AEGON USA Group Primary Credit Analyst: Robert A Hafner, New York (1) 212-438-7216; [email protected]Secondary Contacts: Sanjay Joshi, London (44) 20 7176 7087; [email protected]Donald H Chu, Toronto (1) 416-507-2506; [email protected]Table Of Contents Major Rating Factors Rationale Outlook Competitive Position: Diverse Lines Of Business With Scale And Strong Distribution Capabilities Management And Corporate Strategy: A Wide Array Of Product And Distribution Capabilities That Meets A Variety Of Needs Enterprise Risk Management: Strong Accounting Operating Performance: Diverse Sources Of Earnings That Are Subject To Market-Related Volatility Investments And Liquidity: A Well-Diversified And Highly Liquid Portfolio With Some Exposure To Stressed Asset Classes Capitalization: Derisking And Dividend Limitations Help Maintain Capital Adequacy Financial Flexibility: Strong Related Criteria And Research January 30, 2012 www.standardandpoors.com/ratingsdirect 1 934358 | 300354354
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AEGON USA GroupPrimary Credit Analyst:Robert A Hafner, New York (1) 212-438-7216; [email protected]
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AEGON USA Group
Table 6
AEGON USA Group/Liquidity And Reserves Statistics (cont.)
Other 6.03 5.97 7.45 28.86 29.67
Liquidity ratio (%) 447.56 393.80 N.A. 267.94 251.98
N.A.--Not applicable.
Capitalization: Derisking And Dividend Limitations Help Maintain CapitalAdequacy
AEGON USA's very strong capital adequacy supports its U.S. operations. Based on our models, capital adequacy
was slightly redundant at the 'AA' confidence level as of year-end 2010. However, we estimate that capital adequacy
was deficient at the 'AA' confidence level by as much as $1 billion as of year-end 2011. Though AEGON USA
continues to derisk the balance sheet and to carefully manage dividends to the holding company, the adverse equity
and interest rate movements in the last few months of 2011 resulted in increased risk and decreased capital
adequacy within the firm's U.S. operations. Capital redundancies elsewhere within AEGON N.V.'s global
operations continue to ensure that consolidated capital adequacy remains redundant at the 'AA' confidence level
expected for the ratings.
AEGON N.V. remains strongly committed to restoring its key U.S. operation's stand-alone capital adequacy to 'AA'
confidence levels during 2012. Since the financial crisis, the group has demonstrated its commitment through its
significant derisking initiatives in 2008 and 2009, as well as its curtailing of dividends to the parent holding
company. In addition, AEGON also implemented a macro hedge to mitigate the impact of market volatility on
reserve and capital requirements for variable annuity guarantees, wound down its institutional spread business to
reduced its exposure to credit and interest rate risk, and reduced its investments in hedge funds, which incur a
relatively high capital charge. We expect that the group will achieve this goal in 2012, partly by ongoing derisking
that will reduce capital requirements, as well as with strong underlying earnings. We also expect significant
dividends from the U.S. operations in 2012, limited only by the group's intent to restore AEGON USA's capital
adequacy to levels that support its 'AA' confidence level targets.
During 2010 and 2011, AEGON USA paid significant dividends to the holding company in order to facilitate
repayment of the Dutch State aid it received during the financial crisis. These dividends were partially funded by the
sale of Transamerica Re in 2011. In addition to ongoing derisking that will reduce capital requirements, we expect
significant dividends from the U.S. operations in 2012 limited only by the group's intent to restore AEGON USA's
stand-alone capital adequacy to levels that support its 'AA' confidence level targets.
Table 7
AEGON USA Group/Capitalization Statistics
--Year ended Dec. 31--
2010 2009 2008 2007 2006
Total assets (mil. $) 187,722.7 179,951.8 179,638.2 158,271.3 139,560.6
General account assets (mil. $) 107,191.7 108,772.9 119,728.1 81,431.4 78,909.5
Total liabilities excluding separate accounts (excluding asset valuation reserve) (mil. $) 98,013.1 99,179.4 110,348.1 108,433.2 108,574.0
Total adjusted capital (including asset valuation reserve) (mil. $) 9,279.1 9,684.5 9,461.1 6,095.7 6,116.7
Unrealized capital gains (mil. $) 201.9 (724.6) (257.8) 767.7 857.2
Capital adequacy ratio (%) A A N.A. N.A. 116.2
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Table 7
AEGON USA Group/Capitalization Statistics (cont.)
Company action level to NAIC risk-based capital ratio (%) 398.4 394.5 414.0 172.5 194.3
High-risk assets to total adjusted capital ratio (%) 122.0 131.9 147.0 229.2 254.9
Surplus from operating earnings after dividends (%) 152.8 132.7 95.5 (292.0) (259.6)
Stockholder dividends/net income (mil. $) 223.0 179.0 157.3 103.4 90.5
Net premiums to gross premiums (%) 73.4 68.7 64.8 72.7 69.1
Net reserves to gross reserves (%)* 74.8 79.5 78.3 129.4 133.3
Stockholders' dividends (mil. $) 2,307.0 553.7 1,088.4 2,115.8 473.9
Stockholders' dividends to net operating income (%) 204.4 26.6 (97.1) 292.1 125.3
*Includes annuity and fund deposits. N.A.--Not applicable.
Financial Flexibility: Strong
AEGON USA derives its strong financial flexibility from a track record of statutory earnings and organic capital
generation, its demonstrated ability to finance regulations XXX and AG38 (AXXX) reserve requirements through a
variety of means, and its parent, AEGON N.V.
Our assessment of AEGON's financial flexibility improved after it repaid its debt to the Dutch State. Although the
constraints linked to its European Commission (EC)-agreed restructuring plan have been lifted, AEGON's
commitments to the EC relating to the structure of its balance sheet will persist through year-end 2012.
In our view, financial flexibility remains an area of relative weakness in AEGON N.V's rating profile, reflecting its
ongoing EC commitments; its relatively low fixed-charge cover ratios, which we believe are sustainable in the 3x-5x
range, compared with the 5x-7x achieved before 2008; and its limited capacity for additional debt and equity issues.
Partially mitigating these constraints are the company's limited need for capital, which is likely to be restricted to
funding the €1 billion senior bond that matures in April 2012. We assume that the absolute amount of leverage on
AEGON N.V.'s balance sheet will not increase over the next two years and its fixed-charge cover will remain at
approximately 4x in both 2011 and 2012.
Related Criteria And Research
• Use Of CreditWatch And Outlooks, Sept. 14, 2009
• Holding Company Analysis, June 11, 2009
• Group Methodology, April 22, 2009
• Interactive Ratings Methodology, April 22, 2009
• Hybrid Capital Handbook: September 2008 Edition, Sept. 15, 2008
Ratings Detail (As Of January 30, 2012)
Operating Companies Covered By This Report
Monumental Life Insurance Co.
Financial Strength Rating
Local Currency AA-/Stable/A-1+
Counterparty Credit Rating
Local Currency AA-/Stable/A-1+
Standard & Poors | RatingsDirect on the Global Credit Portal | January 30, 2012 12
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AEGON USA Group
Ratings Detail (As Of January 30, 2012) (cont.)
Stonebridge Life Insurance Co.
Financial Strength Rating
Local Currency AA-/Stable/--
Issuer Credit Rating
Local Currency AA-/Stable/--
Transamerica Advisors Life Insurance Co.
Financial Strength Rating
Local Currency AA-/Stable/--
Issuer Credit Rating
Local Currency AA-/Stable/--
Senior Unsecured (2 Issues) AA-
Transamerica Advisors Life Insurance Co. of NY
Financial Strength Rating
Local Currency AA-/Stable/--
Issuer Credit Rating
Local Currency AA-/Stable/--
Senior Unsecured (1 Issue) AA-
Transamerica Financial Life Insurance Co.
Financial Strength Rating
Local Currency AA-/Stable/A-1+
Issuer Credit Rating
Local Currency AA-/Stable/A-1+
Transamerica International Re (Bermuda) Ltd.
Financial Strength Rating
Local Currency AA-/Stable/--
Issuer Credit Rating
Local Currency AA-/Stable/A-1+
Transamerica Life (Bermuda) Ltd.
Financial Strength Rating
Local Currency AA-/Stable/--
Transamerica Life Insurance Co.
Financial Strength Rating
Local Currency AA-/Stable/A-1+
Issuer Credit Rating
Local Currency AA-/Stable/A-1+
Western Reserve Life Assurance Co. of Ohio
Financial Strength Rating
Local Currency AA-/Stable/--
Issuer Credit Rating
Local Currency AA-/Stable/--
Related Entities
AEGON N.V.
Issuer Credit Rating A-/Stable/A-2
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AEGON USA Group
Ratings Detail (As Of January 30, 2012) (cont.)
Commercial Paper
Local Currency A-2
Junior Subordinated (9 Issues) BBB
Senior Unsecured (9 Issues) A-
Subordinated (1 Issue) A-
Domicile Iowa
*Unless otherwise noted, all ratings in this report are global scale ratings. Standard & Poor's credit ratings on the global scale are comparable across countries. Standard
& Poor's credit ratings on a national scale are relative to obligors or obligations within that specific country.
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AEGON USA Group
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