AM Best Affirms Credit Ratings of Aegon N.V.’s U.S. Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a+” (Excellent) 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) is stable. (See below for a detailed list of these companies.)

The ratings reflect Aegon USA’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management.

AM Best’s expectation is for Aegon USA to maintain its very strong balance sheet strength assessment with the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR). Some concerns remain with recent moderate volatility and continued pressure on the Aegon USA’s operating performance, which is supported by its underwriting and investment capabilities. The overall business profile remains favorable with having a longer-term strategic focus of building a less capital-intensive book of business, and the expected execution of the overall revised business plan objectives and subsequent transition. Aegon USA remains strategically important to its parent, Aegon.

Aegon USA’s quality of capital is diminished by its historical reliance on special purpose captives used to support unfunded redundant reserves generated from term life and universal life insurance with secondary guarantees, although lately the company has made a strong effort to reduce the overall exposure. Aegon USA has additional access to liquidity as a member of the Federal Home Loan Bank, 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.

Aegon USA’s operating performance for the first half of 2021 was positively affected by realized expense savings, higher equity markets and some normalization of claims, which were better than expected. These factors helped increase operating results by approximately 86% on overall segments versus prior year. Aegon USA’s volatility in earnings continues despite divestment of certain run-off blocks of business. While there is some continued volatility in Aegon USA’s operating performance, the U.S. entities maintain an underlying trend of profitability on a statutory and IFRS basis. AM Best notes that Aegon USA’s overall top-line growth has also been inconsistent, with direct premium declining as of late. Additionally, Aegon USA’s return on equity levels have further declined in 2020 from prior year, being below expectations with some volatility.

Aegon USA’s diverse product lines contribute to the company’s earnings, including traditional life, variable life, variable annuities, mutual funds, pensions, and accident and health insurance. There has been an increasingly challenging market environment in the U.S. employee benefits segment. AM Best notes that the company has made a strategic shift to focus on de-emphasizing spread-based products, particularly fixed annuities. As part of the de-risking strategy, certain variable annuities, fixed indexed annuities and long-term care businesses were closed during the first quarter of 2021. Further actions involve a lump-sum offer to buy out certain variable annuities with guaranteed minimum income benefit riders and the expansion of the dynamic hedge program to guaranteed minimum income and death benefit riders in the variable annuities business.

Aegon USA said it will consider options moving forward for the legacy variable annuity block as the economic value will have to make sense. The company currently has no immediate plans to move closed block businesses off the books, with additional potential earnings reductions going forward. AM Best also 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 Aegon USA’s portfolio includes some products viewed as less creditworthy by AM Best, the company benefits from good diversification geographically and by product type. Aegon USA’s business profile remains 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. Although unsuccessful execution of the newly announced strategic initiatives could potentially result in weakened earnings and business profile fundamentals, AM Best will continue to closely monitor the targeted strategic objectives set forth across the whole organization.

The FSR of A (Excellent) and the Long-Term ICRs of “a+” (Excellent) have been affirmed with a stable outlook for the following members of the Aegon USA Group:

• Transamerica Life Insurance Company
• Transamerica Financial 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 Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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