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The ‘Hybrid’ category is comprised of capital securities issued by financial services entities which typically have an original maturity of more than 30 years and may be perpetual. In addition, Hybrids have other features that may not be consistent across issues such as a cumulative or non- cumulative coupon, capital replacement and an alternative payment mechanism, and could also be subordinate to the traditional Trust Preferred in the Group’s capital structure. 

Capital securities categorized as ‘Tier 1’ are issued by non-US banks and are perpetual with a non-cumulative deferrable coupon. Capital securities categorized as ‘Upper Tier 2’ are also issued by non-US banks but these positions are generally perpetual where the deferrable coupon is cumulative. 

The follow table highlights AEGON’s credit risk to capital securities within the banking sector: 

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## Financial Other 

The unrealized losses in the brokerage, insurance and other finance sub-sector primarily reflect general spread widening on financial services companies (due to broad housing, mortgage market, equity market and economic issues plus increased liquidity and capital markets concerns). 

## Monoline exposure 

About EUR 1.4 billion of the bonds in AEGON USA’s portfolio are insured by monoline insurers (2009: EUR 1.7 billion), of which 

EUR 427 million of bonds (2009: EUR 381 million) in the EUR 1.3 billion subprime portfolio (2009: EUR 1.2 billion). Expected claims against the monolines amount to EUR 122 million (2009: EUR 160 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings. 

The following table breaks down bonds in AEGON USA’s portfolio that are insured by monoline insurers. The disclosure by rating follows a hierarchy of S&P, Moody’s, Fitch, internal and NAIC. 

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The rating that is provided by the rating agencies on these guaranteed bonds is the higher of the guarantor’s rating or the rating of the underlying bond itself. 

Of the EUR 1,382 million (2009: EUR 1,661 million) indirect exposure on the monoline insurers, 35% relates to MBIA, 

24% to AMBAC, 10% to FGIC and 15% to FSA (2009: 35% related to MBIA, 29% to AMBAC, 9% to FGIC and 14% to FSA). Of the remaining 16% (2009: 13%), no individual monoline insurer represents more than 10% of the total wrapped portfolio. 

