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GENERAL ACCOUNT
With general account life insurance products, AEGON typically carries the investment risk, earns a spread (the difference between investment performance and crediting rates to the customers), realizes mortality results or targets a combination thereof.
Traditional life
CUSTOMERS
individuals
pension funds
companies
banks
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DISTRIBUTION
(independent) agents
brokers
direct response
worksite marketing
financial institutions
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Traditional life products contributed 48% of AEGON’s income before tax in 2003 (67% in 2002 and 43% in 2001). Traditional life consists of permanent and term life insurance. These products are marketed to individuals, pension funds, companies and banks, through (independent) agents, brokers, direct response, worksite marketing and financial institutions in the United States, the Netherlands, the United Kingdom, Canada, Hungary, Spain and Taiwan.
Permanent life insurance provides life-long financial protection. Most permanent policies have a cash value feature with a minimum rate guarantee that accumulates tax-deferred over the life of the policy and can be used to help fund financial goals, particularly in retirement. A customer can either withdraw the cash value subject to any early withdrawal charges or receive the benefit upon a pre-determined event, such as the death of the insured. Whole life insurance is a common form of permanent life insurance, where premiums generally remain constant over the life of the policy. Universal life insurance is another form of permanent life insurance that has either a flexible or single premium. The contract has an adjustable benefit feature that allows the customer greater flexibility on when to pay premiums and the amount of the premium, subject to a minimum and a maximum. For universal life products, the more the customer pays in premium, the greater the cash value will be. The interest rate at which the cash value accumulates is adjusted periodically. Universal life insurance has a stated minimum interest rate that will be paid on the policy's cash value. An indexed version of universal life is also offered where the credited rate is tied to the change, either positive or negative, in a designated stock market index. There is no minimum interest for indexed universal life. Universal life products are sold to individuals, pension funds, companies and banks.
Term life insurance provides protection for a certain period of time and allows the customer to select the duration of coverage and the amount of protection. The policy pays death benefits only if the customer dies during the specified term. Term policies do not accumulate a cash value. The policies can usually be renewed upon expiration and premiums normally increase upon renewal. Certain term life insurance products sold in the United States (such as mortgage insurance and credit life insurance) provide a death benefit that decreases over the term period, based on a stated method. The rate of decrease usually corresponds with the decrease in the principal balance of the loan. Traditional life products also include life insurance sold as part of defined benefit pension plans, endowment policies and post-retirement annuity products. Bank or company-owned life insurance (BOLI/COLI) funds the costs of employee benefits, usually with key employees of the company as the insured persons.
1 Income before tax in this section refers to income before tax excluding interest charges and other and the income of Transamerica Finance Corporation.
Fixed annuities
CUSTOMERS
individuals
pension funds |
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DISTRIBUTION
(independent) agents
financial institutions
brokers
direct response |
Fixed annuities contributed 13% of AEGON's income before tax in 2003 (8% in 2002 and 10% in 2001). Fixed annuities are marketed to individuals and pension funds through financial institutions, (independent) agents and brokers in the United States and Canada and through direct response in the United States.
A fixed annuity is an annuity contract guaranteeing the customer a fixed minimum payout. The fixed annuity products AEGON USA offers include deferred or immediate annuities, which may be purchased on either a flexible or single premium basis. An immediate annuity is usually purchased with a single lump sum premium payment and the benefit payments begin within a year after the purchase. Deferred annuities are offered on a fixed or indexed basis and the benefit payments will begin at a future date. Upon maturity of the annuity,the customer can select payout options, including a lump sum payment or income for life or for a period of time. Should the customer die prior to receiving the benefits of the policy, the beneficiary receives the accumulated cash value death benefit. The customer can surrender the, annuity prior to maturity and receive the cash value less surrender charges. Fixed annuities have a specified rate of interest that can be reset periodically by AEGON.
A multi-strategy annuity allows a customer a choice of investment strategies to allocate funds and provides an accumulative lifetime minimum guaranteed interest rate. Early withdrawal by the customer of the cash value of the annuity is subject to surrender charges. AEGON's operations in the United States sell group and individual fixed annuity and 401(k) contracts to small and medium sized institutions. Group fixed annuities are purchased with a single premium that funds the annuities for a group of employees. The single premium includes a fee for the administrative services to be provided by AEGON after the annuity is sold.
GICs and funding agreements
CUSTOMERS
pension funds*
financial institutions*
money market funds**
municipalities**
overseas investors** |
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DISTRIBUTION
(independent) agents
brokers
direct |
* tax qualified
** non-tax qualified |
Guaranteed investment contracts (GICs) and funding agreements (FAs) contributed 8% of AEGON's income before tax in 2003 (13% in 2002 and 6% in 2001). GICs and FAs are marketed only to institutional investors such as pension funds, retirement plans, college savings programs, money market funds, municipalities and United States and overseas investors. GICs are primarily sold to tax qualified plans while FAs are typically sold to non-tax qualified institutional investors. The products are marketed directly and through brokers and independent agents in the United States and internationally from the United States.
GICs and FAs are spread-based products that are generally issued on a fixed or floating rate basis and provide the customer a return of principal and a guaranteed rate of interest. For some of the products, the customer receives a return based on a change in a published index, such as the S&P 500. The term of the contract can be fixed (primarily from six months up to ten years) or it can have an indefinite maturity. Contracts with an indefinite maturity provide the customer with a put option whereby the contract will be terminated with advance notice ranging from three to thirteen months.
ACCOUNT OF POLICYHOLDERS
Products for the account of policyholders are those where the policyholders carry the investment risk. AEGON earns management, administration and guarantee fees and mortality results on these products.
Life for account of policyholders
CUSTOMERS
individuals |
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DISTRIBUTION
(independent) agents
marketing organizations
financial institutions
worksite marketing
franchise organizations
brokers |
Life products for account of policyholders contributed 15% of AEGON’s
income before tax in 2003 (17% in 2002 and 17% in 2001). These products
are sold to individuals through (independent) agents, marketing organizations,
financial institutions, worksite marketing, franchise organizations
and brokers in the United States, the Netherlands, the United Kingdom,
Canada, Hungary, Spain and Taiwan.
Life products for account of policyholders include several forms of
life insurance and pension products whereby death benefits and cash
values vary with the performance of a portfolio of investments. Premiums
can be allocated among a variety of investments that offer different
degrees of risk and reward, including stocks, bonds, combinations
of both, or investment products that guarantee interest and principal.
The customer retains the investment risk and AEGON earns a return
from investment management fees, mortality-based cost of insurance
charges and expense charges. The contract account balance varies with the performance of the investments chosen
by the policyholder. These products also include variable universal
life (United States), tontine plans (the Netherlands) and unit-linked
life insurance (UK and Other Countries).
Variable universal life products are similar to universal life products,
but include investment options and maintenance of investments for
account of policyholders.
Tontine plans are linked pure endowment savings contracts, with a
tontine bonus structure. Policyholders can choose from several funds
in which to invest premiums paid. When death occurs before maturity,
the tontine plans pay a death benefit equal to the premiums accumulated
at 4% compound interest,subject to a minimum of 110% of the fund value
during the first half of the contract term. This death benefit is
charged on a yearly risk premium basis. The amount of death benefit
that is charged for is equal to the total benefit paid to the policyholder,
plus any unrecouped acquisition costs.
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. On survival to the maturity date,
a benefit equal to the fund value, inclusive of tontine bonuses, is
paid out. This is subject to a minimum of the premiums paid, provided
the Mix Fund was chosen for investing premiums.
Unit-linked products are contracts whereby the policyholder is able
to choose initially, and change subsequently, the proportion of the
premium that is invested in certain funds. The benefits on death or
maturity are equal to the value of the units, in certain cases subject
to a minimum of the guaranteed benefits. Unit-linked products generally have variable maturities
and variable premiums.
VARIABLE ANNUITIES
CUSTOMERS
individuals
pension funds |
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DISTRIBUTION
(independent) agents
marketing organizations
brokers
financial institutions |
Variable annuities contributed 2% to AEGON's income before tax
in 2003 (minus 21% in 2002 and 3% in 2001). Variable annuities are
sold to individuals and pension funds through (independent) agents,
marketing organizations, brokers and financial institutions in the
United States and Canada.
Variable annuities allow a customer to save for the future on a tax-deferred
basis and to select payout options that meet the customer's need
for income upon maturity, including lump sum payment or income for
life or for a period of time. Premiums paid on variable annuity contracts
are invested in funds offered by AEGON, including bond and equity
funds, and selected by a client based on the client's preferred
level of risk. The assets and liabilities related to this product
are legally segregated for the benefit of particular policyholders
in separate accounts of the insurance company (classified as investments
for account of policyholders).
The account value of the variable annuities reflects the performance
of the funds. AEGON earns mortality charges for providing a minimum
guaranteed death benefit and may also provide guaranteed income benefits
upon annuitization. This category includes segregated funds (Canada).
FEE BUSINESS
CUSTOMERS
individuals
pension funds
asset managers |
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DISTRIBUTION
(independent) agents
marketing organizations
financial institutions
direct |
Fee business contributed 0.2% to AEGON's income before tax in
2003 (0.1% in 2002 and 3% in 2001). The products are sold to individuals,
pension funds and asset managers through (independent) agents, marketing
organizations, financial institutions and direct marketing in the
United States, Canada, the Netherlands, the United Kingdom and Hungary.
AEGON's fee business comprises products that generate fee income
by providing management, administrative or risk services related to
off balance sheet assets (i.e.equity or bond funds, third-party managed
assets and collective investment trusts). AEGON's operations
in the United States provide various investment products and administrative services, individual
and group variable annuities,mutual funds, collective investment trusts,
and asset allocation (retirement planning) services. AEGON serves
the following retirement plan markets: corporate defined benefit plans,
corporate defined contribution plan, 401(k) plans, not-for-profit
organizations qualifying for tax qualified annuities under section
403(b) of the United States Internal Revenue Code and non-qualified
457 plans available to government and tax exempt organizations.
Bundled retirement plans are sold to mid-sized and large employers.
A 'manager of managers' investment approach is used specifically
for the retirement plans market, which allows clients access to institutional
investment managers across the major asset classes. These funds are
available in a 'core-and-feeder' structure, in which the
core is similar to a mutual fund and the feeder provides an institutional
customer with a choice of products that are directly linked to the performance of
the mutual fund,such as a registered or non-registered variable annuity,
a collective investment trust (off balance sheet) or a mutual fund
(off balance sheet).
The United States operations provide the fund manager oversight for
the IDEX and Diversified Investors Funds Group family of mutual funds.
AEGON builds alliances with investment companies and selects and retains
external managers based upon performance from a variety of investment
firms. The external manager remains with the investment company and
acts as a sub-advisor for AEGON's mutual funds. AEGON earns investment
management fees on these investment products.
A synthetic GIC is generally characterized as an off balance sheet
fee-based product sold primarily to tax qualified institutional entities
such as 401(k) plans and other retirement plans, as well as college
savings plans. AEGON insurance companies provide a synthetic GIC 'wrapper'
around fixed income invested assets, which are owned by the plan and
managed by the plan or a third party money manager. The synthetic
GIC provides a smoothed return to plan participants and book value
benefit-responsiveness in the event that
qualified plan benefit requests exceed plan cash flows. In certain
contracts, AEGON agrees to make advances to meet benefit payment needs
and earns a market interest rate on these advances. The periodically
adjusted contract crediting rate is the means by which investment
and benefit responsive experience is passed through to participants
In Canada, fees are earned through several special service and fund
management companies. Fees are earned by providing administrative
back office services that facilitate the sale of mutual funds and
segregated fund products. In addition, a national network of financial
planning franchises and representatives earn fees when products of
non-affiliated companies are sold. Investment management fees are
also earned by providing portfolio management and investment advisory
services.
AEGON's operations in the Netherlands offer financial advice and are involved in intercession activities in real estate. The financial advice activities include selling insurance, pensions, mortgages, financing, savings and investment products. The intercession activities in real estate comprise brokerage activities of residential as well as commercial real estate and real estate management business.
In the United Kingdom, the independent advisors, in which AEGON UK now has a significant position, deliver advice relating to financial needs to a range of customers (both individuals and companies).
ÁB-AEGON in Hungary provides asset management services through its subsidiary, AEGON Securities.
OTHER ACTIVITIES
Accident and health insurance
CUSTOMERS
individuals
companies |
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DISTRIBUTION
(independent) agents
brokers
direct marketing |
Accident and health insurance contributed 11% to AEGON's income before tax in 2003 (13% in 2002 and 6% in 2001). Accident and health products are sold to individuals and companies through (independent) agents, brokers and direct marketing in the United States, the Netherlands, Hungary and Spain.
AEGON offers limited forms of health insurance, including disability insurance in the Netherlands, Hungary and Spain and accidental death and dismemberment insurance in the United States, but does not offer major medical coverage.
AEGON USA also offers cancer treatment, heart disease and intensive care policies in the United States, that are sold to individuals on a voluntary basis at their place of employment with premium payment made through payroll deduction. These plans provide specified income payments during hospitalization, scheduled benefits for specific hospital/surgical expenses and cancer treatments, hospice care, and cover deductible and co-payment amounts not covered by other health insurance and Medicare supplement products.
Long-term care products offered by AEGON USA provide benefits to customers who because of their advanced age or a serious illness require continuous care. Long-term care policies offered include nursing home coverage, home health care, assisted living and adult day care services and protect the insured's income and retirement savings from the costs of long-term nursing home or home health care.
In Canada, AEGON offers accidental death and out-of-the-country medical expense coverages.
General insurance
CUSTOMERS
individuals
companies |
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DISTRIBUTION
(independent) agents
brokers |
General insurance contributed 2% to AEGON's income before tax in 2003 (2.6% in 2002 and 2% in 2001). General insurance is sold to individuals and companies through (independent) agents and brokers in the Netherlands, Hungary and Spain.
AEGON offers limited forms of general insurance in selected markets, such as automobile insurance, liability insurance, household insurance and fire protection.
Banking
CUSTOMERS
individuals
companies |
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DISTRIBUTION
(independent) agents
direct marketing
retailers
franchise organizations |
Banking products contributed 0.8% to AEGON's income before tax
in 2003 (0.3% in 2002 and 1% in 2001) and are only sold by AEGON The
Netherlands. Distribution channels are direct marketing, (independent)agents,
retailers and franchise organizations.
AEGON's banking products include savings accounts and investment
contracts (i.e. securities lease products). Both products generate
investment spread income for AEGON. Savings accounts offer attractive
interest rates while retaining flexibility to withdraw cash with limited
restrictions. AEGON discontinued selling securities lease products
in early 2003. Banking products also include investment products that
offer index-linked returns and generate fee income on the performance
of the investments.
SUPERVISION
Individual companies in the AEGON Group are each subject to solvency
supervision in their respective home countries. Based on European
Commission legislation (Directive 98/79/EC) adopted in 1998, the supervisory
authorities in the Netherlands (Pensioen-en Verzekeringskamer, or
PVK) are, as lead supervisors, also required to carry out 'supplementary
supervision'. The supplementary supervision of insurance companies
in an insurance group enables the lead supervisors to make a detailed
assessment of the financial position of the insurance companies that
are part of that group. The Directive
requires the PVK to take into account the relevant financial affiliations
between the insurance companies and other entities in the group. In
this respect, AEGON is required to submit reports to the PVK twice
a year setting out all the significant transactions and positions
between the insurance and non-insurance companies in the AEGON Group.
Both the insurance and banking companies in the AEGON Group are also required to maintain a minimum solvency margin based on local requirements. The required solvency margin is the sum of the margins of each of AEGON’s insurance and banking subsidiaries, based on the requirements of European directives. Available liability capital includes shareholders' equity, capital securities and subordinated loans.
1 Income before tax in this section refers to income before tax excluding interest charges and other and the income of Transamerica Finance Corporation.
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