A.M. Best Affirms Ratings of Aegon N.V.’s U.S. Subsidiaries
April 19, 2016 by Best's News Service
Oldwick – A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the U.S. life/health subsidiaries of Aegon N.V. (Aegon) (Netherlands) [NYSE: AEG]. Aegon’s U.S. life/health companies are collectively referred to as Aegon USA Group (Aegon USA). Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and the ICR of “a” of Transamerica Casualty Insurance Company (Transamerica Casualty) (Columbus, OH), the property/casualty member of Aegon USA. The outlook for each rating is stable. (See below for a detailed listing of the companies and ratings.)
The rating affirmations of Aegon USA reflect the strong business profile, adequate risk-adjusted capitalization, strong enterprise risk management and an underlying trend of statutory and IFRS profitability. The ratings also reflect A.M. Best’s continued expectation of financial support from Aegon, the parent. Partially offsetting these strengths is the increasing focus on sales of variable annuities, which in A.M. Best’s view have higher risk characteristics from a product creditworthiness standpoint. Equity market sensitivity of its earnings and significant reliance on captive reinsurance also partially offset the group’s strengths.
Aegon USA’s business profile continues to remain strong, with competitive market positions in the U.S. life and annuity arena. The group’s market positions are supported by a large and diversified distribution system. Product lines that contribute to the company’s earnings diversification include traditional life, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), is considered sufficient to support its current business and insurance risks. While volatility does exist in the operating profile of Aegon USA, the U.S. entities continue to maintain an underlying trend of profitability on a statutory and IFRS basis.
The company has made a strategic shift to focus on selling fee-based products, especially variable annuities, and has de-emphasized spread-based products, particularly fixed annuities. In a relatively stable capital market environment, the required capital on variable annuities is generally less than that required for the fixed annuity/spread-based products. However, A.M. Best views variable annuities with living benefit riders as displaying some of the highest risk characteristics, as well as being vulnerable to tail risks, which could lead to an increase in required capital. In addition, the organization’s increasing exposure to variable annuities exposes its earnings to volatility, and while hedged, Aegon USA’s earnings remain somewhat correlated to capital market performance. A.M. Best also notes that Aegon USA has relied heavily on captive reinsurance to finance reserves generated from term life and universal life insurance with secondary guarantees. Financing provided to these captives include, but are not limited to, surplus notes, letters of credit and parental guarantees.
The rating actions on Transamerica Casualty acknowledge its ongoing profitability, its role and strategic importance as a member of Aegon USA, the explicit reinsurance support provided by Transamerica Life Insurance Companyand the benefits of receiving implied support if necessary in the future. In addition, the ratings recognize Transamerica Casualty’s strong capitalization, the benefits it gains from relationships with affiliates and management’s knowledge and expertise in the travel insurance market. The stable outlook reflects the continuation of operating profitability, expected favorable earnings opportunities, established business partnerships and a commitment to maintain a level of capitalization that is supportive of its ratings. A.M. Best believes Transamerica Casualty is well-positioned at its current rating level.
The FSR of A+ (Superior) and the ICRs of “aa-” have been affirmed for the following members of Aegon USA Group:
- Transamerica Life Insurance Company
- Transamerica Financial Life Insurance Company
- Transamerica Premier Life Insurance Company
- Transamerica Advisors Life Insurance Company
The FSR of A (Excellent) and the ICR of “a” have been affirmed for Transamerica Casualty Insurance Company.
This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activityweb page.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.
