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Rating Action:

Moody's affirms AEGON's US life subs at A1 IFS; outlook to stable from negative; upgrades Transamerica Capital II & III preferred stock to Baa2 (hyb) from Baa3 (hyb)

12 Aug 2011

New York, August 12, 2011 -- Moody's Investors Service today affirmed the A1 insurance financial strength (IFS) rating of the US life insurance subsidiaries of AEGON N.V. (AEGON -- senior debt at A3, stable) and changed their rating outlook to stable from negative (collectively, AEGON USA; see rating list, below). Separately, Moody's upgraded the preferred stock rating of Transamerica Capital II and III to Baa2 (hyb) from Baa3 (hyb) with a stable outlook. Other affiliated ratings were also affirmed with a stable outlook.

RATINGS RATIONALE

Moody's rating affirmation and change of outlook of AEGON's US life insurance subsidiaries to stable from negative reflect the positive impact on AEGON USA's financial profile of the completion of AEGON 's repayment of Dutch State capital in June 2011 and the related improvement of consolidated financial flexibility, as well as declining asset losses. In addition, AEGON USA continues to de-risk its business profile, including the recent closing of the previously-announced sale of part of its U.S. reinsurance business to SCOR (senior debt at A2, positive).

On June 15, 2011, AEGON repaid the last tranche of the €3.0 billion capital contribution it had received from the Dutch State in 2008. Moody's commented that AEGON was able to complete the Dutch State repayment ahead of the original deadline through a combination of rights issues and internal resources, without meaningfully weakening regulatory capital at AEGON USA. Although the US operating companies have been key contributors to AEGON's exit from state aid through the upstreaming of statutory dividends, Moody's believes AEGON USA has maintained healthy capital adequacy, with consolidated NAIC Risk-Based Capital ratio (excluding intercompany loans) of close to 400% at year-end 2010. The completion of the reinsurance sale to SCOR improved capital adequacy, through the generation of cash and the release of related reserves and capital.

AEGON's financial flexibility has also strengthened according to the rating agency, in terms of improvements in financial leverage and earnings coverage, as well as from completing the state capital repayment. This benefits AEGON USA, which is the group's single largest operating segment (and user of debt for its operations), accounting for roughly 50% of AEGON's consolidated assets at June 30, 2011 and almost 70% of its consolidated net income for the first six months of 2011. Financial leverage reduced to 31.3% at year-end 2010 from 39.3% at year-end 2009 and earnings coverage increased to 5.4x in 2010 from 0.3x in 2009 thanks to improving profitability. Nevertheless, total leverage remains high for the rating level at 51.7% at year-end 2010.

Moody's expects AEGON USA's asset impairments, largely from structured asset holdings (i.e., RMBS and CMBS) to continue to moderate in 2011, as they have in recent quarters. However, profitability is likely to remain flat to down in the remainder of 2011, in conjunction with the weak economy and volatile equity markets, and with AEGON USA's de-risking initiatives, which have reduced sources of earnings going forward.

HYBRIDS

Moody's upgraded to Baa2 (hyb) from Baa3 (hyb) the trust preferred stock ratings of Transamerica Capital II and III (not guaranteed by AEGON). The rating action was in conjunction with the upgrade of other hybrid securities at AEGON (see separate press release). Previously, Moody's rating of the trust preferred securities was 1-notch wider than Moody's standard notching, to reflect the risk of coupon deferral being requested by the European Commission (EC). The 1-notch upgrade and reversion to normal notching follows the full repayment of state aid and the consequent removal of the risk of coupon deferral from the EC.

RATING DRIVERS

Moody's said that the following factors could prompt a downgrade of AEGON USA's ratings: deterioration of AEGON USA's capital adequacy (i.e., combined NAIC RBC ratio of less than 300%, after adjustment for intercompany loans and reinsurance captives); investment losses above $750 million, pre-tax, in the U.S. in 2011; significant (>15%) reduction in pre-tax IFRS earnings; consolidated financial leverage exceeding 40% or earnings coverage below 4 times on an IFRS basis for a sustained period.

The rating agency added that the following factors could prompt an upgrade: NAIC RBC ratio of at least 350% on a sustainable basis (after adjustment for inter-company loans and reinsurance captives); return on capital consistently above 10%; and consolidated total leverage in the mid 30% range and earnings coverage consistently above 8x on an IFRS basis.

The following ratings were affirmed with a stable outlook:

- Transamerica Life Insurance Company: long-term insurance financial strength rating A1; short-term insurance financial strength rating at Prime-1;

- Transamerica Financial Life Insurance Company: long-term insurance financial strength rating A1; short-term insurance financial strength rating at Prime-1;

- Stonebridge Life Insurance Company: insurance financial strength rating A1;

- Western Reserve Life Assurance Co of Ohio: insurance financial strength rating A1;

- Monumental Life Insurance Company: long-term insurance financial strength rating A1; short-term insurance financial strength rating at Prime-1;

- Commonwealth General Corporation: guaranteed (by AEGON N.V.) senior unsecured debt (MTN program) A3;

- Transamerica Finance Corporation: guaranteed (by AEGON N.V.) senior unsecured debt A3;

- Monumental Global Funding Limited: long-term secured program rating A1;

- Monumental Global Funding II: long-term secured program rating A1;

- Monumental Global Funding III: long-term secured program rating A1.

The following ratings were upgraded and assigned a stable outlook:

- Transamerica Capital II and III: preferred stock rating to Baa2 (hyb) from Baa3 (hyb).

The principal methodology used in rating AEGON USA was "Moody's Global Rating Methodology for Life Insurers" published in May 2010.

Both AEGON USA and the two Transamerica Capital affiliates are indirectly owned subsidiaries of the AEGON N.V. At March 31, 2011, AEGON USA had consolidated total statutory assets of close to $190 billion and consolidated statutory surplus of approximately $8 billion.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations. Please see Moody's website at www.moodys.com/insurance for more information.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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New York
Laura Bazer
VP - Senior Credit Officer
Life and Health Insurance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Robert Riegel
MD - Insurance
Life and Health Insurance Group
Moody's Investors Service, Inc.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms AEGON's US life subs at A1 IFS; outlook to stable from negative; upgrades Transamerica Capital II & III preferred stock to Baa2 (hyb) from Baa3 (hyb)
No Related Data.
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