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## Capital and liquidity management 

## Liquidity and capital resources 

In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote stable and strong capital adequacy levels for its businesses on various capital metrics to ensure that the company is able to meet its obligations. 

Risk tolerance is an important element in Aegon’s Enterprise Risk Management Framework, and focuses on financial strength, continuity, steering of the risk balance and desired risk culture. The core aim is to establish the organization’s tolerance for risk to assist management in carrying out Aegon’s strategy within the Group’s available resources. 

## Guiding principles 

Aegon follows a number of guiding principles, which determine its approach to capital and liquidity management: 

■ To promote strong capital adequacy in Aegon’s businesses and operating units; 

■ To manage and allocate capital efficiently to maximize returns and support the strategy; 

■ To maintain an efficient capital structure with an emphasis on optimizing Aegon’s cost of capital; 

■ To ensure sufficient liquidity by enforcing stringent liquidity risk policies for both business units and the holding; 

■ To maintain continued access to international money and capital markets on competitive terms. 

Taken together, Aegon believes these guiding principles strengthen the company’s ability to withstand adverse market conditions, enhance its financial flexibility and serve the long-term interests of both the company and its stakeholders. 

## Governance 

Aegon’s Corporate Treasury department manages and coordinates capital and liquidity management strategies and processes. The department acts under direction of the Group Risk & Capital Committee. 

## Capital management 

## Strategic importance 

Aegon’s approach towards capital management plays an important role in supporting the execution of Aegon’s strategic priorities. These priorities include the shift of capital to those markets that offer higher growth and return prospects, and the shift from spread business to fee business. In addition, the company is improving its risk profile by further reducing total financial leverage. Disciplined risk and capital management support Aegon’s aim to pay a sustainable dividend to its shareholders. 

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## Improving risk profile 

Aegon continues to take measures to improve its risk-return profile and lower overall capital requirements. These measures include, for instance, the continued run-off of Aegon’s spread- based institutional business in the United States, the strategic growth in fee-based earnings and extensive asset-liability management and hedging programs. Examples of these programs include hedging the interest rate and equity risk from guarantees in the Netherlands and hedging the capital position in the Americas against adverse equity and fixed income market swings. 

## Capital requirements and leverage 

Aegon’s goal for all units is to maintain a strong financial position in order to sustain losses from adverse business and market conditions. The company’s overall capital management strategy is based on capital adequacy, capital quality and capital leverage. 

## Capital adequacy 

Capital adequacy is managed at the company, country and operating unit level, as well as at the level of individual legal entities within the organization. As a matter of policy, Aegon maintains the capitalization of its operating companies based on whichever of the following is the most stringent: 

■ Regulatory capital requirements; 

■ Rating agency AA capital requirements for rated entities; 

■ Any additional, self-imposed internal requirements. 

Aegon’s Insurance Group Directive ratio was 212% at December 31, 2013, down from 228% at the end of 2012, driven mainly by the switch to the swap curve for regulatory solvency calculations in the Netherlands and the negative impact of IAS 19. 

## Total capitalization 

Aegon’s total capitalization consists of the following components: 

■ Shareholders’ equity excluding revaluation reserves and the remeasurement of defined benefit plans; 

■ Non-controlling interests and share options not yet exercised; 

■ Total financial leverage. 

## Total financial leverage 

Consistent with the guiding principles of its capital and liquidity management, Aegon NV monitors and manages to several financial flexibility related metrics, including: 

■ Various rating agency leverage metrics; 

■ Gross financial leverage ratio; 

■ Fixed charge coverage. 

