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Rating Action:

MOODY'S LOWERS AEGON N.V.'S SENIOR DEBT RATINGS TO A2 FROM Aa3 WITH A NEGATIVE OUTLOOK; Aa3 INSURANCE FINANCIAL STRENGTH RATING ON AEGON'S U.S. OPERATING COMPANIES IS MAINTAINED WITH A STABLE OUTLOOK

12 Dec 2002
MOODY'S LOWERS AEGON N.V.'S SENIOR DEBT RATINGS TO A2 FROM Aa3 WITH A NEGATIVE OUTLOOK; Aa3 INSURANCE FINANCIAL STRENGTH RATING ON AEGON'S U.S. OPERATING COMPANIES IS MAINTAINED WITH A STABLE OUTLOOK

Scottish Equitable's IFSR lowered to A1 with a stable outlook.

Paris, December 12, 2002 -- Moody's Investors Service today lowered to A2 from Aa3, and to A3 from A1, the senior and subordinated debt ratings respectively of Aegon N.V. (Aegon), and of its guaranteed subsidiaries (see below for detailed list of ratings affected). Aegon's short-term debt ratings were confirmed at Prime-1. All debt ratings have a negative outlook. Moody's also lowered the insurance financial strength rating of Scottish Equitable Life plc's Long Term Fund to A1 from Aa2 with a stable outlook. Finally, the Aa3 insurance financial strength ratings and Prime-1 short-term insurance financial strength ratings of the US life insurance subsidiaries of Aegon, as well as their Aa3 funding agreement-backed medium term notes - which were not on review - were confirmed, and have a stable rating outlook. These actions conclude a rating review initiated last July, following Aegon's earnings revision for 2002. Moody's added that Transamerica Finance Corporation (TFC)'s ratings would be addressed in a separate press release.

Moody's commented that the downgrade of Aegon's long-term debt ratings reflected:

(i) The holding company's reduced financial flexibility arising from lower cash earnings generation at the group's main operating companies. This, coupled with the higher capital needs to support growth and to remedy the impact of lower equity markets on solvency has consumed additional cash resources.

(ii) The resulting increased risk for holding company creditors due to deterioration in the structural subordination of debt holders. Despite the measures being implemented by the group to bolster its capitalisation, debt holders have seen their access to cash resources diminished.

In addition, Moody's said that the decision also reflects its revised notching practice as applicable to insurance holding companies in the U.S., which is of particular relevance for Aegon given the large weight of its American operations.

Moody's pointed to the impact on Aegon U.S.A.'s 2002 cash earnings of significantly higher credit losses on its bond portfolio. This was compounded by declining equity markets, which have prompted provisions for guaranteed minimum death benefits (GMDB), as well as accelerated amortisation of deferred acquisition costs (DAC) because of lower margin expectations. At the same time, the group's core operations have enjoyed strong revenues, which in turn are leading to increased solvency requirements and cash needs to fund distribution costs. The adverse combination of these elements and the impact on solvency of lower equity markets, have hampered the operating units' internal capital generation and reduced their capacity to upstream dividends, while requiring additional capital contributions from the parent company.

As a result, the liquidity position of the holding company and its capacity to face its interest and dividend payments has significantly deteriorated compared to previous years. To mitigate this situation, Aegon has bolstered its equity and lowered its leverage through a €2.1 billion contribution from the Aegon Association, and through other measures thereby alleviating the existing strain on the company's liquidity by reducing on-going interest payments. Nevertheless, Moody's said that the maintenance of Aegon's credit strength remains predicated on improvement in its operating earnings and on lower capital requirements arising from the group's activities. Moody's added that the uncertainties prevailing with regard to the evolution of global capital markets and the economies where the group operates is likely to challenge Aegon's growth and profitability objectives.

Furthermore, Moody's said that at current levels, Aegon's debt ratings reflect the deeper structural subordination of debt holders, as well as the closer relationship existing between the insurance financial strength of Aegon's U.S. operations and the group's credit strength, reflecting the importance the U.S. operations have gained within the group in terms of revenue and earnings contribution.

Commenting on the lowering of Scottish Equitable's (SE) insurance financial strength rating, Moody's noted that, along with other UK Life insurers, SE continues to be adversely affected by the prolonged depression in the equity markets. The rating reflects the fact that SE receives significant support from Aegon and that Aegon has worked to ensure that SE maintains adequate levels of solvency and capitalisation. The two-notch downgrade at the parent level therefore impacts SE's insurance financial strength rating to the same degree.

Finally, Moody's said that the negative rating outlook on Aegon's debt is underpinned by the uncertainties that continue to exist with regard to the group's capacity to bolster the liquidity of its holding company, as the current environment continues to challenge earnings. Moody's indicated that, over the next few months, it will continue to monitor the evolution of the group's capitalisation, financial leverage, and the coverage of its debt service. A lack of improvement of cash operating earnings could trigger another ratings review.

Despite the group's challenges, Moody's noted that Aegon's ratings continue to reflect its strong global franchise and the quality of its core business units, and reflect the expectation that its management will continue to lower the group's financial risk profile.

The following ratings were lowered:

Aegon N.V. - senior debt and issuer rating at A2 from Aa3, subordinated and junior subordinated debt at A3 from A1;

Aegon Funding Corp. - senior debt guaranteed by Aegon N.V. at A2 from Aa3;

Aegon Funding Corp. II - senior debt guaranteed by Aegon N.V. at A2 from Aa3;

Commonwealth General Corporation - at A3 from A1;

Scottish Equitable plc Long Term Fund - insurance financial strength rating at A1 from Aa2;

Transamerica Corporation - senior debt at A3 from A1, preferred stock at Baa2;

Transamerica Capital I - preferred stock at Baa1 from A2;

Transamerica Capital II - preferred stock at Baa1 from A2;

Transamerica Capital III - preferred stock at Baa1 from A2.

The following ratings were confirmed:

Aegon N.V. - commercial paper at Prime-1;

Aegon Funding Corp. - commercial paper guaranteed by Aegon N.V. at Prime-1;

Transamerica Finance Corp - commercial paper guaranteed by Aegon N.V. at Prime-1;

Monumental Global Funding Limited - senior notes at Aa3;

Monumental Global Funding II - senior notes at Aa3;

AUSA Life Insurance Company - insurance financial strength at Aa3, short-term insurance financial strength at Prime-1;

Life Investors Insurance Co. of America - insurance financial strength at Aa3;

Stonebridge (formerly J.C. Penney) Life Insurance Company - insurance financial strength at Aa3;

Monumental Life Insurance Company- insurance financial strength at Aa3, short-term insurance financial strength at Prime-1;

Peoples Benefit Life Insurance Company - insurance financial strength at Aa3, short-term insurance financial strength at Prime-1, issuer rating at A1;

Transamerica Life Insurance and Annuity Company - insurance financial strength at Aa3, short-term insurance financial strength at Prime-1;

Transamerica Life Insurance Company - insurance financial strength at Aa3, short-term insurance financial strength at Prime-1;

Transamerica Occidental Life Insurance Company - insurance financial strength at Aa3, short-term insurance financial strength at Prime-1;

Western Reserve Life Assurance Co. of Ohio - insurance financial strength at Aa3.

Aegon N.V., headquartered in The Hague, Holland, is an international provider of life insurance, pension and investment products and reported consolidated total assets of €248 billion and shareholders' equity of €14.6 billion at September-end, 2002.

London
Mark Hewlett
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454

Paris
Jean-Luc Lepreux
Senior Vice President
Financial Institutions Group
Moody's France S.A.
33 1 53 30 10 20

No Related Data.
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