CRO Forum Group Issues Tom Grondin CRO AEGON CEA Solvency II Conference Brussels – March 6, 2008

1. CRO ForumGroup IssuesTom GrondinCRO AEGONCEA Solvency II ConferenceBrussels – March 6, 2008

2. Panel question A Do you think it is necessary to introduce a revised group supervision system as proposed in Solvency II? B Should group supervision remain supplementary to solo supervision, as in Solvency I, or should it be at the same level as solo supervision? C Should the economic reality of the Group be recognized when determining its risk profile and capital requirements? D To what extent are diversification benefits expected to arise and should they be recognized?

3. CRO Forum response • Looking at the four principle objectives for Solvency II I Market integration II Policyholder protection III Competitive industry IV Effective regulation • These objectives can only be met if the system is based on the true economics and risks of the business • The economics of a standalone entity on a solo versus a group basis is no different to (Objectives I, II and III) • The economic differences in looking at lines of business within an entity on a solo or combined basis or • Within a line of business, a single policy on a standalone or pooled basis • The interdependences and efficiencies between diversification levels are real and must be taken into account (Objectives I and III) • Failure to reflect these consistently will result in barriers to entry, a non-level “playing field”, reduced transparency and many other problems

4. CRO Forum response (cont’d) • Supervision should be strong at the local and group level with effective coordination of all supervisors involved (Objectives II and IV) • Strong at local level because this is where business is transacted • Know the business, the market, the products, the people, the competitive environment, local operations including business and risk controls, interaction with group, etc. • Strong at group level because this is where the framework for operations is defined and oversight occurs • Know the management framework, risk framework (including internal models), corporate and risk governance, capital strategy, incentive system, risk limits, investment strategy, etc. • The extent of diversification benefits will vary by company • The proportion of diversification benefit between Level 1 (within risk type), Level II (between risk types), Level III (between line of businesses) and Level IV (between countries/legal entities) depends on the company • Each level is material and important • To limit one level, will disrupt a true economic and risk evaluation favoring some over others and prompt unprecedented financial engineering

5. Summary answer A Yes, it is necessary to introduce Group Supervision in Solvency II B Group Supervision should be at the same level as Solo Supervision and both should be strong C Yes, the full economics of the Group should be recognized in Solvency II for both risk and capital D Diversification benefits are important at all levels of any organisation and the amounts depend on company profile. All should be assessed and recognised. Otherwise, all four principle objectives for Solvency II will be violated!