Managing risk

As an insurance company, AEGON manages risk on behalf of its customers and other stakeholders. As a result, the company is exposed to a variety of underwriting, operational and financial risks. AEGON's risk management and control systems are designed to ensure that these risks are managed as effectively and efficiently as possible.

For AEGON, risk management involves:

• Understanding which risks the company is able to underwrite
• Assessing the risk-return trade-off associated with these risks
• Establishing limits for the level of exposure to a particular risk or combination of risks
• And, measuring and monitoring risk exposures and actively managing the company's overall risk and solvency positions.

By setting certain pre-defined tolerances and adhering to policies that limit the overall risk the company is exposed to, AEGON is able to accept risk with knowledge of potential returns and losses both for the company and for its shareholders.

AEGON must, at all times, maintain a solvency position such that no plausible scenario would cause the company to default on its obligations to policyholders.

To accomplish this, AEGON has established two basic objectives for its risk management strategy:

• AA capital adequacy requirements: AEGON maintains its companies' capital adequacy levels at whichever is the higher of local regulatory requirements, the relevant local Standard & Poor's requirements for 'very strong' capitalization and any additional self-imposed economic requirements.
• Maintain solvency even under extreme event scenarios: AEGON must remain solvent in the case of plausible extreme events.