Aegon Ltd (AEG) 2008 Q2 法說會逐字稿

Good afternoon and also good morning to those of you who have joined us here in -- from the United States. We thought today that hosting this discussion here in London would prove more convenient to all of you who are concerned, but also give us a chance to see each other and meet face to face.

As always, we appreciate your interest in AEGON's progress and with me, you know them all - Jos Streppel, CFO and on the left Michiel van Katwijk, Group Treasurer. Also joining on the phone today is Darryl Button, the CFO of AEGON USA. Good morning Darryl.

Good morning, Alex.

He's there. Good. Just to make sure he's there, it's early morning there.

For my part, I will provide a brief overview of our results and then Jos will take over. He will take you through the capital position and then talk about the country units results in some more detail. And after that, I'll conclude, and obviously, we'll be happy to take your questions.

But first, as usual, we have to ask you to take a moment to review our cautionary note regarding the forward-looking statements. You've all seen it. We're all well aware of the ongoing market turmoil that has stayed front and center in the news cycle. But in this challenging environment, AEGON continues to have a strong capital position and healthy cash flows.

Our excess capital in operating units slightly decreased to over 800 million euro, but our financial flexibility increased to EUR1.8 billion. And during the quarter, our business showed a solid performance. Underlying earnings decreased by just 2% on a constant currency basis admittedly a weaker dollar and also pound sterling affected our reporting results.

In our main markets, our business achieved strong sales and deposits with profitable returns and in the US, fixed annuity sales were to stand out. In the Netherlands, new life sales were up significantly and in the UK, we achieved strong sale growth across most lines of business. And all of this led to a value of new business increase of 2% in constant currency.

Interim dividend of EUR0.30, the same level as last year; that is what we have kept on change and for the full year dividend 2008, that will be determined in March when we will have a chance to see the full year results and discuss these internally.

Also during the quarter, as you're well aware, we announced our new strategic priorities with three clear initiatives and two additional targets apart from VNB.

During the quarter, we continued to make progress on our strategy. Recently, as you know, we released EUR315 million through another securitization of a block of UK business. You'll remember that one of the key priorities I outlined in June is to achieve increased capital efficiency. This transaction effectively improves the return on capital employed in the UK, but it also improves the group's financial flexibility.

In Central and Eastern Europe, we manage Pension Fund management companies we acquired in Poland and Hungary, and we now have 2 million pension fund customers. We've also finalized the acquisition of a life insurance company in Turkey, Ankara Emeklilik, which is the first step for us in a market where we see very significant potential. And last year, we secured the fourth regional bank partnership in Spain, Caja Cantabria, and we're happy that the joint venture is now operational and will start contributing to further growth.

In Asia, we formed an asset management joint venture with China industrial securities. It's called now AEGON Industrial Fund Management Company. And as of the second quarter, our share of the joint venture is consolidated in the numbers. We do have high expectations in this fast growing company given the potential we see for the growth in assets under management.

Throughout the presentation, you will hear our repeated reference to constant currency. The fact is we continue to be affected by the weakening of the US dollar and the pound. In euro, underlying earnings declined by 12% while their constant currency, the decrease is smallest, at only 2%. Underlying earnings in the Americas was up 2% in dollars, reflecting business growth, high investment income and institutional business due to higher spreads. However, this was partly offset by lower earnings in variable annuities compared to the prior period last year, and the one-off reserve strengthening in the life reinsurance business. We're obviously not pleased with this reserve strengthening and action has been taken.

The decrease in earnings in the UK is the result of lower fees and fund related charges, which has an effect of lower equity markets, but also due to our investments in growing our business in the UK.

Let me now turn to net income. Besides decreases in underlying earnings, the decrease in net income is mostly due to high impairment charges and lower gains on investments. Impairment charges increased mainly as a result of high credit -- high [accredited] impairments in the US and the write-down of one equity position in the US.

Credit impairments have been well below our pricing assumptions over the past couple of years, and we are now seeing that credit impairments in the US investment portfolio are trending towards a long-term pricing expectations.

Since EUR41 million is related to a subprime portfolio, EUR41 million of impairments, I want to bring to your attention that default rates on our corporate bond portfolio in the US remained very low. This is a clear indication of the quality of the portfolio.

Low gains on investments were mainly caused by normal bond trading losses in the US as a result of the increasing interest rates in the quarter, but also by negative fair value movements and derivatives in the Netherlands. Of the EUR161 million of negative fair value movements in the Netherlands, EUR122 million was caused by an interest rate swap related to operational funding of the mortgage portfolio of AEGON in the Netherlands.

This quarter, we decided to change evaluation of the swap to substantially mitigate credit spread related volatility. And going forward, this swap will not cause meaningful earnings volatility. I'd like to say also here that the overall net economic impact of the change in valuation is zero.

Now, let's turn to sales. And as we've already indicated, sales were generally strong in our main country units during the quarter. In the Americas, universal life products were the main driver of growth while the downturn equity markets resulted in weaker variable universal life sales. And in the UK, even though the (inaudible) effects have started to subside, sales continued to grow across most lines of business.

Group pensions sales were stronger in the Netherlands and included one large contract. In addition to strong retail sales, we've also experienced strong deposits in the quarter. Variable annuity deposits were especially strong within our broker and bank distribution channels in the US, whereas fixed annuity deposits, we achieved a six fold increase over the comparable period benefiting from the steepening yield curve, increased customer demand, and additional bank distribution capacity.

Deposits in other countries tripled mainly as a result of the inclusion of the asset management joint venture in China, which I mentioned earlier.

I'm now turning it over to Jos who will provide you more details on capital and on the different business units. Jos?

Thank you, Alex. Good morning, Good afternoon. Slide 9, shareholders' equity during the quarter was impacted by additional unrealized losses of EUR933 million as rising interest rates were only partially offset by tightening credit spreads. I want to point out that although shareholders' equity declined, it is still well above our minimum target level of 70% of our total capital base. And second factor in the decline was the dividends we paid on common and preferred shares.

Next slide. Let me make a few comments on our capital position. As Alex noted, our capital and cash flows remained strong. At the end of the quarter, we had over EUR800 million of excess capital in our operating units. As you know and as we have said in the past, we capitalize our business units in such a way that we maintain a AA rating. In practice, this means that we capitalize at the higher of what S&P requires of us to hold for AA rating, what our regulators want us to hold in our operating units, or any self-imposed requirements under our own economic framework.

In addition to this excess capital, we have the ability to add leverage to our capital base creating what we have defined as financial flexibility. This EUR1.8 billion enables us to invest in our businesses and is an indication of the buffer we have available in the current environment.

Slide 11, this slide is an illustration of the development of AEGON's excess capital within our business units. As you can see, excess capital in operating units declined somewhat. An important factor, our US operations paid close to $1 billion in dividend. That cash which was paid to the holding is netted against our outstanding senior debt and creates financial flexibility at the holding level, which we can better illustrate on the next slide.

On this slide, you can see a further illustration of our capital position at a holding level. As I said, cash paid to the holding as distributions from our operating units is netted against debt. You will remember that our minimum target for shareholders' equity is 70% and looking at the second quarter, our leverage effectively has been reduced by approximately EUR450 million creating an increase in leverage capacity to EUR1 billion.

Slide 13, what you'll see here in this slide is our financial flexibility, the combination of our excess capital and our operating units as well as our ability to add leverage to our balance sheet. This amount increased during the second quarter to EUR1.8 billion. And it's important to note that our recent securitization transaction is not taken into account in the EUR1.8 billion, and at a loss of over 300 million, as you may remember.

Slide 14, we have announced an interim dividend of EUR0.30 per common share. We will continue our policy to set AEGON's shareholders' dividends based on our capital position and cash flows. As you know, we offer stock dividend and we have the intention, as usual, to neutralize dilution from the stock dividend.

We regard it as an attractive dividend fully supported by cash flows and capital. As Alex already said, the full year dividend for 2008 will be determined in March when we discuss our full year results.

Slide 15. Turning to our investment portfolio and impairments in particular. Over the past few years, credit impairments have consistently been below our long-term expectations. But as we have said in the past, we expect impairments to go up and indeed impairments rose somewhat in the second quarter.

We experienced limited impairments of EUR98 million pre-tax. The current level of current impairments in the US however is still consistent with our assumptions and product pricing. That being said, the overall environment has become more uncertain due to the rising stress in the housing and financial sectors in the United States. And so we believe that credit impairments are trending towards our longer term price expectations and exemptions.

Let me remind you for accounting purposes that we hold almost all fixed income instruments as available for sale. And this means in practice that we only impair them through earnings if we do not have the ability to hold them to maturity or if we decide to solve them or if we expect to receive less cash than expected.

Slide 16. Let me spend just a few moments on the results of our country units, and first the Americas. Underlying earnings were up in dollars by 2%. We think this is in solid performance giving the extraordinary charge we had in the life insurance business of $49 million, which Alex talked about already.

Sales were particularly strong in the retail businesses such as fixed and variable annuities, mutual funds and retail life. Our fixed annuity sales were exceptionally strong driven by various factors. The yield curve was steep, credit spreads were high, and there is a greater demand of customers for products with stable returns and guarantees, and of course we added one of the largest bank in the United States as a distribution partner. Value of new business has increased by 16%, and the internal rate of return was well above our hurdle rate at 12.4%.

Slide 17. Going to the Netherlands. In the Netherlands, we saw a positive momentum. Pension sales in particular were strong helped by a large contract leading to a 28% increase in new life sales for the quarter. We are also seeing increased levels of retention of all the group pension contracts and that is what I view as a positive development.

Also in the ex-retirement market, we sort an increased amount of immediate annuities. Value of new business was set down slightly, mainly due to the change in a mix of business. We are actually pretty satisfied with the returns we are making on new business, though it's still marginally below our 11% hurdle rate.

In the UK, in the next slide, as expected, lower financial markets had an impact on the underlying earnings. Also we invested several of our businesses, asset management, for instance, creating some additional expenses. As you can see, there were good sales growth most lines of business in, both, Life and Protection business and in the pension business as well. Value of new business improved by 31% driven by good sales growth and higher margin business as reflected in the higher internal rate of return.

Finally, the other countries. Underlying earnings were down due to weaker financial markets, but mostly because we continued to invest in these new businesses. Sales suffered due to the financial market volatility, particularly in Poland, as expected, where we have a strong position in the unit-linked products.

In Taiwan, we see that our unit-linked life business is being replaced by variable annuities. VNB was set down as a result of the lower sales. And with that, I would like to go back to you, Alex.

Thank you, Jos. And so before we turn to your questions, I would like to emphasize that the AEGON continues to be in a strong position. Our businesses continue to be supported by strong capital position and are delivering healthy cash flows. During the quarter, our business achieved solid underlying earning performance on a constant currency with good sales momentum, but also profitable returns in excess, and in many cases well in excess of a minimum requirement.

We are confident that we have tried to achieve our targets and also to deliver on the strategic priorities we announced in June. The securitization that we just concluded in the UK is but one example of our efforts to achieve greater capital efficiency, increasing returns in existing businesses, increasing financial flexibility, which allows us to expand in new areas with higher growth and higher returns.

And finally, our dividend. Our interim dividend of EUR0.30 is a confirmation of AEGON'S continued financial strength. With that we're happy to take your questions.

Good afternoon gentlemen. It's Trevor Moss from MF Global here. It's been common across the results we've seen from other insurers so far to give a conglomerate solvency ratio complete with sensitivities. I'm rather surprised you haven't talked about that given, I think, it's probably well north than most peers, particularly all of those beginning with A. I would please request that you would give that ratio and some sensitivities to equity markets and interest rates, and how it's moved over time especially over the last six months, please.

Well -- yes, let's take that long -- you're probably referring to the solvency I ratio? The Solvency I ratio, we have not published that any more because we are managing -- not managing the company on a Solvency I ratio because we think that solvency ratio was formally acceptable, but you have it at 100%, does not refer to AA financial strength rating. But, of course, we calculate that ratio for the debt (inaudible) central bank on accrued basis. It was around 230 at the end of 2007, and it is now still over 200.

We don't have any sensitivity this time. I know you don't count -- always manage your business on the basis of the solvency ratio. I don't suspect anyone does. But it has become seemingly for the market perhaps a reasonably interesting indicator of where the capital position lies relative to requirement.

It's over 200.

Hi, I'm Farooq Hanif from Morgan Stanley. I think one of the things that sort of caught the market by surprise is or me is if you look at the realize losses, it was a big number. And you have talked too a little bit about the various items that might be one of some which are sort of normal. I wish -- could you just run through that again because you told what normal trading gains in the US. I think it would be quite interesting because people will want to sort of look beyond the underlying earnings as how they have done today and just forecast that.

And can I just ask also about the fixed annuity deposit? That was huge. And I know that there is a positive trend in the economic environment for those products, but how much of that is new distribution because it just seems like such a big jump.

Well, you are right to say that today's world is not much which is normal anymore. So I understand your question about normal, normal losses.

What we refer to is the trading in a bond portfolio, which is available for sales. You know, a [mixed] part of our bond portfolio isn't available for sale. And what you see then is that if you upgrade your portfolio or if you change your location to different sectors, which is in this case what has happened where we have reallocated parts of our portfolio, corporate bond portfolio, away from the financial sector, which I think was a good thing to do, what you didn't have is that when interest rates go up, and that has been the case in the second quarter in the US, you were placing bonds with a higher coupon and therefore you have seen a higher yield.

But what you didn't see is if you make some losses on your existing positions. And that is what we would call normal on trading losses. That's relation to the available for sale portfolio. That amount is more related to reshuffling of your portfolio. And obviously, if the risk free rate goes up then you get that.

What you are referring to and that's the part, which I was also referring in my speech, is significant amount which is related to the fair value movements of derivatives. Because of accounting, fair value movements of derivatives on this specific parts of the business, which is related to the, I would call it operational funding of our mortgage portfolio in the Netherlands, AEGON on the Netherlands, the required putting of place is swapped because as you know there is some special purposes vehicle for this acquisition, which pays floating and which receive fix. So this is a swap, a very common swap.

But this was priced in such a way that there was volatility around the pricing. And we decided also in line with other action we've taken earlier in particular in amortization to find ways to mitigate that volatility because in particular what we see happening, it is really accounting volatility more than its economic volatility.

That's why I said, the economic value of this swap effectively is zero, but the accounting has shown volatility and we wanted now to bring that back to a system where going forward, that volatility would be mitigated very substantially. And that has forced us to take this 122 million out of the 160 on the derivatives. So that really is a very significant part of that part. And as such, it is a one-off because that situation is reversed and can therefore not create volatility anymore.

In terms of fixed annuities, I think there is a combination of factors. There is, first of all, the yield curve -- the shape of the yield curve. We have always said one -- in the previous periods when the yield curve is flat or even reverse, the sales of fixed annuity was not being favored. Now, we have the favorable fixed annuities. So it's not surprising to see that in all areas we see our production going up.

It is true that the addition of one very significant banking distribution partner, one of the largest banks in US has contributed to a significant amount of sales. I'm not allowed to say the amount, but it is not an insignificant part. It is a significant amount, which has been added.

But this is a bank which used to do business in the past and that because of different people involved or relationship issues that has been limited somewhat, but we have been able to come back into it. And actually, here the value of our franchise is seen and we are very pleased about that. But US also said the IR on these fixed annuities is well above 12%, so that is really good business for us.

Some X hundred million that you wrote through the new distribution, to me that's sort of normal. So it's not like you just got a big bulk (inaudible) marketing company. We should not expect that to be sort of a blip in Q2 and suddenly a big drop down again in Q3.

In terms of the trading?

Yes.

Or the bond portfolio?

No, no, it's under the sales, fixed annuities.

Oh, Fixed annuities? No, well, fixed annuities is always -- is never linear. It would be great if our life would be so easy. It's never linear. There is some cases a special campaigns. Very often that's the ways it happens with banks. So we will see an environment, which still is supportive of fixed annuities. We have seen by the ways good momentum continuing, but it is too early to have an indication for the whole of third quarter.

Yes, but I think it is fair to say that the bank that we added is the largest distributor of fixed annuities of all of the US banks. So I think I would except that the largest portion would be steady going forward.

I believe that by now you know who that bank is?

This is Frank Stossell from Merrill Lynch. I got three questions if I may. First on the capital position. First of all, the Q1 excess capital I think was around EUR1 billion, but you always stress this was in excess of 165% S&P. It would suggest that probably 150% CAR excess capital would probably have been around EUR3 billion or so.

And in the S&P model, which is a factor based model and doesn't have the CAR anymore, your excess capital is EUR0.8 billion. Which number can we compare these EUR0.8 billion then? Is it the most stringent 165% excess capital or down to 50% excess capital? What I'm trying to ask is under the new model your excess capital dropped to 200 million or by 2 billion?

The excess capital that we published in the first quarter was already based on the new S&P model. So both numbers are comparable. So the 1 billion and the 0.8 billion are both based on the same S&P model.

Okay. Thank you.

And the next question was on is that close to the 165. No, it's even more stricter than the 165?

Thank you.

Because another new model required more capital. So that's a logic consequence.

Okay, thank you. And the second question is whether you could please provide us with some sensitivity with regards to excess capital base, and more specifically, everybody is worried about US and bond defaults. And if your US bond default had jumped to annualized 50 basis points in the second quarter, what would your excess capital position have been at the end of Q2?

I can't answer that question specifically, but I do -- I can tell you that bond defaults have basically -- if you affect them for tax and for DAC effects, that they basically have after that -- after those two effects have one-on-one effect on capital. So all defaults are charged against capital after tax and DAC effects.

And how significant are these?

If you calculate 50 basis points, you are talking about 50 basis points in annual basis? What is it? That's around 50 (inaudible) 50, 600 million? So every million would go through excess capital, but you need to do that tax and DAC also, and gives a mitigating factor.

Okay, thank you. Lastly, on your UK business, the net flow situation has worsened in the second quarter. I know that the UK environment is not great, but even comparing to other UK companies, the net flow worsening in Q2 wasn't great. Could be please some comment what was going on the second quarter there?

I think we have seen slowing of the, what they call the bond markets, the pure investment markets and that had -- that clearly had an impact.

Okay. And that's all there is, just the normal trading?

That's the main thing, yes. That is the whole market. Not only in UK. Effectively, AEGON's UK market share in that segment is lower than its normal market share. So the immediate defect -- the impact, negative impact has been therefore low for us than it has been for others, which had a bigger and longer market share in that market.

Okay, thank you.

We have seen however, and I would like to point it out, that -- and it's not been enough to mitigate for the whole month, we have seen actually our best month in June in terms of our new product Fight for Life. We've replaced that into a pension product, which means that the life is different, the regulation is different, taxation applies.

And we believe actually that is a good product, which is now replacing a lot of the more traditional products. And a good example is so how we are importing skills and ideas and concepts from other markets here to the UK. So we're actually very pleased that we see now finally that it is gaining momentum. It's been a good product has been recognized. I think it is even won the prize of the most innovative product in UK.

But what you see is that when you come with the new product, it is still hard to get it sold to your customer. Everybody is interested, but we are only interested if they even -- if they are buying the product. And that's actually picking up momentum in particular through the additional bank distribution agreements we have put in place in UK.

Thank you.

Mike from Soc Gen. Two questions please. First of all you mentioned the portfolio reshuffling on the bond side. I noticed that you moved a bit more in AAs, I think. What is your view going forward? We learned earlier this week at L&G, for example, made a big move into A? Are you planning to do something similar and related to that? I guess that you would see continued bond -- realized bond loses going forward then as well.

Second question on the VA side. In terms of sales, you are doing quite well in Q2 growing around 8% for just Q1. Don't think there are lot of others out there showing similar results. What are you doing in terms of pricing? How comfortable are you with your pricing first of all? I understand from some of your peers they are moving prices up. And if you are followed, are you comfortable with your pricing?

A good question. First of all, in the portfolio what we have been doing is moving away from -- these are not few shifts by the way. Don't call it the word reshuffling. It is not the right word. It's a reallocation, repositioning, where we are reducing some of our exposure to the financial sector in the US in particular to areas in financial sector, which we see as more risky. We have seen all those stress in the financial sector recently in the US. That is what is led to us realizing some losses because increased spreads and increased interest rates replacing it.

No, we are not following a strategy where we are going to try to increase yield at the cost of the strength of the investment portfolio. We have for our pricing assumptions a range of 25 to 30% -- 30 basis point -- sorry, it would be terrible. And that depends on the mix for a portfolio. We are now somewhere close to 30 basis points, and there is no, at this point of time, we do not attempt to change it.

And that means that therefore the quality of the portfolio and the rating of the portfolio will stay at high levels. We don't think it's the time ready to take additional -- significant additional risk. The second thing is on the VA sales. Yes, we had the strong second quarter. I do think however it is fair also to remind you that we had the addition of a very strong and powerful solution channel at its Merrill Lynch distribution challenge, and that has helped us to do better than the market and gain market share. Out of the sales 145 million were coming from Merrill Lynch.

I think that was substantially less in the first quarter where we were getting loans.

Absolutely. That was less than the first quarter because we still the aftermath of the transaction. However, our sales within the Merrill Lynch network are still very strong. There is very strong competition and I know a lot of bottles of wine has been put on the table there for what would be the endgame at the end of the year, if we would be really top 1, 2, 3 in the Merrill Lynch system.

In terms of pricing, we -- what we see -- and I'll ask Darryl then to -- Darryl is somewhere in the area -- to comment later. I have not heard, and we had discussed it extensively also last week, when we were in the US for our board meetings there. What we see actually is that most of the providers are not really moving the prices, and indeed the pricing right now, in view of the current market situation, where you have high volatility, is not overly attractive.

What is important, we believe, is to maintain a franchise, to make sure that we ride this period of time, this turbulent times. It's important we maintain a franchise and that then we will be able then to gradually -- and I would say gradually -- adjust our pricing towards levels if the markets require so, and remain in such a volatile state.

We are in extraordinary turbulent situation right now, so you can't be adjusting your pricing all the time, because you know that you would be the probably be the first one doing that, and that you will -- and that it will not be pretty good on sales.

Darryl, is there anything you would like to add on this subject?

Yes, hi, Mike, it's Darryl in the US I guess maybe just two points. First, what's driving this sales increase, we've been continuing to build out our wholesaling strategy. We've increased our wholesalers on the ground 30% from '06 to '07 and another 30% from '07 to '08. And we continue to get maturity in that sales force. So the productivity level combined with the extra feet on the ground is driving along the sales growth.

From a pricing perspective, there's more people talking about pricing than there's doing anything about it right now. Alex is correct, the returns have fallen to an unacceptable level. We will be doing some product re-pricing in the fall. The issue there is really interest rates.

As interest rates have come down, the hedge cost behind these programs go up and that drives the returns down, and we've seen some recovery as of late towards the end of the quarter when interest rates came back up, but right now the returns aren't hitting our hurdles, and we will be making some product changes in the fall.

So you see, Michiel is more talking about redoing in terms of pricing.

All right, thank you. It's Bruno Paulson from Sanford Bernstein. I got some questions about the impairments and losses in the US. Firstly, you referred to a lump of equity took a hit on us, wondering what that was. Secondly, you took some impairments on subprime, if you could tell us what kind of subprime that was. We know it's 2006, but what grade and so on.

Thirdly, the losses you took on the US bonds you described as normal trading, but now you're suggesting that it was partly the cost of exiting the distressed financial sector. So I wonder if you could tell me -- tell us how much of those losses were actually in the financials.

And then more generally, from your description of what it takes to impair, are we to assume there's absolutely no six-month rule or anything like that applying? Six months and 80% rule applying, and we don't need to worry about the fundamental underlying performance of the bonds.

And finally, you said in the last quarter or so that you expected '08 to be a fairly normal year in terms of US impairments, 25 to 30 basis points losses was your best guess. I was wondering if you were still sticking with that. Thank you.

For the equity position, there are also accounting rules for equity that at certain point in time we have to impair an equity position if we do not believe that there is reasonable chance within a reasonable period there's a recovery of the share price. We've done so on a specific holding which we had over a number of years. We do not disclose exact holdings, but this was an equity position.

In terms of subprime, we have said already for a couple of months, certainly also the last quarter, that we see that the highest risk in our portfolio is in the (inaudible) floating rate segments of our subprime portfolio. That's the portfolio which has run 500 million of -- euro, sorry, EUR500 million in book value. And it's in these two -- in that segment that we've had the two impairments.

In terms of realized losses on the bond portfolio in terms of financials, I do not have the answer. And Darryl is there anything you want or can add in giving an indication of how much is related to the financial part?

Yes, there is certainly some coming from the financial sector, but I don't have a breakdown Alex, we're going to have to follow back up on that.

On the accounting rule, I will come back on you, and -- but the numbers are not very big. We talk about a reasonable [number] still. In terms of impairments rules, I think your question has been answered and outlook on impairments for the whole year, I wish I could give it to you. I just -- we don't know. What we see is that we see -- in Q2 we see trending towards our long-term pricing assumptions. If you take Q2, it' around 8 basis points -- sorry, it's about 6 basis points times 4, you get 25, so it's trending.

For the rest of the year, what I can say is that what we do see is more uncertainty and what it means really is that we see that the range of outcomes has become wider. I think that's the best way of describing how we look at the current environment, and therefore our capital position is important. The fact that we have excess capital, financial flexibility gives us room to weather significant amount of impairments.

We just don't know where that's going to be. And also it's difficult because one event could bring you into a different territory and we just don't know where it could be.

Christian Dinesen from the credit side Merrill Lynch. Two questions relating to credit. Going back to the impairments a little bit. I'm sorry to keep going on about this. There's a very small figure that I come to of about EUR16 million if I take the US corporate impairments away from the subprime. At least in the credit market we're kind of hoping that subprime is now old news.

You've been punished very, very severely in the credit market for being I think the first most open, and most transparent, but so it is. As these -- this is as far as you're concerned. I think they're now looking through the equity risk and saying, is AEGON going to do what they did in 2002, which was very ugly along with another couple of big operators in the US market.

Is there any way you can give us any kind of framework comfort on how you manage US corporate credit impairment in terms of the risk management? Do you have in place the way you use CDS, the way you hedge et cetera, because at this moment in time the credit market thinks you have got quite a hiding coming. And I think the comment about the fact that the portfolio is good right now is very early days. The credit crunch in terms of US corporate credit has only just got going.

And the second point is -- relates CDS. I just wonder to which extent you actually keep an eye on this, because you're trading at at least twice the default price. Many people rated with a A rating. For a number of other companies this has weighed heavily on the equity price, for example. So I just wondered if it's something you're very aware of, and whether you're actually doing anything to perhaps talk to people in that market about the sort of strong capital message you sent today.

On the impairments, I think your calculations are right. Let me give you some general feeling. First of all the way we invest in corporate credit is very much based on our own research, so we have a very strong research.

It doesn't mean that never anything goes wrong, but -- as we're not relying on third-party research, we're not relying on broker research, we are relying on our own capability and that we have a very solid capability.

Second thing I believe that everybody will agree that the corporate sector today is in a different shape than it was 2000-2003. Balance sheets are significantly stronger than they were at that period of time.

If you look at levels of warehousing, you see -- also see that these are lower than they were at that point in time. So I do not think that it is comparable. In addition to this, if you look at the biggest -- I would call it hits we have had in that earlier period, what you see is that most of them were more [forward related], if I can use that word than they were really economically driven.

The big cases, we all know people ended in jail, and people -- some people didn't even make it to jail, but it was a different -- it was a different environment. That is a different environment today.

So our own research, plus the different environments makes different -- but again, you're right to say, we're in the early part of the cycle, but I think that even in the early part what we're seeing is a good performance.

In terms of the CDS, yes, we are obviously well aware of that. This is a subject of discussion. I'll pass it on to Michiel to give further comments. But my understanding is that because we have so little bonds outstanding in the market, it is very difficult to have a transparent and to have a liquid market. And that is one of the reasons I'm being said -- I'm being told that we see also that because of limited liquidity, because you cannot hedge yourself effectively in the market, you see these prices which are indeed not the ones you would maybe expect from a company with our credit rating and our strong capital position.

Michiel.

Yes, actually the answer to all of your questions regarding CDS is yes, yes, yes, yes. I think one of the things that is affecting us maybe slightly difference in some of our peers here in Europe is that are disproportionately included in synthetic structures that have been created, certainly compared to some of the names in Europe, and that might have some effect. But I'm -- we are trying in many ways to talk to all market participants in that sector.

Hi, Chris Hitchings, KBW. I'm looking at your exposure to stressed assets. Am I right in presuming that you've increased your exposure to Alt-As and commercial bank securities and some GSC guaranteed securities over the quarter? Particularly the GSC guaranteed looks significant. Where is that? And why is that?

Your observation is correct.

-- correct.

But it is limited. I think that most of it was in the Alt-A. We see that there is in certain areas clearly value. Also our portfolio of Alt-A, we see that's a strong portfolio. It's for very biggest parts not only AAA but extra AAA. To have -- provide more exact figures Darryl, can you provide more details?

Actually I don't have any of that direct numbers you're looking for Chris. We're going to have to follow back up other than to say that we did do some directional buying on Alt-As, but as Alex said I think it was marginal.

Yes, well, can I give you the numbers then? The Alt-As went up by about EUR100 million, but your GSC guarantee went up by around EUR500 million. That doesn't sound marginal, but -- or about 50%, or have I misread the figures? I'm simply comparing what you said the book value was in this presentation compared with three months ago. I've got GSC guaranteed up from 1039 to 1514.

We will follow up (inaudible).

And I've also got CM -- I've also got CMBS up from 4.4690 to 5097, which again sounds like an increase in exposure that -- I wondered whether there is a --

The exact number, it does feel a bit big. I know we've had done -- we've some buying where there were very specific opportunities, but the amounts which I'm aware of are reasonably limited. We'll come back.

But it sounds like a definitional issue -- thank you.

Well, we will come back to make sure we get that right numbers, and we compare the right numbers with the other right numbers because that's the first step. We will come back.

Thank you.

Hello, it's Duncan Russell from JPMorgan. First question is, could you -- CDS protection you sold in the second quarter didn't really move very much and credits first came about 50 basis points, and your -- the mark-to-market adjustment was very small. I'm just wondering why that was, and is there a duration or something, I don't know.

Second question is, could you tell us the split of your structured credit portfolio by level 1, level 2, and level 3 assets, please, and whether that changed in the half year. And third question is, the subprime RMBS portfolio. Could you tell us how much coupon and how much principal you got in the first half, please?

And the final question is, the securitization you just issued, could you just walk us through how exactly that impacts solvency? And I thought that -- I thought that was already included in available capitals. So if you could just talk about that please. Thanks.

(inaudible) what we've seen is actually there was the spread tightening, significant spread tightening after the end of Q1, but then -- so what we had when we published our first quarter numbers was a very significant improvement, and then we have seen effectively that the spreads have come back or have widened back again later. So that should be rather -- I should say linear in that if there is no reason that there is a different movement than it was previously. So the amount -- there has been a recovery, and the recovery is in proportion with the spreads compression compared to the end of Q1. But we've seen quite a big movement within the quarter.

But it's typically an example of that (inaudible) no cash losses after the duration so it's now four years --

Four years.

Today you get it all back, or earlier if paraphrased (inaudible).

That depends on the spread widening, if over the period of time you get it back, yes, but spread have a bigger --

You cannot amortize. You have to fair value. If your credit spreads wide, you lose. If it tightens, you win, and at the end of the day, zero. So everything that you give away today you will get back in the future.

Over the period of time.

That's accounting, I'm sorry.

I don't know if it is accounting and garbage. So your question was structure --

Level 1, level 2 --

Level 2. Well, as far as I know, the biggest parts -- by far the biggest part -- and I don't know -- do we have the exact numbers? By far the biggest part is valued on --

Level 1 and level 2. There is only a small portion level 3, and wouldn't expect that that has changed materially from the end of the year since the assets that we have in level 3 we will not have traded a whole lot in. So -- or is it the ABC's --

Yes.

And one of the problems -- one of the former problems is that. So it's around the same as it was at the end of the year. That is the answer. But you need an auditor's statement to disclose it (inaudible) and so you cannot disclose it unless you do not have an auditor's review in the half year, that's an auditor statement, and there is a difference. Nobody has an auditor's statement in half year numbers but an auditor's review. But it is the same document.

Securitization in the UK freed up 350 million in capital. So there is some risk transfer that has a consequence that you need 350 million capital [less] and so --

315 --

315. So you can add that to the financial flexibility. Of course it's not shareholder's equity, but it will be treated and dealt with in solvency II as (inaudible).

And why this deal is innovative and why it makes lot of sense for us it is not deducted from the excess capital of the UK.

(Inaudible question - microphone inaccessible).

No, it has not. So the UK has a different solvency system than the rest of the world. And that's often (inaudible) in the UK. So -- and that's -- but I have to say that UK's systems for solvency is one of the best. So this time I'm not criticizing. But if you do the securitization it will not affect during quiet solvency for regulators here in the UK. But it has some positive effect on the solvency calculations for [S&P] and for the group and level systems.

I think that what we do is -- do is, we transfer [capital] which does not get credited in the UK, under the UK regulation we transferred it to the holding where it does effectively get that credit that is the concept of this whole transaction.

And it does (inaudible) credit, because on an economic framework it will (inaudible) credit and on the S&P new model as well.

(Inaudible question - microphone inaccessible).

No, it does not, because if you do a securitization you have a cost of capital, and that's comparable -- it's comparable to the cost of capital of a perpetual, little less than a perpetual. So that is your cost of fund. Then you are going to invest it. So if you invest it -- let's talk about a fixed rate for a moment, if you invest it over 8% before tax it will have a positive effect on IFRS earnings. If you invested lower, or you're using it elsewhere with no return, then you will lose IFRS income.

But it doesn't create -- returns, right, because we're basically taking out capital, out of the UK. So the returns in the UK should benefit from it.

And it's (inaudible) pay by coupon, effectively you would pay a coupon and it's less capital. So it's pretty easy to make that amount, yes.

That's a pretty formal answer, but it's -- as long as it keeps these form of -- forms of capital.

Despite the different environment -- and I'm -- I want to make this point. We actually were pretty pleased. You were talking about the CDS, and I think that this transaction showed that there is indeed [appetite] from investors in AEGON paper. And I think that is what is -- was important. We've done GBP250 million and that's in this market a significant amount and a sign of confidence in it.

Just two questions. Farquhar Murray, Fox-Pitt Kelton. On the S&P model, I think you had mentioned that it had been in the first quarter, I don't recall you giving us a quantification of what the impact of that was with regards to the excess solvency. I don't know if you could give us that.

And then secondly, just with regards to the securitization, what limits are there on your capacity to do further securitizations like that in the future?

On the first question, I think, the [center] number has been given.

No, I think what happened at the first quarters is that we were still working through some of the issues with S&P particularly with regard to some investments that we're proposing what we thought were high capital charges. Some of these issues have been resolved by now. And I think the effect is going to be inside of EUR500 million.

And that has no [chair]; that was already in the first quarter anyway?

Yes, yes.

And the second quarter.

And in terms of capacity, well, obviously there are limits and they are more, but I think that the limits now are not so much imposed by our balance sheet requirements but by market appetite for this paper.

But if you mean, is all of the portfolio theoretically securitizable for AEGON, then the answer is no, because some of the products are much too complicated to do -- initiate characterization. But if you look to our portfolios especially the US, the UK and the Netherlands, that's important.

Farquhar asked the question I was going to ask basically, but I -- just going further on in this area, what's possible -- when you say appetite is limited, I think clearly from your transaction and others, there's a strong appetite for it, because these guys are getting the first bit of the cash flow and you're taking the risk on the rest of (inaudible).

So it just seems like an early stage. Securitization is actually quite well thought out. But I guess one of the restrictions is that you need to -- to better define the cash flow to the investors, you need a book of policies that you can define the cash flows on. You can't just take a book of some policies out of a big fund.

So can you just tell us a bit more, because it sounds like you're quite bullish about the amount of cash that you can release from this? And this is -- then what you've done -- to date is actually sort of playing around with -- it's almost like a benchmark transaction. Is that the right way to think about it?

Well, we need to start somewhere, and this transaction has taken -- I can't remember how long this transaction has taken, but it's just taken a lot of time to get all documented and putting everything in place. These are not easy transactions, because you get regulatory frameworks, which in each country are different. You get effective (inaudible) isolation piece of portfolio.

So what we're doing is looking at which parts and which pieces of our business are -- as Jos was using the new word now securitizable. And so much not only being securitizable, we have to look at the advance ratios or how much can you get on a 100% basis. And we've seen actually that this was pretty good advance ratio. What is the price? What is the cost of it? And all of that needs to be taken and balanced.

So market conditions do play a role, it's one side of it, but as you said rightfully so, we've done the first deal. There was a GBP90 million deal in the UK. We've done now GBP250 million. So we are -- we're getting better at it. And we are looking in other parts of the business. I would not want at this time to be more explicit which parts are clearly very securitizable. That's a combination of a lot of different factors as I said advance ratios and death costs for that specific market.

But one of the innovations is that in this 250 million, you're not talking -- we are not talking about a separated fund. It's a slice of a fund. And that's really innovation and it's a breakthrough. And that technique will help us to do more securitizations if we want to.

Hi, it's William Elderkin from the Citi. Just a couple of questions. First, going back to the capital position, can you give us a sense of how the 800 million of buffer capital would move if actually markets dropped, I don't know, 20% to 30% from the end of June?

Secondly, in terms of equity impairments, if equity markets stay where they are at the moment, what level impairments can we expect in the full-year earnings? And thirdly, if I look at the operating earnings within the Americas, the [Gaykon] fixed annuity number seems to be pretty strong and ahead of way it's going on a normalized basis.

In a nominal sense with higher credit spreads, is the IFRS operating earnings of those businesses enhanced in the environment that we have now compared when you originally gave that guidance? I suppose another way, is the earnings we see coming out in this quarter sustainable from those product lines?

On your first question on the 800 million, 800 million is the number at the end of Q2. So moving forward, that number will also change; there's a lot of different factors too which play a role. In terms of where is the biggest impact, what we said it that the biggest impact we need is on the impairments. That is where the biggest impact is on capital.

The same applies to the Netherlands, its impairments, which have an impact on capital, and for the UK, because it change regulatory environment and different model of calculating capital. It is a bit more complicated and you're seeing that they have a good model and therefore it's probably also more complicated. It depends on the credit spreads and the shape of the yield curve.

But in the UK, effectively, we already mark-to-markets our bonds. So if you do an impairment, you would go to the mark-to-market level, and that means that there is not much to be expected in terms of impairments in UK just because effectively you're already marking-to-market at the level of where you would market in case of impairments. I think the main issue on what would happen at the stock market -- you were talking about 20 to 30%? That's the difference.

(Inaudible question - Microphone inaccessible)

Yes. Now, obviously what we look at is what do we have in terms of sensitivities. One area where clearly there is a sensitivity is on the DAC (inaudible). In the Netherlands and the UK, the impact would be very limited. In the UK, we -- I think we've shared that we could absorb up to 25 to 30% of the drop of the equity markets from where -- where it was at the end of the quarter. In the US we have a different system.

As you know, we use this mean -- reversion to the mean system, and there at a certain point in time I should say it's a management decision as to what you want to apply. What we're doing right now at the end of the second quarter is that we apply five years -- the equity markets five years and 10%, and then going back to our long-term assumption of 9%, the 9% growth.

If the markets go down, let's say, 10% from the end of Q2, we would not expect any significant recognitions. If the markets go down much further, then again it is about management decision we have to think is it going to be more permanent or is it a drop where we expect a rebound. So that is at a certain point in time where we'll have to make more of a decision. And that's -- that amount -- that couldn't be more obviously more significant, but depending again on the decision which we have taken.

So that's where we see most of the, I would say, the impact of a significant severe drop of the equity markets. Not only a drop, but a drop and then not expecting a rebound, because I think that is what is important in this whole analysis.

And now, the direct investments are pretty low. So direct investments in equity are so low that that's not the real nature.

As you know, we sold the biggest part of our equity investments in the Netherlands last year. That was a good timing and hindsight, but we did that, because we felt that for risk management purposes, holding a lot of equity in the balance sheet did not make an enormous amount of sense.

In terms of impairments, I think the question has been asked earlier, the only thing I can say at this point in time, we see a trend towards our long-term price expectation. We see uncertainty increasing. There is stress in the housing market, in the financial sector. The only real thing I can say, the range of outcome is going to be wider, and in both senses, so I'm not -- it's really (inaudible).

You were talking about the earnings on GIC and fixed annuities. I think they are two different things here, the GICs. So our institutional business has clearly benefited from the movement in the year curve, that mean the shorter-term rates coming down, well as the fixed annuities have benefited clearly, benefited not only from strong demand for customers which allows to relaxing our pricing, but obviously also the increase in spreads, which gives us more room to take a margin.

Darryl, is there anything you would -- you should add to this?

Just on the -- maybe I would just add two things. On the GIC operating earnings the margins are running higher than we would expect longer term. And it has more to do with the short interest rates that Alex referred to, liable rates. As we've seen over the years, when liable rates drop quickly the product spreads margins and the products spreads widen out, and so we are seeing that right now. So they are running a little high.

The other one I would just comment on, the equity impairment that we had in the US that was really a one-off. We really do not carry a material direct equity portfolio in the US at all. This related to a specific investment we had, where we had seeded some startup capital back in 2002. And it was a very unique investment, so I don't expect that to be a problem going forward.

Hi, it's Duncan from JPMorgan, and just a quick follow up. Don't take this wrong way, but you guys seem relatively relaxed about the outlook. This -- when I went to a presentation by a competitor who had -- who basically hedged out a lot of that downside risk, give a big presentation on kind of every issue that an investor could want to see.

And whereas with you guys, I got a sense that still the credit risk is kind of out of your control, and you haven't really changed too much over the last 12 months to kind of offset that potential risk. And you just said yourself, the range of possibilities of outcomes has widened dramatically depending on where the housing market goes.

(inaudible)

That's definitely widened. And it doesn't -- I don't get a sense that anything's really changed over the last 12 months to protect against that increased volatility of risk. Is there anything you can do to kind of reassure investors that, because that's really the reason you have share price is where it is.

I think first of all in our case, our exposure to equity markets is clearly much less than what we see in general. Our direct exposure is hardly -- is very limited with exception of this one specific situation we had in the US.

In terms of credit risk what we have been doing is shifting some of our exposures to areas which we find more attractive than the areas in which we are in. Obviously within the current market environment, and setting all pieces of your portfolio and replacing them with others, would have huge friction costs. So in that respect, the action we are taking is being part of a continuous action, and that's maybe why you don't see it so clearly.

And again we would not want also to create an impression that you can shift the whole portfolio away. If you have a big exposure into -- in a big financial, and the whole financial sector is stressed trying to sell that is hardly an option. So where we can, we try to adjust the portfolio, and that's what has resulted in what we call the normal trading. And yes, are we relaxed? What we see is that our people have -- our asset management division, namely our credit division in the US has done a great job.

We obviously had some impairments, but we have also quality over portfolio which we think is -- has actually been positioned such a way -- I don't want to say that we're not going to any hits, but in the early stage over a two, three ago, there has been a shift in the way our portfolio is being managed. Just remember we said at the recent quarters, where -- let's take the example of subprime where 60%, 70% of our subprime two, three years ago was AAA and AA. At the end of last year it was over 99.6%. And thank god, that that was done, because otherwise our impairments would have been significantly higher.

So a lot has been happening. But it has not been major shift. It's part of an ongoing process of managing our portfolio. So does it mean that we are not worried by the potential outcome, especially the widening of the range of the outcomes? Yes, of course, that is part of what concerns us, and is I think the best answer we can give you there is, our job there for us is to make sure that we have sufficient capacity to absorb these shocks and to absorb these losses. That's why we've been focusing a lot on the capital, that's why we've be focusing on our financial flexibility.

Because you know, as well as I know that even if you have the AAA bond in a subprime bond, which we think has no reason based on where we are, and based on reasonable expectations to ever default. We also know the price of these bonds, because of the liquidity issues, and because of lot of other issues which are now impacting the market is not an option. We destroy a lot of value there.

So we are certainly -- very much on top of it. But I cannot -- we cannot put in place -- we cannot address this saying, well, we've found out the system whereby we can resolve the (inaudible) issue and go. Yes, we could do so, but at a cost which would be totally uneconomic.

One of the problems, Duncan, is very simply. If you have a big portfolio you do your analysis, you do your analysis investment -- by investment. Then you come with a list of risks, then you look out to the environment, and then you have a curve that would mean what you could expect. So that's what we're sharing, that's what we're sharing with you, also in general conversation. But we all know that the standard deviation of that analysis is pretty big. And that's something we cannot do anything about.

I certainly do not ignore it if that's it, but I think that we should also allow those people who are on the lines, on the conference call also to ask questions. I don't know where you want to put your microphone Matthias, but -- so for those listening in there is also an opportunity for asking a question.

Ladies and gentlemen, we will now begin our Q&A session. (OPERATOR INSTRUCTIONS). And we have a question from Nick Holmes from Lehman Brothers. Mr. Nick Holmes, your line is open.

Thank you very much. Yes, I have three questions. First one is, can you give us a bit more detail about the reasons for the $49 million reserve strengthening in life insurance, and also how confident are you about your reserves going forward?

Second question is, you gave us your Solvency I ratio coverage. I wondered if you had an idea of what you Solvency II coverage could be.

And then last question is, wondered if you could update us on how the preparations are going for your JV with Sony Life in Japan to sell variable annuities. Thank you.

Nick, I'll take the first question and the third question. On the registering thing in (inaudible) we have been, and are in the processes of converting towards the new system. That is usually the right moment to go through all your assumptions, all your models, also to check if the modeling is fully in line with the contracts. In this case what we discovered that, this is related to an old contract, this was before 2000, that there was a need to make some adjustments to the assumptions, and that has led to the reserve increase.

What we know today is that roughly 80% of the review work has been done. The $49 million is based on the 80% plus in assumption around the remaining 20%. And we've taken reasonable assumption there for the remaining 20% over which we have not finalized all our work. And that should be completed by the third quarter, and hopefully at latest by the third quarter.

I don't think that I need to repeat myself. We are -- we were clearly not pleased by this reserve strengthening. Some personal changes have taken place in (inaudible), particularly in that specific group which is dealing with these parts -- this part of our insurance business. I also am pleased to tell you that we have a new CFO since (inaudible). So a number of measures have been taken for our reinsurance, yes, sorry, Jos.

Darryl -- Darryl?

Darryl is still there, I'm still here. For the reinsurance business, so we do -- we did take action because obviously this is a kind of surprise which we find is really unacceptable.

Now, let me turn on Japan, which is a much more positive --

-- (inaudible) Darryl is still there, can I just ask when was the last review that you did on that book? How long ago was it?

Well, Nick, this is Darryl. We've seen some unacceptable volatility coming off this book throughout last year, and we had two quarters last year where we had taken a couple of charges. And so we knew we needed to get back and scrub the models and start over and move to a new platform, and that's really what we've been doing all of this year.

Maybe I'll just make one small correction to what you said, Alex. The last 20% of the review that we're waiting for, we're actually waiting on client data to get back to us and it's possible -- in fact, it's probably probable that it'll be the fourth quarter before we get all that client data back to finish that.

But we feel -- and I would also add that we've had a third-party independent review done on the conversion process in the models as well. So we really tried to do our best effort to get on top of this.

But you think the deterioration has happened in the last two quarters? I'm just wondering when the last proper review was done?

Well, the models that we're converting from actually go all the way back to 2000 actually. And so it's this kind of level of in-depth model -- and really we're moving to more updated software and better data-warehousing in behind that software, and that's why we have to go back to the clients to get that additional data.

So we haven't done this in-depth and detailed level of review for quite some time.

Fine, okay, thank you very much.

Thanks.

That would be the last time that we have to do for this portfolio this kind of in-depth review. Let me turn on the joint venture in Japan where preparations are all going very well. We are ready.

As you probably know, Nick, we need approval of the FSA and the FSA usually doesn't give approval in the months June, July, August, because there's always a personnel change and most of the people are busy with looking at what their next job is and assessing who their boss is going to be. So we do really hope that we will get approval here somewhere in August.

In fact, Pat Baird, the CEO of AEGON USA, but also management board responsible for Asia, and then specifically for Japan, has been in Japan this week and has visited with the FSA. I haven't spoken with him yet, because I think he was actually today with the FSA, but I'm looking forward to hear, so -- but we are expecting to launch very soon.

Preparations are ready. We have the financial planners of Sony Life, which are ready to sell, and in the meantime we've also started setting up distribution agreements with Japan's largest bank.

So actually, we think it's a -- it's going to be a very promising start, and what is great also is that we find the more we work together with the Japanese -- with our Japanese people in this joint venture, the more we are confident that this is a great partner we've been able to enter into this partnership.

So will the first sales take place, do you expect, in Q4?

Well, I'm optimistic that it could still be in Q3, but it should certainly be in Q4. On your second question on the Solvency II coverage ratio --

I'll do that.

Jos?

I'll do that. That is a very difficult question, because solvency do -- does not exist. There are a lot of negotiations going on in Brussels as we speak. There's a draft directive by the European Commission. It's under discussion.

Political lobbying is going on. European parliament has formed commission -- committee under the leadership of Peter Skinner, UK -- European parliament member with the support of Solvency II to a principal.

But there are 25 countries that have to approve. And then if it goes as we hope, then the standard model of Solvency II will be a model -- be the rough estimate that will end up somewhere between BBB and A, not any further because then a lot of small insurance companies in Europe would lose their license and it's political unacceptable.

So the whole system will end up somewhere between BBB and A. What large companies can do in AEGON is going to do that is getting their internal economic framework approved by their regulator instead of the standard model of Solvency II and AEGON will do that as well.

We're almost ready and what I can say about it is that an economic framework based on a AA financial strength rating according to our own models, including diversification benefits that have to be approved by the regulators, and that's -- and that is what everyone should tell you when they talk about economic frameworks, because a regulator has to approve it.

If that is done and then you talk after 2011-2012, then the insurance industry as it is now, so to be accomplished will use less capital for the same business, less than they do now under the S&P model law.

Well, thank you. Thank you, Nick for your question, thank you for your interest, and this -- unfortunately, I have to close the sessions with the last question. Thank you very much and see you soon again. Thank you.