Business environment

Economic and financial market conditions continued to be extremely difficult during the first quarter of 2009. The remainder of the year, however, saw a significant improvement, particularly in higher equity markets and narrower corporate credit spreads. This had a positive effect on AEGON's earnings and capital position.

Despite the improvement after the first quarter, financial conditions remain uncertain, with unemployment continuing to rise and growth still hampered by higher corporate and household debt levels. AEGON expects market conditions to remain uncertain throughout 2010.

A changing industry
The insurance industry is experiencing a period of considerable change. This is partly because of the effects of the global financial crisis, but also because of changing attitudes among customers and regulators.

In the short term, the financial crisis presented significant challenges for the insurance industry, and resulted in lower corporate bond and equity prices and a sharp downturn in the world's leading economies. Since the end of the first quarter of 2009, market conditions have begun to improve. Even so, the crisis has had a long-term effect on the business environment in which AEGON operates, particularly as customers have become more aware of financial risk.

As a result, many customers are demanding greater financial guarantees, because of the increase in market volatility. At the same time, distribution patterns in many leading markets are changing, and products are being redesigned, becoming simpler and more transparent.

Insurance companies, meanwhile, are placing greater emphasis on the importance of capital. This is partly a consequence of the global financial crisis, and partly in anticipation of the European Union's Solvency II capital adequacy rules. In the years ahead, Solvency II will have a significant effect on the insurance industry particularly in the way insurers manage both risk and capital. AEGON believes these changes, which are still under discussion, should help improve regulation of the insurance industry, and ultimately enhance the protection of policyholders and other beneficiaries.