Premium income and premiums to reinsurers > Investment income > Fee and commission income > Other revenues > Results from financial transactions > Other income > Policyholder claims and benefits >

Profit sharing and rebates > Commissions and expenses > Impairment charges/(reversals) > Interest charges and related fees > Other charges > Income tax > Earnings per share > Dividend per share >

Notes to the consolidated income statement

Amounts in EUR million, unless otherwise stated

29	Premium income and premiums to reinsurers

					Total
					Gross	Reinsurance
2007
Life					24,210	1,280
Non-Life					2,690	326
Total					26,900	1,606
2006
Life					21,768	1,333
Non-Life					2,802	338
Total					24,570	1,671
2005
Life					16,079	1,208
Non-Life					2,803	346
Total					18,882	1,554

30	Investment income

	2007	2006	2005
Interest income	9,183	9,011	8,967
Dividend income	1,051	1,186	868
Rental income	223	179	102
Total investment income	10,457	10,376	9,937
Investment income related to general account	7,496	7,467	7,031
Investment income for account of policyholders	2,961	2,909	2,906
	10,457	10,376	9,937

Investment income from financial assets held for general account	2007	2006	2005
Available-for-sale	5,661	5,643	5,181
Loans	1,276	1,231	1,303
Held-to-maturity	48	34	24
Financial assets at fair value through profit or loss	255	305	310
Real estate	89	90	92
Derivatives	85	120	9
Other	82	44	112
Total	7,496	7,467	7,031

Investment income from:	2007	2006	2005
Shares	1,051	1,186	868
Bonds and money market instruments	7,708	7,591	7,522
Loans	1,276	1,231	1,303
Real estate	223	179	102
Other	199	189	142
Total	10,457	10,376	9,937

Included in interest income is EUR 7 million (2006: EUR 28 million) in respect of interest income accrued on impaired financial assets. The interest income accrued on financial assets that are not carried at fair value through profit or loss amounted to EUR 1,324 million (2006: EUR 1,265 million).

31	Fee and commission income

	2007	2006	2005
Fee income from asset management	700	686	611
Sales commissions	547	440	386
Commissions from intermediary activities	313	233	197
Other	340	306	250
Total fee and commission income	1,900	1,665	1,444

Included in fee and commission income is EUR 74 million of fees on trust and fiduciary activities (2006: EUR 62 million). EUR 6 million of fees were recognized on financial assets and liabilities that are not carried at fair value with changes in the fair value recognized in the income statement (2006: EUR 14 million).

32	Other revenues

	2007	2006	2005
Other revenues	14	4	73

Other revenues relate to non-core activities.

33	Results from financial transactions

Results from financial transactions comprise:	2007	2006	2005
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives	573	775	445
Realized gains and losses on financial investments	957	597	704
Gains and losses on investments in real estate	137	134	222
Net fair value change of derivatives	(926)	(255)	28
Net fair value change on for account of policyholder financial assets at fair value through profit or loss	4,380	7,953	11,238
Net fair value change on investments in real estate for account of policyholders	(402)	187	99
Net foreign currency gains and (losses)	(172)	(24)	84
Net fair value change on borrowings and other financial liabilities	(2)	42	–
Realized gains and (losses) on repurchased debt	–	(12)	–
Results from financial transactions	4,545	9,397	12,820

Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise:	2007	2006	2005
Shares	96	344	269
Bonds and money market investments	86	61	(56)
Other	391	370	232
Total	573	775	445

Realized gains and losses on financial investments comprise:	2007	2006	2005
Shares	870	622	389
Bonds and money market investments	96	(10)	332
Loans	34	61	115
Other	(43)	(76)	(132)
Total	957	597	704

Realized gains and losses on financial investments relate to:	2007	2006	2005
Available-for-sale investments	923	536	664
Loans	34	61	115
Other	–	–	(75)
Total	957	597	704

Net fair value change of derivatives comprise:	2007	2006	2005
- Net fair value change on derivatives	55	(74)	(204)
- Ineffective portion of hedge transactions to which hedge accounting is applied	16	12	32
- Fair value changes on economic hedges for which no hedge accounting is applied	(340)	(193)	200
- Difference between fair value movements of certain guarantees and the fair value changes derivatives that hedge certain risks of these guarantees 1	(657)	–	–
Total	(926)	(255)	28
Included in this line are the fair value movements of bifurcated embedded derivatives of AEGON the Netherlands (minimum guarantees on unit linked policies) and the fair value movement of related derivatives that hedge certain risks of these guarantees and of the guarantees included in both group pension contracts and traditional products (refer to note 35).

The ineffective portion of hedge transactions to which hedge accounting is applied comprises:	2007	2006	2005
- Fair value change on hedging instruments in a fair value hedge	(242)	(22)	326
- Fair value change on hedged items in a fair valued hedge	253	27	(294)
Ineffectiveness fair value hedges	11	5	32
Ineffectiveness cash flow hedges	5	7	–
Ineffectiveness net foreign investment hedges	–	–	–
Total	16	12	32

Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise:	2007	2006	2005
- Shares	1,760	3,754	7,153
- Bonds and money market investments	(884)	(1,124)	1,628
- Deposits with financial institutions	(1)	–	–
- Separate accounts and unconsolidated investment funds	3,580	5,323	2,457
- Other	(75)	–	–
Total	4,380	7,953	11,238

Investments for account of policyholders comprise of financial assets, investments in real estate and real estate for own use. Refer to note 7 for further information. Financial assets for account of policyholders are classified as at fair value through profit or loss. Investment income on investments for account of policyholders is included in investment income. Refer to note 30 for further information.

34	Other income

	2007	2006	2005
Other income	214	11	176

Other income in 2007 relates mainly to the acquisition of OPTAS N.V. (‘OPTAS’). The acquired net assets amounted to EUR 1.7 billion, EUR 212 million higher than the acquisition price of EUR 1.5 billion resulting in a one-time gain at acquisition that is reported as part of Other income.

Other income in 2005 relates to the sale of Seguros Generales, the general insurance company in Spain.

35	Policyholder claims and benefits

	2007	2006	2005
Claims and benefits paid to policyholders	21,133	21,197	16,025
Change in valuation of liabilities for insurance and investment contracts	13,002	14,070	18,601
Total policyholder claims and benefits	34,135	35,267	34,626

The change in valuation of liabilities for insurance and investment contracts include EUR 332 million of gains regarding fair value movements of guarantees and EUR 7 million of gains (2006: gains of EUR 75 million, 2005: gains of EUR 104 million) of other charges that for segment reporting are excluded from Operating earnings before tax.

36	Profit sharing and rebates

	2007	2006	2005
Amortization of interest rate rebates	46	48	56
Surplus interest bonuses	22	16	21
Profit appropriated to policyholders	15	69	94
Total profit sharing and rebates	83	133	171

37	Commissions and expenses

	2007	2006	2005
Commissions	3,312	3,444	3,317
Employee expenses	1,903	1,821	1,662
Administration expenses	1,334	1,236	1,281
Deferred expenses	(1,891)	(1,973)	(1,980)
Amortization of deferred expenses	1,062	1,286	955
Amortization of VOBA and future servicing rights	219	271	287
Total commissions and expenses	5,939	6,085	5,522

Included in administration expenses above is depreciation amounting to EUR 86 million (2006: EUR 112 million and 2005: EUR 125 million) that relates to equipment, software and real estate held for own use. The direct operating expenses relating to investments in real estate that generated rental income was EUR 62 million (2006: EUR 32 million and 2005: EUR 33 million). Minimum lease payments recognized as expense amounted to EUR 10 million (2006: EUR 6 million). Included in employee expenses is EUR 23 million (2006: EUR 23 million) regarding defined contribution expenses.

Included in the amortization of deferred expenses and VOBA is EUR 1 million (2006: EUR 29 million and 2005: nil) that is classified for segment reporting purposes as non operating earnings as an offset against realized gains and losses on financial investments.

Employee expenses	2007	2006	2005
Salaries	1,286	1,206	1,139
Post-employment benefit costs	168	178	124
Social security charges	140	140	185
Other personnel costs	307	258	171
Share appreciation rights and share options	2	39	43
Total employee expenses	1,903	1,821	1,662

Share appreciation rights and share options

Senior executives of AEGON companies, as well as other AEGON employees, have been offered both share appreciation rights and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2007, 2006, 2005 and 2004 vest after three years and can only be exercised during the four years after the vesting date. The rights and options granted in 2003 and 2002 vest after two years and can only be exercised during the five years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to which the rights and options have been granted. Option plans are settled in equity, whilst stock appreciation rights are settled in cash or provide the employee with the choice of settlement.

Plans for share appreciation rights and share options can only be established with prior consent of the annual General Meeting of Shareholders. If, subsequently, the Executive Board decides to implement such plans, that decision has to be approved by the Supervisory Board. Options granted pursuant to the purchase agreement with Providian have various expiration dates. The options granted in 1997 to senior executives of former Providian business units fully vest in three years and the exercise period is up to ten years, with the latest period ending in August 2008.

In compliance with regulations under Dutch law, share appreciation rights and share options cannot be exercised in blackout periods.

Share appreciation rights

The following tables present the movements in number of share appreciation rights outstanding (SARs), as well as the breakdown by the year in which they were granted.

	Number of SARs	Weighted average exercise price in EUR	Weighted average remaining contractual term in years	Aggregate intrinsic value in EUR million
Outstanding at January 1, 2006	34,252,350	19.22	3.62	79
Granted	244,300	14.00
Exercised	(1,249,899)	6.30
Forfeited	(2,162,563)	18.86
Expired	(7,218,300)	34.84
Outstanding at January 1, 2007	23,865,888	15.15	3.55	77
Granted	309,500	14.98
Exercised	(3,014,100)	9.55
Forfeited	(1,250,426)	17.06
Expired	–	–
Outstanding at December 31, 2007	19,910,862	15.87	2.59	30
Exercisable at December 31, 2007	15,765,492	17.08	2.11	26

The weighted average share price at which the share appreciation rights were exercised in 2007 is EUR 15.07 (2006: EUR 14.51).

SARs	Original number granted	Outstanding January 1, 2007	Outstanding December 31, 2007	Exercise price in EUR	Exercise period
2002	11,555,700	7,655,067	7,146,732	26.70	until March 12, 2009
2003	11,447,300	3,761,451	2,950,744	6.30	until March 11, 2010
2004	11,574,850	8,212,248	5,668,016	10.56	until March 17, 2011
2005	4,575,600	4,010,322	3,672,270	10.86	until March 8, 2012
2006	244,300	226,800	187,200	14.00	until March 14, 2013
2007	309,500	–	285,900	14.98	until March 13, 2014
Total	39,707,250	23,865,888	19,910,862

The following assumptions are used in estimating the fair value of share appreciation rights at December 31:

	2007	2006	2005
Volatility	29.0%	26.3%	26%
Expected dividend yield	7.18%	3.99%	3.12%
Expected term (in years)	6.01	5.68	5.22
Risk-free rate	4.14%	3.87%	3.36%
AEGON share price at year end	12.09	14.44	13.75

The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model. Refer to note 3 for a further description of the method used to estimate the fair value and a description of the significant assumptions.

The liability related to share appreciation rights is valued at fair value at each balance sheet date. Refer to note 27 for details. The costs related to the share appreciation rights amount to EUR (16) million (2006: EUR 26 million and 2005: EUR 40 million) and are recognized in the income statement as part of Commissions and expenses.

Share options

The following tables present the movements in number of share options, as well as the breakdown by the year in which they were granted.

	Number of share options	Weighted average exercise price in EUR	Weighted average remaining contractual term in years	Aggregate intrinsic value in EUR million
Outstanding at January 1, 2006	6,029,108	12.09	5.56	16
Granted	9,149,500	14.00
Exercised	(211,512)	9.84
Forfeited	(1,047,841)	13.78
Expired	–	–
Outstanding at January 1, 2007	13,919,255	13.25	5.64	21
Granted	9,522,200	14.98
Exercised	(182,352)	12.26
Forfeited	(1,895,491)	14.09
Expired	(95,850)	12.39
Outstanding at December 31, 2007	21,267,762	13.91	5.38	5
Exercisable at December 31, 2007	188,650	30.63	0.6	0

The weighted average share price at which the share options were exercised in 2007 is EUR 14.00 (2006: EUR 13.28).

Share options	Original number granted	Outstanding January 1, 2007	Outstanding December 31, 2007	Exercise price in EUR	Exercise period
Providian	7,204,384	491,852	188,650	30.63 1	until August 6, 2008
2005	5,586,160	4,768,060	4,370,910	10.86	until March 8, 2012
2006	9,149,500	8,659,343	7,903,623	14.00	until March 14, 2013
2007	9,522,200		8,804,579	14.98	until March 13, 2014
Total	31,462,244	13,919,255	21,267,762
Weighted average exercise price of the outstanding share options in USD calculated at the closing rate.

The following assumptions are used in estimating the fair value of share options at the grant date:

	2007	2006	2005
Volatility	24.4%	28.0%	26.3%
Expected dividend yield	4.53%	4.23%	4.19%
Expected term (in years)	6.57	6.46	6.57
Risk-free rate	3.84%	3.47%	3.74%
Exercise price	14.98	14.00	10.86

The costs related to the share options amount to EUR 18 million (2006: EUR 13 million and 2005: EUR 3 million) and are recognized in the income statement as part of Commissions and expenses.

Share appreciation rights and share options

The fair value of a share appreciation right or share option at the grant date in 2007 amounted to EUR 2.87 (2006: EUR 3.14 and 2005: EUR 2.32). These amounts are equal to the weighted average fair value for the respective years. The total intrinsic value of share options exercised and SARs paid during 2007 amounts to EUR 15 million (2006: EUR 11 million and 2005: EUR 17 million).

At December 31, 2007, the total compensation cost related to non-vested awards not yet recognized is estimated at EUR 28 million. The weighted average period over which it is expected to be recognized is 1.3 years. No cash is received from exercise of share options during 2007, 2006 and 2005. Cash used to settle share appreciation rights amounts to EUR 17 million in 2007 (2006: EUR 10 million and 2005: EUR 18 million).

The exposure from the issued share appreciation rights and share options is economically hedged by a position in treasury shares. At December 31, 2007, AEGON N.V. held 34,057,633 of its own common shares with a face value of EUR 0.12 each by virtue of acquisitions for this purpose.

There have been no modifications to the plans during the financial year.

The breakdown of the share appreciation rights and share options granted in 2007 is as follows: Executive Board nil, other senior executives 4,157,500 and other employees 5,674,200 (2006: nil; 4,009,800 and 5,384,000 and 2005: nil; 4,711,960 and 5,449,800).

Refer to note 50 for detailed information about the SARs/share options and the shares and options conditionally granted to the Executive Board.

38	Impairment charges/(reversals)

Impairment charges/(reversals) comprise:	2007	2006	2005
Impairment charges on financial assets, excluding receivables 1	135	142	147
Impairment reversals on financial assets, excluding receivables 1	(64)	(118)	(160)
Impact of impairments on the valuation of insurance assets and liabilities 1	16	–	–
Impairment charges on non-financial assets and receivables	30	9	11
Total impairment charges/(reversals)	117	33	(2)
Impairment charges/(reversals) on financial assets, excluding receivables are for segment reporting excluded from operating earnings before tax (refer to note 4).

Impairment charges on financial assets, excluding receivables, from:	2007	2006	2005
Shares	45	36	20
Bonds and money market instruments	76	80	91
Loans	6	15	33
Other	8	11	3
Total impairment charges	135	142	147

Impairment reversals on financial assets, excluding receivables, from:	2007	2006	2005
Bonds and money market instruments	(51)	(103)	(139)
Loans	(10)	(15)	(21)
Other	(3)	–	–
Total impairment reversals	(64)	(118)	(160)

39	Interest charges and related fees

	2007	2006	2005
Capital securities	10	29	32
Subordinated loans	2	14	22
Borrowings	339	252	256
Other	123	67	63
Total interest charges and related fees	474	362	373

The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 314 million (2006: EUR 331 million).

40	Other charges

	2007	2006	2005
Other charges	181	1	3

In 2007 AEGON refined its method of calculating the fair value of the guarantees included in its unit-linked products in order to align these calculations with the calculations currently used for the group pension contracts and traditional products. This change in accounting estimate has been applied prospectively. The pre–tax cumulative charges amounts to EUR 181 million and is reported as part of Other charges.