AM Best Downgrades Credit Ratings of Aegon N.V.’s U.S. Subsidiaries
September 12 2019 - 10:14AM
Business Wire
AM Best has downgraded the Financial Strength Rating
(FSR) to A (Excellent) from A+ (Superior) and the Long-Term Issuer
Credit Ratings (Long-Term ICR) to “a+” from “aa-” of the U.S.
life/health subsidiaries of Aegon N.V. (Aegon) (Netherlands) [NYSE:
AEG]. Aegon’s U.S. life/health companies are referred to
collectively as Aegon USA Group (Aegon USA). The outlook of these
Credit Ratings (ratings) have been revised to stable from negative.
(See below for a detailed list of these companies.)
The ratings reflect Aegon USA’s balance sheet strength, which AM
Best categorizes as very strong, as well as its adequate operating
performance, favorable business profile and appropriate enterprise
risk management.
The downgrades reflect a deterioration in AM Best’s assessment
of Aegon’s consolidated operating performance. AM Best specifically
notes that Aegon’s operating performance has been characterized by
relatively flat top-line trends, together with returns on equity
that do not compare favorably with its similarly-rated European
peers.
The ratings of Aegon USA reflect that its U.S. operations
maintain the strongest level of risk-adjusted capitalization, as
measured by Best’s Capital Adequacy Ratio (BCAR), although the
quality of capital is diminished from the historical reliance on
special purpose captives to finance reserves generated from term
life and universal life insurance with secondary guarantees. Aegon
USA has additional access to liquidity as a member of the Federal
Home Loan Banks, which together with its access to capital markets
provides Aegon USA with substantial financial flexibility. While
the asset allocation within Aegon USA’s investment portfolio is
typical for the U.S. life industry, there is some continued
exposure to higher risk assets.
Current year operating performance was affected by lower fee
revenue due to declining equity markets along with unfavorable
mortality experience and adverse persistency, but offset by
aggressive expense reductions. The ratings also reflect Aegon USA’s
continued profitability with good margins on new business.
Aegon USA’s product lines contribute to the company’s
diversified earnings, including traditional life, variable life,
variable annuities, mutual funds, pensions and accident and health
insurance. While there is some volatility in Aegon USA’s operating
performance, the U.S. entities maintain an underlying trend of
profitability on both a statutory and IFRS basis. 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. AM Best
notes that overall top-line growth has been inconsistent, with
direct premium declining in each of the past three years, even
though ordinary life insurance premiums have grown modestly in the
same period. Additionally, returns on equity have been generally in
line with industry averages, albeit with some volatility. Aegon
USA’s business profile continues to remain favorable, with
competitive market positions in the U.S. life and annuity arenas,
supported by a large and diversified distribution system and an
integrated worksite strategy that leverages the group’s broad
market presence.
There has been increasing commercial momentum in the United
States, with some new business expense strain from the individual
life business, along with a challenging market environment in
employee benefits. AM Best notes that the company has made a
strategic shift to focus more heavily on fee-based products,
especially variable annuities, and has de-emphasized spread-based
products, particularly fixed annuities. However, AM 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.
Although the portfolio includes some products viewed as less
creditworthy by AM Best, Aegon USA enjoys good diversification
geographically and by product type.
The FSR has been downgraded to A (Excellent) from A+ (Superior)
and the Long-Term ICRs have been downgraded to “a+” from “aa-” for
the following members of the Aegon USA Group:
- Transamerica Life Insurance Company
- Transamerica Financial Life Insurance Company
- Transamerica Premier Life Insurance Company
This press release relates to Credit Ratings that have been
published on AM 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 AM Best’s Recent Rating
Activity web page. For additional information regarding the use and
limitations of Credit Rating opinions, please view Understanding
Best’s Credit Ratings. For information on the proper media use of
Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.
AM Best is a global rating agency and information provider
with a unique focus on the insurance industry. Visit www.ambest.com
for more information.
Copyright © 2019 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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Igor Bass Financial Analyst +1 908 439 2200, ext.
5109 igor.bass@ambest.com
Thomas Rosendale Director +1 908 439 2200, ext.
5201 thomas.rosendale@ambest.com
Christopher Sharkey Manager, Public Relations
+1 908 439 2200, ext. 5159
christopher.sharkey@ambest.com
Jim Peavy Director, Public Relations +1 908 439
2200, ext. 5644 james.peavy@ambest.com
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