A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and 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). In addition, A.M. Best has affirmed the debt ratings of "aa-" on the outstanding notes issued under the funding agreement-backed securities (FABS) programs of Monumental Global Funding Limited and Monumental Global Funding III (all of Cedar Rapids, IA), and sponsored by Monumental Life Insurance Company, a member of Aegon USA. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a" of Stonebridge Casualty Insurance Company (Stonebridge Casualty) (Columbus, OH), the property/casualty member of Aegon USA.

A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of "a-" of Transamerica Life Canada (TLC), a wholly owned subsidiary of Aegon, as well as the FSR of A (Excellent) and ICR of "a" of TLC's subsidiary, Canadian Premier Life Insurance Company (CPL) (both of Toronto, Ontario). The outlook for all ratings is stable. (See below for a detailed listing of the companies and ratings.)

The rating affirmations of Aegon USA reflect its favorable underlying earnings performance and risk-adjusted capitalization. While the International Financial Reporting Standards' (IFRS) net income for Aegon Americas (which includes its U.S., Canadian and Latin American operations) was modest at $379 million through September 30, 2013, the underlying earnings trends remained strong. Aegon Americas' IFRS net income has been negatively impacted by fair value items, including one-time charges related to the adoption of updated long-term economic assumptions. Aegon USA recorded U.S. statutory net income of $824 million through September 30, 2013. The organization's risk-adjusted capitalization remains strong and is significantly higher than historical levels.

Aegon USA's stand-alone credit profile considers its strong market position in a number of U.S. life and annuity market segments, its large multi-channel distribution platform, diversified sources of earnings and strong positive cash flows. The organization also benefits from meaningful economies of scale, strong brand name recognition and effective asset/liability and liquidity management. Aegon USA's ratings also recognize A.M. Best's assessment of the financial strength and support of Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon's overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon.

A.M. Best notes that Aegon USA has taken various initiatives to de-risk its balance sheet and improve its risk profile. The quality of its investment portfolio has been upgraded by reducing hedge fund holdings and increasing positions in treasuries and other short-term investments. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) remains in run off to reduce exposure to credit risk, lower required capital and shift to a more balanced mix of business between spread and fee-based products. Furthermore, the group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. Aegon USA also has reduced its exposure to equity market risk by increasing the size of the macro hedge covering its variable annuity business.

Despite Aegon USA's improved risk profile, A.M. Best notes the possibility of additional material credit losses within its general account investment portfolio. Although IFRS asset impairments have continued to decline over recent years, additional realized losses and impairments are likely to continue given Aegon USA's sizable structured asset portfolio and exposure to direct commercial real estate.

In addition, the organization's substantial variable annuity portfolio exposes its earnings to volatility, as declines in the capital markets would translate to lower fee income and higher required reserves on secondary guarantees. While the additional equity hedging will serve to reduce volatility, Aegon USA's earnings remain somewhat correlated to capital market performance.

The ratings of TLC recognize the enhanced scope of its overall business profile through market positions maintained in its core business lines, its multi-channel distribution platform, reduced risk profile, profitable operations and adequate capitalization. Moreover, the ratings also consider the financial flexibility TLC enjoys as an indirect subsidiary of Aegon as evidenced by the significant historical financial support afforded it over recent years. A.M. Best views positively TLC's enhanced risk management practices, including its more comprehensive hedging strategies, its decision to exit portions of its segregated funds product offerings for new business as well as its return to profitability in 2012. As a result, TLC and CPL receive rating enhancement in consideration of Aegon's overall creditworthiness and the strategic and financial importance of the Canadian life operations to Aegon.

The rating actions on Stonebridge Casualty acknowledge its sustained profitability, its role and strategic importance as a member of Aegon USA, the explicit reinsurance support provided by Stonebridge Life Insurance Company (Rutland, VT), as well as the benefits of receiving implied support if this is necessary in the future. In addition, the ratings recognize Stonebridge Casualty's excellent capitalization, the synergies it gains from affiliates in the United States as well as management's knowledge, specialty niche expertise and established market position in the travel insurance market. The outlook reflects the continuation of operating profitability, expected revenue and profits to be gained from newly established business partnerships as well as a commitment to maintain a level of capitalization that is supportive of its ratings. A.M. Best believes Aegon USA, TLC and CPL are well positioned at their current rating levels.

Factors that could result in negative rating actions for these entities include a significant and sustained decline in their consolidated risk-adjusted capitalization as measured by Best's Capital Adequacy Ratio (BCAR), net operating performances that do not meet A.M. Best's expectations, a decline in the creditworthiness of Aegon or a deterioration in A.M. Best's view of the strategic importance of these entities to Aegon.

The FSR of A+ (Superior) and ICRs of "aa-" have been affirmed for the following members of Aegon USA Group:

  • Transamerica Life Insurance Company
  • Transamerica Financial Life Insurance Company
  • Western Reserve Life Assurance Co. of Ohio
  • Monumental Life Insurance Company
  • Stonebridge Life Insurance Company
  • Transamerica Advisors Life Insurance Company
  • Transamerica Advisors Life Insurance Company of New York

The following debt ratings have been affirmed:

Monumental Global Funding Limited--"aa-" program rating
-- "aa-" on all outstanding notes issued under the program

Monumental Global Funding III--"aa-" program rating
-- "aa-" on all outstanding notes issued under the program

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Robert Adams, 908-439-2200, ext. 5225
Managing Senior Financial Analyst
robert.adams@ambest.com
or
Thomas Rosendale, 908-439-2200, ext. 5201
Assistant Vice President
thomas.rosendale@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com