AEGON Group

Report of the Executive board

“Thanks to better-than-expected performances from our businesses in the Americas, Europe and Asia, AEGON also reported a fourth straight year of value of new business growth in 2007, putting the Group firmly on track to meet its target for 2010.”

AEGON’s businesses delivered a solid performance in 2007, despite the effect of a weaker US dollar and difficult market conditions. New life sales for the year rose 7% to EUR 3,274 million, while underlying earnings before tax, which exclude the impact of short-term fluctuations in financial markets, were 9% higher at EUR 2,639 million. Net income was down 20% at EUR 2,551 million, mainly due to the impact of exceptional gains in the Netherlands in 2006.

AEGON’s value of new business, a key measure of future profitability, rose 20% to a record EUR 927 million, putting the Group firmly on course to meet its upgraded 2010 target of EUR 1.25 billion. Much of the increase was due to strong contributions from AEGON’s established country units, particularly the United Kingdom and the new, developing markets of Asia and Central and Eastern Europe. AEGON’s overall internal rate return, meanwhile, also improved to 18.4%, up from 14.5% the previous year, as the Group continued its focus on writing profitable business.

Net operating earnings geographically	2007	2006	2006	%
In EUR million		adjusted 1	pro forma 2	to pro forma
Americas	1,533	1,574	1,574	(3)
The Netherlands	283	868	437	(35)
United Kingdom	275	206	206	33
Other countries	60	20	20	–
Holding and other activities	(104)	(98)	(98)	6
Net operating earnings	2,047	2,570	2,139	(4)
2006 information has been adjusted to reflect the retrospective application of the change in accounting principles relating to guarantees in the Netherlands, the change in definition of operating earnings to include AEGON’s share in the net results of associates and a new line of business format. Refer to note 2 in the financial statements for more information. For purposes of comparison, AEGON has provided pro forma operating earnings for 2006. These pro forma figures assume that hedges and guarantees had no effect on operating earnings in 2006. The pro forma figures exclude the effect of any movements in the fair value of guarantees as would have been the case had AEGON The Netherlands’ hedge program been in place. The terms adjusted and pro forma are being used throughout this chapter.

Earnings overview	2007	2006	%	2006	%
In EUR million		adjusted	to adjusted	pro forma	to pro forma
By product segment
Life and protection	1,332	1,284	4	1,159	15
Individual savings and retirement	524	630	(17)	630	(17)
Pensions and asset management	458	1,024	(55)	501	(9)
Institutional products	339	383	(11)	383	(11)
Reinsurance	135	163	(17)	163	(17)
Distribution	6	12	(50)	12	(50)
General insurance	47	55	(15)	55	(15)
Interest charges and other	(185)	(242)	24	(242)	24
Share in net results of associates	36	32	13	32	13
Operating earnings before tax	2,692	3,341	(19)	2,693	(0)
Gains/(losses) on investments 1	421	569	(26)
Impairment charges 1	(76)	(25)
Other non-operating income/(charges) 1	40	86	(53)
Income before tax	3,077	3,971	(23)
Income tax	(526)	(802)	(34)
Net income 2	2,551	3,169	(20)
Net operating earnings	2,047	2,570	(20)	2,139	(4)
REVENUE GENERATING INVESTMENTS	370,941	362,651	2
Together non-operating earnings before tax. Net income attributable to equity holders of AEGON N.V.

Net impairments over the year amounted to EUR 76 million, a fraction of AEGON’s total revenue-generating assets of EUR 371 billion. AEGON USA’s subprime mortgage-backed securities (subprime ABS) portfolio of EUR 2.9 billion suffered no impairments at all, despite worsening credit market conditions.

During the year, AEGON successfully completed a EUR 1 billion share repurchase program. In addition, the Group has proposed a 13% increase in the full-year dividend for shareholder – further evidence of AEGON’s continued strong cash flows and solid capital position.

AEGON took steps in 2007 to further extend its distribution network. New distribution partnerships were agreed with Barclays Bank in the United Kingdom, Taishin in Taiwan, Industrial Securities in China and the regional savings bank Caja Cantabria in Spain. In Addition, AEGON’s new strategic business relationship with Merrill Lynch in the United States, completed at the end of 2007, will further enhance the Group’s position as a leading provider of life insurance and variable annuity products to US brokers.