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As mentioned above, the free assets (that is, assets which, as yet, have not been distributed to policyholders) help meet the cost of guarantees and provide a buffer to deal with adverse events. These free assets are partly invested in equity puts and fixed interest swaps/swaptions to protect against adverse market movements. Aegon UK has an exposure only once these free assets are exhausted. The risk of exposure has been assessed by Aegon UK as remote, based on applying the risk- based capital approach now required for solvency reporting in the United Kingdom. 

As the Scottish Equitable with-profit fund is now closed to new business with investment guarantees, the free assets are being distributed gradually to with-profit policyholders through the bonus system outlined above. This includes ensuring that any surpluses in the with-profit fund from other (historic) business lines can be distributed to existing with-profit policyholders at a suitable rate, helping to prevent a tontine effect as the number of with-profit policyholders’ declines. 

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## Reinsurance ceded 

Aegon UK’s reinsurance strategy is aimed at limiting the overall volatility of mortality and morbidity when managing risk, and maximizing the financial benefits of reinsurance. The actual percentage of business reinsured varies, depending largely on the appropriateness and value of reinsurance available in the market. 

Aegon UK prefers to work with reinsurance companies with a strong credit rating, subject to an economic assessment of the terms on offer. Using a reinsurer with a credit rating below AA requires approval under Aegon UK’s governance process, and by Aegon’s Group Reinsurance Use Committee in The Hague. Aegon UK uses a range of reinsurers across the reinsurance market. 

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