HUNGARY

GENERAL HISTORY
AEGON Hungary Composite Insurance Company Limited by Shares (AEGON Hungary) is 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. The company operates in Hungary and has its head office in Budapest.

AEGON Hungary’s main operations are life insurance, general insurance, pensions, and asset management. AEGON Hungary operations are organized by sales channels and functional areas.

AEGON Hungary has three subsidiaries:

• AEGON Real Estate Limited Company
• AEGON Pension Fund Management Company Limited by Shares
• AEGON Hungary Investment Fund Management Company Limited by Shares

On September 5, 2005, AEGON Hungary Financial Services Company Limited by Shares merged into AEGON Hungary Composite Insurance Company.

PRODUCTS AND DISTRIBUTION
AEGON Hungary 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. Strong pension fund sales have played a key role in the sales performance of AEGON Hungary in 2005. 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. AEGON Hungary’s share in the household segment was 36% in 2004 (source: Annual Report of Hungarian Insurance Association). Margins for household insurance are attractive, and they present AEGON Hungary with opportunities for cross-selling life insurance products. Property and car insurance are also represented in the portfolio but are not core products.

PENSION INSURANCE
Pension insurance is a core business product of AEGON Hungary. Pension fund administrative services are also offered. In 2004, the mandatory and voluntary pension funds of AEGON Hungary were among the largest in the country in terms of managed assets and number of members (source: www.pszaf.hu). The pension fund business concentrates its growth strategy on adding new members and taking over other pension funds.

TRADITIONAL GENERAL ACCOUNT PRODUCTS
These products consist of individual life policies that were issued before AEGON Hungary became part of the AEGON Group. The premium income and the profit margin from these policies are very low. Traditional general account products also include indexed life products that are not unit-linked but have guaranteed interest. AEGON Hungary no longer offers these products.

UNIT-LINKED PRODUCTS
Unit-linked products are AEGON Hungary’s most important products and make up the largest part of AEGON Hungary’s new sales. Unit-linked premiums are invested in various asset funds. AEGON Hungary charges asset management fees, policy fees, and risk charges to the fund. The unit-linked products cover all types of life insurance including, pensions, endowment and savings.

GROUP LIFE PRODUCTS
Group life products are yearly renewable term products with optional accident and health coverage. These products are mainly unit-linked products that sometimes offer an interest guarantee.

ASSET MANAGEMENT
AEGON Hungary also provides asset management services through its subsidiary, AEGON Hungary Investment Fund Management Company. It offers six mutual funds to the public: domestic bond, domestic equity, international bond, international equity, money market, and a mixed fund. AEGON Hungary Investment Fund Management Company manages the assets in the general account portfolio of AEGON Hungary, the unit-linked portfolios and AEGON Hungary Pension Funds. It also provides asset management services to third parties. AEGON Hungary Investment Fund Management Company is responsible for all the investment activities in Hungary and the Central Eastern European region.

The AEGON Hungary Pension Fund Management Company is responsible for the operation and management of voluntary and mandatory pension funds. Its two main sources of revenue are fees for asset management and administrative services.

DISTRIBUTION CHANNELS
AEGON Hungary’s distribution channels comprise a composite network that sells both life and non-life products. Distribution also depends on a specialized team that targets the Budapest market and other independent agents and brokers.

The composite network and the specialized team work with agents. AEGON Hungary also uses alternative channels and partners to increase sales. This approach enabled AEGON Hungary to keep a strong fourth position in the pension fund and life insurance market in 2005 (source: www.pszaf.hu and www.mabisz.hu).

The renewed, integrated direct sales and direct marketing operation focuses on core portfolio protection and the sale of standardized products.

AEGON Hungary also fosters relationships with banks. AEGON Hungary’s current partner banks offer mortgage products, simple savings products and units of AEGON Hungary Investment Fund Management Company’s mutual funds to the public.

REINSURANCE CEDED
AEGON Hungary’s reinsurance partners are all large reinsurers in the European markets with a minimum Standard & Poor’s rating of A. The three most important reinsurance 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. AEGON Hungary’s catastrophe cover, which protects private homeowners, is popular in the Hungarian market. Additionally, AEGON Hungary has smaller treaties for other business lines such as General Third Party Liability, Marine Cargo, and Life & Group Life Business. The majority of AEGON Hungary’s programs are non-proportional Excess of Loss programs, which is in line with AEGON Hungary’s strategy to cede only the higher risks or involve the reinsurers in high losses.