AEGON UNITED KINGDOM

GENERAL HISTORY 
AEGON UK is a leading manufacturer, fund manager and distributor of pension, protection and investment products.

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 and having its registered office in England. It is a company limited by shares, incorporated on December 1, 1998.

The primary operating subsidiaries of AEGON UK are:

• Scottish Equitable plc
• Guardian Assurance plc
• Guardian Linked Life Assurance Ltd
• Guardian Pensions Management Ltd
• AEGON Asset Management UK plc
• AEGON UK Distribution Holdings Ltd

AEGON UK operates three distinct businesses:

• AEGON Life and Pensions — all manufacturing and sales operations relating to investment, protection and pensions markets in the UK. This business primarily operates under the Scottish Equitable brand name
• AEGON Asset Management — investment management operations
• AEGON UK Distribution — network of distribution intermediary businesses

PRODUCTS AND DISTRIBUTION
AEGON UK is a major financial services organization specializing in the long-term savings and protection markets. AEGON UK sells primarily through the Independent Financial Advice channel.

PENSIONS
In June 2004, the UK government announced an increase in the price cap from April 2005 for new stakeholder business to 1.5% for ten years and then 1% thereafter from the previous 1% flat charge. This is expected to reduce margin pressure in this area.

Changes to many aspects of pension legislation and taxation continue to impact the industry. The most significant aspect relates to the introduction of a simpler and unified tax regime, which will apply to all types of pension arrangements. Implementation will occur in April 2006 and the changes will impact all UK pension providers. Reviews of product ranges and supporting infrastructure are underway to ensure that AEGON UK capitalizes on the opportunities presented by this change.

Sales of more specialized pensions have grown significantly over the last few years, particularly in the area of income draw down and phased retirement products. These 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.

The sale of group pensions is a prime 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, cash up to the maximum allowed can be taken, with the remainder of the accumulated pension fund used to purchase an annuity or invest in a draw down policy until age 75. 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 existing 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.

High standards of service are a key differentiator in the pensions market, with technology increasingly being utilized to improve efficiency for providers and advisors. An example is Scottish Equitable’s market-leading technology solution called SmartScheme, which allows customers 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 free standing additional voluntary contribution plans.

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 UK.

UK bonds. The bond market in the UK is one of considerable size and is still seen by most financial advisors and product providers as a core part of their business. Onshore bonds offer a tax-efficient method of investing for a wide range of investors.

Scottish Equitable currently offers a range of internally managed funds as well as a comprehensive range of managed funds provided by a range of market-leading fund managers.

Offshore bonds. Scottish Equitable International (Dublin) plc is
a provider of offshore life contracts. These are sophisticated packaged investment products with tax advantages for clients in the United Kingdom and overseas. The products meet the needs of high net-worth individuals for investment choice and flexibility, inheritance tax planning (in conjunction with trust arrangements) and general tax planning. They are also recommended for investing corporate money.

In 2004, the product range was extended to include the Flexible Investment Plan, that is designed to take regular premiums, and can be used in retirement planning for the high net-worth market. It can be taken out by individuals or be company sponsored.

INDIVIDUAL PROTECTION
AEGON Individual Protection (AIP) operates in the individual protection market under the brand name of Scottish Equitable Protect. Launched in 2001, Scottish Equitable Protect offers three menu-based products targeted at the personal, mortgage and business protection markets.

A fast growing area within the individual protection market is the ability to transact business electronically and AIP’s proposition development is adapting to reflect this. Development of an electronic proposition has been a key focus area for AIP over the last twelve months and will continue to be so throughout 2005, delivering straight-through processing.

GROUP RISK CONTRACTS
The Employee Benefits business offers a range of corporate risk products to suit the needs of all sizes and types of employers (and their employees) exclusively through independent advisors. AEGON UK’s core product lines consists of: group life, group income protection and group critical illness. Each can be bought on a stand-alone basis, or together in the form of a tailored employee benefits package, either on a core or flexible benefits basis. Employee Benefits also has a product aimed specifically at small to medium enterprises called the Employee Protection Menu. This product is purchased by the employer at a pre-defined cost, and allows each individual employee to select appropriate levels of protection to suit their individual needs.

LIFE AND PENSION SALES
AEGON UK’s principal means of distribution is 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 30,000 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 30 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 over 250 broker-consultants based in the UK, operating out of local branch offices. SE provides support to local IFAs through this branch network in areas such as business development and training.

MUTUAL FUNDS
AEGON Asset Management UK (AAM UK) is a major provider of asset management services both within AEGON UK and to institutional customers and individuals. As of December 31, 2004, AAM UK managed approximately GBP 39 billion of funds, providing both mutual and segregated funds for clients.

AAM UK in the corporate bond market has more than GBP 14 billion invested. A dedicated sales force has been established to exploit this capability with both retail and institutional clients.

OWNED DISTRIBUTION
In 2002 and 2003, AEGON UK acquired six independent financial advisors in the UK. On May 18, 2004 a new business, Origen, was launched as a result of combining five of these businesses and it will be fully operational during the first quarter of 2005.

Origen delivers advice relating to the financial needs of a range of customers (both individuals and corporates), using a range of distribution methods (primarily face to face but also using media and worksite marketing).

The sixth firm acquired, Positive Solutions, provides management services to self-employed IFAs, using a market-leading technology platform.

REINSURANCE CEDED
AEGON UK reinsures mortality and morbidity risk where it believes it is prudent and economically sound to do so with a target minimum credit rating requirement of AA by Standard & Poor’s for reinsurers to which risk is ceded.

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 unit-linked businesses, the unit liability is reinsured to the third party organization. The credit risk relating to the investments is borne by the pension contract holders while AEGON UK retains ultimate credit risk relating to the external fund managers.