• Report of the Supervisory board

The Supervisory Board is entrusted with the task of supervising and advising the Executive Board on its management of the company as well as overseeing AEGON’s strategy and the general course of its businesses.

Oversight and advice

In performing their duties, members of the Supervisory Board are guided by the interests of AEGON and the company’s stakeholders. The Supervisory Board is a separate corporate body, independent of the Executive Board. The Supervisory Board currently consists of ten members (for further details on the individual members of AEGON’s Supervisory Board, please see pages 61 to 63). The Supervisory Board makes recommendations to the General Meeting of Shareholders concerning all appointments and reappointments and dismissals from both the Executive Board and the Supervisory Board itself. In addition, the Supervisory Board determines the remuneration of individual members of the Executive Board in line with the Remuneration Policy as adopted by the company’s General Meeting of Shareholders.

Corporate governance

Details of AEGON’s corporate governance structure and a summary of the company’s compliance with the Dutch Corporate Governance Code may be found on pages 74 to 75 of this Annual Report. In 2008, the capital agreement with the Dutch State prompted certain changes to AEGON’s corporate governance structure. As part of the agreement, the Dutch State now has two representatives on the company’s Supervisory Board. Until AEGON has repurchased 3/4 of the core capital securities, approval from these representatives is required for certain decisions*, including:

• The issuance and repurchase of shares and debentures.
• Changes to the company’s Remuneration Policy.
• Any acquisitions or divestments with a value of 25% or more of AEGON’s issued capital and reserves.

 

A full report on AEGON’s compliance with the Dutch Corporate Governance Code is available on www.AEGON.com.

Supervisory Board meetings and activities

Attendance

In 2010, the Supervisory Board held a total of seven regular meetings and several additional conference call meetings. No members of the Supervisory Board were frequently absent from these meetings. All regular meetings were either preceded or followed by closed meetings not attended by members of the Executive or Management Board.

 

In accordance with AEGON’s Supervisory Board Rules, all regular meetings in 2010 were preceded by preparatory meetings, attended by the Chairman, the Vice Chairman of the Supervisory Board and, from time to time, the Chairman of the Audit Committee, as well as by the Chief Executive Officer and Chief Financial Officer from the company’s Executive Board.

 

Meetings of the Supervisory Board’s committees were usually held before the meetings of the full Supervisory Board. Members of AEGON’s Executive and Management Boards attended all Supervisory Board meetings held in 2010. Other company executives also attended the meetings at the request of the Supervisory Board to update it on various subjects. Representatives from Ernst & Young, AEGON’s external auditor, attended the discussions on the company’s results.

 

In 2010, discussions within AEGON’s Supervisory Board focused on the following issues, among others:

• Strategy and Group Plan, including the strategic priorities
• Budget and Capital Plan 2011
• Quarterly results
• European Commission approval process of the capital agreement with the Dutch State
• Finance and accounting
• Risk management
• Capital position and Solvency II
• Executive remuneration
• Divestments and restructuring of businesses
• Governance and sustainability issues
• Legal and compliance issues

Highlights

During the year 2010, one of the key priorities for the company was to obtain approval from the European Commission for the core capital received from the Dutch State in 2008. Management and the Board frequently discussed developments with regard to this issue. The process required to obtain clearance proved extensive, and was concluded in August. The Board agreed with management to repay EUR 500 million in August 2010 and agreed to repurchased the remainder of the core capital by the end of June 2011, market conditions permitting. Full repayment of the core capital received from the Dutch state remains a priority of the company.

 

The Board and management extensively discussed AEGON’s strategy, among other matters, at the annual two-day strategy retreat in Edinburgh, Scotland. During the two-day meeting the Board considered the changing environment for insurance companies, as well as changing customer needs and distribution methods.

 

The Board also had an extensive discussion with local management in the United Kingdom, who presented their views on the situation of AEGON UK and their plans to improve the company’s operations.

 

During this meeting, management presented three strategic priorities, which they had identified as crucial to achieving AEGON’s ambition. During 2010, the Board also discussed management’s actions and plans to optimize ONE AEGON. In December, the Board reviewed and approved the budget for 2011. The Board approved the 2011 Capital Plan and authorized the Executive Board to provide for AEGON’s funding needs as budgeted.

 

The introduction of new capital requirements under Solvency II (discussed in the Capital and Liquidity section of this Annual Report) was a regular item on the agenda of meetings of the Board. AEGON’s CFO presented updates on relevant regulatory and political developments and on AEGON’s preparations for Solvency II. The Board scheduled extra meetings with management, including the senior manager charged with AEGON’s Solvency II project, to discuss the implications for the company’s business and products.

 

Members of the Management Board provided a business update of their country or unit at each quarterly Board meeting. During 2010, the Board met with senior managers from operations around the world: the United Kingdom, China, India and Brazil and AEGON Asset Management. The newly appointed heads of Global HR and Global Sustainability also presented their plans to the Supervisory Board during the course of the year.

 

The Board discussed various restructurings and cost saving initiatives in the light of the strategic priority to optimize AEGON’s portfolio. The Board supported management’s decision to explore strategic options for, among others, the company’s life reinsurance activities. The Board and management also discussed the consolidation of the savings banks in Spain and AEGON’s position as joint venture partner with some of the Cajas involved.

 

On February 24, 2010, the Supervisory Board convened to discuss the results of the fourth quarter of 2009, which were released on the next day. In March 2010, the Supervisory Board discussed AEGON’s audited annual results for 2009. The Board also reviewed and approved the company’s annual accounts for 2009 and decided to pay a dividend of 4.25% on the outstanding preferred shares. At meetings in May, August and November, the Supervisory Board reviewed AEGON’s first, second and third quarter results, as well as disclosures on Value of New Business. At the August meeting, the Supervisory Board confirmed that no interim dividend will be declared, in line with the agreement with the European Commission not to pay a dividend until the core capital securities obtained from the Dutch State are fully repurchased. Developments concerning AEGON’s investment portfolio and impairment levels were also regularly addressed.

 

As in previous years, AEGON’s capital position was a key point of focus for the Supervisory Board and its Risk Committee. In 2010, the company’s capital position continued to be strong, with excess capital at EUR 3.8 billion at December 31, 2010. The Board discussed AEGON’s approach towards sustainability in general throughout the year. It also discussed specific issues relevant to AEGON’s businesses and its stakeholders - for example, customer complaints and employee engagement.

 

AEGON has been subject to supplemental group supervision by the Dutch Central Bank since the beginning of October 2009, in accordance with the requirements of the European Union’s Financial Conglomerate Directive. As in 2009, the Chairman of AEGON’s Supervisory Board, Rob Routs and two members of the Supervisory Board met with the Director of the Dutch Central Bank to discuss the company’s capital position and strategy.

Appointments to the Supervisory and Executive Boards

In February, the Supervisory Board agreed that shareholders would be asked to approve the reappointment of Mr. K.J. Storm for a new term of four years as a member of the Supervisory Board. There were no new appointments of members of the Executive Board. This proposal was accepted by shareholders at their annual General Meeting in April 2010.

Legal and compliance

The Board was regularly updated on operational issues that had surfaced in the company’s administration of policies in the United Kingdom. It noted that AEGON UK took the initiative to notify its regulatory authority and implement a program to deal with the issues. As part of the program, AEGON UK identified impacted customers and took steps to return those customers to the financial position they would have been in had the issue not occured. It also noted that AEGON UK has since put in place more stringent controls to prevent similar issues occurring in the future.

 

During 2010, the Supervisory Board and the Audit Committee discussed various issues of compliance, regulatory and legal issues in Europe, the United States and Asia.

Educational session and Board review

In November, the Board extensively discussed the potential implications of Solvency II for AEGON’s business and products during its annual educational session. The Supervisory Board carried out an extensive board evaluation review during the second half of 2010 on the basis of written questionnaires and interviews. The review assessed the performance of individual members, as well as the collective performance of the Board and its Committees. The review of the Chairman was carried out by the Vice Chairman, who collected input from all other Supervisory Board members. The results were consolidated and discussed in a meeting in the absence of management. This year’s assessment did not involve any external consultant. There were no major findings. The Board discussed the composition and the size of the Board and compiled an inventory of the topics Board members wanted to put on the agenda for 2011. The Board assessed the performance of members of the Executive Board during the same meeting.

Supervisory Board Committees

The Supervisory Board requires its four Committees to prepare specific issues for decision-making by the Board. Each of these Committees is made up of members exclusively drawn from the Supervisory Board itself. In accordance with its Charter, each Committee reports its findings to the Supervisory Board during a subsequent Supervisory Board meeting.

The Audit Committee

The Audit Committee held seven meetings in 2010, one of which was a combined meeting with the Supervisory Board’s Risk Committee. The meetings were attended by AEGON’s Chief Financial Officer, the head of the Corporate Financial Center and the internal auditor. Representatives from Ernst & Young, AEGON’s external auditor, also attended most of these meetings. Officials from AEGON’s Group Risk and the Actuarial departments were present at some meetings of the Audit Committee. In 2010, discussions focused on the following topics: the quarterly results, the annual accounts and the audit process, AEGON’s 2009 Embedded Value Report and annual VNB figures, actuarial analyses, accounting principles as defined by International Financial Reporting Standards (IFRS), financial reports filed with the Securities and Exchange Commission, capital updates, internal control systems and compliance, the external auditor’s engagement letter and the audit plan for 2010, tax planning and IT applications. During most meetings closed sessions were held with the internal and external auditors in the absence of management.

 

During the year, management and the Audit Committee carried out an in-depth assessment of Ernst & Young’s performance, quality, cost levels and independence, as required pursuant to the Dutch Corporate Governance Code. The assessment resulted in a recommendation by the Audit Committee to the Supervisory Board that shareholders be asked to reappoint Ernst & Young for the 2010 financial year. The Committee also confirmed that Shemaya Levy and Ben van der Veer qualify as financial experts within the terms and conditions of both the Dutch Corporate Governance Code and the Sarbanes Oxley Act in the United States.

 

The internal auditor attended most meetings of the Audit Committee during 2010 and provided quarterly updates on his activities. During the meetings, the Audit Committee held private sessions with the internal auditor, as well as with the external auditor, to discuss their findings. Members of the Executive Board were not present at these sessions.

 

The Audit Committee also discussed AEGON’s compliance with the Sarbanes Oxley Act of the United States, regular reports from the Group Compliance Officer on fraud and general compliance issues.

The Risk Committee

AEGON’s Risk Committee convened five times in 2010, including a combined meeting with the Audit Committee. The members of AEGON’s Executive Board and the company’s Chief Risk Officer attended these meetings, while the head of the Corporate Financial Center and AEGON USA’s Chief Investment Officer attended the meetings occasionally. The Risk Committee assists the Supervisory Board and Audit Committee to oversee the activities of AEGON’s Enterprise Risk Management framework. The Committee also advises the Executive Board with respect to the company’s risk management strategy and policies. Consequently, the Committee regularly reviews the company’s Enterprise Risk Management framework, its risk exposure and compliance with company risk policies. In 2010, recurring items on the agenda were the quarterly Risk Dashboard and the Board Risk List. Other topics the Risk Committee discussed with AEGON’s Executive Board and senior management were market consistent pricing, capital, AEGON’s risk tolerance, the impact of low interest rates and increased longevity and the investment portfolio update. The Risk Committee had a meeting with the newly appointed Chief Risk Officer of AEGON UK during the full Board strategy meeting in Edinburgh.

The Nominating Committee

AEGON’s Nominating Committee held five meetings in 2010. The Chief Executive Officer attended all meetings. During the year, the Nominating Committee discussed the composition of the Supervisory Board and its committees, as well as existing and forthcoming vacancies. It also advised the Supervisory Board on the nominations for one reappointment at the shareholders’ meeting on April 29, 2010. The Committee agreed on an updated Supervisory Board profile, which was approved by the full Board on May 11, 2010. In addition, the Nominating Committee reviewed the composition and functioning of the Executive Board and discussed succession planning with the CEO and AEGON’s Global Head of HR. The CEO also discussed changes in senior management within the company worldwide with the Nominating Committee.

The Compensation Committee

AEGON’s Compensation Committee held five meetings in 2010. The Chief Executive Officer and the Chief Financial Officer attended these meetings from time to time, either together or separately. In the first half of the year the Committee’s main focus was on the new Executive Board Remuneration Policy, which was submitted to shareholders for approval at the annual General Meeting on April 29, 2010. When reviewing the then current Policy, the Committee took into account international developments regarding remuneration in general and in the financial industry in particular. The Committee reviewed the compensation mix – short-term versus long-term – as well as the details of both the short-term and long-term incentive compensation plans.

 

The Compensation Committee also reviewed the company’s Remuneration Policy for the members of the Supervisory Board. As in 2009, it was decided not to propose an increase of the base fee to shareholders, but instead to submit two amendments for the existing fee structure as from January 1, 2010. At their meeting on April 29, 2010 the shareholders approved the introduction of an attendance fee of EUR 3,000 for additional Supervisory Board meetings above the seven regular scheduled meetings, which members attended either in person or by video or telephone conference. They also approved attendance fees for Committee meetings, when attended by video or telephone conference.

 

Other topics on the agenda of the Compensation Committee during 2010 were the 2010 targets for the Executive Board members and the scenario analysis of payout levels under the Executive Board Remuneration Policy. In the second half of 2010, the Committee discussed developments regarding executive remuneration, such as the Dutch Insurance Code, the Capital Requirements Directive 3, the views of the Dutch Central Bank and their possible impact on the Remuneration Policy adopted earlier in the year. These discussions were continued in the beginning of 2011 and will lead to a proposal to amend the Executive Board Remuneration Policy in 2011.

 

During the year, the Committee considered advice from independent external consultants on specific topics and ascertained that these consultants did not also advise the members of the Executive Board.

Composition of the Supervisory Board

All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate Governance Code, with the exception of Kornelis J. Storm. Mr. Storm is not regarded as independent within the definition of the Code since he served as Chairman of AEGON’s Executive Board prior to his retirement in April 2002. Mr. Storm joined the Supervisory Board in July 2002. In April 2010, shareholders reappointed Mr. Storm for a term of four years.

 

In 2010, the mandate of Dudley G. Eustace expired. He was succeeded as Chairman of the Supervisory Board by Robert J. Routs in April 2010. The current terms of Mrs. Karla Peijs, Mr. Antony Burgmans and Mr. Leo van Wijk will expire in 2011. On advice from the Nominating Committee, the Supervisory Board has decided to nominate these persons for reappointment as members of the Board for further terms of four years each by the General Meeting of Shareholders. Their biographies will be provided with the agenda for the 2010 General Meeting of Shareholders. Taking into account the changes detailed above and the resignation of Mrs. Cecelia Kempler beginning 2011, the Supervisory Board will likely consist of ten members after the annual General Meeting of Shareholders on May 12, 2011.

Executive Board

There were no changes in the composition of AEGON’s Executive Board. In compliance with the Dutch Corporate Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the possibility of reappointment for subsequent four-year terms.

 

The current term of Mr. Alex Wynaendts will expire in 2011. On advice of the Nominating Committee, the Supervisory Board has decided to nominate Mr. Wynaendts for reappointment as member of AEGON’s Executive Board for a term of four years.

 

The retirement schedule members of the Executive Board is included in the company’s Executive Board Rules and posted on AEGON’s corporate website, www.AEGON.com.

Annual accounts

This Annual Report includes the annual accounts for 2010, prepared by the Executive Board, discussed by both the Audit Committee and the Supervisory Board, and submitted to shareholders for adoption. The Supervisory Board recommends that shareholders adopt these annual accounts.

Acknowledgement

The year 2010 was a challenging period for AEGON, and we expect the coming years to be equally demanding. The members of the Supervisory Board would like to thank both the Executive and Management Boards and the company’s employees for their dedication and commitment in facing up to the challenges of the year and staying focused on AEGON’s customers. They are also grateful to AEGON’s customers for trusting the company with their business. The Supervisory Board is confident that management and employees are on the right track to execute AEGON’s strategic priorities and to guide the company towards renewed prosperity.

 

 

The Hague, March 23, 2011

Robert J. Routs

Chairman of the Supervisory Board of AEGON N.V.

 

 

Resignation Cecelia Kempler

In 2011, AEGON announced that Cecelia Kempler would be stepping down as a member of the Supervisory Board due to health reasons. Ms. Kempler, a US citizen, was elected to the Supervisory Board in 2008. Her term was due to expire in 2012. Ms. Kempler has been an outstanding member of AEGON’s Supervisory Board and AEGON has benefitted significantly from her in-depth knowledge of the insurance business in general and AEGON in particular. She has had a career-long involvement with leading industry organizations dedicated to the promotion of high ethical standards in the insurance sector. The Supervisory and Executive Boards would like to express their gratitude for her years of dedicated service to the company in several roles, and they extend their best wishes to her.