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reports on at least an annual basis. These reports, primarily designed to enable DNB to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated) income statement, extensive actuarial information, and detailed information on the investments of the insurance company. DNB’s regulatory reporting is based on a single entity focus and is designed to highlight risk assessment and risk management. 

DNB may request additional information it considers necessary and may conduct an audit at any time. DNB may also make recommendations for improvements and publish these recommendations if the insurance company does not follow them. Finally, DNB may appoint a trustee for an insurance company or, ultimately, withdraw the insurance company’s license. 

The following insurance entities of Aegon the Netherlands are subject to the supervision of DNB: 

■ Aegon Levensverzekering N.V. 

■ Aegon Schadeverzekering N.V. 

■ Aegon Spaarkas N.V. 

■ Optas Pensioenen N.V. 

Under Solvency I, life insurance companies are required to maintain certain levels of shareholders’ equity in accordance with EU directives. Currently this level is approximately 4% of general account technical provision or, if no interest guarantees are provided, approximately 1% of technical provisions with investments for the account of policyholders and an additional 0.3% charge for value at risk. 

General insurance companies are required to maintain shareholder equity of equal to or greater than 18% of gross written premiums a year, or 23% of the three-year average of gross claims. 

Solvency II will likely be effective from January 1, 2016. In anticipation of Solvency II, the Dutch Ministry of Finance and DNB have taken measures for a more risk-based and forward- looking supervision of insurance companies. Before Solvency II is in force, the most important change in the supervision of insurance companies will be the introduction of the Theoretical Solvency Criteria (TSC) for medium and large life insurers. The TSC is effective from January 1, 2014. The TSC requires that several important “Solvency II” scenarios are calculated for an insurer, thus giving information about the sensitivity of these scenarios on the available solvency under the current regime in the Financial Supervision Act. The TSC is not comparable with the Solvency Capital Requirement (SCR) under Solvency I, as it is not a capital requirement. It will be used by DNB in the ladder of intervention to prevent breaches of solvency requirement as defined by the Financial Supervision Act. 

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DNB also supervises pension funds, including premium pension institutions (PPIs), and investment companies. PPIs are required to maintain shareholders’ equity of at least EUR 0.2 million. 

## Financial supervision of credit institutions 

Aegon Bank N.V. is under DNB supervision and required to file monthly regulatory reports and an audited Annual Report. 

Credit institutions are required to maintain solvency and liquidity ratios in line with the requirements of the “Wet op het financieel toezicht”. The "Wet op het financieel toezicht" incorporates the requirements of Directive 2006/48/EC, Directive 2006/49/ EC (together referred to as CRD II), and Directive 2010/76/EU (CRD III). These directives are the European translation of the Basel accord for prudential supervision of credit institutions and investment firms. Based on these rules, credit institutions in the Netherlands are required to maintain a minimum total capital ratio (BIS ratio), currently 8%, pursuant to guidance issued by DNB. The level of capital is subject to certain requirements and is reviewed against its on- and off-balance sheet assets, with these assets being weighted according to their risk level. The Basel III accord, the new regulatory framework for the banking sector, has been finalized and is currently being translated into European legislation through the CRD IV framework. The CRD IV framework was implemented in the Netherlands in the Financial Supervision Act as of January 1, 2014. 

## Asset liability management 

Aegon the Netherlands Risk & Capital Committee, which meets every two months, determines and monitors the balance sheet and profit and loss. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to decide on interest rate hedging strategies to reduce interest rate risks, to manage and possibly hedge actuarial risks, and to decide on the need for securitizations of residential mortgage portfolios to improve the liquidity and funding position of Aegon the Netherlands. 

Most of the liabilities of Aegon the Netherlands, insurance or otherwise, are nominal and long-term. Based on their characteristics, a long-term liability-driven benchmark is derived. Scenarios and optimization analyses are conducted for fixed income, equities and real estate asset classes. The result is an asset allocation and hedges representing the desired risk-return profile. Constraints, such as the minimum return on equity and the minimum desired solvency ratio, are also taken into account. Most of Aegon the Netherlands’ investments are managed by Aegon Asset Management. Risk-based restrictions are in place to monitor and control actual portfolio allocations against strategic portfolio allocations. An internal framework limits investment exposure to any single counterparty. 

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