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Amounts in EUR millions 

## ACCOUNTING PRINCIPLES 

Where not otherwise stated, balance sheet items are carried at face value. If necessary, provisions for expected future losses on investments and for bad and doubtful debts are deducted. 

Provisions for future losses on fixed income investments (bonds, mortgage loans and private placements) are established for expected defaults or other credit related issues. The provisions reflect management’s judgement about possible defaults and is based upon a variety of factors, including expectations for long-term default rates and pricing assumptions. 

For bonds and private placements, industry sectors and individual debt investments are monitored regularly for signs of impairment, including length of time and extent to which the market value has been less than cost, industry risk factors, financial condition and near- term prospects of the issuer, and rating changes of locally recognized credit rating agencies. Additionally for asset-backed securities and loans, cash flow trends and underlying levels of collateral are monitored. A specific security or loan is considered to be impaired when it is determined that it is probable that not all amounts due (both principal and interest) will be collected as scheduled. Consideration is also given to management’s intent and ability to hold a security or loan until maturity or until market value will recover. 

Credit risk on mortgages is monitored by assessing delay of payment classification combined with a related level of provision. Other asset provisions are formed when credit risk emerges. Assets identified with potential credit issues are monitored and placed on a watch list. Discussions about those assets on the watch list are held on a regular basis to determine necessary updates. 

In the United States, a reduction in the carrying value is made and charged against any default provision when impairment of a specific fixed income investment is determined. The determination of the amount of the write-down is based upon management’s best estimate of the future recoverable value of the fixed income investment and takes into account underlying collateral or estimations of the liquidation values of the issuers. 

In the other countries the provision is accrued until the receivable has legally ceased to exist. 

Assets and liabilities from banking activities and gains and losses on these activities are accounted for in accordance with the regulations for banks. The impact on group equity and net income from the differences in accounting principles compared to the rules applied at insurance companies is not material. 

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Real estate is shown at market value, which is the selling value under normal market circumstances. Each property is valued at least once in every 5 year period. Valuation is largely based on external appraisal. In 2003 98% of the portfolio was valued. New property is valued at construction cost including interest during the construction period, or at purchase price. Unrealized and realized gains and losses on real estate investments as well as results, expenses and currency exchange rate differences from hedging transactions are recognized in the revaluation account, taking into account the related (deferred) taxes. The impairments for the financial year amounted to EUR 79 million (2002: nil). Under the indirect income method, this loss has been recognized in the realized part of the revaluation account with offset in the unrealized part of the revaluation account. The participation in the real estate joint venture AMVEST Vastgoed is accounted for under this caption. Purchase price of the portfolio amounts to EUR 1,591 million (2002: EUR 1,799 million). 

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Interests in companies in which AEGON is able to influence operating policy but has no control, as well as group companies which are not consolidated because of their relative financial insignificance, are accounted for by inclusion of AEGON’s proportion of the equity and the net income of the companies, based on AEGON accounting principles. Loans to group companies and other participations are valued at face value. 

