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THE AMERICAS
GENERAL HISTORY
AEGON’s operations in the Americas comprise of AEGON USA and AEGON Canada and are referred to collectively as AEGON Americas. AEGON USA was formed in 1989 when AEGON decided to consolidate the United States holding companies under one financial services holding company. Business operations are conducted through life insurance subsidiaries of AEGON USA Inc., Commonwealth General and Transamerica Corporation. Products are offered through several primary life insurance subsidiaries, with licenses in every state of the United States, the District of Columbia, Puerto Rico, the Virgin Islands and Guam. Reference to AEGON, or AEGON USA, generally means one or more of its operating subsidiaries.
The primary insurance subsidiaries in the United States, all of which are wholly owned, are:
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Transamerica Financial Life Insurance Company, Inc., Purchase (New York USA) |
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Life Investors Insurance Company of America, Cedar Rapids (Iowa USA) |
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Monumental Life Insurance Company, Baltimore (Maryland USA) |
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Peoples Benefit Life Insurance Company, Cedar Rapids (Iowa USA) |
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Stonebridge Casualty Insurance Company, Columbus (Ohio USA) |
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Stonebridge Life Insurance Company (formerly J.C. Penney), Rutland (Vermont USA) |
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Transamerica Life Insurance & Annuity Company, Charlotte (North Carolina USA) |
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Transamerica Life Insurance Company, Cedar Rapids (Iowa USA) |
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Transamerica Occidental Life Insurance Company, Cedar Rapids (Iowa USA) |
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Western Reserve Life Assurance Co. of Ohio, Columbus (Ohio USA) |
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Veterans Life Insurance Company, Springfield (Illinois USA) |
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First AUSA Life Insurance Company, Baltimore (Maryland USA) |
The United States operations (carried out by the collective group of operating companies in the United States) primarily sell life insurance products, including traditional life insurance, universal life insurance, variable universal life insurance, guaranteed investment contracts, funding agreements, fixed annuities and variable annuities. AEGON’s operations in the United States also sell accident and health insurance, but made the strategic decision to move away from primary health coverage a number of years ago and to concentrate health operations in the supplemental coverage sector. The majority of earnings contributions from AEGON’s operations in the United States are derived from traditional life products. Operationally, the United States subsidiary companies contain five operating groups acting through one or more of the AEGON USA life insurance companies: Agency, Direct Marketing Services, Financial Markets, Institutional Products and Services, and Pension. The group structure enables AEGON USA to manage across the organization more easily and to 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 operations. Products are offered and distributed through one or more of the AEGON USA licensed insurance or brokerage subsidiary companies. The divisions referenced below are part of those subsidiary companies.
PRODUCTS AND DISTRIBUTION
AGENCY GROUP
The Agency Group divisions offer a wide range of insurance products through career and independent agents, registered representatives, financial advisors and specialized marketing organizations, and target distinct market segments ranging from home service to the advanced market that serves clients with higher net worth by providing various tax and estate planning products. The Agency Group consists of the following divisions:
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AEGON Financial Partners |
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Life Investors Career Agents/Independent Producers Group |
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Intersecurities, Inc. |
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Transamerica Insurance & Investment Group |
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World Financial Group |
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Monumental Division |
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Long Term Care Division and |
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Worksite Marketing. |
AEGON Financial Partners (AFP) was formed in early 2002 as a new internal service organization to enable the Agency Group to take better advantage of its combined size and strength by integrating the operations, technology and service functions of separate but similar operating groups. AFP provides services to Life Investors Career Agents/Independent Producers Group, Intersecurities, Transamerica Insurance & Investment Group and World Financial Group.
Investors Career Agents/Independent Producers Group targets middle to upper income markets, selling primarily interest-sensitive and ordinary life insurance. Through its agency-building system, Life Investors has carried out its mission by providing more than 2,000 agents with quality products, technology tools and a high level of home office training and support. During the past few years, the Independent Producers Group has seen tremendous growth in both recruiting and sales. This unit, which is focused on developing relationships with independent marketing organizations and managing general agents throughout the United States, has grown to nearly 13,000 independent agents.
Intersecurities, Inc. (ISI) is a fully licensed, independent broker-dealer and registered investment advisor. ISI’s 2,500 registered representatives are focused on helping clients meet their investment objectives through an array of financial products, including mutual funds, fixed and variable life insurance, annuities, and securities. ISI is positioning itself for growth by building an internal wholesaling unit for life products within already existing channels and leveraging the wholesaling expertise of its affiliate, Transamerica Capital, Inc., for variable products.
Transamerica Insurance & Investment Group (TIIG) distributes term, fixed and variable life insurance and equity products to its targeted niche market of older, affluent individual customers and small to mid-sized businesses. TIIG’s primary distribution channels are 469 general agencies and 100,000 agents. Sales of TIIG’s variable products are supported by a network of broker-dealers, including the broker-dealer channel, which includes Transamerica Financial Advisors, Inc., an affiliated broker-dealer with 950 representatives. TIIG currently has a National Accounts initiative underway for its fixed and variable products, focusing on establishing and maintaining business relationships with key national accounts and driving marketing programs aimed at increasing production from sales representatives. TIIG Distributors has been formed to penetrate this market and is made up of general agencies, with wholesalers dedicated to serving this channel with TIIG programs and products.
World Financial Group (WFG) targets the middle income market, selling variable universal life insurance, variable annuities and mutual funds. WFG affords its more than 50,000 associates (8,500 of whom are securities brokers registered with World Group Securities, Inc., a registered broker-dealer) the opportunity to build financial services and insurance businesses on their own terms.
Monumental Division targets the underserved lower and middle income markets, selling individual traditional life and supplemental health insurance through three distinct distribution systems: Career Agency, Pre-Need and Military. Approximately 2,700 agents in 22 states reflect the diversity found in the communities they serve. The career agents provide face-to-face service to the policyholders. The Pre-Need unit sells life insurance products through funeral directors and their agents to pre-fund funerals. In the Military unit, former military officers market life insurance and retirement savings products to commissioned and non-commissioned officers based in the United States and abroad.
The Long Term Care Division provides insurance products designed to meet the long-term health care needs of consumers during retirement. Long-term care insurance products provide coverage primarily for care services provided at home, in an assisted living facility or in a nursing home. This division has been active in the market since the late 1980’s and with the integration of the Transamerica Long Term Care operations, it is now among the top six United States providers of long-term care insurance products (Life Plan 2002 annual survey of Long Term Care Insurers). Products are sold directly through independent brokerage agents, captive/career agents and general agents.
Transamerica Worksite Marketing offers a wide range of voluntary, payroll deduction life and supplemental health insurance products for groups ranging in size from as few as five employees to more than 150,000 employees. Products marketed to employees at their workplace are designed to supplement benefit plans that they may already have, both through their employers and on their own.
DIRECT MARKETING SERVICES GROUP
AEGON Direct Marketing Services (ADMS) is focused on customers that might not be reached by AEGON USA’s other distribution channels, or might prefer to buy insurance products directly and not through an agent or intermediary. ADMS has developed a highly targeted approach using sophisticated database technology to increase its ability to develop niche markets and design products positioned to meet specific customers’ needs. Customers can purchase an extensive portfolio of products through direct mail, point-ofservice, internet and direct marketing. Products are also marketed using the endorsement of sponsoring organizations, such as financial institutions, car dealers and various membership associations.
Additionally, ADMS has applied its direct marketing expertise to markets abroad and has offices in England, Australia, Spain, Republic of Korea, Japan, Germany, Italy and Taiwan. ADMS has developed strategic relationships with major business partners in these areas and uses their endorsement to market AEGON USA’s products via telemarketing and direct mail.
FINANCIAL MARKETS GROUP
AEGON USA’s Financial Markets Group (FMG) consists primarily of Transamerica Capital Inc., Transamerica Investment Management, LLC, and Extraordinary Markets.
Transamerica Capital Inc. (TCI) works in partnership with many of the largest banks in the United States to market fixed and variable annuities and life insurance through the banking channel. Recent product focus has been on the 50 years and older segment and ‘proprietary’ bank annuities, whereby AEGON USA develops an annuity specifically branded for the individual financial institution and the financial institution earns fee income from the marketing and investment management functions. In addition, TCI serves as the wholesale marketing and sales arm to leading New York brokerage firms, regional and independent broker-dealers and independent financial planners to help them market, promote and sell mutual fund and variable annuity products to their clients.
Transamerica Investment Management is a registered investment advisor and provides investment management services to mutual funds, institutional accounts, pension funds, and variable annuity and variable life insurance separate accounts.
Extraordinary Markets offers fixed and variable life insurance products to the bank- and corporate-owned life insurance market through top level independent brokers. Extraordinary Markets’ specialized team of product development, financial, actuarial and investment professionals has helped some of the world’s leading financial institutions and corporations fund employee and executive benefit and compensation programs, through innovative insurance and investment solutions. The market is approached opportunistically and thus sales results can vary dramatically from year to year.
INSTITUTIONAL PRODUCTS AND SERVICES GROUP
The Institutional Products and Services Group include AEGON Institutional Markets Division and Transamerica Reinsurance.
AEGON Institutional Markets Division (IMD) is well positioned and long established in the competitive and mature institutional market. IMD entered the market with a distinctive floating rate GIC in 1982. Since then, it has significantly expanded its platform to include traditional fixed rate GICs, funding agreements and fee-based businesses, such as synthetic GICs, in which IMD holds the leading market position (source: reports of LIMRA International), while new entrants in this market have increased competition and margin compression, IMD responded through product customization, strong service capabilities and profitable pricing. IMD’s skills in product development, distribution, investment and risk management have resulted in a diversified customer and market base and multi-channel distribution. IMD also administers AEGON’s USD 6.9 billion (book value) block of structured settlement payout annuities business. New sales of this product were discontinued in 2003.
Transamerica Reinsurance provides traditional risk and capital management, facultative and contract underwriting services, product development services and term insurance wholesaling. It provides coinsurance and modified coinsurance of fixed and variable annuities. In the United States, customer focus is on large, primary insurance carriers and other significant businesses in the financial services arena. Transamerica Reinsurance writes reinsurance directly with its ceding company clients rather than through brokers. This direct relationship produces an expense advantage and a more complete understanding of risks, while contributing to more favorable underwriting results and deeper, longer-lasting customer relationships. In today’s highly competitive reinsurance environment, Transamerica Reinsurance distinguishes itself through its knowledge and experience in assessing and pricing mortality risk, underwriting and private label term services. Transamerica Reinsurance continues to advance international efforts, with a focus on select markets in Latin America and the Asia Pacific region. Foreign offices have been established in Taipei (Taiwan), Seoul (Korea), Hong Kong, Tokyo (Japan), Mexico City (Mexico) and Santiago (Chile). Transamerica Reinsurance writes business through various AEGON USA companies as well as offshore affiliates, Transamerica International Re (Bermuda) Ltd. and Transamerica International Reinsurance Ireland Limited.
PENSION GROUP
The Pension Group includes Diversified Investment Advisors and Transamerica Retirement Services.
Diversified Investment Advisors (Diversified) is a registered investment advisory firm dedicated exclusively to retirement plan management. Diversified provides a customized approach to retirement plans, which includes comprehensive investment, administrative and technical services for 401(k), section 403(b) of the Employee Retirement Income Security Act of 1973, as amended (ERISA), defined benefit, profit sharing, money purchase, NQDC and 457(b) plan types. Diversified provides retirement products and services for the mid- to large-sized pension market, which includes companies with between 250 and 10,000 employees and pension assets between USD 5 million and USD 250 million. These products and services are sold through a variety of intermediaries, including benefit consulting firms, broker-dealers, agents and brokers.
Transamerica Retirement Services (TRS) offers customized retirement plan services in the small business retirement plan market and the multiple employer plan market. A full line of 401(k), profit sharing, age-weighted and age-neutral plans are serviced. TRS distributes its products through intermediaries, including life agents, brokers, registered representatives, financial planners and certified public accountants as well as through a series of strategic alliance relationships. TRS seeks to distinguish itself from its competitors by focusing on innovative plan design, ERISA expertise and offering a broad range of investment choices.
REINSURANCE CEDED
In accordance with industry practices, AEGON USA reinsures portions of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. Such reinsurance arrangements are in accordance with standard reinsurance practices within the industry. AEGON USA enters into these arrangements to assist in diversifying its risks and to limit the maximum loss on risks that exceed policy retention limits. The maximum retention limit on any one life is generally USD 500,000 with certain companies retaining up to USD 2,000,000. AEGON USA remains contingently liable with respect to the amounts ceded if the reinsurer fails to meet the obligations it assumed. AEGON USA annually monitors the creditworthiness of its primary reinsurers and has experienced no material reinsurance recoverability problems in recent years.
CANADA
GENERAL HISTORY
AEGON Canada Inc. (ACI) is the holding company for AEGON’s Canadian operations. Through its subsidiary companies, AEGON Canada operates multiple insurance, financial services, investment portfolio management and fund management businesses and provides wealth management solutions.
The primary operating companies that comprise ACI are:
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Transamerica Life Canada |
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Money Concepts (Canada) Limited |
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AEGON Dealer Services Inc. |
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AEGON Capital Management Inc. |
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AEGON Fund Management Inc. |
Transamerica Life Canada (TLC) offers term and tax-sheltered universal life insurance, segregated funds, guaranteed interest accounts and annuities. Money Concepts (Canada) Limited (MCC) is an independent Canadian financial planning company with an association of franchised planning centers, offering a diverse spectrum of planning, products and services to investors. With 84 offices across Canada, MCC is the only franchised financial planning company in Canada.
AEGON Dealer Services Inc. (ADSCI) provides advisors and distributors with mutual fund and segregated fund dealership capability to the benefit of the MCC franchises and representatives, as well as to TLC’s and AEGON Fund Management Inc.’s (AFM) advisors across Canada. AEGON Capital Management Inc. (ACM) was created in November 2001, through the spin-off of the investment management division of TLC. ACM’s mandate is to develop products and services for the institutional, high net-worth individual, pension and retail markets. AFM is the mutual fund subsidiary of ACI, offering the imaxx™ brand of mutual funds to Canadian investors seeking customized portfolio solutions, as well as core fund portfolios featuring select investment managers from around the world.
PRODUCTS AND DISTRIBUTION
INVESTMENT PRODUCTS
AEGON Canada’s current investment product offerings comprise the following: segregated funds, mutual funds, segregated funds offered through strategic alliances with investment management companies, guaranteed investment accounts, single premium annuities and leverage-lending programs through strategic alliances with bank and trust companies. The imaxx™ range of mutual funds is offered by AFM. TLC offers all of AEGON Canada’s other investment products.
LIFE INSURANCE PRODUCTS
The life product business unit of TLC provides life insurance products for individuals and companies across Canada. The portfolio includes universal life and traditional life insurance, predominantly term life and permanent life insurance, as well as accidental death and out-of-the-country medical insurance.
AEGON Canada’s principle means of distribution includes a number of networks that are almost exclusively supported by independent advisors. The key channels of distribution are:
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independent managing general agencies |
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TLC owned and operated Profit Center Agencies |
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bank-owned national broker-dealers |
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World Financial Group |
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other national, regional and local/niche broker-dealers. |
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AEGON THE NETHERLANDS
GENERAL HISTORY
AEGON Nederland N.V. (AEGON The Netherlands) was incorporated under the name AGO Holding N.V. on December 27, 1972. AEGON The Netherlands became the holding for all Dutch insurance and banking activities after the merger between Ennia and AGO in 1983 and was renamed AEGON Nederland N.V. in 1986. The primary insurance subsidiaries in the Netherlands, all of which are wholly owned, are:
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AEGON Levensverzekering N.V., The Hague |
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AEGON Schadeverzekering N.V., The Hague |
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AEGON NabestaandenZorg N.V., Groningen |
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AEGON Spaarkas N.V., The Hague |
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AEGON Bank N.V., Utrecht |
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Spaarbeleg Kas N.V., Utrecht |
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Meeùs Groep B.V., Amersfoort |
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TKP Pensioen B.V., Groningen. |
AEGON The Netherlands is involved in both life and non-life insurance businesses and provides financial services and asset management.
PRODUCTS AND DISTRIBUTION
AEGON The Netherlands offers five product lines: pensions, life insurance, non-life insurance, banking and asset management.
PENSIONS
Pension products are sold by AEGON Pensioen en Advies (AEGON Pension and Advice) and AEGON Bedrijfspensioenen (AEGON Corporate Pensions) business units, while TKP Pensioen offers administrative services for large pension funds.
AEGON Pension and Advice services large companies as well as company pension funds (ondernemingspensioenfondsen) and industry pension funds (bedrijfstakpensioenfondsen). Its main products are:
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products for account of policyholders with guarantees (separate investment guaranteed contracts) |
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products for account of policyholders without guarantees (separate investment capital contracts) |
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medium and small-sized enterprises growth pensions |
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medium and small-sized enterprises guarantee pensions |
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AEGON pension package (defined contribution) |
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AEGON guarantee pension (defined benefit). |
Separate investment guaranteed contracts and separate investment capital contracts are defined benefit products with both single and recurring premiums and a disability rider. Profit sharing is based on the return of a pool of investments. Large group contracts also share technical results (mortality risk and disability risk). The assets are owned by AEGON Levensverzekering N.V. but earmarked to form the basis for profit sharing for these contracts. The contract period is typically five years and the premium tariffs are fixed over this period. Separate investment capital contracts are only sold to company pension funds and AEGON Levensverzekering N.V. has the option not to renew a contract at the end of the contract period, so that the longevity risk lies with the pension fund. Separate investment guaranteed contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with AEGON Levensverzekering N.V.
AEGON guarantee pension and small and medium-sized enterprises growth pensions sold by the business unit AEGON Corporate Pensions, are also defined benefit products with single and recurring premiums. The initial contract period is ten years, with renewals for five-year periods. Profit sharing is based on excess interest earned on the general account investment portfolio. Premium tariffs are fixed over the contract period and the longevity risk lies with AEGON Levensverzekering N.V. Minimum interest guarantees are given for nominal benefits, based on the 3% actuarial interest (4% on policies sold before the end of 1999), after retirement of the employee.
AEGON Levensverzekering N.V. introduced two new pension products: AEGON Pension Investment and AEGON Pension Accelerator.
AEGON Pension and Advice does not sell products through intermediaries but rather sells directly to clients and through actuarial advisors. AEGON Corporate Pensions sells pensions to small and medium-sized companies through intermediaries.
TKP Pensioen offers administrative services for large pension funds. During 2003 this unit enlarged its already solid bases with the acquisition of the Uitvoering Werknemersverzekeringen (UWV) account which increased total participants by approximately 50,000 to a total of 200,000 participants.
LIFE INSURANCE
AEGON Particulieren (AEGON Personal Lines) principally sells standard financial products. Its most important products are discussed below.
FUND PLAN AND SAVINGS PLAN PRODUCTS
The fund plan and savings plan products are mainly
endowment and savings type products, both single premium
and recurring premium with profit sharing based on the
selected fund performance. A customer may choose to invest
in a wide variety of AEGON funds. For investments in the Mix
Fund and/or in the Fixed Income Fund, AEGON Personal Lines
has issued a guarantee of 3% (4% on policies sold before the
end of 1999), at the maturity date if the policyholder has paid
the premium for a consecutive period of at least ten year, or
on the death of the insured.
ENDOWMENT AND SAVINGS PRODUCTS
The endowment and savings types of products have recurring premiums with contractual surplus interest profit sharing.
MORTGAGE SAVINGS PRODUCTS
With the mortgage savings products, the insured typically
takes out a mortgage loan from AEGON Personal Lines for a
period of twenty or thirty years. The loan is repaid in full at
the redemption date with the proceeds from a savings policy.
In principle, in case of surrender, the policyholder loses the
tax benefit. Upon the death of the policyholder within the
policy contract period, the benefit payment is used to repay
the mortgage loan. The interest paid on the loan is normally
tax deductible and the customer retains the full income tax
benefit over the contract period as long as there is no early
redemption. The interest paid on the mortgage loan usually
equals the interest accumulated on the account balance under
the savings policy. To benefit from the growth in the mortgage
market, AEGON Personal Lines has introduced a new mortgage
investment product. This product is based on the same
principles as the original mortgage savings products, except
that the customer can choose the funds in which to invest the
savings premiums. The ultimate amount available at the maturity
date will therefore vary depending on the performance of the
underlying funds.
Spaarbeleg Kas N.V. and AEGON Spaarkas N.V. sell ‘spaarkas’
products, which are life products with both single and
recurring premiums and profit sharing based on a tontine
system. The main characteristic of a tontine system is that
when death occurs, the balance in the investment account is
not paid out to the policyholder’s estate, but is distributed out
at the end of the year to the surviving policyholders of the
specific series (a new series starts at the beginning of each
calendar year) to which the deceased policyholder belonged. In
addition to the tontine products, Spaarbeleg Kas N.V. sells a
number of tax driven products like Toekomstplan (Future Plan)
and Koersplan (Index Plan) and has provided better access to
products and services in order to meet consumers’ requests
with respect to pension issues. Products are sold through
intermediaries and by direct marketing.
AEGON Van Nierop caters to the high income and high networth
segment of the market. Customers are served directly or
through a network of high-quality intermediaries. AEGON
Van Nierop’s products relate to capital accumulation, capital
protection, capital consumption and estate planning and are
customized to this specific segment.
AXENT/AEGON transferred its group life business to the
business unit AEGON Corporate Pensions, the funeral business
to AEGON NabestaandenZorg (AEGON NBZ) and the
administration of its life and savings portfolio to AEGON
Personal Lines. AXENT/AEGON now acts as a sales
organization for other units in AEGON The Netherlands.
Following the transfer of the funeral insurance portfolios of
Nederlandse Verzekeringsgroep (N.V.G.), AEGON Personal Lines
and AXENT/AEGON subsidiaries (LPU Verzekeringen N.V. in
2002 and AXENT/AEGON Uitvaartverzekeringen N.V. in 2003)
to AEGON NBZ, AEGON NBZ now manages more than two
million policies in this market, placing it among the top three
providers of funeral insurance in the Netherlands (source:
Pensioen- en Verzekeringskamer). Further growth potential in
this market is achievable by introducing new distribution
methods and new products that enable clients to ensure their
family’s financial situation in the event of their death. AEGON
NBZ seeks to distinguish itself from its competitors through a
broad approach to financial care for surviving relatives and
estate planning.
NON-LIFE PRODUCTS
AEGON Schade Bedrijven (AEGON Non-Life Commercial Lines)
targets approximately 500,000 small and medium-sized
companies with a maximum of 100 employees. This unit aims
to shift from a focus on business continuity to providing a
range of products for the asset and life protection of
employers and employees, covering both business capital
(property and cash assets) and the risk of employees’
inability to work.
AEGON Non-Life Commercial Lines offers accident and health,
and property and casualty insurance products to individuals.
Distribution takes place via independent agents.
BANKING
AEGON Bank N.V. supplies savings accounts with simple conditions. The products are sold under the Spaarbeleg name through a multi-channel strategy, with franchise organizations contributing the majority of AEGON Bank N.V.’s total sales. In addition, internet sales are growing.
AEGON Financiële Diensten B.V. sold securities lease products via independent agents. Securities lease products provided customers with a loan allowing these customers to acquire securities. As a result of the bearish equity markets, the proceeds of the securities may over time prove to be insufficient to pay back the loans in full. AEGON The Netherlands discontinued selling securities lease products in early 2003.
ASSET MANAGEMENT
AEGON Asset Management's (AAM) approach is to further develop the institutional market, by winning asset management customers in cooperation with AEGON Pension and Advice, while also assisting AEGON The Netherlands’ retail units in developing banking expertise. In 2002 and 2003, AAM launched twelve mutual funds and plans to expand product development further in order to offer a complete range of funds. AAM is also the asset manager for AEGON The Netherlands’ insurance subsidiaries.
AEGON The Netherlands has a straightforward distribution
strategy. The majority of AEGON The Netherlands' products
are sold through agents. Spaarbeleg Kas N.V., AXENT/AEGON
and AEGON NBZ sell branded products under their own names
through multiple channels, including direct marketing,
specialized agents and tied agents.
DISTRIBUTION UNITS
The distribution units consists primarily of the Meeùs Groep,
which is an intermediary company with its core activities in
rendering financial advice and intercession in real estate.
Within the financial advice segment, the Meeùs Groep has
developed a broad range of activities such as insurance,
pensions, mortgages, financing, savings and investments. In
the real estate business the Meeùs Groep acts as a broker in
both residential and commercial real estate. In addition to this,
the Meeùs Groep is active in the real estate management
business.
REINSURANCE CEDED
LIFE
The life companies have a two-part reinsurance strategy. The first part is a profit sharing contract between AEGON Levensverzekering N.V. and Swiss Re, with a retention of EUR 900,000 per policy. The second part is a facultative reinsurance of AEGON The Netherlands’ mortality and morbidity risk with a small number of reinsurers, of which ‘De Hoop’ is the most significant.
NON-LIFE
AEGON The Netherlands maintains reinsurance on an excess of loss basis for its fire insurance businesses, with a retention of EUR 4.5 million per risk and EUR 13.7 million per event. AEGON The Netherlands’ motor business is also reinsured on an excess of loss basis.
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AEGON UNITED KINGDOM
GENERAL HISTORY
The principal holding company within the AEGON UK
group of companies is AEGON UK plc (AEGON UK),
incorporated as a public limited company under the
Companies Act 1985.
The primary insurance subsidiaries in the United Kingdom are:
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Scottish Equitable plc, Edinburgh |
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Guardian Assurance plc, Lytham St Annes |
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Guardian Linked Life Assurance Ltd, Lytham St Annes |
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Guardian Pensions Management Ltd, Lytham St Annes |
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AEGON Asset Management UK plc, London |
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HS Administrative Services Ltd, Chester |
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AEGON UK Distribution Holdings Ltd, London. |
AEGON UK is a major financial services organization
specializing in the pensions, investments and protection
markets. Over half of AEGON UK’s sales relate to corporate
business. AEGON UK increased its position in 2003 in the
independent financial advisor channel. In addition to
manufacturing these life and pension products, AEGON UK also
has a growing asset management business and administrative
services business and has recently acquired distribution
businesses.
PRODUCTS AND DISTRIBUTION
Most of AEGON UK’s products provide policy charges, which
increasingly relate to a management charge for funds under
management. Older contracts continue to have other policybased
or transaction-based charges, such as bid/offer spread.
PENSIONS
The pensions market experienced significant decline in gross
sales during 2003 of government-led products with a 1%
annual management charge limit which resulted from lower
consumer confidence and economic outlook.
As a result of the launch of the stakeholder pensions product,
many other pensions products were pressured to reduce
charges, which led to a high level of sales activity in terms of
both new schemes and transfers of existing schemes. It has
also been necessary to protect existing business by reducing
the charge structure in force to some extent. There is expected
to be potential for some relaxation of price cap levels if
government targets for higher private provision are to be met.
During late 2002 and 2003, the British government
announced a change to many aspects of pension legislation
and taxation. The most significant aspect related to the
introduction of a simpler and unified tax regime, which will
apply to all types of pension arrangements. The details are still
emerging, but it is currently anticipated that implementation
will occur in April 2005. The changes will impact all UK
pension providers requiring reviews of product ranges and
supporting infrastructure.
Sales of more specialized pensions have also grown
significantly over the last few years, particularly in the area of
income drawdown and phased retirement products which allow
individuals up to the age of 75 to access part of their pension
income without having to fully purchase an annuity until a
later date.
GROUP PENSIONS
The sale of group pensions is the primary focus of Scottish
Equitable plc (SE). These are pension funds for the employees
of corporate customers and cover a range of benefit options,
which are predominantly defined contribution. At retirement,
the accumulated pension fund is used to purchase an annuity
once any cash (within limits) has been taken. SE also sells and
administers defined benefit pensions. Although the market for
new schemes of this type of product has decreased in recent
years, opportunities remain to take over the administration of
these schemes.
Group pension products include flexible features, such as
access to a range of both internal and external funds, with
premiums primarily paid monthly based on a pre-agreed
proportion of salary costs. Single premium transfers are also
common following the initial sale.
Technology plays an increasingly important role in both the
initial sale and the ongoing provision of services related to
these products. SE has developed a market-leading technology
solution called SmartScheme, which allows the customer and
the intermediary to interact with SE online throughout the
process.
INDIVIDUAL PENSIONS
SE also offers a comprehensive range of pension products for
individuals. These include stakeholder pensions, pensions for
executives and transfers from other schemes and policies
allowing an individual to supplement corporate pensions,
called freestanding additional voluntary contributions. In
addition, SE is a leading player in income drawdown and
phased retirement products aimed at individuals with
significant pension funds who do not want to invest in an
annuity immediately upon retirement.
UK AND OFFSHORE BONDS
AEGON UK distributes both UK and offshore bonds. The
difference between these bonds lies in the tax advantages
related to each type of bond, as offshore bonds allow gross
roll-up of assets, allowing personal tax to be deferred until
the monies are repatriated to the United Kingdom.
UK BONDS
With-profit bonds are life products, which give access to the
with-profit fund of the life company. The SE with-profit fund
allows policyholders to share the risk of market volatility
through a smoothing mechanism. This fund is ring-fenced for
the benefit of policyholders, so that AEGON shareholders are
not exposed to any risk or benefit relating to this smoothing.
The bond ‘wrapper’ provides a tax efficient means of investing,
as withdrawals (within certain limits) are deemed capital
reductions rather than income.
With-profit products have received a large amount of
regulatory attention over the past three years. The primary
focus has been on increasing the transparency of the product
in order to clarify how the bonuses applied relate to the
underlying fund returns. Also, a recent report sponsored by
the United Kingdom government questioned the tax breaks
applied to the bond wrapper. These factors have had a
significant negative impact on the bond market in the United
Kingdom in 2003.
During 2002, SE launched a range of with-profit funds that
represents the next generation of the product. These funds
continue to provide protection against market volatility but
have no guarantees. The calculation of value is based on a
published formula, thus achieving the transparency required
by the public and the regulators.
SE also offers unit-linked bond products, which allow
access to a range of internal and external funds, through the
bond wrapper mechanism described above.
OFFSHORE BONDS
Scottish Equitable International Holdings (SEIH) provides
sophisticated packaged investment products with tax
advantages for clients in the United Kingdom and overseas.
SEIH launched three new products during 2002: the Money
Market Portfolio, the delegated custodian private client
product (the ‘Dublin Private Client Portfolio’) and the
Investment Portfolio. The Money Market Portfolio allows access
to low-risk money market fund investments within the tax
efficient structure of an offshore bond. This product is
distributed through independent financial advisors to both
corporate investors and high net-worth individuals. The Dublin
Private Client Portfolio caters to investment managers and
private banks and allows the aggregation of a custom made
portfolio of assets. The Investment Portfolio is a single
premium unit-linked contract, which invests in internal funds.
These products were enhanced during 2003. In addition, SEIH
sells unit-linked bonds and has an inheritance tax planning
product.
INDIVIDUAL PROTECTION
AEGON Individual Protection (AIP) provides an innovative
individual protection product under the collective brand name
of Scottish Equitable Protect. The first offering of the Scottish
Equitable Protect product was made in 2001 and consists of
three menu-based products catering to the personal, mortgage
and business protection markets, respectively.
One of the core strengths of this product is market-leading
underwriting capability that allows a comprehensive array of
cover to be provided, without the complexity usually
associated with this type of insurance. Intermediaries are
provided with direct access to underwriters together with
underwriting help desks, newsletters and field underwriting
techniques.
The individual protection market is segmented between
‘price-led’ and ‘value-led’ sales, the former relating to a strong
re-brokering market. AIP focuses on the ‘value-led’ portion of
the market where demand is less price sensitive due to the
importance to consumers of flexibility and the ability to
combine benefits in one place.
The product range was further enhanced in 2002 with the
introduction of income protection products that provide
insurance for unemployment due to illness or accident. During
2003, many reinsurers withdrew from the guaranteed critical
illness market as medical advances made the product
uneconomic. As a consequence, AIP withdrew from this market
and will offer renewable contracts only.
GROUP RISK CONTRACTS
Scottish Equitable Employee Benefits (SEEB) deals
exclusively through independent financial advisors and offers a
range of flexible corporate protection products to fulfill the
needs of employers and employees. SEEB offers these group
risk contracts through its Corporate and Employee Protection
Menus.
The Corporate Protection Menu allows companies to create
tailored employee benefits packages. The menu offers a
number of different coverages that can be mixed and matched,
including group life coverage, income protection, critical illness
protection and group private medical coverage. The Employee
Protection Menu adds an additional layer of flexibility where
the individual employee can choose benefits within a predefined
menu at the employer’s cost.
MUTUAL FUNDS
AEGON Asset Management UK (AAM UK) is a major provider
of fund management services both within the AEGON UK
group and to institutional customers and individuals. As at
December 31, 2003, AAM UK managed approximately GBP 34
billion of funds, providing both mutual and segregated funds
for clients.
AAM UK is a participant in the corporate bond market,
with more than GBP 14 billion invested. A dedicated sales
force has been established to exploit this capability in the
institutional market and AAM UK continued to win new
mandates during 2003.
ADVICE
Investment in distribution businesses by insurance companies
has recently become more attractive due to new regulations,
which come into force in the United Kingdom during 2004.
Following distribution business acquisitions during 2002 and
2003, AEGON now has a significant position in the United
Kingdom independent financial advisor market, having taken
majority interests in six distribution companies and minority
stakes in three others.
These firms deliver advice relating to financial needs to a
range of customers (both individuals and corporates) using a
range of delivery methods (primarily face to face, but also
using media and worksite marketing).
DISTRIBUTION CHANNELS
AEGON UK’s principal means of distribution has been through
the independent financial advisor (IFA) channel in the United
Kingdom market. These advisors provide their customers
access to all available products and must demonstrate that the
best advice is given to their client.
There are approximately 28,000 active registered independent
financial advisors in the United Kingdom, many of whom are
grouped into networks of advisors, who act as large national
distributors. The thirty largest of the 5,300 IFA firms operating
in AEGON UK’s key markets employ 80% of the registered
independent financial advisors. AEGON UK has strong
relationships with independent financial advisors across the
market, but is particularly involved with the networks and with
large local firms.
To support this activity, there are approximately 330
broker-consultants based in the United Kingdom, operating out
of over 17 local branch offices. Relationship management is a
core element of achieving success in the intermediate channel.
Scottish Equitable plc is able to support local independent
investment advisors through this branch network in areas such
as business development and training.
REINSURANCE CEDED
AEGON UK reinsures mortality and morbidity risk where it
believes it is prudent and economically sound to do so. On
individual products, AEGON UK seeks to obtain insurance
coverage for 90% of the risk for the life business. For group
business, AEGON UK seeks to obtain insurance coverage for
50% of the life business. AEGON UK has a minimum credit
rating requirement of AA by Standard & Poor’s for reinsurers
to which risk is ceded. Any decision to use a reinsurer with a
lower credit rating requires the agreement of AEGON’s
reinsurance committee.
AEGON UK also uses reinsurance to offer pension contract
holders access to a number of external fund management
organizations. Under these contracts, which relate to unitlinked
business, the unit liability is reinsured to the third party
organization. The credit risk relating to the investments is
borne by the pension contractholders while AEGON UK retains
ultimate credit risk relating to the external fund managers.
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AEGON HUNGARY
GENERAL HISTORY
ÁB-AEGON Általános Biztosító Rt (ÁB-AEGON) has been
a member of the AEGON Group since 1992. The legal
predecessor of the company was the state-owned ÁB,
which was incorporated in the 1940’s.
ÁB-AEGON has four subsidiaries:
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AEGON Securities |
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AEGON Real Estates |
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AEGON Pension Fund Management Co |
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AEGON Hungary Fund Management Co. |
ÁB-AEGON operated in a divisional structure until it was
restructured in 2000. Operations are currently divided by sales
channels and functional areas.
PRODUCTS AND DISTRIBUTION
ÁB-AEGON is a composite insurance company offering both life
insurance and non-life insurance products. The core business
products are life, pension, mortgage and household insurance.
The life insurance product portfolio consists of traditional
general account products and unit-linked products, although in
recent years unit-linked sales have been much more significant
than general account product sales. For general account
products, profits on the investments are shared with the
customer. For unit-linked products, the clients’ money is
managed in a separate account invested in investment fund
units and only a management fee is deducted from the return.
In the case of non-life insurance products, the company has
a conservative underwriting policy, limiting ÁB-AEGON’s risk.
ÁB-AEGON’s share in the household segment is 40%. Margins
for household insurance are attractive and presents ÁB-AEGON
with opportunities for cross-selling life insurance products.
Property and car insurance are also represented in the portfolio,
but are not core products.
PENSIONS
Pension insurance is a core business of ÁB-AEGON, therefore
pension fund services are also offered. The mandatory and
voluntary pension funds of ÁB-AEGON are among the largest
in the country in terms of managed assets and number of
members (source: Hungarian Financial Supervisory Authority).
The pension fund business concentrates its growth strategy in
recruiting new members and purchasing other pension funds.
TRADITIONAL GENERAL ACCOUNT PRODUCTS
These products consist of small life policies that were issued
before ÁB-AEGON became part of the AEGON Group. The
premium income from these policies is small and the profit
margin is very low. Traditional general account products also
include indexed life products that are not unit-linked but have
guaranteed interest. ÁB-AEGON no longer offers either of
these products.
UNIT-LINKED PRODUCTS
Unit-linked products are the most recent and most important
products sold by ÁB-AEGON. Unit-linked products are
connected to a mutual fund and the investment company buys
units of the mutual fund with the policyholder’s funds.
ÁB-AEGON deducts only an asset management fee. The unitlinked
products cover all types of life insurance (including
pension, endowment and savings). They have recently been
very popular in Hungary and the largest part of ÁB-AEGON’s
new sales is derived from unit-linked life products.
GROUP LIFE PRODUCTS
These products are mostly identical to unit-linked products and
some of them have guaranteed interest and accidental health
coverage. They are sold to companies covering large groups of
employees.
ASSET MANAGEMENT
ÁB-AEGON also provides asset management services through
its subsidiary, AEGON Securities. It offers five mutual funds to
the public: domestic bond, domestic equity, international bond,
international equity and money market. The assets of the
Pension Fund Management Company are managed by AEGON
Hungary Fund Management Company.
DISTRIBUTION CHANNELS
ÁB-AEGON’s distribution channels are the composite network,
the life network, independent agents and brokers.
ÁB-AEGON’s two main distribution channels (the composite
and life networks) work with agents but the company also uses
alternative channels and partners to increase the number of
sales in this sector. This system enabled ÁB-AEGON to keep a
strong position in life insurance new sales in 2002 and 2003.
ÁB-AEGON also endeavors to develop relationships with
banks. ÁB-AEGON’s current partner banks offer mortgage
products, simple savings products and units of AEGON
Securities’ mutual funds to the public.
REINSURANCE CEDED
ÁB-AEGON’s reinsurance partners are all large European
reinsurers in the European and London markets. In accordance
with ÁB-AEGON’s security guidelines, only reinsurers with
a minimum rating of A+ (Standard & Poor’s) are utilized.
The three most important programs in force in the last ten
years are the Catastrophe Excess of Loss Treaty, the Motor
Third Party Liability Excess of Loss Treaty and the Property
per Risk Excess of Loss Treaty. ÁB-AEGON’s catastrophe cover,
which protects private homeowners, is quite significant in the
Hungarian market. In addition, ÁB-AEGON has smaller treaties
for other business lines, such as General Third Party Liability,
Marine Cargo and Life & Group Life Business. The majority
of ÁB-AEGON’s programs are non-proportional Excess of
Loss programs.
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SLOVAKIA
On September 2, 2003, AEGON Slovakia began operations as
a branch office of AEGON Levensverzekering N.V., operating
through a locally managed headquarters. AEGON Slovakia is
managed by AEGON Hungary. The sales force carries out its
activities in four regions — Bratislava, Trnava, Banska Bystrica
and Kosice — with 20 unit managers and 250 agents. Besides
its own sales network, brokers are utilized for product
distribution.
AEGON Slovakia sells three basic products: endowment,
term fixed and whole life insurance – both unit-linked and
non-unit-linked versions, and four riders: accidental death,
accidental disability, critical illness and waiver of premium.
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AEGON SPAIN
GENERAL HISTORY
AEGON SPAIN operated through three insurance
companies during 2003: AEGON Seguros Generales,
AEGON Seguros Salud and AEGON Seguros de Vida. Since
December 2003, these companies are held by one holding
company, AEGON España SA, an economic interest
grouping which provides operational and administrative
services to the various insurance companies. In December
2003, AEGON MoneyMaxx SA was merged into AEGON
Seguros de Vida.
AEGON entered the Spanish market in 1980 through the
acquisition of Seguros Galicia. This was followed by the
acquisition of Union Levantina in 1987, Union Previsora in
1988, Labor Medica in 1996, La Sanitaria in 1997, Caja de
Prevision y Socorro in 1997 and Covadonga in 1999.
In 2003, 24% of AEGON Spain’s premium income was
derived from life insurance, 57% was derived from property
and casualty insurance and 19% was derived from health
insurance.
PRODUCTS AND DISTRIBUTION
Over the past several years, AEGON Spain has focused its
activities on the growth of its life insurance business,
particularly unit-linked products. By marketing unit-linked
variable life products to professionals through multiple
distribution channels, AEGON Spain has made significant
inroads into a market traditionally dominated by banks.
With respect to life insurance, AEGON Spain’s principal
lines of business are traditional life and unit-linked insurance
products. Traditional life insurance comprises permanent and
term life insurance. Permanent life insurance provides life-long
financial protection.
The main general insurance products are motor and fire
insurance. These products are distributed exclusively through
the agency channel, using a network of more than 3,000
agents and brokers.
DISTRIBUTION CHANNELS
For distribution purposes, AEGON Spain makes a distinction
between individual life and group life. Individual life products
are sold in urban centers by specialized agents and brokers
and in rural areas by specialized agents and on a direct
marketing basis using the MoneyMaxx concept. Group life
products are distributed through banks and financial
institutions as well as through brokers and specialized agents.
REINSURANCE CEDED
AEGON Spain has both proportional and non-proportional reinsurance protection, primarily for fire and general liability insurance. In line with AEGON’s policy, AEGON Spain’s reinsurers are generally at least A-rated by Standard & Poor’s.
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AEGON ASIA
TAIWAN
GENERAL HISTORY
AEGON Life Insurance (Taiwan) Inc. is a life insurance
company that was formed in 2001 to conduct life
insurance business in the Republic of China. AEGON
Taiwan’s operations began in 1994 as a branch office of
Life Investors Insurance Company of America, an AEGON
USA life insurance company. In 1998, AEGON Taiwan
took over a block of business, which comprised of 55,000
policies from American Family Life Assurance Company
Taiwan. In 1999, the Transamerica Taiwan branch was
added as a result of AEGON’s acquisition of Transamerica
Corporation and its integration with the existing
operation was completed in 2001. At the end of 2001,
AEGON Taiwan acquired another block of business, which
comprised of 57,000 policies of National Mutual Life
Association of Australia, AXA’s Taiwan life operation.
PRODUCTS AND DISTRIBUTION
The product portfolio consists primarily of traditional life
products, such as increasing whole life, female whole life,
endowment life, term life, one-year term accident and health
rider, and waiver of premium rider products. Variable universal
life, introduced in April 2002, is one of the major products in
the agency channel.
Female whole life is a unique product that offers life
protection, female specific illness benefits and a survival
benefit.
In 2003, new product initiatives included an updated version
of the increasing whole life plan, targeted to the needs for both
protection and savings, VIP Plus, a package of traditional whole
life and variable universal life for retirement needs, and a single
premium fixed-term variable product linked to structured
notes, which competes with the term deposits of banks.
DISTRIBUTION CHANNELS
The agency channel consists of a network of over 500 full-time
professional career agents located in 26 offices throughout
Taiwan. Most of the business in the agency channel consists of
traditional life business, while the variable universal life
business accounts for the remainder.
In the brokerage channel, most of the business consists of
increasing whole life business and is written by independent
agents.
In the bancassurance channel, most of the business
consists of increasing whole life business. A single premium
structured notes product was launched in the 4th quarter of
2003.
Distribution through the brokerage and bancassurance
channels has resulted in substantial growth in new business
volumes. In 2003, brokerage and banks together accounted for
approximately 90% of AEGON Taiwan’s total new business
premiums.
In the group business sector, AEGON Taiwan provides
protection through yearly renewable life, accidental or medical
business to employees of its corporate clients.
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CHINA
GENERAL HISTORY
After a 12-month preparatory period, AEGON’s business
took a huge step forward in mainland China when AEGON-CNOOC
Life Insurance Company China, a 50/50 joint
venture with China National Offshore Oil Corporation,
started its operations in May 2003.
PRODUCTS AND DISTRIBUTION
The SARS outbreak in China in early 2003 did not delay
the opening of business. AEGON-CNOOC launched 13 basic
products and 8 riders to the markets, including whole
life, endowment, dread disease, accidental death and
dismemberment, and surgical indemnity. These are all
traditional life products sold through various channels.
AEGON-CNOOC also launched a SARS product, SARS Guard,
to meet customer demand.
Although the main distribution channel in the local market
is the agency channel, AEGON-CNOOC adopted a multi-channel
strategy, which includes the agency and bancassurance
channels, and direct marketing and telemarketing.
The market potential of China has attracted many major
insurers to China. Most major international insurance
companies are focusing on selling their products through agency
and bancassurance channels. AEGON-CNOOC has leveraged
AEGON’s experience in other distribution channels as well.
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