## Long-term industry trends 

The financial crisis that began in 2008 brought a shift in financial market and economic conditions. AEGON initially focused on short-term measures designed to combat the effects of the financial crisis. The company transformed its approach, strengthening its balance sheet, lowering costs and significantly improving its overall risk profile. These measures enabled AEGON to emerge from the financial crisis in a sound financial position. 

However, the insurance and pensions industry is continuing to go through a period of significant change. AEGON’s challenge is to understand the nature of this change, and to adapt to it. There are several factors: 

■ In many countries, people are living longer, healthier lives. People are spending longer in retirement than they used to, and there is a growing demand for life insurance, private pensions and long-term investment products. 

■ Working populations in many countries are shrinking. This means that there are fewer economically active people to fund traditional pay-as-you-go state pensions. As a result, governments, particularly in Western Europe, are under pressure to reform pensions systems. At the same time, individuals are increasingly relying on private sector providers to help them finance their retirement. 

■ Emerging markets are becoming more important. Economic growth and political reform have opened up new markets in Central & Eastern Europe, Asia and Latin America. In these markets, a new and ambitious middle class is emerging, and with it a rise in demand for life insurance, pensions and asset management. The potential of these markets is large. China and India account for 40% of the world’s population, but currently only 7% of the global life insurance market. 

■ Distribution patterns are changing due to new technology. Customers are increasingly using the internet and social media to locate and purchase financial services. In some countries this has led to the emergence of new competitors using online 

distribution models, or non-traditional suppliers such as supermarkets and retailers. Established providers are under increasing pressure to reduce costs and adapt their systems of distribution. 

■ Customer behavior is also changing. Customers are more aware of financial risk and they want clear, simpler products with greater guarantees. At the same time, public trust in the financial sector has diminished. In response, governments are introducing new regulations to protect consumers. In 2010, the United States, the United Kingdom and the Netherlands all brought forward new fi nancial sector legislation. The industry also faces the challenge of further reforms to fi nancial regulations and capital adequacy requirements. 

## Repaying the Dutch State 

In December 2008, AEGON secured EUR 3 billion in additional core capital from the Dutch State through the issuance of convertible core capital securities to Vereniging AEGON. This support was part of a broader program of support for banks and insurance companies in the Netherlands during the recent financial crisis. 

In December 2009, AEGON repurchased an initial EUR 1 billion of convertible core capital securities followed by another repurchase of EUR 500 million in August 2010. AEGON is committed to repurchasing the remaining amount in full by the end of June 2011, market conditions permitting. As part of the European Commission review process, the Dutch Ministry of Finance agreed to amend the terms and conditions of the convertible core capital securities provided to AEGON: 

■ Terms were improved on an amount of EUR 500 million repurchased in August 2010. 

■ Terms on the remaining EUR 1.5 billion remain unchanged, though the Ministry agreed to waive rights to any accrued coupons. 

The net effect of these measures was to improve the total premium payable on the remaining EUR 2 billion from 50% to approximately 40%. 

