AM Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of "a+" (Excellent) of the U.S. life/health (L/H) subsidiaries of Aegon N.V. (Netherlands) (NYSE:AEG). Aegon's U.S. L/H companies are Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company and referred to collectively as Aegon USA Group (Aegon USA). The outlook of these Credit Ratings (ratings) is stable.
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.
Aegon N.V., Aegon USA's ultimate parent, announced on Oct. 27, 2022, that it has reached an agreement to sell its Dutch pension, life and non-life insurance, banking, and mortgage origination operations to ASR Nederland N.V. At present time, AM Best expects this transaction to have a minimal impact to the group's overall U.S. operations and will continue to monitor the developing transaction closely for any significant changes to the overall strategic focus of Aegon USA.
AM Best expects Aegon USA to maintain its very strong balance sheet strength assessment in the near term, with the strongest level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR). The recent equity market volatility and realized losses in the fixed income portfolio were related to divestments made to protect the liquidity position, which pressured operating performance and drove down the group's risk-adjusted capitalization. Additionally, the group reported lower fee income as a result of declining
account value balances, which was offset by expense savings and normalization of claims through the most current reporting quarter. Moreover, the mortality experienced as of June 30, 2022, attributed to COVID-19, was less impactful than expected. Earnings volatility continues despite divestment of certain run-off blocks of business, and AM Best notes that Aegon USA's overall top-line growth has been inconsistent, where direct premium declined in 2021; however, premium has shown signs of a rebound through mid-year 2022.
Aegon USA's overall business profile remains favorable with a longer-term strategic focus of building a less capital-intensive book of business, driven by targeted growth and strategic exits in certain lines. The group's diverse product range contributes to operating earnings, which include traditional life, variable life, variable annuities, mutual funds, pensions, and accident and health insurance. The company benefits from good diversification geographically and by product type. Additionally, 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.
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