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Growth and profitability
CHAIRMAN'S LETTER 
DEAR READER,
During the past year, we took a number of important steps to strengthen AEGON’s
position as a leading provider of life insurance, pensions and related savings and
investment products internationally. On behalf of the Executive Board, I am pleased to
present this Annual Report detailing our progress and ongoing commitment to providing
our customers with reliable, need-specific products and services while creating
long-term value for AEGON’s many stakeholders.
A CONSISTENT FOCUS ON PROFITABILITY
Profitability continues to be a cornerstone of AEGON’s growth strategy. This was
evident in 2006 with the 32 percent increase in operating earnings before tax, as well
as the 41 percent increase in the value of new business for the AEGON Group, which
represents a compound annual growth rate of 33 percent since 2003. Similarly, the
internal rate of return on AEGON’s new business improved to 14.5 percent during 2006,
compared to 12.4 percent for 2005. These positive developments represent
better-than-expected progress toward our goal of doubling AEGON’s value of new business
to EUR 1.1 billion by 2010. We are confident that our businesses in the Americas, the
Netherlands, and the United Kingdom will continue to perform well and together comprise
the majority of AEGON’s earnings growth in the coming years. However, we believe that
our operations in Central and Eastern Europe, as well as in other European countries and
in Asia, will constitute an increased proportion of new business growth in the next
several years.
SEIZING THE PENSION OPPORTUNITY GLOBALLY
Another key component in AEGON’s growth strategy is the retirement opportunity
globally. Demographics and trends in nearly every market indicate that ours is the right
business at the right time. There is a clear and increasing need for a broader range of
protection and pre- and post-retirement solutions given people’s needs to successfully
manage their accumulated assets during a longer retirement. It is for this reason that
AEGON has identified pensions as a global growth initiative. By coordinating product
concepts and sharing the broad expertise of our various business and country units, we
believe that AEGON will further strengthen its leading position in the growing
retirement market. Another indication of our concerted focus on the pension opportunity
was our decision to acquire PTE Ergo Hestia, a top-ten pension fund management company
in Poland. This will provide a strong complement to our successful life operations in
Poland, following our entry into the Polish market in 2005.
Trends indicate that ours is the right business at the right time
During 2006, HDI Pensionsmanagement – Germany’s third largest pension provider –
joined the AEGON Pension Network, adding further momentum to our efforts to provide
innovative cross-border pension solutions for AEGON’s multi-national clients and their
employees. Multi-national companies are taking a more international view of their
pensions and AEGON Pension Network is providing solutions that will enable them to
better negotiate the complexities involved.
EXPANDING AEGON’S INTERNATIONAL FOOTPRINT
International expansion is another essential pillar in AEGON’s growth strategy
and the past year was an especially productive one in this regard. In October, we
completed our 49 percent acquisition of Seguros Argos in Mexico, and at the same time
announced our plans to establish a pension management joint venture, known as Afore
Argos. During the year, we also continued the roll-out of our operations in the highly
developed coastal provinces in China with the opening of AEGON-CNOOC’s Shandong branch,
and in December we finalized our new partnership with the Ranbaxy Promoter Group in
India to provide life insurance and asset management products through Ranbaxy’s
subsidiary, Religare. In January 2007, we fulfilled our intention to enter Romania with
the formation of a new pension fund company with Banca Transilvania, in anticipation of
the mandatory pension system next year. In addition, AEGON will also establish a life
insurance company in Romania that will enter into a distribution agreement with Banca
Transilvania to sell co-branded products through the bank’s extensive network of 340
branches.
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International expansion is an essential pillar in AEGON’s growth strategy
Also in January 2007, AEGON announced its intention to form a new life insurance
company in Japan with Sony Life. The 50/50 joint venture will initially focus on
developing variable annuity products that will be distributed through Sony Life’s
Lifeplanner® channel as well as through banks and other financial institutions. AEGON
regards this new partnership with one of Japan’s most respected companies as an
excellent platform for ongoing collaboration in the world’s second largest market for
life insurance products and services.
STRENGTHENING DISTRIBUTION
Efforts to enhance further AEGON’s broad distribution network were also
successful in 2006. In November, we announced our agreement to acquire Clark
Incorporated, a leading distributor of bank-owned and corporate-owned life insurance in
the United States. AEGON also acquired the remaining 55 percent of Unirobe, a leading
company of independent financial advisors in the Netherlands.
AEGON’s strong relationship with banks in the United States, throughout Europe
and in Asia provides critical access to a growing customer segment in both our
established and developing markets. It is for this reason that we have also identified
broadening AEGON’s presence through the bank channel as another of our global growth
initiatives. In addition to our successful partnership with Caja de Ahorros del
Mediterráneo in Spain, two new joint ventures with Spanish mutual savings banks – Caja
de Badajoz and Caja Navarra – became operational during 2006, extending AEGON’s products
and services through nearly 1,500 bank branches across the country. As banks
internationally expand their product offering to include protection and retirement
products, we intend to advance AEGON’s reputation as a preferred partner in this
essential distribution channel.
ENSURING THE BENEFITS OF SHARED EXPERTISE
In November, we announced the formation of the AEGON Management Board, as a way
to further maximize the opportunities we see for AEGON’s businesses internationally. In
addition to my Executive Board colleagues Jos Streppel and Alex Wynaendts, the
Management Board also includes the leaders of AEGON’s major country units: Pat Baird,
President and CEO of AEGON USA, Otto Thoresen, CEO of AEGON UK, and Johan van der Werf,
CEO of AEGON The Netherlands. The Executive Board will continue its role as the
statutory governing body of AEGON N.V. The Management Board will work to identify
business opportunities consistent with AEGON’s international growth strategy.
AEGON’s strong relationship with banks provides access to a growing customer
segment
The formation of the Management Board reflects the clear and increasing need for
closer cooperation between country and business units and the importance of coordinating
global initiatives and leveraging AEGON’s broad expertise.
CONTINUED GROWTH THROUGH FINANCIAL STRENGTH
AEGON has long focused on achieving and maintaining financial strength. In
addition to providing the basis for continued growth and expansion, it is also an
important measure of a company’s future ability to deliver on the promises it makes to
its customers, business partners and shareholders. During 2006, AEGON’s capital position
improved further. This enabled us to continue our investments in new partnerships and
acquisitions, as well as increase the shareholder dividend by 22 percent to EUR 0.55.
Also, we initiated a program to repurchase shares in 2006 to neutralize the effect of
stock dividends. It is our intention to increase dividends annually, naturally subject
to the development of AEGON’s capital position and cash flows.
Our ability to ensure AEGON’s continued growth and financial strength depends on
the talent and dedication of management, employees and trusted business partners. Their
many contributions to AEGON’s business objectives enabled us to achieve the progress we
are pleased to report for 2006. As we look to the opportunities ahead, AEGON remains
committed to leveraging the resources of an expanding global operation with the
knowledge and expertise of local business managers and partners. At the same time, we
will continue to identify and implement operational and cost efficiencies in order to
maintain AEGON’s reputation as a competitive and reliable provider of life insurance,
pensions and related savings products and services.
We are grateful for your ongoing support and continued interest in AEGON.
Sincerely, on behalf of the Executive Board,
Donald J. Shepard
CHAIRMAN OF THE EXECUTIVE BOARD