AUGUST 22, 2018 11:33 AM (EDT)
A.M. Best Affirms Credit Ratings of Aegon N.V.’s U.S. Subsidiaries
|Igor Bass |
Financial Analyst II
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Manager, Public Relations
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Director, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK - AUGUST 22, 2018 11:33 AM (EDT)
A.M. Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the U.S. life/health (L/H) subsidiaries of Aegon N.V. (Aegon) (Netherlands) [NYSE: AEG]. Aegon’s U.S. L/H companies are collectively referred to as Aegon USA Group (Aegon USA). The outlook of these Credit Ratings (ratings) remains negative. (See below for a detailed list of these companies.)
The ratings reflect Aegon USA’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, favorable business profile and appropriate enterprise risk management. The ratings also reflect the strength and support of Aegon.
The negative outlooks reflect A.M. Best’s ongoing concerns regarding Aegon’s credit profile. Specifically, A.M. Best notes that Aegon’s operating performance has been characterized by relatively flat top-line trends, together with return on equity (ROE) that does not compare favorably with its similarly rated European peers.
The rating affirmations of Aegon USA reflect the strongest level of risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), although the quality of the group’s capital is diminished somewhat by the significant reliance on special purpose financial 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 the capital markets, provides the group with substantial financial flexibility. While the asset allocation within Aegon USA’s investment portfolio is not atypical for the U.S. life industry, there is some exposure to higher risk assets.
The rating affirmations also reflect Aegon USA’s continued profitability with good margins on new business, which should continue to improve as a result of aggressive expense reductions. Aegon USA’s product lines contribute to the company’s diversified earnings, including traditional life, variable life, variable annuities (VA), mutual funds, pensions and accident and health insurance. While volatility exists in Aegon USA’s operating performance, the U.S. entities continue to maintain an underlying trend of profitability on a statutory and IFRS basis. In addition, the organization’s increasing exposure to VAs exposes its earnings to volatility, and while hedged, Aegon USA’s earnings remain somewhat correlated to capital market performance. A.M. Best notes that overall top-line growth has been inconsistent, with direct premium declining in each of the past three years. Additionally, ROE has 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. The group’s market positions are supported by a large and diversified distribution system. A.M. Best notes that the company has made a strategic shift to focus on selling fee-based products, especially VAs, and has de-emphasized spread-based products, particularly fixed annuities. In a relatively stable capital market environment, the required capital on VAs is generally less than that required for the fixed annuity/spread-based products. However, A.M. Best views VAs with living benefit riders as displaying some of the highest risk characteristics and 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 A.M. Best, the group benefits from good diversification geographically and by product type.
The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed for the following members of Aegon USA Group:
This press release relates to Credit Ratings 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 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 A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.
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