Capital base
AEGON applies leverage tolerances to its capital base. The capital base reflects the capital employed in core activities and consists of shareholders' equity, capital securities, and dated subordinated and senior debt. AEGON targets its capital base to comprise between 70% and 75% shareholders' equity (excluding revaluation reserve), maximum 25% capital securities, and a maximum of 5% dated subordinated and senior debt. At September 30, 2006, shareholders' equity capital (excluding revaluation reserve) represented 73% of its total capital base, while perpetual capital securities comprised 17% of its total capital base. Senior and dated subordinated debt counted for the remaining 10%.

In the future, AEGON's capital base may be subject to regulatory requirements arising from new legislation in the Netherlands. Under IFRS accounting rules, reported equity has been subject to higher volatility. AEGON will monitor the development of its capital ratios under IFRS in order to ensure continued strong capitalization.

Debt funding
AEGON's funding strategy continues to be based on assuring excellent access to international capital markets at low costs. As part of this strategy, AEGON aims to offer institutionally targeted debt securities in amounts that are eligible for benchmark inclusion and to support the maintenance of liquid secondary markets in these securities. AEGON also aims to maintain excellent access to retail investors, as witnessed by the successful issuance of Junior Perpetual Capital Securities in 2004 and 2005. AEGON's focus on the fixed income investor base will continue to be supported by an active investor relations program to keep investors well informed on AEGON's strategy and results.

Funding strategy: assuring excellent access to international capital markets at low costs

Ratings
The current S & P, Moody's and Fitch insurance financial strength ratings and ratings outlook of AEGON's primary life insurance companies in AEGON's major country units are shown in the table below.

Negative changes in credit ratings may also increase AEGON's cost of funding. During 2006, Standard and Poor's maintained the credit ratings of AEGON N.V. at A+ with a stable outlook. Moody's Investor Service maintained the senior debt rating of AEGON N.V. at A2, with a stable outlook. On January 30, 2006, Fitch Ratings assigned AA- (double A minus) ratings to AEGON N.V.'s senior debt and A+ ratings to subordinated debt and perpetual securities.