previous year the increases are affected by the inclusion of the results of
Providian for the entire year. Currency exchange rate movements had a minimal
impact on earnings results, although period-end rates had a more significant
influence on balance sheet items.
Group overhead expenses are included in the line Interest charges & Other and
are no longer allocated to the lines of business and country units. The 1998 and
1997 figures have been restated accordingly.
<TABLE>
<CAPTION>
Net income The United Other Total Total Increase
in EUR million Americas Netherlands Kingdom Countries 1998 1997 %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Life insurance (including annuities) 829 588 145 19 1,581 1,219 30
Accident & Health insurance 85 24 - 3 112 99 13
General insurance 3 24 - 6 33 50 (34)
Banking activities - 106 - - 106 111 (5)
Interest charges & Other - - - - (198) (192) 3
- ------------------------------------------------------------------------------------------------------------------
Income before tax Business units 917 742 145 28
Income before tax 1,634 1,287 27
Corporation tax Business Units (296) (145) (40) 0
Corporation tax (387) (286) 35
- ------------------------------------------------------------------------------------------------------------------
Net income 1998 Business Units 621 597 105 28
Net income 1,247 1,001 25
Net income 1997 Business Units 448 556 84 30
</TABLE>
Revenues
- --------
Total revenues rose to EUR 17.2 billion, an increase of 21% (14% autonomously).
Premium income from life insurance and pension sales grew 26% to EUR 9.4
billion. Total premium income grew 21% (16% autonomously). Annuities, not
included in premium income and revenues, increased by 44% to EUR 6.7 billion.
<PAGE>
-49-
<TABLE>
<CAPTION>
Revenues The United Other Total Total
in EUR million Americas Netherlands Kingdom Countries 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Life insurance 5,684 3,921 4,127 334 14,066 11,218
Accident and Health insurance 1,350 124 - 73 1,547 1,395
General insurance 4 489 - 348 841 856
Banking activities 626 - - 626 674
Other activities 99 64
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues 1998 Business Units 7,038 5,160 4,127 755
Revenues 1998 17,179 14,207
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues 1997 Business Units 5,354 4,822 3,279 688
</TABLE>
Americas
- --------
(Americas comprises the results of AEGON USA and AEGON Mexico)
<TABLE>
<CAPTION>
1998 1998 1997 Change
Amounts in millions NLG EUR EUR %
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income before tax 2,021 917 639 44
Net income 1,368 621 448 39
Gross premiums Life 5,529 2,509 1,824 38
Gross premiums Non-life 2,695 1,223 1,122 9
Gross premiums 8,224 3,732 2,946 27
Investment income 7,286 3,306 2,408 37
Total revenues 15,510 7,038 5,354 31
Annuity deposits not included in revenues 14,816 6,723 4,679 44
Average exchange rate (USD per EUR) 1.111 1.128 (1.5)
Number of employees (including agents) 11,631 10,871 7
</TABLE>
1998 marked the tenth year of operation for AEGON USA, and a strong finish to a
solid decade of growth. Pre-tax earnings have grown from USD 113 million at the
formation of AEGON USA in 1989, to USD 1,019 million today, and total assets
have grown from USD 7 billion to USD 71 billion over the same period. As over
the past nine years, AEGON USA's consistently strong financial results remain
driven by the diversity of its businesses and its disciplined focus on strategic
priorities: a commitment to core businesses, profitable growth and a
decentralized operating structure.
A 36% higher net income of USD 690 million (up 39% in euros to EUR 621 million)
was posted by the operations in the Americas. Pre-tax results in the Americas
increased by 41% to USD 1,019 million (a 44% increase in euros). It should be
taken into account that the year-on-year earnings comparison includes six months
of the former Providian Corporation in 1997 and a full year in 1998. In several
divisions, the increase in results was strongly supported by the inclusion of
the acquired businesses. Major contributing factors to the favorable earnings
growth were new sales and the continued cost benefits of the 1997 acquisition,
which have also had a significant effect on the development of premium income,
resulting in a 25% increase in 1998. Premiums totaled USD 4,146 million in 1998,
which can be attributed to the growth of the combined operations as well as
continued good autonomous growth.
Life insurance results totaled USD 921 million, an increase of 46% on 1997. Life
insurance premium income (not including annuity deposits) reached the level of
USD 2,787 million.
Annuity deposits (including Guaranteed Investment Contracts) totaled USD 7,468
million (up 41%). The vast majority of the increase was in variable deposits.
Synthetic GIC deposits - off-balance sheet instruments - were well above
expectations, totaling USD 3,292 million.
Accident and health insurance results rose 6% to USD 95 million. Premium income
in this product group
<PAGE>
-50-
increased 9% to USD 1,354 million.
The sale of the Worldwide Insurance Company (the former Providian Auto & Home
Insurance Company and its subsidiaries) is expected to be finalized in the next
few months. The transaction is valued at USD 162 million, which includes a
payment of USD 47 million in dividends to AEGON.
Despite the decline of the exchange rate of the Mexican peso, the life and
pension activities in Mexico reported a 34% increase in income before tax. The
newly acquired pension activities account for the increase.
AEGON USA achieved solid autonomous growth in 1998, despite a sharp third
quarter downturn in the equity markets and falling domestic interest rates
throughout the year. Continued strong demand for high-quality retirement and
saving products is fueling growth opportunities despite uncertain market
conditions. In addition, the balance in the US product mix between traditional
life insurance, fixed annuities and variable products will continue to minimize
the impact of market volatility on earnings.
Each of AEGON USA's nine divisions contributed to increased earnings for the
year. Earnings were also enhanced by the June 1997 acquisition of Providian
Corporation's insurance operations. Acquisition integration efforts are
proceeding ahead of schedule and on target to achieve earnings growth, cost
reduction and synergy goals. Continuing AEGON USA's track record of successful
acquisitions, the combination has resulted in enhanced direct marketing
capabilities; a larger, more efficient home service agency operation; a
strengthened variable annuity portfolio; a solid presence in the structured
settlements market, and an immediate leadership position in the institutional
retirement and savings product business. Acquisitions will continue to play an
important role in building the future of AEGON USA.
In late 1997, AEGON USA introduced a new organizational structure aligning its
nine divisions within three groups: Agency, Alternative Markets and Pension.
This infrastructure encourages cross-divisional projects, collaboration and
expertise sharing, while maintaining each division's autonomy, diversity and
closeness to customers and market-critical elements of AEGON USA's success.
Cross-divisional initiatives in progress include the development of a team to
market products ranging from annuities to long-term care coverage through
financial institutions, and a Shared Services group to assist with technology
projects throughout the company. The new structure will expand the wide variety
of ways AEGON USA is already serving customers.
The Agency Group, responsible for 48 percent of 1998 AEGON USA earnings,
includes the Monumental Life, Individual and Equity Group divisions. In these
divisions, life insurance, savings and asset accumulation products are marketed
primarily through employee and independent agents who emphasize value-added
services and long-term customer relationships. AEGON USA's commitment to the
agency system remains very strong.
The Alternative Markets Group is composed of the Financial Markets, Special
Markets, Long Term Care and Worksite Marketing divisions, and accounted for 41
percent of AEGON USA's earnings in 1998. These divisions distribute insurance
and retirement savings products through a number of channels, including
financial institutions, affinity groups, direct response and worksites. Early
recognition of the value of establishing long-term alliances with distribution
partners is a continuing driver of this Group's success.
The Pension Group includes Diversified Investment Advisors and Diversified
Financial Products, and contributed 11 percent to 1998 AEGON USA earnings. Both
divisions help their customers save and invest wisely for retirement, with
products tailored to their specific needs.
Mexico
- ------
In 1998, AEGON with its partner, Banamex, Mexico's largest bank, continued to
serve Mexico's vast insurance needs and also began offering pension products.
Seguros Banamex AEGON markets insurance products primarily through Banamex's
more than 1,200 bank branches. Afore Banamex AEGON, a June 1998 extension of
AEGON's strategic alliance with Banamex, is providing quality retirement and
savings products to the rapidly growing Mexican private pension market. A 1998
year over year increase in revenues of 139 percent was posted
<PAGE>
-51-
in Mexico. As additional products are introduced into more of Banamex's
distribution channels and the pension operations mature, Mexico will continue to
provide exceptional growth opportunities.
The Netherlands
- ---------------
1998 1998 1997 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Income before tax 1,635 742 682 9
Net income 1,316 597 556 7
Increase on 1997, excluding FGH/Labouchere 12
Gross premiums Life 5,787 2,626 2,313 14
Gross premiums Non-life 1,187 539 532 1
Gross premiums 6,974 3,165 2,845 11
Investment income 3,016 1,369 1,303 5
Income banking activities 1,380 626 674 (7)
Total revenues 11,370 5,160 4,822 7
Number of employees (including agents) 3,633 3,771 (4)
AEGON The Netherlands achieved another year of double-digit earnings growth in
1998, as innovative responses to a rapidly changing market increasingly
complemented traditional strengths in service and cost structure. As a result,
both sales and profits again increased, while the premium income/cost ratio also
showed further improvement.
Net income in the Netherlands rose 7% to EUR 597 million (NLG 1,316 million).
Excluding the results of FGH BANK and Labouchere in both 1997 and 1998, the
increase is 12%. Earnings before tax increased by 9% to EUR 742 million (NLG
1,635 million), supported by a further growth in life insurance and pensions and
related saving and investment products.
Life insurance and pensions income accounted for 79% of the pre-tax profits and
increased by 11% to EUR 588 million (NLG 1,296 million), benefiting from new
premium production and effective cost management. Notably the strong growth of
the business units AEGON Personal Lines Life, Spaarbeleg and Van Nierop
contributed to the rise in life insurance premium income, totaling EUR 2,626
million (NLG 5,787 million) in 1998 (up 14%). New production of single premiums
increased 22% and recurring premiums increased 10%.
Non-life insurance results rose 23% to EUR 48 million (NLG 106 million). Higher
profits were achieved in accident and health insurance, despite a higher than
expected claims ratio. Storms in June, two serious bus accidents in France and
provisions for the millennium (underwriting) risk were the main factors behind a
decline in general insurance results.
Banking results totaled EUR 106 million (NLG 233 million) in 1998, as compared
to EUR 111 million in 1997 when these still included the results of FGH BANK.
The results of Labouchere increased considerably. The other savings and
investment operations, in particular Spaarbeleg, also continued to show good
growth.
The Netherlands today is a prosperous society offering greater choice but fewer
guarantees than before. AEGON The Netherlands is capitalizing on this by
addressing individual consumers' increasingly sophisticated savings and
insurance needs, while offering employers ways to lower costs and enhance
employee benefit packages. To meet the market's increasing complexity, AEGON has
fostered an energetic, entrepreneurial culture and taken a more specialized,
segmented approach to its products, services and distribution. As a result, in
most key business segments, it continues to gain market share while also
boosting profitability.
AEGON Personal Lines continued to benefit from strong demand for individual
pension and savings products, spurred by demographics and the scaling back of
state and employer-sponsored programs. Its relationships with IFAs, the main
distribution channel for its broad range of AEGON branded life, pension, asset-
accumulation,
<PAGE>
-52-
mortgage and general insurance products, was reinforced through business-
building innovations in policy issuance, call center and client service
capabilities, database management, electronic data transmission and processing,
and ICT (Information and Communication Technology) and administrative support.
Other AEGON The Netherlands units serving specialized niche segments of the
personal life and pensions market, such as NVG and AXENT/AEGON, also achieved
good performances last year. Van Nierop's growth in premium more than doubled in
the year under review.
The group life and pensions market has undergone great change in the past few
years, as new entrants, market pressure for transparency, and a greater client
focus on returns, have resulted in structurally lower margins. AEGON Commercial
Lines-Life's new management team is responding to these challenges by
reorganizing this traditional flagship into smaller, more manageable business
units focused on corporate clients, small and medium size enterprises and self-
employed professionals and business owners. With price competition having
largely run its course, opportunities are now emerging to increase volumes and
profits by providing employers with value-added solutions, including in certain
cases rebundled products, services and outsourcing packages. For example,
employers are increasingly relying on group pension providers to help individual
employees analyze and manage their personal financial planning and risk
management needs.
In non-life, AEGON Commercial Lines - Non-Life continues to achieve
profitability in the health area partly through its alliance with ONVZ, and in
Property and Casualty through its Prevention-Insurance-Restart program,
emphasizing claims prevention on the one hand, and rapid replacement of damage
on the other.
Pioneering new product and distribution solutions to changing market needs and
opportunities, AEGON The Netherlands is applying new concepts to employees in
the pensions and savings market. Building on the successful `Spaarbelegger'
model, in which entrepreneurial independent franchisees are equipped with a
turn-key Spaarbeleg sales franchise, AEGON Commercial Lines-Life has launched
`Financieel Compleet' to offer home service, advice and assistance to employees
covered by AEGON group pension contracts. `Financieel Compleet' enables AEGON
Commercial Lines-Life to enrich its service offering to employers without adding
overhead. The franchisees visit individual employees at home, matching their
present benefits packages and financial profile to proposed individualized
solutions to meet future needs. By offering its products efficiently,
economically and with excellent service, `Financieel Compleet' represents a win-
win situation for employees and employers - and for AEGON.
Spaarbeleg, with a customer base of well over 1.2 million and still increasing -
a remarkable achievement in a country of just 15 million - is a textbook example
of effective direct marketing and of bancassurance, the AEGON way. It is also a
rare instance of financial services cross-selling, as nearly half of
Spaarbeleg's customers have moved from the initial basic banking services to
buying longer term savings and insurance plans.
AEGON The Netherlands is betting that Spaarbeleg's service culture, low cost
structure, simple product and direct marketing focus will also work well
elsewhere in Europe as consumers look for alternative financial solutions.
Successful pilot projects have been mounted in Belgium, which reached break-even
in the fourth quarter of 1998, and particularly in Germany, where in just three
years Moneymaxx has established itself as one of the top five providers of unit-
linked products in this large and notoriously difficult market. Under the
Moneymaxx brand, the distilled and standardized Spaarbeleg concept is again
being taken on the road. In 1998, it was introduced by AEGON Spain and
introduction in other countries is being considered.
<PAGE>
-53-
United Kingdom
- --------------
1998 1998 1997 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Income before tax 320 145 119 22
Net income 231 105 84 25
Gross premiums Life 8,873 4,026 3,178 27
Gross premiums Non-life - - -
Gross premiums 8,873 4,026 3,178 27
Investment income 222 101 101 0
Total revenues 9,095 4,127 3,279 26
Average exchange rate (EUR per GBP) 0.670 0.688 (2.6)
Number of employees 2,756 2,482 11
1998 was a landmark year in many respects for AEGON UK. Continuing the strong
performance of 1997, new business volumes increased by 19% while contribution to
AEGON Group pre-tax profits increased by 23% in pound sterling.
During 1998 Scottish Equitable created a new holding company named `AEGON UK',
which is the parent of the specialized pension provider Scottish Equitable plc,
of Scottish Equitable Asset Management plc and of Scottish Equitable
International Holdings plc (with an operating company in Luxembourg and a branch
office in Italy). These businesses each operate autonomously in their respective
market segments.
Net income from the UK increased by 21% to GBP 70 million, which translates to
an increase of 25% in euros to EUR 105 million. The contribution of the AEGON UK
units to the AEGON Group's income before tax totaled GBP 97 million in 1998 (up
18% in pound sterling). This includes AEGON's increased share in the profits
(from 90% to 95% in 1998). AEGON's profit share increased to 100% at the end of
1998. A major factor behind the additional earnings increase was the increase in
fund related fees, reflecting growth in the unitized pension business.
Premium income from AEGON UK rose 23% to GBP 2,698 million in 1998. The
restructuring of group plans following the 1995 Pensions Act and a significant
rise in sales of pension trustee investment contracts supported the rise in life
insurance and pensions premium income. New premium production increased by 19%
in 1998, based on the industry standard of new annual premiums plus 1/10 of the
single premiums.
Scottish Equitable's performance in 1998 was achieved in an economic environment
which produced more difficult trading conditions than in recent years. The
slowdown in the UK economy depressed customer demand for certain retail
investment products. The impact on demand for insured pension products was less
marked, with continuing customer recognition of the need for a consistent, long-
term approach through good times and bad. Though generating continuing negative
publicity for the sector, the ongoing Review into the mis-selling of personal
pensions appears to have had no material adverse impact on the demand for these
or other pensions products. The turbulence in global stock markets, in the
latter part of 1998, also had an adverse impact on demand for certain retail
investment products, as customers deferred investment decisions until `calmer
times'.
For Scottish Equitable, the challenge in this trading environment was to
maintain the momentum of its existing successful product areas and the strength
of its relationships with key Independent Financial Advisors (IFAs), even as it
developed new and improved extensions of the product portfolio to drive future
growth. In the UK pensions sector, Scottish Equitable's new business increased
by 14%, a highly satisfactory outcome given the exceptional growth of the last
few years. This growth has been driven by the Pensions Act 1995, which by
dramatically overhauling UK pension regulations created enormous opportunities
for Scottish Equitable and its IFA partners to win new business by providing
expert, value adding advice. With the business impact of the Pensions Act having
peaked, Scottish Equitable successfully reemphasized other pension products and
services.
<PAGE>
-54-
For example, individual pension product sales rose by 23% in 1998. UK insured
investment products also delivered outstanding growth, with sales rising 174% in
1998 after a quiet couple of years.
Scottish Equitable International, based in Luxembourg, had another successful
year - sales of its international investment products were up by over 50% with
significant sales in both the UK and Italy. Underpinning Scottish Equitable's
pension and investment products is the strength of its asset management team
which again delivered excellent performance. AEGON UK's flagship, pension and
personal investment funds, continue to feature in either the first or high in
the second quartile in performance league tables over the key measurement
periods of one, three and five years. In addition to the support that this
performance record gives to the sales of insured products, it is also resulting
in strong growth in the Institutional Pensions market, where new mandates grew
by 74%. Total assets rose from GBP 15 billion to over GBP 18 billion in 1998.
Government deliberations regarding Stakeholders Pensions underscore growing
awareness at all social levels of the need for private provisions for old age
through pensions and other investment products. Under the AEGON UK banner,
Scottish Equitable plc, Scottish Equitable Asset Management plc and Scottish
Equitable plc are well placed in their chosen markets to realize the potential
which still lies within existing business while also seeking out new business
opportunities.
Other Countries
- ---------------
Total net income from the other countries amounted to EUR 28 million (NLG 61
million). The pre-tax result totaled EUR 27 million (NLG 59 million) in 1998,
which is 31% less than the previous year. The costs related to the start-up of
operations in other countries totaled EUR 5 million (NLG 10 million) in 1998
(EUR 16 million/NLG 36 million in 1997).
Hungary
- -------
1998 1998 1997 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Income before tax 88 40 34 18
Net income 83 38 30 27
Gross premiums Life 204 93 87 7
Gross premiums Non-life 201 91 99 (8)
Gross premiums 405 184 186 (1)
Investment income 186 84 86 (2)
Total revenues 591 268 272 (1)
Average exchange rate (HUF per EUR) 237.725 211.488 12.4
Number of employees (including agents) 1,591 5,332 (70)
The pre-tax results of AB-AEGON in Hungary totaled EUR 40 million (NLG 88
million), which is 18% above last year. Higher investment income and effective
cost savings resulted in a very strong fourth quarter for the life insurance
operations. The rise in investment income has more than offset the higher claims
experience in household and motor insurance, fostering the increase in non-life
insurance results. Premium income totaled EUR 184 million (NLG 405 million).
In 1998, AB-AEGON's strategy enabled it to solidify its position as one of the
country's largest and most profitable insurers. Through a national sales and
service network, it offers a broad range of AB branded household, life and
pension products to the mass market. At the same time, the special needs of
affluent consumers and corporations are served with a growing range of more
sophisticated AEGON branded individual and group life, pension and savings
products sold through highly trained sales forces. The increasing diversity and
competitiveness of the Hungarian market addressed by this dual branding strategy
was also evident in the
<PAGE>
-55-
varying performances of the three main business units in 1998.
AEGON Pension Fund Management (APFM) convincingly demonstrated its continued
ability to capitalize on the Hungarian pension reforms, finishing 1998 as
Hungary's largest private pension provider with over 300,000 clients. The rapid
progress of this new unit reflects its success in developing the voluntary
corporate pension market, as well as effective cooperation with its AB sister
unit in providing mandatory pension coverage to individuals seeking a private
alternative to the state social security system. APFM's success was underpinned
by the quality of its administrative and customer service infrastructure,
particularly on the ICT level, which is unparalleled in Hungary and is a key
driver of its success. Aside from accelerating organic growth, this investment
in infrastructure is also enabling APFM to position itself increasingly as a
pole of consolidation in the fragmented Hungarian pension sector. Last year, for
example, APFM acquired a small pension fund from AIG.
The AB business unit showed good profit development as it continued to
revitalize its product line and infrastructure. Programs to improve the quality
and motivation of the sales force, including a shift in compensation to an
entrepreneurial commission basis, led to improvements in workflow speed and
accuracy, while concentrating on productive agents. Together with earlier
improvements, this has enabled AB to rebuild market share without sacrificing
profitability. To support the reenergized force in the field, AB's management is
focusing on further improving administrative quality and service. In addition,
through increased advertising and brand promotion, AB is moving to solidify and
reassert its position as Hungary's preferred provider of comprehensive family,
household and life insurance. AB-AEGON's newest business unit, AEGON Life,
started up in February 1998. Its strategy relies on positioning the AEGON brand
as a symbol of world class quality and sophisticated financial planning,
offering high-income individuals a premium service and an innovative range of
high value added life and pension coverages. Aside from targeted advertising and
promotion, a key element of this unique positioning includes training AEGON Life
agents as expert financial advisors, using laptop computers to help potential
clients to design their own comprehensive financial planning solutions. After a
slow start, owing to intense competition and some early staffing problems, a
series of corrective measures has positioned the unit for more vigorous progress
in the coming years.
Spain
- -----
1998 1998 1997 Change
Amounts in millions NLG EUR EUR %
- --------------------------------------------------------------------------------
Income before tax (18) (8) 21 -
Net income (12) (5) 15 -
Gross premiums Life 250 113 69 64
Gross premiums Non-life 616 280 286 (2)
Gross premiums 866 393 355 11
Investment income 81 37 37 0
Total revenues 947 430 392 10
Average exchange rate (NLG per ESP) 165.942 165.320 0.4
Number of employees 733 722 2
In a climate marked by Spain's continuing economic convergence with its European
Union partners, the growth prospects for local life and non-life insurers
changed dramatically in 1998, life for better and non-life for worse. AEGON
Spain's results suffered as its organization acted to cope with unprecedented
market turmoil even as it implemented new business systems to structurally
address the new situation.
AEGON Spain reported a 1998 net loss of EUR 5 million (NLG 12 million), due to
losses in the motor insurance
<PAGE>
-56-
portfolio after the lowering of premium rates and additional strengthening of
the claims reserves. Organizational and underwriting measures are being taken to
enhance the quality of the portfolio and reduce expenses. Premium income
amounted to EUR 393 million (NLG 866 million), which is 11% more than in 1997.
After years of unfulfilled potential, unit-linked life insurance sales soared in
1998, capturing a significant share of the savings market, traditionally held by
the banks. The immediate trigger was low interest rates, which caused Spain's
increasing number of sophisticated consumers to seek higher-yielding
alternatives to traditional bank insurance products, particularly in the buoyant
equity markets. AEGON Spain, which had placed universal variable life products
at the core of its strategy to build its presence in the life segment, was well
prepared for the upsurge of interest, and as a result, increased its life
revenues by over 60% against just 5% growth for the life sector as a whole. This
strategically key segment, already accounting for 30% of AEGON Spain's revenues,
is set to show further increases in volumes and profits in the years to come.
As a further indication of these positive trends, in the final months of the
year AEGON Spain, working closely with AEGON The Netherlands, became the latest
unit to launch the Spaarbeleg concept under the Moneymaxx brand, with a series
of advertisements in major consumer publications. Initial response to Moneymaxx,
Spain's first financial services direct marketer, has been encouraging and the
campaign will be expanded in the current year.
The old ways of doing things are rapidly changing in Spain, and savings and
investment are no exception. Technology is creating new opportunities for low
cost, high impact entry into areas traditionally dominated by branch banks.
Internet is proving particularly well suited to AEGON Spain's unit-linked life
products, and the company's try- out programs have attracted a small but
enthusiastic and growing community of cyber investors. AEGON Spain will seek to
further expand its leading position in local E-commerce with Moneymaxx, launched
in late 1998.
The property and casualty insurance market, by contrast, suffered an extremely
difficult year, with motor insurance becoming particularly unprofitable due to
continuing irrational price competition. AEGON Spain's response has been to work
even more closely with its agents to identify and eliminate unprofitable
business while finding new ways to encourage more stable profitability going
forward. Key to this effort is the new IT system, implemented in 1998, which
provides the data flow and financial controls necessary to allow decision-making
and profit and cost responsibility to be effectively decentralized.
In addition, AEGON Spain has further refined its compensation system to
incentivize profitable lines of business, cost control and long-term
relationships. Though the motor insurance market is likely to remain in deficit
for the foreseeable future, the redress steps taken by AEGON Spain in 1998
should help it return to beneficial profit levels.
Health insurance activities continued to produce excellent results by
emphasizing creative health care approaches combining cost efficiency and
excellent service. A key template for profitable future expansion is the
company-owned health center operating in Barcelona, which acts as a `hospital
without beds', offering a comprehensive range of premium outpatient services to
policyholders. AEGON Spain plans to expand this concept to other urban centers
and also continues to evaluate acquisition prospects in this fragmented market.
However, growth prospects for the Spanish health care sector will remain limited
until privatization of the national health system begins in earnest.
AEGON Taiwan
- ------------
In its fourth year of operation, AEGON Taiwan continued to rapidly build its
brand recognition and business base, serving the upper end of the Taiwanese
individual life market through a growing network of tied and independent agents.
Growth also benefited from AEGON Taiwan's initial acquisition of all American
Family Life Assurance insurance policies in 1998; the first acquisition in
Taiwan's fragmented insurance sector and a harbinger of further consolidation.
<PAGE>
-57-
The company continues to serve as AEGON's main window on the Asia-Pacific region
while readying itself for potential reforms in Taiwan's pension regulations,
which should further enhance growth opportunities in this fast-growing market.
AEGON Philippines
- -----------------
In its first full year of operation, AEGON's start-up in the Philippines
launched a promising venture with the World Marketing Alliance aimed at
replicating in this key Asian market the successful partnership enjoyed by AEGON
USA and WMA.
Equity and subordinated loans
- -----------------------------
During 1998 AEGON's capital markets activities were relatively limited.
Shareholders' equity decreased from EUR 8.2 billion to EUR 7.9 billion. A
positive effect was caused by realized and unrealized results on the equity
investment portfolio and exchange rate differences (EUR 390 million). Other
influences on shareholders' equity were retained earnings, share repurchases to
hedge AEGON's staff and management option plans (EUR 491 million), goodwill paid
(EUR 310 million), cash settlement of stock option plans (EUR 273 million), and
the redemption of outstanding convertible bonds for cash rather than through the
issuance of shares (EUR 171 million).
AEGON's only issuance of public debt in 1998 was DEM 150 million of 2 1/2% Bonds
due 2003. AEGON has maintained excellent access to the capital markets through
its USD 1,500 million Euro Medium Term Notes Program. A USD 1,250 million Euro
Commercial Paper Program also facilitates access to international and domestic
money markets when required.
During 1998, short term funding needs were lower than in preceding years as a
result of the sale of FGH BANK. The composition of the capital base did not
change dramatically during 1998. As a percentage of total capital, equity
remained at the same level of 75%, as at year-end 1997. AEGON's capitalization
remains very strong as a result of the capital standards AEGON has imposed on
itself. These self-imposed standards substantially exceed those of regulatory
bodies in the various countries.
In our policy regarding ratings we remain committed to a strategy, which assures
continued financial strength. In addition to our strong credit ratings, this is
reflected in the excellent insurance financial strength ratings assigned by both
Standard & Poor's and Moody's to our operating units in the USA, the
Netherlands, and the UK.
Capital Base
in EUR million 1998 1997
- ---------------------------------------------------------------
Shareholders' Equity 7,934 8,228
Capital securities 904 913
Dated subordinated debt 684 907
Senior debt allocated to insurance activities 1,041 951
- ---------------------------------------------------------------
Total Capital Base 10,563 10,999
Certain effects of US Accounting Principles
- -------------------------------------------
Net income for 1998 based on US Accounting Principles was EUR 1,471 million
compared to EUR 1,518 million in 1997.
An analysis of the difference between Dutch and US Accounting Principles is
provided in Note 22 to the consolidated financial statements.
<PAGE>
-58-
Liquidity and capital resources
Liquidity in the insurance industry generally refers to the ability of a company
to meet all of its cash requirements with funds provided from normal cash flow
from operations.
AEGON's net cash provided by operating activities, calculated in accordance with
International Accounting Standard 7, for the three years ended 1999 amounted to
EUR 21.5, 15.4 and 18.1 billion respectively. Net cash used in investing
activities was EUR 24.1, 12.2 and 19.0 billion respectively, while net cash
provided by (used in) financing activities amounted to EUR 2.4, (3.1) and 0.7
billion for these years.
Cash flows from operations have been sufficient to fund normal operating needs.
Due to continuous positive cash flows, AEGON has never encountered difficulties
in arranging desired short term borrowings. AEGON anticipates that cash flow
will continue to be sufficient to service its fixed and other obligations as
they become due. When capital market circumstances are attractive, AEGON
periodically borrows short term funds to invest in anticipation of premium
receipts expected in the near future from interest-sharing policies in order to
fix a positive spread between the yield earned on the investment and the
interest to be paid on the related policies.
The Company's long-term liabilities increased from EUR 2,303 million at year-end
1998 to EUR 3,703 million at year-end 1999, mainly as a result of the assumed
debt related to the Transamerica acquisition. Subordinated loans increased to
EUR 703 million at year-end 1999 from EUR 684 million at year-end 1998 and
capital securities increased to EUR 1,329 million at year-end 1999 from EUR 904
million at year-end 1998.
AEGON's commercial paper programs are rated A-1+ by Standard & Poor's and P1 by
Moody's, while the outstanding senior debt is rated AA and Aa3 and the
outstanding subordinated debt is rated AA- and A1.
As a holding company, AEGON is dependent on dividends from, and repayment of
debt obligations of its subsidiaries for cash to meet its operating expenses and
pay dividends to its shareholders. Certain of AEGON's direct and indirect
subsidiaries in the US are subject to restrictions on the amount of dividends
and debt repayments that can be made to AEGON and its affiliates. AEGON does not
believe that such restrictions constitute a material limitation on its ability
to meet its obligations.
Subsequent events
On March 1, 2000, AEGON announced that, after reviewing and evaluating the
businesses comprising Transamerica Finance Corporation (TFC) which it had
acquired in connection with the purchase of Transamerica Corporation in July
1999, it has determined to make strategic dispositions of these businesses. The
strategic dispositions under consideration include potential sale, in whole or
in part, as well as joint ventures. These businesses had previously been
classified as non-core. Investment bankers have been retained to assist AEGON in
this process.
On January 10, 2000 AEGON announced that its subsidiary Transamerica Life
Insurance Company of Canada and ING Canada will enter into a strategic marketing
alliance under which Transamerica will acquire 100% of NN Life Insurance Company
and ING Canada will distribute life insurance products manufactured by
Transamerica. Closing of the acquisition is subject to regulatory approval that
is expected by March 31, 2000. After closing, Transamerica will seek regulatory
and policyholder approval to merge Transamerica Life and NN Life into a single
organisation.
On February 21, 2000 the management boards of Rodamco Continental Europe (RCE)
and AMVEST announced that they jointly investigate the possibility of combining
their retail and office activities. Assets are expected to be acquired mainly by
issuing RCE shares to the two current shareholders in AMVEST, namely AEGON and
PGGM.
<PAGE>
-59-
On March 14, 2000 AEGON announced that Dexia, the European banking group and
AEGON N.V have entered into exclusive negotiations concerning Dexia's
acquisition of Labouchere, hitherto fully owned by AEGON, through Banque
Internationale a Luxembourg. Completion of the transaction is subject to the
approval of the Supervisory Boards of both companies and of the respective
regulatory authorities. The acquisition price will amount to approximately EUR
900 million and the transaction is expected to be effected this summer.
ITEM 9A MARKET RISK
As an international life insurance company, AEGON is exposed to currency
fluctuations, to changes in the market value of its investments, the impact of
interest rate changes and changes in mortality and longevity. In the normal
course of business, AEGON employs established policies and procedures to manage
its exposures to changes in interest rates and fluctuations in the value of
currencies using a variety of financial instruments. AEGON also closely monitors
its exposure to non-financial market risks in its mortality risk analyses and
counterparty risk, reinsurance and IT standards. AEGON uses common derivative
financial instruments such as interest rate swaps, options, futures and foreign
exchange contracts to hedge its exposures related to both investments and
borrowings. AEGON does not hold or issue derivative instruments for speculative
trading purposes.
The local investment departments of the AEGON Group units are responsible for
managing their investment portfolios. Their investment policies are guided by
sound Asset and Liability Management principles. This approach applies
throughout the various Group units.
Sensitivity analyses are performed on Group level, in close cooperation with the
business units, in order to quantify exposures of the Group to a wide array of
risks. The sensitivity analysis on forecasted 2000 net income and shareholders
equity - presented in the table below - is performed for each risk category
independently. No assumptions are made regarding correlations between markets or
risks, possible management actions or changing conditions for all other assets
and liabilities. It should be noted that the effects presented only relate to
2000 forecasted net earnings and shareholders' equity; no conclusions should be
drawn for subsequent years.
By the nature of its business, the AEGON Group is exposed to interest rate risk.
The sensitivity analysis shows, however, that because of the balance between
interest sensitive and non-interest sensitive liabilities, the potential effect
of interest rate changes on forecasted 2000 net income is minimal. A
simultaneous decrease of worldwide interest rates of 1% from the current levels
would have a positive effect on earnings of approximately 1.5%. Conversely, an
increase of worldwide interest rates of 1% would have a 1% negative influence on
earnings.
The portfolio yields in all our country units continue to be substantially
higher than the minimum rate guarantees on our insurance liabilities. Our assets
are managed to be aligned with the technical provisions for that part of our
portfolio for which we guarantee a minimum return. Also, for new production, the
yields on acquired assets comfortably exceed guaranteed levels.
Currency risk is managed based on AEGON's currency policies. For investments,
these policies are based on assets and liabilities management principles. Equity
held in subsidiaries is kept in local currencies to the extent shareholders'
equity is required to satisfy regulatory and self imposed capital requirements.
This ensures that capital held by Group units will support the local insurance
businesses irrespective of currency movements. However, this may result in
effects on AEGON's consolidated shareholders' equity expressed in euro. The
remainder of AEGON's capital base (capital securities and subordinated and
senior debt) is held in various currencies relative to the book value AEGON's
activities in those currencies. As a result, AEGON's debt/equity ratio will not
be materially affected by currency volatility. In 1999, AEGON decided to end its
policy of hedging the income streams from AEGON's main non-Dutch Group units for
the translation to euros beginning in 2000. As a result, earnings may fluctuate
due to currency translation.
The sensitivity analysis shows the effect of movements in the exchange rates of
15% of AEGON's most important currencies (the US dollar and the pound sterling)
relative to the euro on forecasted net income and shareholders' equity. The
table below shows that a decrease of 15% in non-euro currency rates would result
in a negative impact on net income of around 9% and on shareholders' equity of
approximately 10 %. Conversely, an increase of 15% in these exchange rates would
result in a positive impact on net income of 9% and on
<PAGE>
-60-
shareholders' equity of 10%. Movements of other currency exchange rates have an
immaterial impact on net income and shareholders' equity.
AEGON's accounting policy of deferring and amortizing capital gains on equity
and real estate investments in the general account portfolio makes our net
income less sensitive to the effects of volatile equity markets than it would
otherwise be. However, as equities held for account of policyholders becomes
more significant, net income will become more sensitive to the fees related to
these assets. Net income would be approximately 4.5% lower and shareholders'
equity approximately 9% lower after a decrease of 15% in equity and real estate
markets. Conversely, an increase of 15% in these markets would result in a
positive impact on net income of 4.5% and on shareholders' equity of 9%. AEGON
is not directly exposed to commodity markets.
For US GAAP purposes, net income is more volatile as equity and real estate
gains are recognized when realized. A meaningful US GAAP net income sensitivity
is not practicable, as changes in the market may not coincide with the timing of
the realization.
As a consequence of the insurance and savings features in our products, the
AEGON Group is exposed to mortality and longevity risk. On a regular basis we
perform sensitivity analyses, which quantify the effect of mortality and
longevity developments on our portfolios and technical provisions. If life
expectancy would increase by one year, compared to our existing reserving basis,
the positive effect on the technical provisions would be less than 0.5%. This
implies that the AEGON Group has a well-balanced portfolio, in terms of
mortality and longevity. Therefore, changes to mortality and longevity
developments are not a current concern relative to our strong reserving basis.
<PAGE>
-61-
<TABLE>
<CAPTION>
Sensitivity analysis
On forecasted 2000 earnings and shareholders' equity(1)
Effects on
Movement of markets Effects on net income shareholders' equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate markets(2)
Parallel yield curve shift up of 100 basis points between (0.5)% and (1.5)% -
Parallel yield curve shift down of 100 basis points between 1.0% and 2.0% -
Currency markets(3)
Increase versus the euro of 15% between 8.5% and 9.5% between 9.5% and 10.5%
Decrease versus the euro of 15% between (8.5)% and (9.5)% between (9.5)% and (10.5)%%
Equity and real estate markets(4)
Increase of equity and real estate markets of 15% between 4.0% and 5.0% between 8.5% and 9.5%
Decrease of equity and real estate markets of 15% between (4.0)% and (5.0)% between (8.5)% and (9.5)%
</TABLE>
On technical reserves
Effects on technical reserves
- --------------------------------------------------------------------------------
Longevity
Increase in average life expectancy of one year less than (0.5)%
1 Basic assumptions: no correlation between markets and risks; unchanged
conditions for all other assets and liabilities; no management actions
taken; all changes are relative to forecasts for 2000.
2 The effect of interest rate movements is reflected as the effect of a
one-time parallel shift up or down of all relevant yield curves on 1
January 2000.
3 The effect of currency movements is reflected as a one-time shift in value
of the US dollar and the UK pound up or down on 1 January 2000. Movements
of other currencies have a negligible influence on both net income and
shareholders' equity.
4 The effect of movements in equity and real estate markets is reflected as a
one-time increase or decrease of worldwide equity and real estate markets
on 1 January 2000.
Forward-looking information
When included in this report, the words "expects", "intends", "anticipates",
"estimates", and analogous expressions are intended to identify forward-looking
statements. Such statements inherently are subject to a variety of risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include, among others, general economic
and business conditions, competition, changes in financial markets (credit,
currency, commodities and stocks), changes in foreign, political, social and
economic conditions, regulatory initiatives and compliance with governmental
regulations, judicial decisions and rulings, and various other matters, many of
which are beyond the Company's control. These forward-looking statements speak
only as of the date of this Report. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any statement is based.
<PAGE>
-62-
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT
The Company is managed by an Executive Board, which members are employed by
AEGON N.V. The activities of the Executive Board are subject to the general
supervision of the Supervisory Board which appoints the members of the Executive
Board. Members of the Executive Board are appointed for an indefinite period and
generally retire in the year they reach the age of 62.
Certain transactions affecting AEGON as a whole, such as the issuance or
cancellation of shares, application for listing on a stock exchange, major
acquisitions, major capital expenditures and all matters concerning substantial
changes in employee relations require the approval of the Supervisory Board.
The Supervisory Board appoints its own members. The Executive Board, the General
Meeting of Shareholders, and the Central Works Council may recommend candidates.
The latter two also have a right to object to candidates proposed for
appointment by the Supervisory Board. No employee of AEGON is eligible for
appointment to the Supervisory Board. Members of the Supervisory Board are
appointed for a maximum term of four years and may be re-appointed. However,
members are required to retire in the year in which they reach the age of 70.
Set forth below is certain information concerning the members of the Executive
and Supervisory Boards of the Company.
Executive Board
- ---------------
K.J. Storm, 57, of Dutch nationality, Chairman since May 12, 1993. Prior to his
appointment Mr Storm was a member of the Executive Board of AEGON.
P. van de Geijn, 53, of Dutch nationality, member since May 13, 1992. Prior to
his appointment Mr van de Geijn was chairman of the management board of AEGON
Nederland N.V. which is still one of his responsibilities.
F.C. Herringer, 57, of American nationality, member since July 21, 1999, with
responsibilities for activities in Asia and for the non-insurance operations of
Transamerica. Prior to his appointment Mr Herringer was Chairman of the Board
and Chief Executive Officer of Transamerica Corporation.
D.J. Shepard, 53, of American nationality, member since May 13, 1992. Prior to
his appointment Mr Shepard was President and Chief Executive Officer of AEGON
USA, Inc. which continues to be one of his responsibilities.
H.B. van Wijk, 56, of Dutch nationality, member since May 25, 1984 and
responsible for Group staff functions as Finance, Treasury, Actuary, Legal and
Fiscal department.
As per December 31, 1999 members of the Executive Board held an aggregate number
of 599,724 shares in the company and 1,360,000 options on AEGON shares.
As was announced on June 24, 1999 Mr. H.B. van Wijk has expressed his wish to
retire from the Executive Board at the conclusion of the AGM in 2000, to be held
on May 4, 2000. As was also announced on June 24, 1999, the Supervisory Board
intends to appoint Mr. J.B.M. Streppel to the Executive Board, as his successor,
as per the conclusion of the 2000 AGM. After it was decided on 1 March 2000 to
divest the majority of Transamerica's Finance activities, Mr. Frank C. Herringer
has indicated his wish to retire from the Executive Board upon the conclusion of
the AGM on 4 May 2000.
<PAGE>
-63-
Supervisory Board
- -----------------
D.G. Eustace, 63, of British nationality, is a former Vice-Chairman of Royal
Philips Electronics N.V. and a resident of The Netherlands. He joined the Board
in 1997; his current term will end in 2001. He is Chairman of Smit-Nephew
(London, UK) and he is also a member of the Supervisory Board of four Dutch
companies, including Hagemeyer and Royal Dutch Airlines (KLM).
Sir Michael Jenkins, KCMG., 64, of British nationality, is Vice-Chairman of
Dresdner Kleinwort Benson (London, UK). He was appointed in 1995 and his current
term will end in 2003. He is also a former British Ambassador to The Netherlands
and a member of the Trilateral Commission. He is also a member of the
Compensation Committee of the Supervisory Board.
O.J. Olcay, 63, of American nationality, is Vice-Chairman of Fischer, Francis,
Trees & Watts, Inc. (New York, USA). He joined the Board in 1993 and his current
term will end in 2000. He is also a former general partner of W. Greenwell
Associates (New York, USA) and W. Greenwell Company (London, UK). He is also a
member of the Nominating Committee of the Supervisory Board.
Mrs. K.M.H. Peijs, 55, of Dutch nationality, is a member of the European
Parliament. She was appointed in 1992; her current term expires in 2000. She is
also a Supervisory Board member of Vendex International and Mercedes-Benz
Nederland. Mrs. Peijs is a member of the Nominating Committee of the Supervisory
Board.
J.F.M. Peters, 68, of Dutch nationality, is a retired Chairman of the Executive
Board of AEGON N.V. He was appointed in 1993; his current term will end in 2001,
when he will reach the statutory retirement age. He is a member of the
Supervisory Boards of eight Dutch companies, including Randstad Holding and
Samas Groep, and of the Boards of Monsanto Company (St. Louis, USA) and
Kleinwort Endowment Policy Trust Plc. (London, UK) and further holds, among
others, memberships of Trust offices on behalf of a number of Dutch companies.
He is also a member of the Audit Committee of the Supervisory Board.
G.A. Posthumus, 67, of Dutch nationality, is a member of the Council of State in
The Netherlands. He joined the Supervisory Board in 1997; his current term
expires in 2001. He is also a former member of the Executive Board of the I.M.F.
H. de Ruiter, 66, Vice-Chairman and of Dutch nationality, is a retired Managing
Director of Royal Dutch Petroleum Company and Group Managing Director of Royal
Dutch/Shell Group of Companies. He was appointed in 1993; his current term will
end in 2000. He is a member of the Supervisory Boards of six Dutch companies,
among which Royal Dutch Petroleum Company, Royal Ahold and Royal Vopak and a
Board member of Corus Group. He is also a member of the Executive Committee of
Vereniging AEGON and of Trust offices on behalf of some Dutch companies. He is
also a member of, respectively, the Audit, Compensation and Nominating
Committees of the Supervisory Board.
G. van Schaik, 69, Chairman up to and including the AGM to be held on May 4,
2000, and of Dutch nationality, is a retired Chairman of the Executive Board of
Heineken N.V. He was appointed in 1987 and has served as Chairman since 1993;
his current term expires in 2000, due to his reaching the statutory retirement
age. He is a member of the Supervisory Boards of nine Dutch companies, including
DSM, Sara Lee/D.E. and VNU, and further holds, among others, memberships of the
Executive Committee of Vereniging AEGON and of Trust offices on behalf of some
Dutch companies. He is also the Chairman of, respectively, the Audit,
Compensation and Nominating Committees of the Supervisory Board.
W.F.C. Stevens, 62, of Dutch nationality, is a senior partner of Caron &
Stevens/Baker & McKenzie (law firm). He joined the Board in 1997; his current
term will end in 2001. He is a member of the Supervisory Boards of eight
<PAGE>
-64-
Dutch companies, including NIB Capital and TBI Holdings, aside from some Board
memberships which are exercised in relation to his principal occupation. Further
he is a senator in the Dutch Parliament.
M. Tabaksblat, 62, appointed as Chairman as from May 4, 2000, and of Dutch
nationality, is Chairman of Reed Elsevier PLC and a retired Chairman and CEO of
Unilever N.V. He was appointed in 1990; his current term expires in 2001. He is
also a member of the Supervisory Board of TNT Post Groep and of the Board of
VEBA A.G., a member of the Advisory Boards of Ernst & Young, Salomon Smith
Barney (USA) and Renault Nissan. He is a member of the Supervisory Board's Audit
Committee.
F.J. de Wit, 60, of Dutch nationality, is a former Chairman of the Executive
Board of N.V. Koninklijke KNP BT. He was appointed in 1990; his current term
will end in 2000. He is also a member of the Supervisory Boards of three Dutch
companies, including Oce and Royal Ten Cate. He is also a member of the
Supervisory Board's Compensation Committee.
Ownership of AEGON N.V. shares
The aggregate amount of AEGON N.V. common shares owned by the Supervisory Board
members was 26,112 as per December 31, 1999. Members of the Supervisory Board do
not hold options on AEGON N.V. shares.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate compensation including pension and social charges for all members
of the Executive and Supervisory Boards during the year ended December 31, 1999
was EUR 6.5 million (1998: EUR 6.3 million). Members of the Executive Board also
were issued stock options for a total of 400,000 common shares (1998: 400,000)
under a plan similar to the management and staff option plan. These options are
included in the management options, as described in Item 12.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
Senior executives of AEGON companies as well as other AEGON employees have been
offered the possibility to acquire AEGON stock options annually. The options
have been granted at an exercise price equal to the market price of the shares
at the date of the grant. The options granted from 1997 onwards can only be
exercised three years after being granted and then during a period of two years.
Stock options plans can only be established after the prior consent of the
Annual General Meeting. If subsequently the Executive Board decides to implement
stock option plans, that decision has to be approved by the Supervisory Board.
Options granted in earlier years can generally be exercised during a period of
five years. Options granted on behalf of the purchase agreement with Providian
have various expiration dates. The subsequently granted options to senior
executives of former Providian business units fully vest in three years and the
exercise period is up to ten years, the latest ending in August 2008. In
compliance with regulations options cannot be exercised in black-out periods.
<PAGE>
-65-
Stock option plans:
- - 1995 Management options: 2,310,000 exercisable through October 31, 2000 at
a price of EUR 13.59.
- - 1995 Employee options: 2,774,750 exercisable through October 31, 2000 at a
price of EUR 13.59.
- - 1996 Management options: 2,242,000 exercisable through October 31, 2001 at
a price of EUR 19.58.
- - 1996 Employee options: 2,701,350 exercisable through October 31, 2001 at a
price of EUR 19.58.
- - 1997 Management options: 2,216,500 exercisable through October 31, 2002 at
a price of EUR 34.71.
- - 1997 Employee options: 2,523,250 exercisable through October 31, 2002 at a
price of EUR 34.71.
- - 1997 Options related to Providian, 3,359,842 exercisable through August 6,
2007 at a weighted average exercise price of EUR 23.35.
- - 1998 Management options: 2,306,000 exercisable through March 22, 2003 at a
price of EUR 58.04.
- - 1998 Employee options: 3,453,000 exercisable through March 22, 2003 at a
price of EUR 58.04.
- - 1998 Options related to Providian, 242,350 exercisable through August 5,
2008 at a price of EUR 77.30.
- - 1999 Management options: 1,783,050 exercisable through March 4, 2004 at a
price of EUR 93.90.
- - 1999 Employee options: 2,135,800 exercisable through March 4, 2004 at a
price of EUR 93.90.
Weighted average
Number exercise price
of options EUR
Balance at January 1, 1997 13,823,060 13.79
Issued 4,739,750 34.71
Issued options Providian 3,359,842 23.35
Exercised (5,342,606) 14.19
Lapsed (244,714) 24.24
----------
Balance at December 31, 1997 16,335,332 21.59
Issued 5,759,000 58.04
Issued options Providian 242,350 77.30
Exercised (6,390,473) 14.49
Lapsed (208,833) 26.87
----------
Balance at December 31, 1998 15,737,376 38.46
Issued 3,918,850 93.90
Exercised (1,384,789) 15.47
Lapsed (137,423) 43.33
----------
Balance at December 31, 1999 18,134,014 52.50
All numbers and prices are adjusted for the stock-split in 1995 and 1998 as
appropriate.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
In connection with the acquisition of Transamerica, AEGON entered into three
agreements with Vereniging AEGON, its largest shareholder, which has voting
control of AEGON, whereby Vereniging AEGON provided a portion of the required
common shares necessary to complete the acquisition transaction. Pursuant to the
agreements, AEGON purchased 15.3 million common shares from Vereniging AEGON.
Vereniging AEGON was also issued 55.0 million preferred shares at a price of NLG
0.50 per share (the par value) in order to preserve its voting control in AEGON.
Related to the acquisition of the life insurance operations of Guardian Royal
Exchange AEGON NV issued 8.3 million new common shares in a private placement to
Vereniging AEGON.
<PAGE>
-66-
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
None.
ITEM 18. FINANCIAL STATEMENTS
Note 22 includes a discussion of net income and shareholders' equity based upon
United States generally accepted accounting principles.
ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS
<TABLE>
<S> <C>
(a) Index of financial statements: Page
----
Report of independent auditors 67
Consolidated Balance Sheets 68
Consolidated Income Statements 70
Consolidated Cash Flow Statements 74
Notes to the Consolidated Financial Statements 75
List of Schedules:
I Summary of investments - other than investments in related parties 140
II Financial statements AEGON N.V. (Parent Company only) 141
III Supplementary insurance information 143
IV Reinsurance 144
V Valuation and qualifying accounts 145
(b) Index of Exhibits:
12.1 Ratio of earnings to fixed charges 146
23.1 Consent of independent auditors with respect to consolidated
financial statements and schedules of AEGON N.V. 147
</TABLE>
The Company agrees to furnish to the Securities and Exchange Commission upon
request copies of instruments with respect to long-term debt of the Company and
its consolidated subsidiaries.
<PAGE>
-67-
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated balance sheets of AEGON N.V. as of
December 31, 1999 and 1998, and the related consolidated income statements and
cash flow statements for each of the three years in the period ended December
31, 1999. Our audits also included the financial statement schedules listed in
the Index at Item 19 (a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in The Netherlands and the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of AEGON N.V. at
December 31, 1999 and 1998 and the consolidated results of their operations and
their cash flows for each of the three years in the period ended December 31,
1999 in conformity with generally accepted accounting principles in The
Netherlands. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein. As
described in Notes 22 and 23 of Notes to the Consolidated Financial Statements,
the Company's policy is to prepare its financial statements in accordance with
accounting principles generally accepted in The Netherlands (Dutch Accounting
Principles). Accounting principles generally accepted in The Netherlands vary in
certain material respects from accounting principles generally accepted in the
United States. An explanation of these differences, insofar as the determination
of net income and shareholders equity, expressed in euros, is concerned, is
presented in Note 22 of Notes to the Consolidated Financial Statements.
Ernst & Young Accountants
The Hague, The Netherlands
March 9, 2000
<PAGE>
-68-
Consolidated Balance Sheets at December 31 (after profit appropriation)
In Accordance with Dutch Accounting Principles
Amounts in millions
<TABLE>
<CAPTION>
Note 1999 1999 1998
number NLG EUR EUR
Investments
<S> <C> <C> <C> <C>
Real estate 1 5,639 2,559 2,087
Group companies and participations 2 8,817 4,001 362
Other financial investments 3 234,477 106,401 64,284
Deposits with ceding undertakings 4 62 28 24
------- ------- ------
248,995 112,989 66,757
Investments for the account of policyholders 5 238,609 108,276 58,344
Receivables
Receivables out of direct insurance 6 2,922 1,326 928
Receivables out of reinsurance 2,437 1,106 152
Other receivables 7 4,668 2,118 2,522
------- ------- ------
10,027 4,550 3,602
Other assets
Equipment 8 355 161 123
Liquid assets 9 2,124 964 1,125
Other assets 811 368 109
------- ------- ------
3,290 1,493 1,357
Prepayments and accrued income
Accrued interest and rent 3,074 1,395 1,045
Other prepayments and accrued income 231 105 91
------- ------- ------
3,305 1,500 1,136
------- ------- ------
Total assets 504,226 228,808 131,196
</TABLE>
<PAGE>
-69-
<TABLE>
<CAPTION>
Note 1999 1999 1998
number NLG EUR EUR
<S> <C> <C> <C> <C>
Capital and reserves 10 29,845 13,543 7,934
Capital securities 11 2,929 1,329 904
Subordinated (convertible) loans 12 1,549 703 684
------- ------- -------
Equity and subordinated loans 34,323 15,575 9,522
Technical provisions 13
Life insurance 183,005 83,044 42,688
Unearned premiums and unexpired risks 1,177 534 391
Claims outstanding 3,953 1,794 1,680
Profit sharing and rebates 489 222 167
Other technical provisions 1,380 626 593
------- ------- -------
Gross 190,004 86,220 45,519
Reinsurers' share (9,589) (4,351) (904)
------- ------- -------
180,415 81,869 44,615
Technical provisions with investments
for the account of policyholders 14
Gross 239,330 108,603 58,526
Reinsurers' share (721) (327) (182)
------- ------- -------
238,609 108,276 58,344
Provisions 15 4,930 2,237 890
Long-term liabilities 16 8,160 3,703 2,303
Current liabilities
Payables out of direct insurance 6,832 3,100 2,663
Payables out of reinsurance 264 120 125
Amounts owed to credit institutions 10,170 4,615 3,149
Entrusted savings accounts and deposits 11,666 5,294 5,041
Other payables 17 6,609 2,999 3,206
------- ------- -------
35,541 16,128 14,184
Accruals and deferred income 18 2,248 1,020 1,338
------- ------- -------
Total liabilities 504,226 228,808 131,196
</TABLE>
<PAGE>
-70-
Summarized Consolidated Income Statements
In Accordance with Dutch Accounting Principles
<TABLE>
<CAPTION>
Amounts in millions
Note 1999 1999 1998 1997
number NLG EUR EUR EUR
<S> <C> <C> <C> <C> <C>
Revenues
Gross premiums 33,012 14,980 11,550 9,532
Investment income 21(d) 14,743 6,690 5,003 4,001
Income from banking activities 21(e) 1,551 704 626 674
------ ------ ------ ------
Total revenues 21(a) 49,306 22,374 17,179 14,207
Benefits and expenses
Premiums to reinsurers 2,658 1,206 525 514
Benefits to policyholders 16,828 7,636 5,887 4,603
Change in technical provisions 21(f) 13,963 6,336 5,254 4,132
Profit sharing and rebates 21(g) 2,054 932 571 741
Commissions and expenses 21(h) 7,094 3,219 2,485 2,062
Interest charges 1,672 759 738 744
Miscellaneous income and expenditure 21(j) 231 105 85 124
------ ------ ------ ------
Total benefits and expenses 44,500 20,193 15,545 12,920
------ ------ ------ ------
Income before tax 4,806 2,181 1,634 1,287
Corporation tax 21(l) (1,346) (611) (387) (286)
------ ------ ------ ------
Net income 3,460 1,570 1,247 1,001
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
-71-
Consolidated Income Statements
In Accordance with Dutch Accounting Principles
Amounts in millions
Technical Account Life
Insurance Note 1999 1999 1998 1997
number NLG EUR EUR EUR
Premiums for own account
Gross premiums 28,212 12,802 9,413 7,489
Premiums to reinsurers (1,867) (847) (139) (121)
------- ------- ------- -------
21(b) 26,345 11,955 9,274 7,368
Investment income 21(d) 13,901 6,308 4,653 3,729
Investment income for the account
of policyholders 29,823 13,533 8,466 6,523
Benefits and surrenders own
account
Benefits to policyholders
Gross (15,677) (7,114) (4,911) (3,700)
Reinsurers' share 1,333 605 121 72
------- ------- ------- -------
(14,344) (6,509) (4,790) (3,628)
Change in other technical
provisions own account
Provision for life insurance
Gross (43,884) (19,914) (13,567) (10,501)
Reinsurers' share 626 284 6 28
------- ------- ------- -------
(43,258) (19,630) (13,561) (10,473)
Other technical provisions (75) (34) (30) (30)
------- ------- ------- -------
(43,333) (19,664) (13,591) (10,503)
Profit sharing and rebates 21(g) (2,054) (932) (571) (741)
Operating expenses 21(h) (4,954) (2,248) (1,640) (1,287)
Investment charges 21(i) (492) (223) (158) (152)
Other technical charges own
account 21(j) (207) (94) (62) (90)
------- ------- ------- -------
4,685 2,126 1,581 1,219
Investment income allocated
to the non-technical account 21(k) (1,582) (718) (585) (436)
------- ------- ------- -------
Result technical account life 3,103 1,408 996 783
See Notes to the Consolidated Financial Statements
<PAGE>
-72-
Technical Account Non-Life Insurance
Note 1999 1999 1998 1997
number NLG EUR EUR EUR
Premiums earned for own account
Gross premiums 4,800 2,178 2,137 2,043
Premiums to reinsurers (791) (359) (386) (393)
------ ------ ------ ------
4,009 1,819 1,751 1,650
Change in technical provision
unearned premiums and unexpired
risks
Gross (320) (145) (92) (67)
Reinsurers' share (73) (33) 11 (4)
------ ------ ------ ------
(393) (178) (81) (71)
------ ------ ------ ------
3,616 1,641 1,670 1,579
Investment income 21(d) 644 292 251 208
Claims for own account
Claims incurred
Gross (3,103) (1,408) (1,370) (1,247)
Reinsurers' share 619 281 273 271
------ ------ ------ ------
(2,484) (1,127) (1,097) (976)
Change in provision for claims
Gross (60) (27) (53) (110)
Reinsurers' share 0 0 5 30
------ ------ ------ ------
(60) (27) (48) (80)
------ ------ ------ ------
(2,544) (1,154) (1,145) (1,056)
Operating expenses 21(h) (1,355) (615) (617) (569)
Investment charges 21(i) (44) (20) (6) (2)
Other technical charges own
account 21(j) (4) (2) (8) (11)
------ ------ ------ ------
313 142 145 149
Investment income allocated to
the non-technical account 21(k) (112) (51) (56) (56)
------ ------ ------ ------
Result technical account
non-life 21(c) 201 91 89 93
<PAGE>
-73-
Non-Technical Account
<TABLE>
<CAPTION>
Note 1999 1999 1998 1997
number NLG EUR EUR EUR
<S> <C> <C> <C> <C> <C>
Result technical account
life insurance 3,103 1,408 996 783
Result technical account
non-life insurance 201 91 89 93
Investment income 21(d) 198 90 99 63
Income from banking activities 21(e) 1,551 704 626 674
Allocated investment income
transferred from technical accounts 21(k) 1,694 769 641 492
Operating expenses banking activities 21(h) (465) (211) (147) (139)
Investment charges 21(i) (1,456) (661) (655) (656)
Miscellaneous income and expenditure 21(j) (20) (9) (15) (23)
------ ----- ----- -----
Income before tax 4,806 2,181 1,634 1,287
Corporation tax 21(l) (1,346) (611) (387) (286)
------ ----- ----- -----
Net income 3,460 1,570 1,247 1,001
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
-74-
Consolidated Cash Flow Statements
in Accordance with Dutch Accounting Principles
Amounts in millions 1999 1999 1998 1997
NLG EUR EUR EUR
Cash flow from operating activities
Net income 3,460 1,570 1,247 1,001
Increase technical provisions after
reinsurance 45,782 20,775 13,056 15,379
Change in provisions 474 215 (20) (144)
Amortization of policy acquisition
costs 1,950 885 654 486
Amortization of interest rate rebates 254 115 118 114
Depreciation of equipment 119 54 44 57
Change in current liabilities 5,033 2,284 1,272 2,009
Change in entrusted funds 557 253 696 642
Deferred policy acquisition costs (3,261) (1,480) (1,031) (906)
Interest rate rebates granted (37) (17) (47) (59)
Change in receivables (6,706) (3,043) (503) (329)
Other (214) (97) (64) (126)
------- ------- ------- -------
47,411 21,514 15,422 18,124
Cash flow from investing activities
Invested and acquired
Real estate and shares (4,745) (2,153) (2,027) (2,976)
Shares of group companies from
third parties (10,799) (4,900) (342) (1,633)
Other investments (85,751) (38,912) (28,334) (33,520)
Equipment (223) (101) (83) (73)
Disposed and redeemed
Real estate and shares 6,554 2,974 2,592 3,907
Shares of group companies to
third parties 278 126 691 662
Other investments 83,197 37,753 26,476 23,406
Equipment 20 9 30 11
Indirect return real estate and shares (868) (394) (265) (228)
Change in investments for account of
policyholders (40,660) (18,451) (10,955) (8,607)
------- ------- ------- -------
(52,997) (24,049) (12,217) (19,051)
Cash flow from financing activities
Change in long-term liabilities 1,453 660 (1,444) (5)
Repurchased own shares (694) (315) (491) 0
Issuance of common shares 1,501 681 0 0
Issuance of preferred shares 27 12 0 0
Withdrawal preferred shares 0 0 (9) 0
Change in deposits withheld from
reinsurers 0 0 (11) 0
Options exercised 11 5 16 21
Cash settlement subordinated
convertible loan (152) (69) (171) (131)
Dividend paid (1,073) (487) (378) (266)
Annuity deposits 38,444 17,445 6,723 4,679
Annuity repayments (34,286) (15,558) (7,324) (3,621)
------- ------- ------- -------
5,231 2,374 (3,089) 677
Change in liquid assets (355) (161) 116 (250)
<PAGE>
-75-
The cash flow statement has been set up according to the indirect method and
also complies with International Accounting Standard No. 7. Only those changes
affecting liquid assets have been taken into account. The effects of revaluation
and currency exchange rate differences have therefore not been included. The
influence of currency exchange rate differences on liquid assets kept in foreign
currencies is not material. Also see Note 23 (q)-Acquisitions for non-cash
information regarding the Transamerica acquisition.
Notes to the Consolidated Financial Statements
These financial statements have been drawn up in accordance with the rules for
financial statements of insurance companies in The Netherlands, embodied in
Section 15 of Title 9, Book 2 of the Dutch Civil Code. A summarized consolidated
income statement has been added to the required formats for balance sheet and
profit and loss account in order to present a comprehensible view of the results
of the AEGON Group. Also AEGON's current accounting policies are within the
scope of the guidelines of the Netherlands Council for Annual Reporting.
For the first time the financial statements have been drawn up in euros, with
joined figures in Dutch guilders for the current year.
In order to better reflect its characteristics, classification of the Monthly
Income Preferred Stock (MIPS) was changed from long-term liabilities to a
separate category within equity and subordinated loans (capital securities) at
year end. To provide a better insight in the underlying earnings development of
the business units, expenses related to the Group overhead are no longer
included in the technical accounts and recognized in the non-technical account.
The previous years' figures have been adjusted accordingly.
On January 12, 1999 AEGON announced a definitive agreement to sell the former
Providian property and casualty business to American Financial Group. The sale
was closed at April 8, 1999.
On March 30, 1999 AEGON called off the announced merger of Labouchere N.V. and
AOT N.V. As this business is considered being non-core, in anticipation of its
sale, Labouchere was deconsolidated in the balance sheet at year end and
included as unconsolidated holding. The consolidated income statements fully
reflect the results from this subsidiary over the financial year.
On July 21, 1999 AEGON completed the acquisition of Transamerica Corporation,
established in the United States. The acquisition was realized through a cash
payment of EUR 22.50 (USD 23.40) plus 0.71813 AEGON shares in exchange for each
Transamerica Corporation share. In total, the number of AEGON common shares
exchanged was 89,548,182. Of this, AEGON N.V. issued 74,244,755 new shares and
obtained 15,303,427 shares from Vereniging AEGON. As part of the transaction new
preferred shares with a total par value of NLG 27.5 million (USD 13.0 million)
were issued to Vereniging AEGON. AEGON also assumed Transamerica's holding
company debt for an amount of EUR 1.0 billion (USD 1.1 billion), which has been
recognized partly under capital securities and partly under long-term
liabilities.
As of the date of completion of the acquisition, the results of the insurance
activities have been included in the Group's annual accounts. The effect on the
growth in net income per share amounts to 3%.
As of the date of completion of the acquisition, the Transamerica non-insurance
businesses have not been consolidated, but are included in the balance sheet as
a single line presentation in "Group companies and participations". AEGON's core
business focus led to the announced intention to sell these activities. The
value in the balance sheet reflects the fair value of the acquired business. In
the income statement dividends declared have been recognized to offset funding
costs on the related raised debt, resulting in a neutral effect on AEGON's
earnings.
<PAGE>
-76-
On October 7, 1999 the acquisition of the UK life insurance operations of
Guardian Royal Exchange was completed. The acquisition was paid in cash. Related
to this transaction AEGON N.V. issued 8,300,829 new common shares in a private
placement to Vereniging AEGON. The results of the acquired businesses are
included into AEGON's accounts as from July 1, 1999 and had an additional small
effect on the earnings and earnings per share.
On December 24, 1999 AEGON reached an agreement with Alleanza Assicurazioni
(Generali) on the acquisition of the life insurance company Covadonga S.A.,
established in Madrid. The acquired company is included in the consolidated
balance sheet at year end.
Consolidation principles
In the consolidated financial statements of AEGON N.V. all the group companies
have been included, except for some group companies for which the aggregate
effect is insignificant and others which are not intended to be held for a long-
term ownership. Participations in joint ventures have been consolidated
proportionally. Due to their insignificance the minority interests are included
under the caption Current Liabilities. With regard to the income statements of
AEGON N.V., article 402, Book 2 of the Dutch Civil Code is applicable.
Derivatives
AEGON uses derivative financial instruments to hedge interest rate risks and
foreign currency risks related to investments and debt. Derivatives are not used
for trading purposes. Derivatives included in the balance sheet, such as options
on shares and bonds and also futures, are valued at market value or at the
amounts received on written options. Foreign currency amounts are converted at
the year-end exchange rates. Realized and unrealized results on derivative
financial instruments are recognized in the same period and likewise as the
results of the related investments and debt. Notional amounts of foreign
currency contracts and interest rate contracts are not included in the balance
sheet and are shown, together with other off balance sheet derivatives, under
commitments and contingencies. They represent aggregate notional amounts only
and are therefore not a measure of the exposure of the company.
Foreign currency
Assets and liabilities in foreign currencies are converted at the year-end
exchange rates after consideration of transfer risks, where necessary. Income
statement items in foreign currencies are converted at the average currency
exchange rates for the reporting period. Currency exchange rate differences
resulting from using year-end exchange rates as well as average exchange rates
are charged or credited directly to shareholders' equity under the caption
Currency Exchange Rate Differences. Currency exchange rate differences from non-
hedging shareholders' equity of subsidiaries not accounted for in euro,
including results and related costs from the hedging transactions on those
subsidiaries, are also charged or credited to shareholders' equity under the
caption Currency Exchange Rate Differences. All other currency exchange rate
differences are included in the income statements.
<PAGE>
-77-
The most important closing rates are:
1999 1998
Dutch Guilder (NLG) 2.20371 2.20371
US Dollar (USD) 1.00460 1.16672
Swiss Franc (CHF) 1.60550 1.60778
Pound Sterling (GBP) 0.62170 0.70541
German Mark (DEM) 1.95583 1.95583
Spanish Peseta (ESP) 166.38600 166.38600
Japanese Yen (JPY) 102.73000 132.83363
Hungarian Forint (HUF) 254.92000 251.56507
<PAGE>
-78-
Notes to the Consolidated Balance Sheets
Amounts in millions
Accounting principles
Where not otherwise stated, balance sheet items are carried at face value. If
necessary a provision for bad and doubtful debts is deducted. Assets and
liabilities from banking activities and gains and losses on these activities are
accounted for in accordance with the rules for banks.
1999 1999 1998
NLG EUR EUR
(1) Real estate
Real estate for own use 769 349 175
Other real estate 4,870 2,210 1,912
------ ------ ------
5,639 2,559 2,087
Real estate is shown at market value, being the selling-value under normal
market circumstances. Each property is revalued at least once in every 5 year
period. Valuation is for a large part based on external appraisal. In 1999 the
revaluation included 97% of the portfolio. New property is valued at
construction cost including interest during the construction period, or at
purchase price. Unrealized and realized gains and losses on real estate
investments as well as results, expenses and currency exchange rate differences
from hedging transactions are recognized in the Revaluation account, taking into
account the related (deferred) taxes. The participation in AMVEST Vastgoed is
accounted for under this caption. Purchase price of the portfolio amounts to EUR
2,163 million (1998: EUR 1,914 million).
1999 1999 1998
NLG EUR EUR
(2) Group companies and participations
Shares in group companies 725 329 21
Loans to group companies 802 364 287
Other participations 7,241 3,286 50
Loans to other participations 49 22 4
------ ------ ------
8,817 4,001 362
Interests in companies in which AEGON is able to influence operating policy, as
well as group companies which are not consolidated because of their
insignificance, are accounted for by inclusion of AEGON's proportion of the
equity and the net income of the companies. Loans to group companies and
participations are valued at face value. Interests in short term holdings are
valued at cost less provisions where necessary. Dividends declared are included
in the consolidated income statements. The Transamerica non-insurance businesses
and Labouchere are accounted for under other participations and shares in group
companies respectively.
<PAGE>
-79-
1999 1999 1998
NLG EUR EUR
(3) Other financial investments
Shares 18,753 8,510 5,128
Bonds and other fixed rate securities 125,036 56,739 30,977
Loans guaranteed by mortgages 35,557 16,135 11,418
Other loans 47,347 21,485 13,413
Deposits with credit institutions 1,360 617 662
Other financial investments 6,424 2,915 2,686
------- ------- -------
234,477 106,401 64,284
Shares 18,753 8,510 5,128
Shares and convertible debentures reported under this caption are valued at
their quoted price or, if unquoted, at estimated market value. Unrealized and
realized gains and losses on the share investments as well as results, expenses
and currency exchange rate differences from hedging transactions are recognized
in the Revaluation account, taking into account the related (deferred) taxes.
When optional dividend is taken up in shares, an amount equal to the cash
dividend is credited to income. The participation in AEGON Aandelenfonds N.V. is
also accounted for under this caption. Purchase price of the portfolio amounts
to EUR 4,983 million (1998: EUR 3,169 million).
Bonds and other fixed rate securities 125,036 56,739 30,977
Bonds are shown at amortized cost representing the cash value at the balance
sheet date of future interest and principal repayment components based on the
effective interest rate on the date of acquisition. The other fixed rate
securities include preferred shares and money market investments. Preferred
shares are valued at amortized cost; money market investments are valued at
cost. Realized gains and losses from transactions within the bonds and private
placements portfolios are deferred and released to the income statements in
annual installments over the estimated average remaining maturity term of the
investments sold.
Redemption value of the bonds 129,241 58,647 29,380
Deferred purchase differences (13,099) (5,944) (574)
------- ------- -------
Amortization value bonds 116,142 52,703 28,806
Other fixed rate securities 8,894 4,036 2,171
------- ------- -------
125,036 56,739 30,977
Market value of these investments amounts to EUR 55,561 million (1998: EUR
32,016 million). For a proper understanding it should be noted that this market
value is not part of the matching of these investments with the related
insurance liabilities, which are not stated at market value either. The
provision for doubtful debts for these investments amounts to EUR 137 million
(1998: EUR 116 million).
<PAGE>
-80-
1999 1999 1998
NLG EUR EUR
Loans guaranteed by mortgages 35,557 16,135 11,418
Loans guaranteed by mortgages are valued at redemption value. Discount granted
is deferred over the contractual period of interest fixation. Market value of
the portfolio amounts to EUR 15,952 million (1998: EUR 12,155 million). As no
market exists for these investments, market value is calculated based on
interest, maturity and risk assumptions. For a proper understanding it should be
noted that this market value is not part of the matching of these investments
with the related insurance liabilities, which are not stated at market value
either. The provision for doubtful debts for these investments amounts to EUR
166 million (1998: EUR 134 million).
Other loans 47,347 21,485 13,413
Private placements are shown at amortized cost representing the cash value at
the balance sheet date of future interest and principal repayment components
based on the effective interest rate on the date of acquisition. Realized gains
and losses from transactions within the private placements and bond portfolios
valued at amortized cost are released to the income statements in annual
installments over the estimated average remaining maturity term of the
investments sold.
Redemption value 48,978 22,225 13,727
Deferred purchase differences (1,631) (740) (314)
------- ------- -------
Amortization value 47,347 21,485 13,413
Market value of the portfolio amounts to EUR 21,193 million (1998: EUR 13,998
million). As no market exists for these investments, market value is calculated
based on interest, maturity and risk assumptions. For a proper understanding it
should be noted that this market value is not part of the matching of these
investments with the related insurance liabilities, which are not stated at
market value either. The provision for doubtful debts for these investments
amounts to EUR 67 million (1998: EUR 19 million).
Deposits with credit institutions 1,360 617 662
This item relates to amounts that can be called up after a certain period of
time, the period exceeding one year. Market value of the deposits is equated
with book value.
Other financial investments
Policy loans 3,184 1,445 844
Receivables out of share lease
agreements and others 3,240 1,470 1,842
------- ------- -------
6,424 2,915 2,686
Market value of Other financial investments is equated with book value. The
provision for doubtful debts for these investments amounts to EUR 32 million
(1998: EUR 36 million).
<PAGE>
-81-
1999 1999 1998
NLG EUR EUR
(4) Deposits with ceding undertakings 62 28 24
Debentures related to reinsurance contracts that are not at free disposal.
Market value amounts to EUR 28 million (1998: EUR 24 million).
Changes in investments
<TABLE>
<CAPTION>
Currency
exchange
rate Balance Balance
Balance at Disposed differences at at
January 1 and Revalu- and other December December
1999 Acquired redeemed ations changes/1/ 31, 1999 31, 1999
EUR EUR EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate 2,087 143 (95) 122 302 2,559 5,639
Group companies and
participations 362 333 (126) - 3,432 4,001 8,817
Shares 5,128 2,010 (2,879) 1,258 2,993 8,510 18,753
Bonds and other fixed
rate securities 30,977 26,195 (29,034) - 28,601 56,739 125,036
Loans guaranteed by
mortgages 11,418 5,726 (2,790) - 1,781 16,135 35,557
Other loans 13,413 5,749 (5,330) - 7,653 21,485 47,347
Deposits with credit
institutions 662 24 (72) - 3 617 1,360
Other financial investments 2,686 1,215 (527) - (459) 2,915 6,424
Deposits with ceding
undertakings 24 3 0 - 1 28 62
------- ------- ------- ------- ------- ------- -------
Total 66,757 41,398 (40,853) 1,380 44,307 112,989 248,995
Balances and changes of 1998 68,345 30,374 (29,423) 776 (3,315) 66,757
</TABLE>
/1/ Mainly caused by acquisitions (EUR 39,361 million), deconsolidation (EUR-
1,483 million) and the remainder by currency exchange rate differences on
investments not accounted for in euro.
(5) Investments for the account of policyholders
Investments for the account of policyholders and insurance-linked savings
deposits are investments of which the investment risk is borne by the
policyholders. They are valued at market value. Separate investments for group
life contracts with full profit sharing are valued according to the principles
of the related contracts. Total return of these investments is accounted for in
the technical account life insurance on a separate line.
<PAGE>
-82-
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
Balance at January 1 128,573 58,344 49,949
Acquired 55,802 25,322 10,196
Disposed and redeemed (15,831) (7,184) (284)
Currency exchange rate differences and other changes1 70,065 31,794 (1,517)
-------- -------- --------
Balance at December 31 238,609 108,276 58,344
</TABLE>
1 Mainly caused by acquisitions (EUR 24,710 million) and for the remainder by
revaluations and by currency exchange rate differences on investments not
accounted for in euro.
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
(6) Receivables out of direct insurance
Policyholders 1,988 902 549
Agents 934 424 379
-------- -------- --------
Total receivables out of direct insurance 2,922 1,326 928
</TABLE>
The provision for doubtful debts for these receivables amounts to EUR 16 million
(1998: EUR 65 million).
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
(7) Other receivables
Investment receivables 522 237 163
Receivables from stockbroking transactions - - 1,191
Other 4,146 1,881 1,168
-------- -------- --------
Total other receivables 4,668 2,118 2,522
</TABLE>
Other receivables include items to the amount of EUR 626 million maturing within
one year. The remaining items have terms maturing beyond one year. The provision
for doubtful debts for these receivables amounts to EUR 14 million (1998: EUR 6
million).
<PAGE>
-83-
(8) Equipment
Equipment is shown at original cost less depreciation over the estimated useful
life.
<TABLE>
<CAPTION>
Office
furniture
Computer & other Total Total
installations equipment equipment equipment
EUR EUR EUR NLG
<S> <C> <C> <C> <C>
Total cost of equipment 250 550
Accumulated depreciation (127) (279)
---- ----
Balance at January 1, 1999 57 66 123 271
Investments 63 38 101 223
Depreciation (30) (24) (54) (119)
Disposals and other changes (4) (5) (9) (20)
------ ------ ------ ------
Balance at December 31, 1999 86 75 161 355
Accumulated depreciation 154 339
------ ------
Total cost of equipment 315 694
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
(9) Liquid assets
Cash on hand and balances with banks 848 385 571
Short term investments 1,276 579 554
------ ------ ------
Total liquid assets 2,124 964 1,125
</TABLE>
All liquid assets are freely disposable.
<TABLE>
<CAPTION>
Common Preferred
shares shares Total Total
EUR EUR EUR NLG
<S> <C> <C> <C> <C>
(10) Capital and reserves
Share capital
Authorized 295 159 454 1,000
Unissued 144 94 238 523
------ ------ ------ ------
Issued and outstanding 151 65 216 477
</TABLE>
Vereniging AEGON, based in The Hague, holds all the issued preferred shares.
<PAGE>
-84-
1999 1998
Number of common shares
Balance at January 1 583,180,340 289,863,382
Stock split - 289,863,382
Issuance of shares 82,545,584 -
Stock dividend 2,318,840 2,194,606
Exercise of options 381,380 1,258,970
------------ ------------
Balance at December 31 668,426,144 583,180,340
The 1999 weighted average number of NLG 0.50 common shares was 612,681,284
(1998: 577,277,015). The repurchased own shares are eliminated in the
calculation of the weighted average number of shares.
Stock options
Senior executives of AEGON companies as well as other AEGON employees have been
offered the possibility to acquire AEGON stock options annually. The options
have been granted at an exercise price equal to the market price of the shares
at the date of the grant. The options granted from 1997 onwards can only be
exercised three years after being granted and then during a period of two years.
Stock options plans can only be established after the prior consent of the
Annual General Meeting. If subsequently the Executive Board decides to implement
stock option plans, that decision has to be approved by the Supervisory Board.
Options granted in earlier years can generally be exercised during a period of
five years. Options granted on behalf of the purchase agreement with Providian
have various expiration dates. The subsequently granted options to senior
executives of former Providian business units fully vest in three years and the
exercise period is up to ten years, the latest ending in August 2008. In
compliance with regulations options cannot be exercised in black-out periods.
The following tables set forth the changes in the years 1998 and 1999 as well as
the breakdown of the options outstanding.
Number of Weighted average
options exercise price
Balance at January 1, 1997 13,823,060 13.79
Issued 4,739,750 34.71
Issued options Providian 3,359,842 23.35
Exercised (5,342,606) 14.19
Lapsed (244,714) 24.24
-----------
Balance at December 31, 1997 16,335,332 21.59
Issued 5,759,000 58.04
Issued options Providian 242,350 77.30
Exercised (6,390,473) 14.49
Lapsed (208,833) 26.87
-----------
Balance at December 31, 1998 15,737,376 38.46
Issued 3,918,850 93.90
Exercised (1,384,789) 15.47
Lapsed (137,423) 43.33
-----------
Balance at December 31, 1999 18,134,014 52.50
<PAGE>
-85-
<TABLE>
<CAPTION>
Original Outstanding options
number January 1 December 31 Exercise price/1/
of options/1/ 1999/1/ 1999/1/ EUR NLG Exercise period/3/
<S> <C> <C> <C> <C> <C> <C>
1993 4,053,000 250 - 8.85 19.50
1994 4,848,060 637,430 47,250 9.45 20.82 until January 1, 2001
1995 5,084,750 1,282,250 1,051,500 13.59 29.95 until November 1, 2000
1996 4,943,350 2,080,100 1,772,000 19.58 43.15 until November 1, 2001
1997 4,739,750 4,739,750 4,739,250 34.71 76.50 until November 1, 2002
Providian 3,602,192 1,238,596 846,664 42.33 2 93.28 until August 6, 2008
1998 5,759,000 5,759,000 5,758,500 58.04 127.90 until March 23, 2003
1999 3,918,850 - 3,918,850 93.90 206.93 until March 6, 2004
---------- ---------- ---------
36,948,952 15,737,376 18,134,014
</TABLE>
/1/ Adjusted for the stock splits in 1995 and 1998 as appropriate.
/2/ Weighted average exercise price of the outstanding options in USD calculated
at the closing rate.
/3/ As of the 1995 series the exercise period for a small part of the options is
74 months.
Options exercisable as of December 31, 1999 amount to 3,498,047 (1998:
4,776,135) and the weighted average exercise price amounts to EUR 18.04 (1998:
EUR 16.69). The breakdown of the options granted in 1999 is as follows:
Executive Board 400,000, other senior executives 1,383,050 other employees
2,135,800 (1998: 400,000, 1,906,000 and 3,453,000 respectively).
1999 1999 1998
NLG EUR EUR
General surplus fund
Balance at January 1 8,805 3,995 4,800
Retained earnings 1,703 773 659
Issuance of new shares 13,330 6,049 -
Exercised options 11 5 16
Stock dividend 0 0 0
Optional dividend 1999/1998, resp. 1998/1997 427 194 153
Currency exchange rate differences 2,316 1,051 (390)
Cash settlement subordinated convertible loan (152) (69) (171)
Goodwill (6,904) (3,133) (310)
Repurchased own shares (694) (315) (491)
Cash settlement stock option plans (104) (47) (273)
Other changes1 (2,449) (1,111) 2
------- ------- -------
Balance at December 31 16,289 7,392 3,995
/1/ Mainly caused by acquisitions.
Exchange rate differences are mainly due to the unhedged part of shareholders'
equity of subsidiaries not accounted for in euro. In the offering circular of
the USD 600,000,000 4.75% convertible subordinated bonds 1994-2004 it is stated
that "Holders may elect upon conversion to receive either Ordinary Shares or New
York Shares. The Company may elect to pay holders upon conversion cash in lieu
of Shares based upon the opening and closing price of the Shares on the five
trading days prior to and including the day of conversion (the `Conversion
Date')."
<PAGE>
-86-
As AEGON is not at this time aiming to strengthen its equity by increasing the
outstanding number of shares through conversions of this bond, it elected to pay
part of the conversion in cash in lieu of shares. The accompanying release of
surplus has been charged to the General Surplus Fund resulting in the same
effect as would have occurred in case the conversion had taken place in shares
and an equal number of shares had been purchased by AEGON and then cancelled.
Goodwill is the difference between acquisition price and net asset value, based
on AEGON accounting principles. The calculated amount is charged to
shareholders' equity in the year of acquisition.
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
Revaluation account
Balance at January 1 8,273 3,754 3,234
Unrealized gains and losses on real estate and shares 3,041 1,380 776
Unrealized gains and losses in previous years
on real estate and shares sold in the reporting year (1,600) (726) (906)
Realized gains and losses on real estate and shares 1,580 717 919
Transfer to the income statements of indirect income
on real estate and shares (868) (394) (265)
Changes in the provision for deferred taxation 306 139 20
Other changes/1/ 2,347 1,065 (24)
------- ------- -------
Balance at December 31 13,079 5,935 3,754
</TABLE>
/1/ Mainly caused by acquisitions.
Unrealized gains and losses on investments are due to changes in stock exchange
quotations and reappraisal of real estate of all activities.
In the income statement the structural total return on investments in real
estate and shares is recognized. This total return includes the realized direct
income (rents and dividends) of the reporting period and an amount of indirect
income. The total return is calculated by determining the average of the total
return yield over the last 30 years and multiplying this average yield by the
average value of these investments over the last 7 years, adjusted for
investment purchases and sales. The indirect income from these investments is
then calculated as the difference between the total return and the realized
direct income. As a measure of conservatism the indirect income is capped at a
level of 7% after tax on the average investment portfolio. As a consequence an
amount of EUR 49 million was not released to earnings in 1999 (EUR 26 million in
1998). The indirect income is released from the revaluation account if and as
far as the balance of this account is positive. Moreover, the minimum reserve as
required by law should be maintained. This reserve consists of the unrealized
difference between the bookvalue and the cost price of real estate and shares.
In relation to this, as at December 31, 1999, an amount of EUR 2,919 million
after tax is presently available for release from the revaluation reserve
whereas the remainder is only available after realization.
<PAGE>
-87-
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
(11) Capital securities
Perpetual cumulative subordinated loans 1,800 817 817
Trust Pass-through Securities and Monthly Income Preferred Stock 1,129 512 87
------ ------ ------
2,929 1,329 904
<CAPTION>
Perpetual cumulative subordinated loans
This item comprises the following loans: Year/1/
<S> <C> <C> <C> <C>
Interest rate 8%, coupon date June 8 2005 250 114 114
Interest rate 7 7/8%, coupon date September 29 2005 250 114 114
Interest rate 7 3/4%, coupon date December 15 2005 300 136 136
Interest rate 7 1/8%, coupon date March 4 2011 450 203 203
Interest rate 7 5/8%, coupon date July 10 2008 250 114 114
Interest rate 7 1/4%, coupon date October 14 2008 300 136 136
------ ------ ------
Total perpetual cumulative subordinated loans 1,800 817 817
</TABLE>
/1/ Year of first possibility for redemption.
The coupons of the NLG 250 million 8% bonds, NLG 450 million 7 1/8% bonds and
NLG 300 million 7 1/4% bonds are set at 8% until June 8, 2005, at 7 1/8% until
March 4, 2011 and at 7 1/4% until October 14, 2008 respectively. On these dates,
and after every consecutive period of ten years, the coupons will be reset at
the then prevailing yield of 9-10 years Dutch State Loans plus a surcharge of
0.85%. The coupon of the other three loans is fixed.
The loans have the same subordination provisions as dated subordinated debt. The
conditions of the loans contain certain provisions for interest deferral and for
the availability of principal amounts to meet losses. Although the loans have no
stated maturity, AEGON has the right to call the loans for redemption at par for
the first time on the coupon date in the years as specified above, and
thereafter on the coupon date after every consecutive period of ten years.
The market value of these loans amounts to EUR 871 million (1998: EUR 954
million).
<TABLE>
<CAPTION>
Trust Pass-through Securities and Monthly Income Preferred Stock
This item comprises the following loans
<S> <C> <C> <C> <C>
USD 100 mln 7 4/5% Capital Trust Pass-through Securities 1996/26 222 100 -
USD 225 mln 7 13/20% Capital Trust Pass-through Securities 1996/26 493 224 -
USD 190 mln 7 5/8% Capital Trust Pass-through Securities 1997/37 414 188 -
USD 100 mln 8 7/8% Cumulative Monthly Income Preferred
Stock, redeemable on or after May 31, 1999 1994/99 - - 87
------ ------ ------
1,129 512 87
</TABLE>
The Capital Trust Pass-through Securities (TRUPS) listed above are securities
through which the holders participate in a trust. The assets of these trusts
exist of junior subordinated deferrable interest debentures of Transamerica. The
trusts have been included in the consolidated financial statements. The TRUPS
carry certain provisions with regard to deferral of distributions. The TRUPS
have maturity terms of 30 to 40 years with a fixed coupon. Earlier redemption is
possible for the USD 100 million 7 4/5% Capital Trust Pass-through Securities on
or after December 1, 2006.
<PAGE>
-88-
The market value of these loans amounts to EUR 539 million (1998: EUR 87
million).
1999 1999 1998
NLG EUR EUR
(12) Subordinated (convertible) loans
Subordinated loans 1,505 683 655
Subordinated convertible loan 44 20 29
------ ------ ------
Total subordinated loans 1,549 703 684
These loans are subordinated to all other liabilities and borrowings.
The subordinated loans have an average remaining term of seven years. For an
amount of EUR 368 million the remaining term is (more than) 5 years. The coupons
vary from 4.75% to 8.25%.
The subordinated convertible loan is a USD 600 million 4.75% loan 1994-2004,
convertible into AEGON NLG 0.50 common shares on or after May 15, 1995 up to and
including November 1, 2004 at a conversion rate of 360 shares per USD 5,000
principal amount, and an exchange rate of NLG 1.728 per US dollar. Early
redemption is allowed on or after November 1, 2001, against an amount that will
give an effective yield of 7.5% per year, with a premium of 1.43% decreasing to
0% in 2004. Redemption at maturity will be at 138.9%. Full conversion as at the
balance sheet date would result in the issuance of 1,860,840 NLG 0.50 common
shares, increasing the number of outstanding common shares by 0.3%.
The market value of these loans amounts to EUR 873 million (1998: EUR 1,075
million).
<PAGE>
-89-
<TABLE>
<CAPTION>
Exchange
rate
Balance Increase fluctua- Balance Balance
at charged to tions and at at
January 1, the income other December December
1999 statement changes/1/ 31, 1999 31, 1999
EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C>
(13) Technical provisions
Life insurance:
Life insurance 24,397 1,405 14,826 40,628 89,532
Annuities 23,692 1,887 24,257/2/ 49,836 109,824
-------- -------- -------- -------- --------
48,089 3,292 39,083 90,464 199,356
Deferred policy acquisition costs (5,421) (10,992) (24,223)
Unamortized interest rate rebates (576) (486) (1,071)
-------- -------- --------
Subtotal life insurance 42,092 78,986 174,062
Non-life insurance:
Unearned premiums and unexpired risks 745 178 49 972 2,142
Deferred policy acquisition costs (405) (472) (1,040)
-------- -------- --------
340 500 1,102
Claims outstanding 1,423 27 85 1,535 3,382
-------- -------- --------
Subtotal non-life insurance 1,763 2,035 4,484
Profit sharing and rebates 167 222 489
Other 593 34 (1) 626 1,380
-------- -------- -------- --------
Total 44,615 3,531 81,869 180,415
</TABLE>
/1/ Mainly caused by acquisitions (EUR 32,854 million).
/2/ Of which the balance of deposits and withdrawals is EUR 180 million.
Life insurance
The provision for life insurance is calculated according to the assumptions on
which the premiums have been based. Regularly the assumptions are tested against
actual data. If these tests reveal a negative outcome, the provision is
recalculated according to the actual data. Future costs of processing benefits
are included in the provision. This provision also includes the provision for
unearned premiums and unexpired risks as well as the provision for claims
outstanding, both as far as related to the life insurance business.
The average interest rate used is 5.24% (1998: 4.80%). Taking into account the
capitalized interest rate rebates, the average interest rate used is 5.59%
(1998: 5.42%).
<PAGE>
-90-
Provisions for annuities are for annuity and GIC products sold in the United
States. Annuities are single premium payment insurance products which have
significant savings characteristics. Guaranteed investment contracts (GICs)
provide protection of principal and a guaranteed rate of interest and are issued
on both a fixed rate and a floating rate basis to retirement savings plans. Both
benefit reserves are equal to the full accumulated contract values.
1999 1999 1998
NLG EUR EUR
Deferred policy acquisition costs
Balance at January 1 11,947 5,421 5,367
Deferred during the year 3,003 1,363 937
Amortization charged to the income statement (1,705) (774) (560)
Other changes/1/ 10,978 4,982 (323)
------- ------- -------
Balance at December 31 24,223 10,992 5,421
/1/ Mainly caused by acquisitions (EUR 4,270 million).
Policy acquisition costs are costs that directly or indirectly are related to
the conclusion of insurance contracts. Part of the acquisition costs is deferred
and deducted from the technical provision life insurance.
Deferred policy acquisition costs of insurance contracts with fixed premiums are
generally amortized over periods not to exceed the premium-paying periods or the
contract periods. For flexible insurance contracts and investment type contracts
the amortization is generally in proportion to emerging gross profits.
Unamortized interest rate rebates
Balance at January 1 1,270 576 655
Rebates granted during the year 37 17 47
Amortization charged to the income statement (254) (115) (118)
Other changes 18 8 (8)
------- ------- -------
Balance at December 31 1,071 486 576
Interest rate rebates granted are amortized over the period of the contracts
concerned in proportion to anticipated investment income.
The provision for pension obligations towards employees amounts to EUR 1,533
million (1998: EUR 1,309 million).
Non-life insurance
Unearned premiums represent the unearned part of premiums received. Furthermore,
when necessary this item also includes a special provision to compensate for the
increasing age of persons insured under health and personal accident policies.
The provision for unexpired risks amounts to EUR 30 million (1998: EUR 27
million).
<PAGE>
-91-
1999 1999 1998
NLG EUR EUR
Deferred policy acquisition costs
Balance at January 1 893 405 423
Deferred during the year 258 117 94
Amortization charged to the income statement (245) (111) (94)
Other changes 134 61 (18)
------ ------ ------
Balance at December 31 1,040 472 405
Policy acquisition costs are costs that directly or indirectly are related to
the conclusion or renewal of insurance contracts.
The deferred policy acquisition costs are deducted from the technical provision
for unearned premiums and include renewal commission paid related to unearned
premiums, amortized over the related premium period, and first year commission
on health insurance policies, amortized over the contract period.
Claims outstanding
Balance at January 1 3,703 1,680 1,697
Less reinsurance recoverables (566) (257) (264)
------ ------ ------
Net balance 3,137 1,423 1,433
Incurred related to:
- - current year 2,283 1,036 1,102
- - prior years 171 78 28
------ ------ ------
Total incurred 2,454 1,114 1,130
Paid related to:
- - current year (1,314) (596) (743)
- - prior years (1,073) (487) (339)
------ ------ ------
Total paid (2,387) (1,083) (1,082)
Other changes 178 81 (58)
Net balance at December 31:
- - current year 969 440 359
- - prior years 2,413 1,095 1,064
------ ------ ------
3,382 1,535 1,423
Plus reinsurance recoverables 571 259 257
------ ------ ------
Balance at December 31 3,953 1,794 1,680
The provision for claims outstanding relates to claims during the current and
previous years, still unsettled at year-end. Calculation takes place either on
the item by item basis or on the basis of statistical information, taking
account of claims incurred but not yet reported. In calculating the provision,
the future costs of processing claims are considered.
A different method is applied to marine, aviation and transport insurance. The
calculation is based on the
<PAGE>
-92-
"underwriting years system" with the unearned premiums and claims provision
being stated as a combined item.
Profit sharing and rebates
This provision consists of the amounts earmarked for insured or beneficiaries,
as far as their accounts have not yet been credited.
Other technical provisions
This consists mainly of insurance deposits under Dutch group life contracts,
which are designated for improvement of retirement benefits under such
contracts. Maturity is undetermined. Interest credited to such deposits is
linked with the average yield on long-term Dutch government bonds.
Reinsurance amount
The following amounts on account of reinsurance have been deducted from the
technical provisions:
1999 1999 1998
NLG EUR EUR
Life insurance 8,943 4,058 596
Unearned premiums and unexpired risks 75 34 51
Claims outstanding 571 259 257
------ ------ ------
9,589 4,351 904
<TABLE>
<CAPTION>
Exchange
rate
Balance Increase fluctua- Balance Balance
at charged to tions and at at
January 1, the income other December December
1999 statement changes/1/ 31, 1999 31, 1999
EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C>
(14) Technical provisions with investments for
the account of policyholders
Provisions gross 58,526 108,603 239,330
Ceded to reinsurers (182) (327) (721)
-------- -------- --------
Provisions for insurance of which the policyholder
bears the investment risk and for insurance-linked
savings deposits 58,344 16,338 33,594 108,276 238,609
</TABLE>
/1/ Mainly caused by acquisitions (EUR 24,688 million).
This provision includes unit-linked insurance contracts, separate investment
funds Group Life, insurance-linked savings deposits and the liabilities of AEGON
UK related to the non-participating funds as well as the participating funds
(EUR 25,913 million). The amount of EUR 16,338 million charged to the income
statement is the total of premium receipt and benefits of EUR 2,805 million and
the investment income for the account of policyholders amounting to EUR 13,533
million. Also the liabilities of the acquired pension business of Diversified
Investment Advisors are recognized under this heading to the extent that the
contractholder bears the
<PAGE>
-93-
economic risk.
The provisions are generally shown at book value of the related investments.
1999 1999 1998
NLG EUR EUR
(15) Provisions
Provisions for taxation 4,930 2,237 890
The provisions for taxation are of a long-term nature. This caption includes
both deferred taxation as well as other long-term tax liabilities.
The deferred taxation is calculated on the basis of the difference between book
value and valuation for tax purposes of the appropriate assets and liabilities.
The provision is equal to the discounted value of the future tax liabilities. In
the calculation discounted tax rates ranging from 0% to nominal rates are used.
Nominal value of these tax liabilities amounts to EUR 2,549 million.
<TABLE>
<CAPTION>
Remaining terms
1999 more than 1999 1998
Total 1-5 years 5 years Total Total
NLG EUR EUR EUR EUR
<S> <C> <C> <C> <C> <C>
(16) Long-term liabilities
Capital market:
Borrowings 7,087 2,294 922 3,216 1,807
Other:
Miscellaneous long-term liabilities 1,073 250 237 487 496
------ ------ ------ ------ ------
Total long-term liabilities 8,160 2,544 1,159 3,703 2,303
Redemptions due in 2000/1999 884 401 696
</TABLE>
Redemptions are shown under long-term liabilities
Borrowings include debenture loans for EUR 1,157 million. The repayment periods
of borrowings vary from in excess of one year up to a maximum of 32 years. The
coupons vary from 1% to 10% per annum.
The market value of the long-term liabilities amounts to EUR 3,727 million
(1998: EUR 2,376 million).
<PAGE>
-94-
<TABLE>
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
(17) Other payables
Investment payables 544 247 129
Payables from stockbroking transactions - - 1,077
Taxes and social security 53 24 161
Dividend 1,014 460 344
Minority interest 0 0 7
Other 4,998 2,268 1,488
------- ------- -------
Total other payables 6,609 2,999 3,206
(18) Accruals and deferred income
Accrued interest 992 450 543
Deferred gains and losses on fixed rate investments 1,256 570 795
------- ------- -------
Total accruals and deferred income 2,248 1,020 1,338
(19) Commitments and Contingencies
Investments contracted
Real estate 35 16 (7)
Mortgages 258 117 341
Bonds and registered debentures:
Purchase 315 143 393
Sale 417 189 25
Private placements 712 323 50
Other:
Purchase 789 358 137
Sale 0 0 0
</TABLE>
Derivatives
AEGON uses derivatives relating to investments and investments for account of
policyholders as a means of hedging exposure to price, foreign currency and/or
interest rate risk.
The following table represents aggregate notional amounts of derivatives.
Notional amounts are shown at face value, translated at the respective year-end
exchange rates. Parties will not exchange the notional amounts mentioned under
interest rate contracts. The amounts mentioned under foreign currency contracts
will be exchanged at amounts calculated on the basis of the notional amounts and
the terms of the derivatives, which relate to interest rates, exchange rates, or
other financial or other indexes.
The credit risk on all financial instruments is controlled by a strict
counterparty policy. AEGON does not expect any counterparties to fail to meet
their obligations given their high credit ratings. The credit exposure of the
derivatives is represented by the fair value of contracts. The fair value of the
derivatives generally reflects the estimated amounts that AEGON will receive or
pay to terminate the contracts on reporting date. Market quotes are available
for many derivatives; for those products without readily available market quotes
generally accepted valuation models are used to estimate fair value.
<PAGE>
-95-
All derivatives are used in the regular framework of asset liability management
and are not used for trading purposes.
<TABLE>
<CAPTION>
Notional Notional Fair Book Notional Fair Book
amounts amounts value value amounts value value
1999 1999 1999 1999 1998 1998 1998
NLG EUR EUR EUR EUR EUR EUR
<S> <C> <C> <C> <C> <C> <C> <C>
Interest rate contracts
Interest rate swaps 60,060 27,254 56 0 13,757 (90) 0
Swaptions 18,141 8,232 34 0 - - -
Caps/floors 2,532 1,149 10 0 429 5 4
Forward rate agreements 1,842 836 1 0 1,295 (11) 0
Foreign currency contracts
Cross currency swaps 8,548 3,879 (59) (51) 4,048 (78) (91)
Foreign exchange contracts 5,452 2,474 27 27 8,355 (4) (4)
OTC options 12,852 5,832 995 995 3,002 625 625
Exchange traded options/futures 10,787 4,895 57 57 2,215 37 37
<CAPTION>
1999 1999 1998
NLG EUR EUR
<S> <C> <C> <C>
Collateral and Guarantees given to third parties
Bonds and registered debentures 5,185 2,353 1,258
Private placements 674 306 256
Letters of credit 187 85 386
</TABLE>
These function mainly as collateral granted by AEGON branches abroad, to meet
legal requirements. This item also includes collateral guarantees given by
subsidiaries under reciprocal insurance contracts.
Off balance sheet managed assets
In the United States commitments prevail related to Guaranteed Investment
Contracts, which in the form of Trust GICs have been issued to plan sponsors,
pursuant to which the plan sponsor retains legal title to the assets and
receives the investment performance related to these contracts. Guarantees have
been given to provide benefit responsiveness, which may take the form of
annuities, in the event that qualified plan benefit requests exceed plan cash
flows. The plan sponsor agrees to reimburse for such benefit payments with
interest. In return for this guarantee, a premium is received that varies based
on such elements as benefit responsive exposure and contract size. Funding
requirements to date have been minimal and management does not anticipate any
future funding requirements that would have a material effect on reported
financial results.
Per December 31, 1999 the value of the outstanding GICs together with the value
of all other off balance sheet managed assets amount to EUR 40.5 billion (USD
40.7 billion).
<PAGE>
-96-
Obligations regarding acquisitions
AEGON's obligations related to the acquisition of Diversified Investment
Advisors from the Mutual of New York, consist of payments relating to the assets
and liabilities for a remaining period of three years. Then AEGON will purchase
the remaining transferred business in force based on a formula described in the
agreement.
The agreement between AEGON and Grupo Financiero Banamex-Accival (Banacci)
provides for the purchase by AEGON of aggregate 49% participations in the
equities of Seguros Banamex AEGON and Afore Banamex. The equity consideration to
be paid by AEGON to Banacci will be adjusted in either direction based upon the
growth and profitability of the ventures over the years up to and including
2005.
<PAGE>
-97-
(21) Notes to the Consolidated Income Statements
Amounts in millions
Determination of results
Income and expenditure related to the operating activities during the year are
included in the income statements. The principles for the determination of
results are described in the notes to the balance sheets.
Due to their volatility, interest charges are no longer allocated to the group
units but are reported in the non-technical account.
<TABLE>
<CAPTION>
(a) Revenues Non-
Life Non-life technical Total Total
EUR EUR EUR EUR NLG
1999
<S> <C> <C> <C> <C> <C>
Americas
Gross premiums 4,263 1,268 - 5,531 12,189
Investment income 4,756 164 - 4,920 10,842
------ ------ ------ ------ ------
9,019 1,432 - 10,451 23,031
The Netherlands
Gross premiums 3,012 520 - 3,532 7,784
Investment income 1,362 85 - 1,447 3,189
Income from banking activities - - 704 704 1,551
------ ------ ------ ------ ------
4,374 605 704 5,683 12,524
United Kingdom
Gross premiums 5,142 - - 5,142 11,331
Investment income 99 - - 99 219
------ ------ ------ ------ ------
5,241 - - 5,241 11,550
Other countries
Gross premiums 385 390 - 775 1,708
Investment income 91 43 - 134 295
------ ------ ------ ------ ------
476 433 - 909 2,003
Other activities-Investment income - - 90 90 198
------ ------ ------ ------
Total 19,110 2,470 794 22,374
------
Total in NLG 42,113 5,444 1,749 49,306
</TABLE>
<PAGE>
-98-
Life Non-life Non-technical Total
1998 EUR EUR EUR EUR
Americas
Gross premiums 2,509 1,223 - 3,732
Investment income 3,175 131 - 3,306
------ ------ ------ ------
5,684 1,354 - 7,038
The Netherlands
Gross premiums 2,626 539 - 3,165
Investment income 1,295 74 - 1,369
Income from banking activities - - 626 626
------ ------ ------ ------
3,921 613 626 5,160
United Kingdom
Gross premiums 4,026 - - 4,026
Investment income 101 - - 101
------ ------ ------ ------
4,127 - - 4,127
Other countries
Gross premiums 252 375 - 627
Investment income 82 46 - 128
------ ------ ------ ------
334 421 - 755
Other activities-Investment income - - 99 99
------ ------ ------ ------
Total 14,066 2,388 725 17,179
1997
Americas
Gross premiums 1,824 1,122 - 2,946
Investment income 2,301 107 - 2,408
------ ------ ------ ------
4,125 1,229 - 5,354
The Netherlands
Gross premiums 2,313 532 - 2,845
Investment income 1,241 62 - 1,303
Income from banking activities - - 674 674
------ ------ ------ ------
3,554 594 674 4,822
United Kingdom
Gross premiums 3,178 - - 3,178
Investment income 101 - - 101
------ ------ ------ ------
3,279 - - 3,279
Other countries
Gross premiums 174 389 - 563
Investment income 86 39 - 125
------ ------ ------ ------
260 428 - 688
Other activities-Investment income - - 64 64
------ ------ ------ ------
Total 11,218 2,251 738 14,207
Revenues include gross premiums, investment income and other income. Investment
income for the account of policyholders is balanced with the increase in related
policy liabilities. Other countries comprises EUR 565 million of gross premiums
of other EU countries (1998: EUR 432 million and 1997: EUR 374 million).
<PAGE>
-99-
(b) Analysis of premiums life insurance 1999
<TABLE>
<CAPTION>
Life insurance Investments for the
account of policyholders
--------------------------------- ---------------------------------
Gross Reinsurance Own account Gross Reinsurance Own account
<S> <C> <C> <C> <C> <C> <C>
Incoming reinsurance 482 (191) 291 224 (4) 220
Incoming reinsurance in NLG 1,062 (421) 641 494 (9) 485
Insurance
Recurring:
Individual
- - without profit sharing 1,873 (82) 1,791 1,265 (7) 1,258
- - with profit sharing 329 (5) 324 195 (1) 194
------ ------ ------ ------ ------ ------
Total 2,202 (87) 2,115 1,460 (8) 1,452
Group
- - without profit sharing 869 (324) 545 554 (6) 548
- - with profit sharing 328 (21) 307 517 (9) 508
------ ------ ------ ------ ------ ------
Total 1,197 (345) 852 1,071 (15) 1,056
Total recurring 3,399 (432) 2,967 2,531 (23) 2,508
Total recurring in NLG 7,490 (952) 6,538 5,577 (51) 5,526
Single:
Individual
- - without profit sharing 842 (38) 804 2,524 (1) 2,523
- - with profit sharing 130 - 130 1,128 (102) 1,026
------ ------ ------ ------ ------ ------
Total 972 (38) 934 3,652 (103) 3,549
Group
- - without profit sharing 63 0 63 663 0 663
- - with profit sharing 283 (2) 281 533 (54) 479
------ ------ ------ ------ ------ ------
Total 346 (2) 344 1,196 (54) 1,142
Total single 1,318 (40) 1,278 4,848 (157) 4,691
Total single in NLG 2,905 (88) 2,817 10,684 (346) 10,338
------ ------ ------ ------ ------ ------
Total premiums 5,199 (663) 4,536 7,603 (184) 7,419
Total premiums in NLG 11,457 (1,461) 9,996 16,755 (406) 16,349
Grand total 12,802 (847) 11,955
Grand total in NLG 28,212 (1,867) 26,345
</TABLE>
<PAGE>
-100-
Geographical breakdown of gross premiums life insurance 1999 in EUR
<TABLE>
<CAPTION>
Individual Group Total Single Recurring Total
<S> <C> <C> <C> <C> <C> <C>
Americas 2,977 1,286 4,263 1,128 3,135 4,263
The Netherlands 1,454 1,558 3,012 991 2,021 3,012
United Kingdom 3,475 1,667 5,142 3,870 1,272 5,142
Other countries 380 5 385 177 208 385
------ ------ ------ ------ ------ ------
Total 8,286 4,516 12,802 6,166 6,636 12,802
</TABLE>
Geographical breakdown of gross premiums life insurance 1999 in NLG
<TABLE>
<CAPTION>
Individual Group Total Single Recurring Total
<S> <C> <C> <C> <C> <C> <C>
Americas 6,561 2,834 9,395 2,486 6,909 9,395
The Netherlands 3,205 3,433 6,638 2,185 4,453 6,638
United Kingdom 7,658 3,673 11,331 8,528 2,803 11,331
Other countries 837 11 848 390 458 848
------ ------ ------ ------ ------ ------
Total 18,261 9,951 28,212 13,589 14,623 28,212
</TABLE>
<PAGE>
-101-
<TABLE>
<CAPTION>
1998 Life insurance Investments for the
account of policyholders
----------------------------------- -----------------------------------
Rein- Own Rein- Own
Gross surance account Gross surance account
<S> <C> <C> <C> <C> <C> <C>
Incoming reinsurance 110 (6) 104 150 - 150
Recurring:
Individual
- - without profit sharing 1,274 (32) 1,242 958 - 958
- - with profit sharing 261 - 261 165 (1) 164
------ ------ ------ ------ ------ ------
Total 1,535 (32) 1,503 1,123 (1) 1,122
Group
- - without profit sharing 365 (31) 334 423 - 423
- - with profit sharing 324 (7) 317 466 (5) 461
------ ------ ------ ------ ------ ------
Total 689 (38) 651 889 (5) 884
Total recurring 2,224 (70) 2,154 2,012 (6) 2,006
Single:
Individual
- - without profit sharing 738 (50) 688 2,051 - 2,051
- - with profit sharing 128 - 128 707 (5) 702
------ ------ ------ ------ ------ ------
Total 866 (50) 816 2,758 (5) 2,753
Group
- - without profit sharing 67 - 67 643 - 643
- - with profit sharing 303 (2) 301 280 - 280
------ ------ ------ ------ ------ ------
Total 370 (2) 368 923 - 923
Total single 1,236 (52) 1,184 3,681 (5) 3,676
------ ------ ------ ------ ------ ------
Total premiums 3,570 (128) 3,442 5,843 (11) 5,832
------ ------ ------
Grand total 9,413 (139) 9,274
</TABLE>
Geographical breakdown of gross premiums life insurance 1998
<TABLE>
<CAPTION>
Individual Group Total Single Recurring Total
<S> <C> <C> <C> <C> <C> <C>
Americas 2,092 417 2,509 922 1,587 2,509
The Netherlands 1,456 1,170 2,626 845 1,781 2,626
United Kingdom 2,486 1,540 4,026 3,074 952 4,026
Other countries 248 4 252 76 176 252
------ ------ ------ ------ ------ ------
Total 6,282 3,131 9,413 4,917 4,496 9,413
</TABLE>
<PAGE>
-102-
<TABLE>
<CAPTION>
1997 Life insurance Investments for the
account of policyholders
---------------------------------- ---------------------------------
Rein- Own Rein- Own
Gross surance account Gross surance account
<S> <C> <C> <C> <C> <C> <C>
Incoming reinsurance 58 (8) 50 97 - 97
Recurring:
Individual
- - without profit sharing 919 (17) 902 663 - 663
- - with profit sharing 253 (3) 250 147 (1) 146
----- ----- ----- ----- ----- -----
Total 1,172 (20) 1,152 810 (1) 809
Group
- - without profit sharing 444 (14) 430 221 (11) 210
- - with profit sharing 323 (5) 318 467 (11) 456
----- ----- ----- ----- ----- -----
Total 767 (19) 748 688 (22) 666
Total recurring 1,939 (39) 1,900 1,498 (23) 1,475
Single:
Individual
- - without profit sharing 475 (50) 425 1,593 - 1,593
- - with profit sharing 128 0 128 435 - 435
----- ----- ----- ----- ----- -----
Total 603 (50) 553 2,028 - 2,028
Group
- - without profit sharing 74 0 74 408 - 408
- - with profit sharing 285 (1) 284 499 - 499
----- ----- ----- ----- ----- -----
Total 359 (1) 358 907 - 907
Total single 962 (51) 911 2,935 - 2,935
----- ----- ----- ----- ----- -----
Total premiums 2,959 (98) 2,861 4,530 (23) 4,507
----- ----- -----
Grand total 7,489 (121) 7,368
</TABLE>
Geographical breakdown of gross premiums life insurance 1997
Individual Group Total Single Recurring Total
Americas 1,485 339 1,824 795 1,029 1,824
The Netherlands 1,047 1,266 2,313 787 1,526 2,313
United Kingdom 1,911 1,267 3,178 2,277 901 3,178
Other countries 170 4 174 38 136 174
----- ----- ----- ----- ----- -----
Total 4,613 2,876 7,489 3,897 3,592 7,489
<PAGE>
-103-
<TABLE>
<CAPTION>
(c) Analysis of technical results non-life insurance Marine,
Legal transport
Accident liability Other and General Other
& health motor motor aviation Fire liability branches Total Total
EUR EUR EUR EUR EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999
Gross premiums 1,453 191 153 39 265 65 12 2,178 4,800
Gross premiums earned 1,321 189 148 39 261 63 12 2,033 4,480
Gross claims incurred (888) (184) (127) (24) (173) (37) (2) (1,435) (3,163)
Gross operating expenses (477) (59) (39) (10) (94) (23) (7) (709) (1,562)
Balance of reinsurance ceded 4 (1) (1) (2) (10) (5) (2) (17) (38)
------ ------ ------ ------ ------ ------ ------ ------ ------
(40) (55) (19) 3 (16) (2) 1 (128) (283)
Investment income 195 35 17 4 28 11 2 292 644
Investment charges (11) (3) (1) (1) (2) (1) (1) (20) (44)
Balance of other items 0 (1) (1) 0 0 0 0 (2) (4)
Investment income allocated
to the non-technical account (37) (6) (2) (2) (2) (1) (1) (51) (112)
------ ------ ------ ------ ------ ------ ------ ------ ------
Result technical account non-life in EUR 107 (30) (6) 4 8 7 1 91
Result technical account non-life in NLG 236 (66) (13) 9 18 15 2 201
1998
Gross premiums 1,391 191 143 40 284 73 15 2,137
Gross premiums earned 1,305 185 148 40 283 73 11 2,045
Gross claims incurred (904) (173) (113) (25) (173) (28) (7) (1,423)
Gross operating expenses (449) (52) (51) (10) (100) (31) (3) (696)
Balance of reinsurance ceded 2 0 5 (1) (5) (17) (2) (18)
------ ------ ------ ------ ------ ------ ------ ------
(46) (40) (11) 4 5 (3) (1) (92)
Investment income 156 32 18 3 28 11 3 251
Investment charges (2) (1) 0 0 (2) - (1) (6)
Balance of other items 4 0 0 (2) (5) (3) (2) (8)
Investment income allocated
to the non-technical account (40) (6) (3) (2) (3) (1) (1) (56)
------ ------ ------ ------ ------ ------ ------ ------
Result technical account non-life 72 (15) 4 3 23 4 (2) 89
1997
Gross premiums 1,267 213 146 42 287 67 21 2,043
Gross premiums earned 1,202 215 148 41 286 66 18 1,976
Gross claims incurred (833) (173) (102) (28) (173) (38) (10) (1,357)
Gross operating expenses (410) (67) (44) (8) (104) (26) (8) (667)
Balance of reinsurance ceded 18 (2) 0 (1) (5) (6) (2) 2
------ ------ ------ ------ ------ ------ ------ ------
(23) (27) 2 4 4 (4) (2) (46)
Investment income 128 31 15 4 20 8 2 208
Investment charges (2) - - - - - - (2)
Balance of other items (4) (5) 0 0 (2) 0 - (11)
Investment income allocated
to the non-technical account (45) 0 (6) (1) (2) (2) - (56)
------ ------ ------ ------ ------ ------ ------ ------
Result technical account non-life 54 (1) 11 7 20 2 0 93
</TABLE>
<PAGE>
-104-
<TABLE>
<CAPTION>
Marine,
Legal transport
Accident liability Other and General Other
& health motor motor aviation Fire liability branches Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Combined ratios in percentages
1999
Americas 98 - - - 31 - - 98
The Netherlands 100 121 90 94 98 108 69 101
Other countries 101 138 140 97 118 101 - 123
Total 99 129 112 94 106 105 69 104
1998
Americas 102 - - - 69 - - 102
The Netherlands 107 117 97 90 96 108 108 102
Other countries 99 125 124 95 100 93 - 111
Total 103 121 108 90 97 105 108 104
1997
Americas 102 - 100 92 93 101 - 102
The Netherlands 108 117 89 92 98 114 96 103
Other countries 96 110 107 90 99 78 - 102
Total 102 113 97 92 99 104 96 103
</TABLE>
The combined ratio is the sum of the ratio of net incurred claims to net
premiums earned and the ratio of net commissions and expenses to premiums own
account.
Although a ratio over 100% suggests a loss, the ratio does not include
investment income. With the inclusion of investment income in the calculation,
all of AEGON's major product lines excluding motor were profitable.
<PAGE>
-105-
<TABLE>
<CAPTION>
(d) Investment income Non-
Life Non-life technical Total Total
EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C>
1999
Income from participations 14 2 40 56 123
Group companies:
Income from other investments
Real estate1 144 3 1 148 326
Shares 121 6 0 127 280
Bonds and other fixed rate securities 2,973 173 0 3,146 6,933
Loans guaranteed by mortgages 969 3 0 972 2,142
Other loans 1,085 23 49 1,157 2,550
Deposits with credit institutions 49 11 0 60 132
Other financial investments 117 4 0 121 267
Interest on liquid assets and other 460 49 0 509 1,122
Indirect income real estate and shares 376 18 0 394 868
------- ------- ------- ------- -------
Total in EUR 6,308 292 90 6,690
Total in NLG 13,901 644 198 14,743
1998
Income from participations 2 0 24 26
Group companies:
Income from other investments
Real estate1 134 3 1 138
Shares 114 6 5 125
Bonds and other fixed rate securities 2,067 148 0 2,215
Loans guaranteed by mortgages 850 2 0 852
Other loans 775 25 68 868
Deposits with credit institutions 58 3 0 61
Other financial investments 85 2 0 87
Interest on liquid assets and other 319 46 1 366
Indirect income real estate and shares 249 16 0 265
------- ------- ------- -------
Total 4,653 251 99 5,003
1997
Income from participations (32) - 22 (10)
Group companies:
Income from other investments
Real estate1 125 5 1 131
Shares 100 6 0 106
Bonds and other fixed rate securities 1,702 140 0 1,842
Loans guaranteed by mortgages 699 1 0 700
Other loans 599 29 8 636
Deposits with credit institutions 30 0 0 30
Other financial investments 90 3 0 93
Interest on liquid assets and other 198 15 32 245
Indirect income real estate and shares 218 10 0 228
------- ------- ------- -------
Total 3,729 209 63 4,001
</TABLE>
1 Of which allocated internal rent for real estate in own use an amount of EUR
14 million (1998: EUR 10 million and 1997: EUR 11 million), based on market
conditions.
<PAGE>
-106-
<TABLE>
<CAPTION>
1999 1999 1998 1997
NLG EUR EUR EUR
<S> <C> <C> <C> <C>
(e) Income from banking activities
Participations 2 1 1 32
Real estate 0 0 0 1
Bonds and other fixed rate securities 209 95 111 111
Loans guaranteed by mortgage 62 28 24 204
Other loans 190 86 90 79
Other investments and liquid assets 965 438 338 204
Commissions 123 56 62 43
------- ------- ------- -------
Total 1,551 704 626 674
(f) Change in technical provisions
Technical provisions 7,782 3,531 2,897 2,819
Technical provisions with investments for the
account of policyholders 36,004 16,338 10,823 7,835
------- ------- ------- -------
43,786 19,869 13,720 10,654
Investment income for the account of policyholders (29,823) (13,533) (8,466) (6,522)
------- ------- ------- -------
Change in technical provisions 13,963 6,336 5,254 4,132
(g) Profit sharing and rebates
Amortization of interest rate rebates 254 115 118 114
Surplus interest bonuses 1,677 761 393 554
Profit appropriated to policyholders 123 56 60 73
------- ------- ------- -------
Total 2,054 932 571 741
</TABLE>
Granted interest rate rebates amount to EUR 17 million (1998: EUR 47 million and
1997: EUR 59 million), relating to the Dutch companies.
<PAGE>
-107-
<TABLE>
<CAPTION>
(h) Operating expenses Non-
Life Non-life technical Total Total
EUR EUR EUR EUR NLG
1999
<S> <C> <C> <C> <C> <C>
Acquisition costs 1,685 435 - 2,120 4,672
Deferred policy acquisition costs (1,363) (117) - (1,480) (3,261)
Amortization of deferred policy acquisition costs 774 111 - 885 1,950
------ ------ ------ ------ ------
1,096 429 - 1,525 3,361
Administrative expenses 1,357 280 - 1,637 3,607
Commissions and profit sharing from reinsurers (205) (94) - (299) (659)
Banking and other activities - - 211 211 465
------ ------ ------ ------ ------
Total operating expenses in EUR 2,248 615 211 3,074
Total operating expenses in NLG 4,954 1,355 465 6,774
Investment expenses 145 320
------ ------
Commissions and expenses 3,219 7,094
1998
Acquisition costs 1,180 398 - 1,578
Deferred policy acquisition costs (937) (94) - (1,031)
Amortization of deferred policy acquisition costs 560 94 - 654
------ ------ ------ ------
803 398 - 1,201
Administrative expenses 874 298 - 1,172
Commissions and profit sharing from reinsurers (37) (79) - (116)
Banking and other activities - - 147 147
------ ------ ------ ------
Total operating expenses 1,640 617 147 2,404
Investment expenses 81
------
Commissions and expenses 2,485
1997
Acquisition costs 1,039 389 - 1,428
Deferred policy acquisition costs (815) (91) - (906)
Amortization of deferred policy acquisition costs 412 74 - 486
------ ------ ------ ------
636 372 - 1,008
Administrative expenses 688 295 - 983
Commissions and profit sharing from reinsurers (37) (98) - (135)
Banking and other activities - - 139 139
------ ------ ------ ------
Total operating expenses 1,287 569 139 1,995
Investment expenses 67
------
Commissions and expenses 2,062
</TABLE>
<PAGE>
-108-
Technical and non-technical accounts include the following:
<TABLE>
<CAPTION>
1999 1999 1998 1997
NLG EUR EUR EUR
<S> <C> <C> <C> <C>
Salaries 1,609 730 526 488
Pension premiums (48) (22) 13 29
Other social security charges 295 134 120 95
Other expenses 2,380 1,080 775 637
------ ------ ------ ------
Total expenses 4,236 1,922 1,434 1,249
Commissions 4,828 2,191 1,544 1,368
Deferred policy acquisition costs (3,261) (1,480) (1,031) (906)
Amortization of deferred policy acquisition costs 1,950 885 654 486
Commissions and profit sharing from reinsurers (659) (299) (116) (135)
------ ------ ------ ------
Commissions and expenses 7,094 3,219 2,485 2,062
</TABLE>
Expenses include allocated housing expenses from real estate in own use for an
amount of EUR 14 million (1998: EUR 10 million and 1997: EUR 11 million).
Claims processing costs are included in benefits and surrenders and claims for
own account; investment expenses are included in investment charges.
AEGON has non-contributory defined benefit plans and defined contribution plans
covering substantially all AEGON employees. In a number of countries retirement
benefits are insured with our life insurance companies based on the usual
actuarial formulas. In the other countries the provisions for pension
obligations are vested in separate legal entities, primarily consisting of
defined benefit pension plan trusts, not forming part of AEGON.
In The Netherlands benefits are based on past service and final pay. Regular
improvements of benefits and increases in pensions are fully funded yearly and
immediately charged to the income statements.
In the United States and in the United Kingdom benefits are based on past and
future service, taking into account future salary and benefit levels as well as
estimated inflation in future years. Regular improvements of benefits are
allocated to future service years. In the United States, because of the
consolidation of Transamerica, the present overfunding of the pension plans and
the related interest benefit on pension plan assets cause pension expense to be
credit.
In the other countries pension costs are fully charged to the income statements
in the years in which they occur.
Remuneration of active and retired members of the Executive Board
in thousands of EUR
<TABLE>
<CAPTION>
Performance
related Total Total
Salary payments/1/ Pension 1999 1998
<S> <C> <C> <C> <C> <C>
P. van de Geijn 445 426 77 948
F.C. Herringer (as of July 21, 1999) 411 - 58 469
D.J. Shepard 943 1,048 512 2,503
K.J. Storm 601 575 104 1,280
H.B. van Wijk 445 426 77 948
----- ----- ----- -----
Total 2,845 2,475 828 6,148 6,029
</TABLE>
<PAGE>
-109-
/1/ Under an annual bonus scheme of EUR 22,700 (NLG 50,000) per member per
percent point increase in the preceding year earnings per share over the
rate of inflation, with a maximum of that year's salary. The USA
boardmembers have an additional shortterm incentive plan based on prior
year's earnings increase.
Remuneration of members of the Supervisory Board accounted for EUR 0.4 million
(1998: EUR 0.3 million). Nothing was related to retired members of either the
Executive Board or the Supervisory Board.
Stock options and interests in the company of active members
<TABLE>
<CAPTION>
Stock options Stock options Shares held
Balance at Exercise Exercise Market Balance at Exercise in the company
January, 1 price Granted price Exercised Date price December, 31 price December, 31
EUR EUR EUR EUR
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
P. van de Geijn 60,000 19.58 0 - - 60,000 19.58 111,641
100,000 34.71 0 - - 100,000 34.71
100,000 58.04 0 - - 100,000 58.04
100,000 93.90 0 - - 100,000 93.90
F.C. Herringer - - - - - - - 232,989
D.J. Shepard 100,000 19.58 0 - - 100,000 19.58 126,485
100,000 34.71 0 - - 100,000 34.71
100,000 58.04 0 - - 100,000 58.04
100,000 93.90 0 - - 100,000 93.90
K.J. Storm 100,000 34.71 0 - - 100,000 34.71 128,609
100,000 58.04 0 - - 100,000 58.04
100,000 93.90 0 - - 100,000 93.90
H.B. van Wijk 100,000 34.71 0 - - 100,000 34.71 -
100,000 58.04 0 - - 100,000 58.04
100,000 93.90 0 - - 100,000 93.90
------- -------- -------- -------- --------
Total 960,000 400,000 0 1,360,000 599,724
</TABLE>
The criteria for the number of options offered to the members of the Executive
Board are as follows:
1. Comparison of the AEGON share price with a peer group of 9 Financials (AIG,
Allianz, AXA, Generali, Prudential, Zurich, ABN Amro, Fortis, ING). The
comparison is based on a moving average over the last three years.
2. When AEGON finishes in the top three each person receives the maximum of
100,000 options, amongst the bottom three 25,000 per person and amongst the
middle four 50,000 per person.
3. If there is no increase in earnings per share, no options will be offered.
<PAGE>
-110-
The average number of employees per geographical area was:
1999 1998 1997
Americas 12,857 11,046 7,978
The Netherlands 3,786 3,744 3,869
United Kingdom 3,255 2,609 2,330
Other countries 2,172 4,562 7,022
------ ------ ------
Total 22,070 21,961 21,199
Of which agent-employees 4,647 6,260 6,670
<TABLE>
<CAPTION>
(i) Investment charges Non-
Life Non-life technical Total Total
EUR EUR EUR EUR NLG
<S> <C> <C> <C> <C> <C>
1999
Investment expenses and interest charges 223 20 661 904
Investment expenses and interest charges in NLG 492 44 1,456 1,992
1998: Investment expenses and interest charges 158 6 655 819
1997: Investment expenses and interest charges 152 2 656 810
(j) Miscellaneous income and expenditure
1999
Addition to provision for doubtful debts 83 7 10 100 220
Currency exchange rate differences 2 1 10 13 29
Other income and expenditure 9 (6) (11) (8) (18)
------ ------ ------ ------
Total in EUR 94 2 9 105
Total in NLG 207 4 20 231
1998
Addition to provision for doubtful debts 72 1 8 81
Currency exchange rate differences (1) (1) (3) (5)
Other income and expenditure (9) 8 10 9
------ ------ ------ ------
Total 62 8 15 85
1997
Addition to provision for doubtful debts 70 0 6 76
Currency exchange rate differences 12 0 6 18
Other income and expenditure 8 11 11 30
------ ------ ------ ------
Total 90 11 23 124
</TABLE>
<PAGE>
-111-
(k) Investment income allocated to the non-technical account
Investment income from shareholders' equity does not form part of the technical
results. The amounts transferred to the non-technical account include direct
yield on allocated investments or are based on the average direct yield of the
investment portfolio.
(l) Corporation tax
The tax burden for AEGON as a Group is made up of the direct and future taxes
payable on profits of the Group units operating in the various countries. The
taxes of these units reflect tax benefits available in the local environment and
therefore could be below nominal rates.
Compared to 1998 there is an effective tax rate increase in the United States,
caused primarily by an increase in current taxes (which are not discounted)
relative to deferred taxes (which are discounted).
The tax burden in The Netherlands reflects the benefit of special tax rules for
which the Company and its subsidiaries qualify, including an equalization
reserve and tax exempt investment in subsidized housing and certain
participations.
The effective tax in The Netherlands in 1999 also increased, due to a lower
proportional amount of exempt income as well as a higher effective tax rate on
banking activities than insurance activities.
Breakdown: 1999 1999 1998 1997
NLG EUR EUR EUR
Taxes currently due 714 324 317 250
Taxes deferred due to temporary differences 632 287 70 36
----- ----- ----- -----
Total 1,346 611 387 286
The following is a reconciliation of the expected tax on income with the actual
tax expense.
Statutory tax rate 1,648 748 559 442
Increases (decreases) in taxes resulting from:
Tax exempt income and capital gains (170) (77) (76) (86)
Depreciation of equipment and real estate (42) (19) (10) (11)
Valuation of technical provisions (13) (6) (40) (29)
Deferred tax rate difference (57) (26) (27) (9)
True-ups past years and other (20) (9) (19) (21)
------ ------ ------ ------
Actual tax expense 1,346 611 387 286
<PAGE>
-112-
(22) EXPLANATION OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES USED BY AEGON AND
UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements of AEGON N.V. have been prepared in
accordance with Dutch Accounting Principles. Dutch Accounting Principles differ
in certain respects from accounting principles generally accepted in the United
States ("US GAAP"). The following is a summary of differences between Dutch
Accounting Principles and US GAAP which have an impact on reported Shareholders'
Equity or Net Income. The description of the Dutch Accounting Principle is shown
first followed by a description of US GAAP.
DESCRIPTION OF DIFFERENCES IN ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
(EUR in millions) Shareholders' Equity
US Accounting Principles
higher (lower) than
Dutch Accounting Principles
December 31,
Dutch Accounting Principles/US Accounting Principles 1999 1998
<S> <C> <C>
Shareholders' Equity in accordance with Dutch Accounting Principles 13,543 7,934
Adjustments:
Real estate; (793) (670)
Carried at original cost for a maximum of five years;
appraisal increments recognized thereafter;
Carried at depreciated cost
Debt securities; (816) 182
Debt securities are valued at amortized cost;
Debt securities are classified as available for sale and valued at market
value. The impact is shown net of EUR 119 million to satisfy policyholder
commitments, EUR (333) million adjustment of deferred policy acquisition
costs and EUR (440) million applicable taxes.
Goodwill (arising from acquisitions); 3,986 921
Directly charged to shareholders' equity in year of acquisition;
Capitalized and amortized over various periods not exceeding 20 years.
Technical provisions (including deferred policy acquisition costs/acquired
insurance in force); 901 766
Calculated on recent assumptions;
Calculated on assumptions when the policy was issued or on recent
assumptions.
</TABLE>
<PAGE>
-113-
<TABLE>
<CAPTION>
(EUR in millions) Shareholders' Equity
US Accounting Principles
higher (lower) than
Dutch Accounting Principles
December 31,
1999 1998
<S> <C> <C>
Realized gains and losses on debt securities; 33 295
Realized investment gains and losses on debt
securities are deferred and released to income
over the estimated average remaining maturity
term;
Recognized as income when realized.
Deferred taxation; (312) (351)
Calculated using discounted tax rates;
Calculated using nominal tax rates.
Deferred taxation on US GAAP adjustments;
Tax impact on the adjustments. (200) (117)
Dividends/1/; 460 344
Accrued as a liability;
Not recognized until they become irrevocable.
Balance of other items; 248 308
Certain expenses are recorded in different
periods on the two bases of accounting.
------- -------
Approximate Shareholders' Equity in accordance with US GAAP 17,050 9,612
</TABLE>
/1/ The 1998 figures have been adjusted for this item from previously reported.
<PAGE>
-114-
DESCRIPTION OF DIFFERENCES IN ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
(EUR in millions) Net Income
US Accounting Principles
higher (lower) than Dutch
Accounting Principles
Years ended December 31,
Dutch Accounting Principles/US Accounting Principles 1999 1998 1997
<S> <C> <C> <C>
Net Income in accordance with Dutch Accounting Principles 1,570 1,247 1,001
Adjustments:
Real estate; (41) (36) (36)
Carried at original cost for a maximum of five years;
appraisal increments recognized thereafter;
Carried at depreciated cost.
Goodwill (arising from acquisitions); (183) (80) (72)
Directly charged to shareholders' equity in year of acquisition;
Capitalized and amortized over various periods not to exceed 20 years.
Technical provisions (including deferred policy acquisition costs/acquired
insurance in force); 21 (54) (44)
Calculated on recent assumptions;
Calculated on assumptions when the policy was issued or on recent
assumptions.
Realized gains and losses on debt securities; (261) 196 88
Realized gains and losses on debt securities
are deferred and released to income over the
estimated average remaining maturity term;
Recognized as income when realized.
Realized gains and losses on shares and real estate; 408 690 712
Realized gains and losses on shares and real
estate are added to the revaluation reserve.
From this reserve amounts are released to income, so that together with
the direct yield, a 30 year moving average total rate of return is
recognized;
Recognized as income when realized.
</TABLE>
<PAGE>
-115-
<TABLE>
<CAPTION>
(EUR in millions) Net Income
US Accounting Principles
higher (lower) than Dutch
Accounting Principles
Years ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Deferred taxation; 44 (55) (23)
Calculated using discounted tax rates;
Calculated using nominal tax rates.
Deferred taxation on US GAAP adjustments;
Tax impact on the adjustments. 218 (14) 1
Cash settlements of convertible loan and stock options; (116) (444) (194)
Charged to shareholders' equity;
Charged to income.
Balance of other items; (59) 21 85
Certain expenses are recorded in different
periods under the two bases of accounting.
------ ------ ------
Approximate Net Income in accordance with US GAAP 1,601 1,471 1,518
Other comprehensive income, net of tax:
Foreign currency translation adjustments 1,342 (472) 540
Unrealized gains (losses) during period (114) 547 1,389
Reclassification adjustment for gains included in net income (401) (870) (842)
------ ------ ------
Approximate Comprehensive Income in accordance with US GAAP 2,428 676 2,605
</TABLE>
In 1999 major differences between amounts on Dutch accounting principles and
those on US accounting principles compared to the amounts of 1998 are explained
as follows:
Realized and unrealized gains and losses by their nature can show large
fluctuations.
The cash settlement of the convertible loan is related to the repurchase and
early redemption of the Company's convertible debt. The balance of other items
includes provisions not accounted for under US GAAP such as for euro/Year 2000
and general default reserves and the difference related to Transamerica non-
insurance operations. For the TA non-insurance operations only dividends
declared less financing costs are included in income while pursuant to US GAAP
all earnings are included less financing costs and a charge for the amortization
of goodwill.
<PAGE>
-116-
Dutch Accounting Principles/US Accounting Principles
The following is a summary of classification differences between Dutch
Accounting Principles and US Accounting Principles, which have no effect on
reported Net Income or Shareholders' Equity.
Earnings of affiliates;
Classified as investment income and other income;
Classified as a specific item in the income statement net of appropriate
income tax.
Deferred acquisition costs;
Classified as a reduction of technical provisions;
Classified as an asset.
Premiums collected on Universal Life-type contracts;
Classified as revenues;
Accounted for as deposit in the technical provisions.
Premiums to reinsurers;
Classified as a separate expense item;
Reflected as a reduction of premium revenues.
Change in unearned premiums;
Reflected as a change in the technical provisions;
Reflected as a reduction in revenues.
Owned and occupied real estate;
Reflected as investment;
Reflected as property and equipment.
Reinsurance recoverable;
Recorded as an offset to the claim liabilities;
Classified as an asset.
Real estate rentals, owner occupied property; Included as offsetting rental
income and rental expense;
Transactions eliminated.
Liquid assets;
Includes liquid assets with a maturity of one year or less at the date of
acquisition. AEGON estimates that approximately 85% of its liquid assets
at year-end 1999 have a maturity of three months or less;
Includes liquid assets with a maturity of three months or less at the
date of acquisition.
<PAGE>
-117-
Joint ventures;
Accounted for using proportionate consolidation, reflecting the share in
ownership;
Recorded as an equity investment using the equity method.
Unconsolidated holdings;
Includes businesses for sale;
Only in limited occasions allowed to reflect businesses for sale as
unconsolidated holdings.
Closed block of business;
Reported in detail in the income statement;
Reported on a net basis in the income statement.
(23) ADDITIONAL INFORMATION
The following information represents additional disclosures required by US
reporting rules. The information has been prepared following Dutch Accounting
Principles unless it specifically states that it is based upon US Accounting
Principles.
(a) Earnings per share
FASB Statement No. 128 "Earnings Per Share", (EPS), requires dual presentation
of basic EPS and diluted EPS for entities with complex capital structures. Basic
EPS excludes dilution and is computed by dividing income available to common
shareholders, which is after deduction of dividends on the preferred shares, by
the weighted average number of common shares (NLG 0.50 par value) outstanding.
Diluted EPS is computed based on the weighted average number of common shares
outstanding during the year, plus dilutive potential common shares considered
outstanding during the year. The weighted average number of common shares gives
effect, in all periods presented, to stock dividends and the two for one
stock-split, effected May 25, 1998.
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
EUR EUR EUR
<S> <C> <C> <C>
Net income per share, based on US accounting principles
Basic 2.61 2.55 2.72
Diluted 2.57 2.49 2.65
</TABLE>
Per share amounts for net income were calculated using (1) an earnings per
common share basic calculation and (2) an earnings per common share-assuming
dilution calculation. A reconciliation of the factors used in the two
calculations and between the Dutch and US accounting basis is as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
Numerator: (EUR in millions) 1999 1998 1997
<S> <C> <C> <C>
Dutch accounting principles:
Net income 1,570 1,247 1,001
Less: dividends on preferred shares (2) (3) (2)
Net income used in basic calculation 1,568 1,244 999
Plus: interest on convertible debt 2 3 6
Net income used in diluted calculation 1,570 1,247 1,005
US accounting principles:
Net income on Dutch accounting principles used in basic calculation 1,568 1,244 999
US adjustments to net income 31 224 517
</TABLE>
<PAGE>
-118-
<TABLE>
<S> <C> <C> <C>
Net income on US accounting principles used in basic calculation 1,599 1,468 1,516
Net income on Dutch accounting principles used in diluted calculation 1,570 1,247 1,005
US adjustments to net income 31 224 517
Net income on US accounting principles used in diluted calculation 1,601 1,471 1,522
Denominator: (number of shares, in millions)
Weighted average shares, as used in basic calculation 612.7 577.3 557.5
Shares to cover conversion of convertible debt 2.3 4.3 9.2
Addition for stock options outstanding during the year 7.9 8.5 6.7
Weighted average shares, as used in diluted calculation 622.9 590.1 573.4
</TABLE>
<PAGE>
-119-
(b) Pension Plans
Pension expense, based on the requirements of FAS 87, was EUR (48) in 1999,
EUR 4 in 1998 and EUR 24 million in 1997 (EUR (22), EUR 12 and EUR 29 million
for DAP).
<TABLE>
<CAPTION>
(EUR in millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net periodic expense consisted of the following:
Service cost for benefits earned during the year 75 54 56
Interest cost on projected benefit obligation 124 89 87
Expected return on plan assets (230) (131) (118)
Amortization of transition asset (3) (3) (4)
Amortization of unrecognized prior service costs 0 0 0
Amortization of unrecognized gain (14) (5) 3
---- ---- ----
Net pension expense (48) 4 24
Assumptions used in the accounting for United States plans were:
Discount rate 7.75% 7.0% 7.25-7.5%
Rates of increase in compensation levels 5.5% 5.5% 5.5-5.75%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Assumptions used in the accounting for non-United States plans were:
Discount rate 6.0% 5.25-5.5% 6.5%
Rates of increase in compensation levels 2.0-3.0% 1.5-2.25% 2.5-3.5%
Expected long-term rate of return on assets 6.0-8.0% 5.25-5.5% 6.5%
</TABLE>
The reconciliation of the beginning and ending balances of the projected benefit
obligation and the fair value of the plan assets is as follows:
1999 1998
Projected benefit obligation at beginning of year 1,492 1,558
Service costs 75 54
Interest costs 124 89
Amendments 2 0
Actuarial gain (103) 11
Acquisition/sale of businesses 871 (83)
Benefits paid (112) (88)
Currency exchange rate differences 136 (49)
------ ------
Projected benefit obligation at end of year 2,485 1,492
Fair value of plan assets at beginning of year 1,978 1,955
Actual return on plan assets 66 248
Contribution 16 24
Benefits paid (112) (89)
Acquisition/sale of businesses 2,044 (101)
Currency exchange rate differences 186 (59)
------ ------
Fair value of plan assets at end of year 4,178 1,978
<PAGE>
-120-
1999 1998
---- ----
Funded status 1,693 486
Unrecognized net actuarial (gain) (239) (344)
Unrecognized transition (asset) (24) (29)
Unrecognized prior service cost 6 3
------ ------
Prepaid benefit cost 1,436 116
(c) Investments
The carrying value and market value of bonds and private placements are as
follows:
<TABLE>
<CAPTION>
(EUR in millions)
Carrying Unrealized Market
value gains (losses) value
--------- ----- ----------- -------
<S> <C> <C> <C> <C>
Fixed maturities at December 31, 1999
US Government 2,578 38 (94) 2,522
Dutch Government 4,798 186 (97) 4,887
Foreign Government 4,040 160 (96) 4,104
Mortgage backed securities 16,974 56 (572) 16,458
Other bonds and private placements 49,834 1,111 (2,162) 48,783
------ ------ ------ ------
Total 78,224 1,551 (3,021) 76,754
<CAPTION>
Carrying Unrealized Market
value gains (losses) value
--------- ----- ----------- -------
Fixed maturities at December 31, 1998
US Government 1,751 55 (8) 1,798
Dutch Government 6,770 543 (23) 7,290
Foreign Government 2,368 231 (18) 2,581
Mortgage backed securities 11,416 194 (75) 11,535
Other bonds and private placements 22,085 1,289 (565) 22,809
------ ------ ------ ------
Total 44,390 2,312 (689) 46,013
</TABLE>
The carrying value and market value of bonds and private placements by
contractual maturity at December 31, 1999 are as follows:
Carrying Market
value value
-------- ------
Due in one year or less 6,847 6,827
Due after one year through five years 18,910 18,812
Due after five years through ten years 20,918 20,373
Due after ten years 31,549 30,742
------ ------
78,224 76,754
<PAGE>
-121-
Cost Unrealized Market
price gains (losses) value
------- ----- ------- ------
Equity securities at December 31,
1999 4,983 3,818 (291) 8,510
1998 3,169 2,031 (72) 5,128
Proceeds, gross gains and gross losses from sales of available for sale
securities for the three years ended December 1999 were:
(EUR in millions) 1999 1998 1997
---- ---- ----
Proceeds 37,243 25,651 21,978
Gross gains 1,386 1,668 1,261
Gross losses (810) (147) 93
Gross gains and losses are determined as the difference between proceeds and
(average) cost price, before taking into account the tax effect.
At December 31, 1999 the Company's impaired mortgage loans amounted to EUR 37
million. A specific valuation allowance of EUR 7 million was established to
reduce the carrying value of the mortgage loans to the present value of expected
future cash flows for these loans. Investment income related to impaired
mortgage loans is recognized when received. Interest foregone on these loans was
not material for 1999.
(d) Financial instruments and risk management
As an international life insurance company, AEGON is exposed to currency
fluctuations, to changes in the market value of its investments and the impact
of interest rate changes. In the normal course of business, AEGON employs
established policies and procedures to manage its exposures to changes in
interest rates and fluctuations in the value of currencies using a variety of
financial instruments. AEGON uses common derivative financial instruments such
as interest rate swaps, options, futures and foreign exchange contracts to hedge
its exposures related to both investments and borrowings. Derivatives included
in the balance sheet are valued at market value or at the amounts received on
written options. Foreign currency amounts are converted at the year-end exchange
rates. Realized and unrealized results on derivative financial instruments are
recognized in the same period and likewise as the results of the related
investments and debt.
AEGON does not hold or issue derivative instruments for speculative trading
purposes.
Interest rate contracts, which include swaps, swaptions, caps, floors and
forward rate agreements are used to alter interest rate types in order to match
assets and liabilities. The contracts are designated to specific liabilities at
the inception of the contracts. Amounts, receivable or payable, related to
interest rate contracts are recognized in the income statement as an adjustment
to interest expense.
Under interest rate swaps, the company agrees with other parties to exchange, at
specific intervals, the difference between fixed rate and floating rate interest
amounts calculated by reference to an agreed notional amount. Interest rate
swaps agreements generally involve the exchange of fixed and floating rate
interest payments, without an exchange of the underlying principal amount. The
use of interest rate swaps is, among others, to change the interest type of an
unused portion of the long-term fixed rate into floating rate until the funds
are allocated. Upon allocation the debt is swapped from a floating rate to a
fixed rate again. The differential to be paid or received is accrued as interest
rates change and recognized as an adjustment to interest expense related to the
debt. These agreements expire at various times from 2000 to 2011.
Swaptions are options on interest rate swaps which exchanged the fixed and
floating rate interest.
<PAGE>
-122-
Interest rate cap and floor agreements involve the payment of a maximum fixed
interest rate when an indexed rate exceeds or falls below a fixed rate. Premiums
paid for purchased interest rate cap or floor agreements are amortized to
interest expense over the term.
Forward rate agreements are commitments to purchase or sell a financial
instrument at a future date for a specific price and are used to hedge
short-term interest movements, in particular, for future investments or
short-term borrowings. Forward rate agreements settle in cash at a specific
future date based on the differential between agreed interest rates applied to a
notional amount. Payments or receipts are recognized as interest income or
interest charge at the moment of cash settlement.
The cross currency swaps allow borrowings to be made in foreign currencies,
gaining access to additional sources of funding while limiting foreign exchange
risk. Under cross currency swaps, parties initially exchange a principal amount
in two currencies, agreeing to re-exchange the currencies at a future date and
at an agreed exchange rate. Cross currency swaps are recognized in the balance
sheet under long-term liabilities and in the income statement under
miscellaneous income and expenditure - currency exchange rate differences. The
amount recognized represents the currency exchange difference on the notional
amount at period-end rates. The agreements expire at various times from 2000
through 2007.
Foreign exchange contracts are primarily used to hedge foreign currency risk of
investments.
Options are contracts that give the option purchaser the right, but not the
obligation, to buy or sell, within a specified period of time, a financial
instrument at a specified price. The contracts are carried at market, cost or
the premium received, with unrealized gains (losses) recognized in equity or
current liabilities.
Forwards and futures are contracts that call for the delayed delivery of
securities in which the seller agrees to deliver on a specified date a specified
instrument at a specified price. They are among others used for pre-investment
purposes.
The Company's exposure to credit risk is the risk of loss from a counter-party
failing to perform according to the terms of the contract. Interest rate swap,
cap, and floor agreements are subject to replacement cost risk, which is the
possibility that future changes in market prices may make the instruments less
valuable. The credit risk on all financial instruments is controlled by an
ongoing credit approval and the Company does not expect any counter-parties to
fail to meet their obligations given their high credit ratings and our strict
counter-party risk policy. The credit exposure of interest rate and foreign
exchange contracts is represented by the fair value of contracts.
<PAGE>
-123-
The following table represents aggregate notional amount of derivatives. The
amounts listed for interest rate contracts will not be exchanged by parties and,
thus, do not reflect an exposure of the Company to market movements. The amounts
listed for foreign currency contracts will be exchanged at amounts calculated on
the bases of the notional amounts and the terms of the derivatives, which
related to interest rates, exchange rates, or financial or other indexes.
(EUR in millions) Notional amounts
----------------
1999 1998
---- ----
Interest rate contracts
- - interest rate swaps 27,254 13,757
- - swaptions 8,232 -
- - caps/floors 1,149 429
- - forward rate agreements 836 1,295
Foreign currency contracts
- - cross currency swaps 3,879 4,048
- - foreign exchange contracts 2,474 8,355
- - OTC options 5,832 3,002
- - exchange traded options/futures 4,895 2,215
(e) Fair value of financial instruments
FASB Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. Statement 107 defines the fair value of a financial
instrument as the amount at which the instrument could be exchanged in a current
transaction between willing parties. In cases where quoted market prices are not
available, fair values are based on estimates using present value or other
valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
<PAGE>
-124-
The following table reflects the disclosure of fair values and carrying amounts
of assets and liabilities as provided for in SFAS 107 and SFAS 119. All assets
and liabilities are held for other than trading purposes.
<TABLE>
<CAPTION>
(EUR in millions) December 31, 1999 December 31, 1998
------------------------- -------------------------
Carrying Fair Carrying Fair
amount value amount value
<S> <C> <C> <C> <C>
Real estate 2,559 2,559 2,087 2,087
Shares 8,510 8,510 5,128 5,128
Bonds and private placements 78,224 76,754 44,390 46,014
Loans guaranteed by mortgage 16,135 15,952 11,418 12,155
Investments for the account of policyholders 108,276 108,276 58,344 58,344
Cash and short term investments 964 964 1,125 1,125
Current liabilities and accruals and deferred income 17,148 17,148 15,522 15,522
Long-term liabilities 3,703 3,727 2,303 2,376
Subordinated loans 2,032 2,283 1,588 2,116
Investment contract liabilities 50,374 48,161 23,903 23,568
Interest rate contracts
- - interest rate swaps 0 56 0 (90)
- - swaptions 0 34 - -
- - caps/floors 0 10 4 5
- - forward rate agreements 0 1 0 (11)
Foreign currency contracts
- - cross currency swaps (51) (59) (91) (78)
- - foreign exchange contracts 27 27 (4) (4)
- - OTC options 995 995 625 625
- - exchange traded options/futures 57 57 37 37
</TABLE>
The following methods and assumptions were used by the company in estimating its
fair value disclosures for financial instruments:
Real estate
Real estate is reported in the balance sheet at appraisal value based on market
value when leased. At least 20% of property is revalued annually, so that each
unit is revalued once in every 5-year period.
New property is valued at construction cost including interest during the
construction period, or at purchase price.
Shares
The fair values for shares are based on quoted market prices or, if unquoted, at
estimated market value and are recognized in the balance sheet.
Bonds and Private placements
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturities not actively traded, fair values are
estimated by discounting expected future cash flows using a current market rate
applicable to the yield, credit quality and maturity of the investment.
Loans guaranteed by mortgage
The fair value for loans guaranteed by mortgage is estimated using discounted
cash flow analyses, using interest
<PAGE>
-125-
rates currently being offered for similar loans to borrowers with similar credit
ratings. Loans with similar characteristics are aggregated for purposes of the
calculations.
Investments for the account of policyholders
Investments for the account of policyholders and insurance-linked savings
deposits are generally valued at market value.
Cash and Short term investments
The carrying amounts reported in the balance sheet for these instruments
approximate their fair values.
Current liabilities and accruals and deferred income
The carrying amounts of the Company's current liabilities and accruals and
deferred income approximate their fair value.
Long-term liabilities and subordinated loans
The fair value of the Company's long-term liabilities and subordinated loans is
based on quoted market prices, where available, or is estimated using discounted
cash flow analyses, based on the Company's current borrowing rates for similar
types of borrowing arrangements.
Investment contract liabilities (included in technical provisions)
Fair values for the company's liabilities under investment-type insurance
contracts are estimated using discounted cash flow calculations, based on
interest rates currently being offered for similar contracts with maturities
consistent with those remaining for the contracts being valued.
Derivatives
The fair value of the derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts on reporting date.
Market quotes are available for many derivatives; for those products without
readily available market quotes generally accepted valuation models are used to
estimate fair value.
(f) Taxes
At December 31, 1999, the Company's US subsidiaries had net operating loss
carry-forwards for US tax purposes of EUR 197 million expiring at various times
through 2011. The Company's subsidiaries in Germany and Spain had net operating
loss carryforwards of approximately EUR 55 million.
The deferred tax assets included in the balance sheet at December 31, 1999 are
immaterial, except for EUR 357 million DAC tax asset.
Income before tax derived from The Netherlands and foreign sources is as
follows:
(EUR in millions) 1999 1998 1997
---- ---- ----
The Netherlands 861 742 682
Foreign 1,562 1,090 797
Interest charges and other (242) (198) (192)
------ ------ ------
Total 2,181 1,634 1,287
Amounts paid in cash in 1999 for income taxes were EUR 461 million (1998: EUR
246 million and 1997: EUR 154 million).
<PAGE>
-126-
(g) Debt.
The following table lists AEGON's long-term liabilities and subordinated loans
at December 31, 1999. All loans that are shown separately relate to AEGON NV
except when stated otherwise. All items of EUR 50 million or more are shown
separately.
<TABLE>
<CAPTION>
(in EUR millions) Period Coupon date Book value
1999 1998
<S> <C> <C> <C> <C>
Long-term liabilities
NLG 250 mln 7 3/4% Eurobonds 1989/99 November 15 - 93
NLG 225 mln 8 3/4% Eurobonds 1991/01 December 16 90 93
NLG 250 mln 5 1/8% Eurobonds 1994/99 February 23 - 102
CHF 125 mln 5 1/2% Bonds 1995/99 January 11 - 78
LUF 2,000 mln 7 3/4% Eurobonds 1995/99 December 20 - 49
USD 100 mln 9 3/8% Domestic Debentures (Transamerica Corp.) 1996/08 March/Sept 1 100 -
USD 200 mln 6 3/4% Domestic Debentures (Transamerica Corp.) 1996/06 May/Nov 15 199 -
USD 200 mln 6 1/4% Eurobonds 1997/00 August 29 174 151
USD 200 mln 6 1/4% Eurobonds 1997/01 October 1 199 172
CHF 150 mln 3 1/4% Bonds 1997/04 June 24 93 93
DEM 150 mln 2 1/2% Eurobonds 1998/03 February 24 77 77
USD 400 mln 7% Eurobonds (AEGON Funding Corp.) 1999/04 September 10 398 -
USD 350 mln 6 3/4% Eurobonds (AEGON Funding Corp.) 1999/02 November 15 348 -
CHF 300 mln 3 1/8% Eurobonds 1999/04 September 27 187 -
GBP 250 mln 6 1/8% Eurobonds 1999/31 December 15 402 -
Other/1/ 1,436 1,395
----- -----
3,703 2,303
Subordinated loans
NLG 500 mln Floating Rate / Fixed Rate subordinated Eurobonds 1992/04 September 15 161 167
NLG 275 mln 6 1/2% subordinated Eurobonds 1993/03 September 15 102 102
USD 400 mln 8% subordinated Notes 1994/06 August 15 293 253
USD 600 mln 4 3/4% subordinated convertible Eurobonds 1994/04 November 1 20 29
Other subordinated loans 127 133
----- -----
703 684
Perpetual cumulative subordinated loans Year/2/
NLG 250 mln 8% 2005 June 8 114 114
NLG 250 mln 7 7/8% 2005 September 29 114 114
NLG 300 mln 7 3/4% 2005 December 15 136 136
NLG 450 mln 7 1/8% 2011 March 4 203 203
NLG 250 mln 7 5/8% 2008 July 10 114 114
NLG 300 mln 7 1/4% 2008 October 14 136 136
----- -----
817 817
Trust Pass-through Securities and Monthly Income Preferred Stock
USD 100 mln 7 4/5% (Transamerica aff.) 1996/26 Jun/Dec 1 100 -
USD 225 mln 7 13/20% (Transamerica aff.) 1996/26 Jun/Dec 1 224 -
USD 190 mln 7 % (Transamerica aff.) 1996/26 May/Nov 15 188 -
USD 100 mln 8 7/8% Cumulative Monthly Income Preferred Stock, Last day each
redeemable on or after May 31, 1999 (Providian LLC) 1994/99 calendar month - 87
------- ------
512 87
------- ------
Total long-term liabilities, subordinated loans and capital securities 5,735 3,891
</TABLE>
<PAGE>
-127-
/1/ Of which EUR 273 million relate to AEGON NV (1998: EUR 138 million)
/2/ Year of first possibility for redemption.
In the years 2000 through 2004 the following amounts are due: EUR 401 million in
2000, EUR 423 million in 2001, EUR 657 million in 2002, EUR 252 million in 2003
and EUR 1,003 million in 2004.
Amounts paid in cash in 1999 for interest were EU 852 million (1998: EUR 661
million and 1997: EUR 668 million).
(h) Restrictions, commitments and contingencies
AEGON is subject to legal restrictions on the amount of dividends it can pay to
its shareholders. Under Dutch law dividends can only be paid up to an amount
equal to the excess of the Company's own funds over the sum of paid-up capital
and reserves required by law. At December 31, 1999, AEGON NV's restricted net
assets amounted to EUR 3.8 billion and the amount of capital and surplus
available for dividends was EUR 9.6 billion.
Certain insurance subsidiaries of the Company, principally those in the United
States, are subject to prior approval by statutory authorities for certain
payments of dividends to the Company, which exceed specified limitations. The
insurance subsidiaries are also subject to risk based capital standards,
established by the National Association of Insurance Commissioners, which
prescribe required capital levels and may restrict the amount of dividends which
can be paid. Management does not believe such restrictions on the Company's
subsidiaries will affect its ability to pay dividends in the future. At
December 31, 1999, AEGON's US subsidiaries have EUR 3,861 million which is
unrestricted and therefore available for loan or distribution.
Under the Insurance Industry Supervision Act in The Netherlands, general
insurance companies are required to maintain an equity equal to not less than
18% of gross premiums written in the previous year, subject to other possible
limitations. Life insurance companies are required to maintain an equity of
approximately 5% of general account technical provisions and, in case of no
interest guarantee, of approximately 1% of technical provisions with investments
for the account of policyholders. As of December 31, 1999, the capital and
reserves of AEGON's insurance subsidiaries substantially exceeded the minimum
solvency requirement. Even when the net deferred policy acquisition cost was
subtracted from capital and reserves, these were still more than 3 times the
minimum standard requirement.
The Company and its subsidiaries are parties to a number of legal proceedings
incidental to its business. It is management's opinion, after consultation with
legal counsel, that damages arising from such litigation will not be material to
either the financial position or the results of operations of the Company.
Pursuant to the 1983 merger agreement the Company is obligated to permit the
Association to acquire preferred shares in such amounts as are necessary to
maintain a majority voting interest in the Company in the event of any future
issuance of either common or preferred shares.
(i) Business segment information
Pursuant to Financial Accounting Standard No. 131 `Disclosures about segments of
an enterprise and related information' (FAS 131) business segments are defined
on the same basis that the company is managed. AEGON has the following
reportable geographic segments: Americas, The Netherlands, United Kingdom and
Other countries, which include Hungary, Spain and other units. Crucial
differences exist in local markets and for this reason AEGON emphasizes a
decentralized organization structure. The operating companies, with
knowledgeable and highly experienced local management and employees, market
their own, unique products using tailored distribution channels. Close to 90% of
AEGON's core business is life insurance, pension and related savings and
investment products. The Group is also active in accident and health insurance,
property and casualty insurance and limited banking activities.
<PAGE>
-128-
AEGON evaluates performance and allocates resources based on income before
interest charges and taxes, based on Dutch accounting principles. The accounting
policies of the reportable segments are the same as those used for the
consolidated financial statements. Intersegment revenue and expenditures for
additions to long-lived assets are not significant.
Set forth below is a summary of total revenues (including investment income) and
income before tax for the major segments of the business. Also shown are the
identifiable assets used in each segment. For more information on reportable
segments see Note 21.
(EUR in millions) 1999 1998 1997
---- ---- ----
Revenues:
Americas 10,451 7,038 5,354
The Netherlands 5,683 5,160 4,822
United Kingdom 5,241 4,127 3,279
Other Countries 909 755 688
Other 90 99 64
-------- -------- --------
22,374 17,179 14,207
Income before tax:
Americas 1,337 917 639
The Netherlands 861 742 682
United Kingdom 237 145 119
Other Countries (12) 28 39
Interest charges and other (242) (198) (192)
-------- -------- --------
2,181 1,634 1,287
Identifiable assets
Americas 131,261 60,823 58,263
The Netherlands 43,417 42,488 41,277
United Kingdom 52,304 26,571 23,062
Other Countries 1,826 1,314 1,160
-------- -------- --------
228,808 131,196 123,762
The tables below show the Company's revenues, income before tax and identifiable
assets by line of business.
Revenues:
Life insurance 19,110 14,066 11,218
Non-life insurance 2,470 2,388 2,251
Banking activities 704 626 674
Other non-insurance activities 90 99 64
-------- -------- --------
22,374 17,179 14,207
<PAGE>
-129-
(EUR in millions) 1999 1998 1997
---- ---- ----
Income before tax:
Life insurance 2,126 1,581 1,219
Non-life insurance 142 145 149
Banking activities 155 106 111
Interest charges and Other (242) (198) (192)
-------- -------- --------
2,181 1,634 1,287
Identifiable Assets:
Insurance 218,182 120,220 111,753
Banking activities 5,787 9,059 10,840
Other non-insurance activities 4,839 1,917 1,169
-------- -------- --------
228,808 131,196 123,762
(j) Revenue recognition
Life insurance premiums are reported as earned when due or, for short duration
contracts, over the contract period. Benefits and expenses are associated with
earned premiums so as to result in recognition of profits over the life of the
contracts. This association is accomplished by means of the technical provision
and the deferral and amortization of acquisition costs. Acquisition costs
consist principally of commissions, premium taxes and certain variable policy
issuance, underwriting and agency expenses.
Deferred policy acquisition costs of insurance contracts with fixed premiums are
generally amortized over periods not to exceed the premium paying periods or the
contract periods. For flexible insurance contracts and investment type contracts
the amortization is generally in proportion to emerging gross profits.
General insurance premiums are recognized on a monthly pro rata basis over the
terms of the policies. Acquisition costs, consisting of commissions, premium
taxes and other costs that vary with and are primarily related to the production
of business are deferred by major product groups and amortized over the terms of
the policies.
Deferred policy acquisition costs are reviewed to determine that they do not
exceed recoverable amounts, after allowing for anticipated investment income.
(k) Capital and reserves
Set forth below are changes in capital and reserves for the past three years.
(EUR in millions) Years ended December 31,
------------------------------
1999 1998 1997
---- ---- ----
Preferred Shares
Balance at January 1 52 61 36
Issued 13 - 25
Repurchased - (9) -
--- --- ---
Balance at December 31 65 52 61
Vereniging AEGON holds all the issued preferred shares. From the net profit
first of all a preferred dividend will be paid out, based on the official rate
of disbursement. For the years under review the dividends were 4.75%, 4.75% and
4% respectively. Apart from this no additional dividend is to be paid on the
preferred shares. For further information reference is made to Item 4.
<PAGE>
-130-
<TABLE>
<CAPTION>
(EUR in millions) Years ended December 31,
-------------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Common Shares
Balance at January 1 133 131 120
Issuance of shares 18 - 10
Stock dividend 0 1 1
Exercised options 0 1 0
------ ------ ------
Balance at December 31 151 133 131
General Surplus Fund
Balance at January 1 3,995 4,800 2,966
Addition from earnings 1,570 1,247 1,001
Dividends (797) (588) (471)
Issuance of new shares 6,049 - 1,476
Exercised options 5 16 21
Stock dividend 0 0 (1)
Optional dividend 194 153 113
Currency exchange rate differences 1,051 (390) 467
Cash settlement subordinated convertible loan (69) (171) (131)
Cash settlement of stock option plans (47) (273) (63)
Goodwill/1/ (3,133) (310) (575)
Repurchased own shares (315) (491) -
Other changes (1,111) 2 (3)
------ ------ ------
Balance at December 31 7,392 3,995 4,800
</TABLE>
/1/ All differences between acquisition price and net asset value, according to
AEGON accounting principles, are charged to capital and reserves in the year of
acquisition.
<TABLE>
Revaluation Account
<S> <C> <C> <C>
Balance at January 1 3,754 3,234 1,998
Unrealized gains and losses on real estate and shares 1,380 776 1,480
Unrealized gains and losses in previous years on real estate
and shares sold in the reporting year (726) (906) (1,014)
Realized gains and losses on real estate and shares 717 919 989
Transfer to the income statements of indirect income on real estate and shares (394) (265) (228)
Changes in the provision for deferred taxation 139 20 9
Other changes 1,065 (24) -
------ ------ ------
Balance at December 31 5,935 3,754 3,234
</TABLE>
<PAGE>
-131-
(l) Approximate Comprehensive income in accordance with US GAAP
The related tax effects allocated to each component of Other comprehensive
income are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------
(EUR in millions) 1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Foreign currency translation adjustment pretax 1,342 (472) 540
tax 0 0 0
net of tax 1,342 (472) 540
Unrealized gains (losses) during period pretax (465) 687 1,809
tax 351 (140) (420)
net of tax (114) 547 1,389
Less: reclassification adjustment pretax (457) (1,131) (1,076)
tax 56 261 234
net of tax (401) (870) (842)
----- ----- -----
Other comprehensive income (loss) 827 (795) 1,087
</TABLE>
(m) New accounting standards
SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities"
requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
SFAS No. 133 provides, if certain conditions are met, that a derivative may be
specifically designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment
(fair value hedge), (2) a hedge of the exposure to variable cash flows of a
forecasted transaction (cash flow hedge), or (3) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security or a foreign-currency-denominated
forecasted transaction (foreign currency hedge). SFAS No. 133 does not apply to
most traditional insurance contracts. However, certain hybrid contracts that
contain features which can affect settlement amounts similarly to derivatives
may require separate accounting for the "host contract" and the underlying
"embedded derivative" provisions. The latter provisions would be accounted for
as derivatives as specified by the statement. Under SFAS No. 133, the accounting
for changes in fair value of a derivative depends on its intended use and
designation. For a fair value hedge, the gain or loss is recognized in earnings
in the period of change together with the loss or gain on the hedged item. For a
cash flow hedge, the effective portion of the derivative's gain or loss is
initially reported as a component of other comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects earnings. For
a foreign currency hedge, the gain or loss is reported in other comprehensive
income as part of the foreign currency translation adjustment. For all other
derivatives not designated as hedging instruments, the gain or loss is
recognized in earnings in the period of change. In June 1999, the FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133". Per FASB Statement
137, the Company is required to adopt SFAS No. 133 no later than January 1,
2001. AEGON is currently assessing the effect of the new standard.
On January 1, 1999, the Company adopted AICPA Statement of Position (SOP) 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". This SOP provides guidance for determining whether costs of
software developed or obtained for internal use should be capitalized or
expensed as incurred. The adoption had no impact on the amount of net income,
earnings per common share or total shareholders' equity reported.
<PAGE>
-132-
Other accounting standards recently issued have not been discussed above because
their effect on the amount of net income, earnings per common share or total
shareholders' equity reported is not material.
(n) Stock-based compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", provides guidance on
accounting and reporting for the cost of stock-based compensation. Compensation
costs related to stock options are permitted to be recorded under the intrinsic
value method provided certain fair value information is disclosed.
AEGON has elected to follow the intrinsic value method of Accounting Principles
Board Opinion No. 25, "Accounting for Stock issued to Employees" (APB 25) and
related interpretations in accounting for its stock options for purposes of the
reconciliation of net income from DAP to US GAAP. Under APB 25, because the
exercise price of AEGON's stock options equals the market price of the
underlying stock at the date of the grant, no compensation cost is recognized at
the grant date. However, subsequent cash settlements of stock options have
resulted in compensation costs of EUR 47, EUR 273 and EUR 63 million,
respectively, for the three years ended December 31, 1999 recognized in
approximate net income based on US GAAP, of which EUR 21, EUR 165 and EUR 20
million for the three years ended December 31, 1999, respectively, relate to
options granted after December 15, 1994.
Had compensation costs for AEGON's stock options granted in 1999, 1998 and 1997
been determined based on the fair value of the options at the grant dates
consistent with the method of FAS 123, pro forma net income and earnings per
share, adjusted for the two for one stock split effected May 25, 1998, based on
US GAAP would have been:
Years ended December 31,
--------------------------
(EUR in millions) 1999 1998 1997
---- ---- ----
Approximate net income based on US GAAP
as reported 1,601 1,471 1,518
pro forma 1,563 1,596 1,507
Basic earnings per share (in EUR)
as reported 2.61 2.55 2.72
pro forma 2.55 2.76 2.70
Diluted earnings per share (in EUR)
as reported 2.57 2.49 2.65
pro forma 2.51 2.70 2.64
The fair value of the stock options at the date of grant was estimated using the
binomial option pricing model with the following assumptions for the three years
ended December 31, 1999: risk-free interest rates of 3.5%, 3.5/5.5% and
4.5/6.15%, expected dividend growth rate of 10% for each year, expected lives of
4.2 years for 1999, 4.2/6.5 years for 1998, and 3.5/6.5 years for 1997 and
expected volatility of 26%, 18%, and 15/17%, respectively. The calculation takes
into account that the options granted cannot be exercised within three years.
Years ended December 31,
-------------------------
(EUR in millions) 1999 1998 1997
---- ---- ----
Fair value of options granted during the year 59 40 31
(o) Transamerica non-insurance operations
The non-insurance operations of Transamerica are not considered part of the core
insurance business activities of AEGON. Pursuant to Dutch Accounting Principles
(DAP), these non-insurance operations are not consolidated.
<PAGE>
-133-
This investment is recorded at cost, which was their purchase price of EUR 3
billion at the date of acquisition (July 21, 1999), and is included in the
consolidated balance sheet caption "Group Companies and Participations" as of
December 31, 1999. The consolidated 1999 income statement includes as income the
dividends declared from the non-insurance operations of EUR 58 million to cover
acquisition related funding costs of the same amount. Accordingly, the
non-insurance operations of Transamerica had no effect on net income on a DAP
basis.
Pursuant to US GAAP all earnings are included in income less financing costs and
a charge for the amortization of goodwill and are consolidated in the balance
sheet.
Although the consolidated income statement does not reflect the net income of
the non-insurance operations, since it is carried on the consolidated balance
sheet at its cost of EUR 3 billion (USD 3.1 billion), the following summarized
balance sheet and income statement information presents the non-insurance
operations based upon the Transamerica historical US GAAP reporting. For
purposes of the balance sheet the unallocated excess of the purchase price over
the historical carrying amount of the net assets has been recorded as a single
amount and included in the line item "other assets".
<TABLE>
<CAPTION>
(EUR in millions)
December 31,
Summarized balance sheet: 1999
<S> <C>
Finance receivables, net of unearned charges and allowance for bad debts 8,526
Equipment held for lease 3,006
Other assets 3,118
Notes and loans payable 9,473
Accounts payable and other liabilities 1,943
Shareholders' Equity 3,234
<CAPTION>
Period July 21,
1999 through
Summarized income statement: December 31, 1999
<S> <C>
Finance charges 439
Leasing revenue 329
Real Estate revenue 130
Other 93
----
Total Revenue 991
Operating income (loss):
Transamerica Finance Corporation 71
Real Estate Information 17
Other (1)
---
Total Operating income 87
Dividend declared 58
Funding costs on the related raised debt (58)
---
Income from participation 0
</TABLE>
<PAGE>
-134-
Notes to summarized balance sheets
(a) The finance receivables are comprised of the following:
(EUR in millions)
December 31, 1999
Commercial:
Distribution finance 2,756
Business credit 2,747
Equipment finance 1,569
Retail 1,163
-----
8,235
Less unearned finance charges (441)
-----
Net finance receivables 7,794
Leasing:
Finance receivables 1,157
Less unearned finance charges (282)
------
Net finance receivables 875
------
8,669
Less allowance for losses (143)
------
Total net finance receivables 8,526
At December 31, 1999 finance receivables, for which the accrual of finance
charges was suspended, amounted to EUR 129 million.
Contractual maturities of finance receivables outstanding, before deduction of
unearned finance charges, at December 31, 1999 were:
Commercial % Leasing % Total %
(EUR in millions)
2000 3,854 47 203 18 4,057 43
2001 1,051 13 197 17 1,248 14
2002 957 11 175 15 1,132 12
2003 487 6 177 15 664 7
2004 472 6 119 10 591 6
Thereafter 1,414 17 286 25 1,700 18
----- ----- ----- ----- ----- -----
Total 8,235 100 1,157 100 9,392 100
===== ===== ===== ===== ===== =====
The commercial lending operation's business credit unit provides revolving lines
of credit, letters of credit and standby letters of credit. At December 31,
1999, borrowers' unused credit available under such arrangements totaled EUR
2,569 million.
<PAGE>
-135-
<TABLE>
<CAPTION>
(b) Notes and loans payable are comprised of the following:
(EUR in millions) December 31, 1999
<S> <C>
Short-term debt 3,301
Current portion of long-term debt 1,000
-----
Total short-term debt 4,301
Long-term debt due subsequent to one year:
5.42% to 11% notes and debentures, maturing through 2028 5,742
Zero to 6.50% notes and debentures due 2007 to 2012 issued at a discount
to yield 13.8% to 14.77%; effective cost of 9.74% to 14.17%; maturity
value of EUR 586 million 209
6.05% to 9.95% subordinated notes and debentures maturing through 2003 221
------
6,172
Less amounts due in less than one year 1,000
------
Total long-term debt due subsequent to one year 5,172
------
Total debt 9,473
</TABLE>
The weighted average interest rate on short-term borrowings at December 31, 1999
was 5.7%.
Long-term debt outstanding at December 31, 1999 matures as follows:
Average
Unsubordinated Subordinated Total Interest Rate
(EUR in millions)
2000 842 158 1,000 6.34%
2001 2,400 2 2,402 6.27%
2002 1,576 7 1,583 6.87%
2003 307 54 361 6.81%
2004 455 455 6.61%
Thereafter/1/ 371 371 10.94%
----- --- -----
Total 5,591 221 6,172
/1/ Includes the accreted values at December 31, 1999 on original issue discount
debt and not the amount due at maturity.
At December 31, 1999, contracts designated as hedges of outstanding indebtedness
were comprised of the following:
<TABLE>
<CAPTION>
(EUR in millions) Weighted Weighted
Average Average
Fixed Floating
Notional Interest Interest
Amount Rate Rate
<S> <C> <C> <C>
Interest rate exchange agreements the Company pays:
Floating rate interest expense, receives fixed rate interest income 2,398 6.9% 6.3%
Fixed rate interest expense, receives floating rate interest income 276 5.9% 6.3%
Floating rate interest income based on
one index (5.4%) and receives floating
rate interest expense based on another
index (5.7%) 99
Cross currency exchange and foreign interest rate swaps 25
Forward contracts 11
</TABLE>
<PAGE>
-136-
(c) Short-term borrowings are supported by non-cancelable credit agreements with
various banks. One credit agreement provides the ability to borrow up to USD 4.5
billion with interest at variable rates and expires in 2002 and a second USD 50
million credit agreement expires in 2000. There were no borrowings outstanding
under the credit lines at December 31, 1999.
(p) Use of estimates
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
deferred policy acquisition costs, technical provisions and accruals, valuation
allowances on investments and deferred taxes. It is reasonably possible that
actual experience could differ from the estimates and assumptions utilized.
(q) Acquisitions
On July 21, 1999 AEGON completed the acquisition of Transamerica Corporation
(Transamerica). AEGON exchanged 89.5 million shares plus USD 2,918 million (EUR
2,772 million) in cash for all outstanding shares of Transamerica. 74.2 million
(about 83%) of the exchanged shares were newly issued, while the other 15.3
million (approximately 17%) were purchased from Vereniging AEGON, AEGON's
largest shareholder. The shares purchased from Vereniging AEGON and the cash
payment to shareholders has been funded with existing capital resources and
senior debt. The transaction also included the assumption of approximately USD
1.1 billion (EUR 1.0 billion) of Transamerica's holding company debt.
As part of the transaction, new preferred shares with a total par value of NLG
27.5 million were issued to Vereniging AEGON, which will keep its majority
voting rights in AEGON. Vereniging AEGON has publicly indicated that it intends
to gradually purchase additional common shares of AEGON on the stock market to
regain its holding of approximately 40% of the common shares. AEGON and
Vereniging AEGON have agreed that such preferred shares will be repurchased by
AEGON to the extent Vereniging AEGON regains its prior voting position through
the acquisition of common shares.
The cost to acquire Transamerica is comprised of the following (EUR in millions)
Cash payment to Transamerica stockholders 2,772
Newly issued AEGON shares 5,357
Cost of option purchased from Vereniging AEGON to provide
additional shares if needed for the acquisition 44
Reissued AEGON shares purchased from Vereniging AEGON 1,110
Cost to settle outstanding employee stock options and stock
appreciation rights of Transamerica 928
Professional fees and other direct transaction expenses 26
------
Total cost to acquire Transamerica 10,237
The acquisition was accounted for as a purchase for financial reporting purposes
in accordance with Dutch Accounting Principles effective July 21, 1999. The
excess of the total purchase cost over the fair value of the assets acquired
less the fair value of the liabilities assumed has been recorded as goodwill.
The goodwill attributable to the life operation of Transamerica was charged
directly to equity pursuant to Dutch Accounting Principles. The non-insurance
operations of Transamerica were recorded at cost and reported on a
de-consolidated basis as a participation and accordingly goodwill is not charged
directly to equity.
<PAGE>
-137-
The results of operations of Transamerica since the acquisition are included in
AEGON's financial statements. The consolidated income statement since the date
of acquisition includes as income the dividends declared from Transamerica's
non-insurance operations since the date of acquisition to cover acquisition
related funding costs of the same amount.
On October 7, 1999 the acquisition of the UK life insurance operations of
Guardian Royal Exchange was completed. The acquisition was paid in cash of GBP
700 million. Related to this transaction AEGON N.V. issued 8.3 million new
common shares in a private placement to Vereniging AEGON. The results of the
acquired businesses are included into AEGON's accounts as from July 1, 1999.
The following unaudited pro forma results of operations of AEGON are presented
as if the acquisitions had occurred effective January 1, 1998. Since the non-
insurance operations are not being consolidated, the pro-forma information
includes a dividend to the extent necessary to offset financing costs related to
operations.
<TABLE>
<CAPTION>
(EUR in millions)
Years ended
December 31
1999 1998
---- ----
<S> <C> <C>
Revenues 25,384 23,026
Net income 1,709 1,492
Net income per share(EUR):
Basic 2.59 2.26
Diluted 2.55 2.22
</TABLE>
The pro forma adjustments do not reflect any operating efficiency and cost
savings that may be achievable with respect to the combined companies. The pro
forma adjustments do not include any adjustments to historical product sales
volumes for any future price changes nor any adjustments to selling and
marketing expenses for any future operating changes. The above amounts are based
upon certain assumptions and estimates, which AEGON believes are reasonable. The
pro forma results do not necessarily represent results, which would have
occurred if the merger had taken place at the date and on the basis assumed
above.
(r) Foreign currency translation
Assets and liabilities are converted at year-end rates. Income statement items
are converted at the average currency rates for the reported period.
The financial statements are not comparable to the financial statements of other
companies that report in euros that restated their prior periods from currencies
other than the Dutch guilder.
(s) Labouchere
Labouchere has been deconsolidated in the balance sheet at December 31, 1999.
Consolidation of Labouchere would have increased total assets by EUR 3.5
billion.
(t) AEGON UK's With Profit Funds
The assets and liabilities of the with-profits funds of Scottish Equitable and
Guardian are included in AEGON's historical Dutch accounting basis balance sheet
at market value in the line items, "Investments for the account of
policyholders" and "Technical provisions with investment risk for the account of
policyholders." The assets and liabilities are equal in amount since the with-
profit funds are held for the sole benefit of the participating policyholders.
In respect of Guardian there is a 10% profit participation in those surpluses
distributed to policyholders. The market value adjustment for investment assets
is recorded through the income statement in investment income for the account of
policyholders in the technical account life insurance with an offsetting
<PAGE>
-138-
amount recorded in benefits paid and provided. The income statement activity of
the with-profits funds is reported in each of the applicable line items in
AEGON's historical Dutch accounting basis income statement with no net income
effect for Scottish Equitable PLC.
For US GAAP purposes the with-profits fund is treated similar to a closed block
of business. A closed block of business is established for the benefit of a
class of policyholders and is designed to give them reasonable assurance after a
reorganization that assets will be available to maintain the benefits under
their policies.
The Scottish Equitable with-profits fund was established as part of the
regulatory requirement to allow AEGON to acquire an interest in the non-
participating business of Scottish Equitable. The with-profits fund is treated
as a closed block of business since at the time Scottish Equitable PLC was
formed the participating policies were allocated specific assets and the
business was segregated within Scottish Equitable PLC. The participating
policyholders are entitled to receive 100% of the financial performance of this
segregated with-profits fund. The Guardian with-profit fund is treated
similarly, with the exception of a profit share to the shareholders of 10%.
Under the terms of the agreement Scottish Equitable PLC remains obligated to the
participating policyholders of Scottish Equitable PLC for the guaranteed
benefits under their policies should their be a financial short-fall in the
with-profits fund.
Pursuant to US GAAP the investment assets are classified as available for sale
and accordingly are carried at fair value. Because the with-profits funds are
maintained for the sole benefit of the participating policyholders, the market
value adjustment is recorded directly to the policyholder liability account. In
addition, for US GAAP reporting rules, the income statement activity would be
reported on a net basis as a single line item. Under this arrangement the
policyholders receive all of the benefits from the with-profit fund and to the
extent there is any excess earnings a policyholder dividend liability is
established such that the net income result is zero.
Summarized financial information on a Dutch accounting basis for the with-
profits funds as of and for the year ended December 31, 1999, is as follows
(amounts in EUR millions):
<TABLE>
<CAPTION>
Assets:
<S> <C>
Property 1,283
Fixed maturities at fair value 14,401
Equity securities at fair value 9,375
Other assets 854
Total assets 25,913
Liabilities:
Technical provisions 22,407
Other liabilities 3,506
Total Liabilities 25,913
Revenues and expenses:
Gross premiums 1,420
Investment income 861
Revenue 2,281
Benefits paid and provided 1,084
Change in Technical Provisions 1,169
Commissions and expenses 28
Benefits and expenses 2,281
Net income 0
</TABLE>
(u) Subsequent events
<PAGE>
-139-
On January 10, 2000 AEGON announced that Transamerica Life Insurance Company and
ING Canada established a strategic marketing alliance under which Transamerica
acquired 100% of NN Life Insurance Company and ING Canada will distribute life
insurance products manufactured by Transamerica. Additionally, a joint venture
mutual fund/segregated fund broker dealer operation was established, catering
specifically to life insurance intermediaries. The alliance creates the Canadian
market leader in new sales of individual life insurance and segregated funds.
On March 1, 2000 AEGON announced it had completed its strategic review of the
non-insurance business comprising Transamerica Finance Corporation (TFC)
acquired in connection with the purchase of Transamerica Corporation in July
1999. It has been decided to make opportunistic divestments of these TFC
businesses. The divestments under consideration include possible assets or
business unit sales, in whole, or in part, as well as joint ventures.
On March 14, 2000 AEGON announced that Dexia, the European banking group and
AEGON have entered into exclusive negotiations concerning Dexia's acquisition of
Labouchere.
<PAGE>
-140-
SCHEDULE I
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------------
Cost/1/ Market value Book value
---- ------------ ----------
(EUR in millions)
<S> <C> <C> <C>
Shares 4,983 8,510 8,510
Bonds-available for sale:
Dutch government 2,159 2,079 2,142
US government 2,470 2,450 2,517
Foreign government 3,189 3,257 3,196
Mortgage backed securities 13,073 12,712 13,073
Other 35,917 35,063 35,811
------- ------ -------
Sub-total 56,808 55,561 56,739
Private placements-available for sale:
Dutch government 2,663 2,807 2,655
U.S. government 61 72 61
Foreign government 844 847 844
Mortgage backed securities 3,902 3,746 3,902
Other 14,008 13,721 14,023
------- ------ -------
Sub-total 21,478 21,193 21,485
Deposits with credit institutions 617 617
Loans guaranteed by mortgage/2/ 16,167 16,135
Real estate 2,163 2,559
Other 2,959 2,943
------- -------
Grand total 105,175 108,988
</TABLE>
/1/ Cost is defined as original cost for shares and amortized cost for bonds and
private placements, less allowances for doubtful debts.
/2/ Includes real estate acquired in satisfaction of debt amounting to EUR 67
million at cost and book value.
<PAGE>
-141-
SCHEDULE II
CONDENSED FINANCIAL STATEMENTS AEGON N.V. (Parent Company only)
CONDENSED BALANCE SHEETS OF AEGON N.V. AT DECEMBER 31 (after profit
appropriation)
(EUR in millions)
1999 1998
INVESTMENTS
Group companies
Shares in group companies 12,620 7,794
Loans to group companies 2,774 1,976
Other loans 674 877
------ ------
16,068 10,647
RECEIVABLES
Receivables from group companies 2,335 2,236
Other receivables - -
OTHER ASSETS
Liquid assets 9 23
Other assets 33 35
PREPAYMENTS AND ACCRUED INCOME
Accrued interest and rent 62 67
Other prepayments and accrued income 3 16
TOTAL ASSETS 18,510 13,024
CAPITAL AND RESERVES
Share capital 216 185
Tax-free paid-in surplus 3,397 2,119
Revaluation account 6,682 4,501
Other surplus fund 3,248 1,129
------ ------
13,543 7,934
PERPETUAL CUMULATIVE SUBORDINATED LOANS 817 817
SUBORDINATED (CONVERTIBLE) LOANS 703 684
PROVISIONS 388 363
LONG-TERM LIABILITIES 1,495 1,132
CURRENT LIABILITIES
Amounts owed to credit institutions 937 1,715
Other payables 525 293
ACCRUALS AND DEFERRED INCOME 102 86
------ ------
TOTAL LIABILITIES 18,510 13,024
<PAGE>
-142-
CONDENSED INCOME STATEMENTS AEGON N.V.
Years ended December 31,
-----------------------------------
Parent Company only 1999 1998 1997
---- ---- ----
(EUR in millions)
Net income group companies 1,513 1,189 991
Other income 57 58 10
------ ------ -----
Net income 1,570 1,247 1,001
CONDENSED CASH FLOW STATEMENTS AEGON N.V.
CASH FLOW FROM OPERATING ACTIVITIES
Net income 1,570 1,247 1,001
Equity in earnings of group companies (1,513) (1,189) (991)
Change in provisions 25 - (13)
Change in current liabilities (646) (112) 804
Change in receivables 20 14 (19)
Other items (24) (250) (202)
------ ------ -----
(568) (290) 580
CASH FLOW FROM INVESTING ACTIVITIES
Investments in group companies (139) - (889)
Dividends from group companies 942 1,025 1,584
Amounts due to group companies (99) (956) (607)
Change in loans to group companies (631) 952 (817)
Change in other loans 203 951 -
------ ------ -----
276 1,972 (729)
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common shares 681 - -
Issuance of preferred shares 12 - -
Withdrawal of preferred shares - (9)
Change in long-term liabilities 382 (851) 189
Options exercised 5 16 21
Repurchased own shares (315) (491) -
Dividend paid (487) (377) (266)
------ ------ -----
278 (1,712) (56)
------ ------ -----
CHANGE IN LIQUID ASSETS (14) (30) (205)
These financial statements are drawn up in accordance with the accounting
principles described in the Notes to the consolidated financial statements. The
financial statements of the parent company should be read in conjunction with
the consolidated financial statements and related Notes.
<PAGE>
-143-
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H Column I
Segment deferred future unearned other premium net benefits, amortization
policy policy premiums policy revenue investment claims, of
acquisi- benefits claims income losses deferred
tion cost and policy
benefits acquisition
costs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(EUR in millions)
1999
Life insurance 10,992 199,588 NA NA 12,802 6,308 12,640 774
Non-life insurance/1/ 472 NA 972 1,535 2,178 292 1,332 111
1998
Life insurance 5,421 107,193 NA NA 9,413 4,653 9,915 560
Non-life insurance/1/ 405 NA 745 1,424 2,137 251 1,226 94
1997
Life insurance 5,367 99,750 NA NA 7,489 3,729 7,609 412
Non-life insurance/1/ 423 NA 710 1,433 2,043 208 1,127 74
<CAPTION>
Column A Column J Column K
Segment other premiums
operating written
expenses
(EUR in millions)
<S> <C> <C>
1999
Life insurance 1,474 12,802
Non-life insurance/1/ 504 2,178
1998
Life insurance 1,080 9,413
Non-life insurance/1/ 523 2,137
1997
Life insurance 875 7,489
Non-life insurance/1/ 495 2,043
</TABLE>
/1/ Includes Accident and Health insurance
<PAGE>
-144-
SCHEDULE IV
REINSURANCE
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
Gross Ceded to Assumed Net Percentage
amount other from amount of amount
companies other assumed
companies to net
<S> <C> <C> <C> <C> <C>
Life insurance in force
(EUR in millions)
1999 964,635 389,648 7,923 582,910 1.1%
1998/1/ 294,538 5,928 300,466 2.0%
1997/1/ 279,215 13,389 292,604 4.6%
</TABLE>
/1/ Reinsurance ceded has not been deducted but is not material
<PAGE>
-145-
SCHEDULE V
VALUATION AND QUALIFYING ACCOUNTS
(EUR in millions)
Years ended December 31,
-----------------------------
1999 1998 1997
---- ---- ----
Balance January 1 377 353 236
Addition charged to earnings 100 81 76
Amounts written off and other changes (45) (57) 41
---- ---- ----
Balance December 31 432 377 353
The provisions can be analyzed as follows:
December 31,
-----------------------------
1999 1998 1997
---- ---- ----
Bonds and other fixed rate securities 137 116 93
Loans guaranteed by mortgages 166 134 134
Other loans 67 19 12
Other financial investments 32 36 23
Receivables 30 72 91
---- ---- ----
Total 432 377 353
<PAGE>
-148-
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
AEGON N.V.
s/b/ H.B. van Wijk
H.B. van Wijk
Member of the
Executive Board.
Date: April 17, 2000
<PAGE>
-146-
Exhibit 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Years ended December 31,
----------------------------------
1999 1998 1997 1996 1995
----- ----- ----- ----- -----
(EUR in millions, except per share data)
Dutch Accounting Principles
Earnings:
Income before taxes 2,181 1,634 1,287 913 780
Add: fixed charges 759 738 744 621 634
----- ----- ----- ----- -----
2,940 2,372 2,031 1,534 1,414
Fixed charges:
Interest 759 738 744 621 634
Ratio: 3.9 3.2 2.7 2.5 2.2
US Accounting Principles
Earnings:
Income before taxes 1,950 1,928 1,826 810 626
Add: fixed charges 759 738 743 619 621
----- ----- ----- ----- -----
2,709 2,666 2,569 1,429 1,247
Fixed charges:
Interest 759 738 743 619 621
Ratio: 3.6 3.6 3.5 2.3 2.0
<PAGE>
-147-
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements Form
F-3 (Nos 33-27604 and 333-11458) and Form S-8 (Nos 33-53892, 33-53894, 33-89814
and 333-8500) of AEGON N.V. and in the related Prospectuses, of our report dated
March 9, 2000, with respect to the consolidated financial statements and
schedules of AEGON N.V. included in this Annual Report (Form 20-F) for the year
ended December 31, 1999.
Ernst & Young Accountants
The Hague, The Netherlands
April 17, 2000
