content_image/235466.jpg content_image/235475.jpg content_image/235474.jpg content_image/235476.jpg content_image/235477.jpg
The fair values of Aegon USA’s RMBS instruments were determined as follows: 

<img src='content_image/235466.jpg'>

## Commercial mortgage-backed securities 

Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,160 million (2012: EUR 5,606 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 4,663 million (2012: EUR 5,137 million) is held by Aegon USA, EUR 398 million (2012: EUR 438 million) by Aegon UK and EUR 82 million (2012: EUR 9 million) by Aegon the Netherlands. CMBS are securitizations of underlying pools of mortgages on commercial real estate. The underlying mortgages have varying risk characteristics and are pooled together and sold in different rated tranches. The company’s CMBS include conduit, large loan, single borrower, commercial real estate collateral debt obligations (CRE CDOs), collateral debt obligations (CDOs), government agency, and franchise loan receivable trusts. 

The total gross unrealized loss on AFS CMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amounts to EUR 91 million (2012: EUR 102 million), of which all relates to positions of Aegon USA. The total net unrealized gain on CMBS is EUR 162 million (2012: EUR 354 million), of which EUR 88 million (2012: EUR 247 million) relates to positions of Aegon USA and EUR 72 million relates to positions of Aegon UK. The commercial real estate market previously experienced a deterioration in property level fundamentals over 2008-2010, which led to an increase in CMBS loan-level delinquencies. The introduction of 30% credit enhanced tranches within the 2005-2008 vintage deals provide some offset to these negative fundamentals. Over the last year, the CMBS market experienced several positive factors as commercial real estate fundamentals have begun to display some signs of stabilization. The pace of credit deterioration appears to be moderating as property transactions have increased and there is greater availability of financing for commercial real estate. Liquidity has improved within the CMBS market, but a broad re-pricing of risk has kept credit spreads on legacy subordinate CMBS tranches at wide levels. 

The tables below summarize the credit quality of Aegon USA’s AFS CMBS portfolio. Additionally, Aegon USA has investments in CMBS of EUR 38 million (2012: EUR 62 million), which are classified as fair value through profit or loss. 

<img src='content_image/235475.jpg'>

<img src='content_image/235474.jpg'>

CMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegon’s internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegon’s real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur. 

Securities are impaired to fair value when Aegon expects that it will not receive all contractual cash flows on its tranches. As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2013. 

There are no individual issuers rated below investment grade in the CMBS sector which have unrealized loss position greater than EUR 25 million. 

<img src='content_image/235476.jpg'>

<img src='content_image/235477.jpg'>

