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Rating Action:

Moody's affirms AEGON's ratings; maintains negative outlook

09 Jul 2010

London, 09 July 2010 -- Moody's Investors Service today affirmed the A3 senior debt and Baa2 subordinated debt ratings of AEGON N.V. ("AEGON") and the A1 insurance financial strength (IFS) ratings of AEGON's U.S. life insurance operating companies (collectively "AEGON USA"). Moody's maintains a negative outlook on all of AEGON's long-term ratings.

Moody's also affirmed the Prime-2 short term ratings for commercial paper of AEGON N.V and AEGON Funding Company LLC., and affirmed at Prime-1 the short-term IFS ratings of several AEGON USA subsidiaries. A complete list of ratings follows below.

Separately, Moody's has withdrawn the A1 insurance financial strength ratings and negative outlooks of Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York for business reasons. For more information, please refer to Moody's Withdrawal Policy on moodys.com.

Moody's said the affirmation of AEGON's ratings reflects the strong diversified franchise of the group, with leading positions in the US, the Netherlands and the UK, the strong and improving group capital position and good liquidity and ALM management. The affirmation also reflects the first signs of stabilisation of the group's profitability, which is slowly recovering, albeit remaining at a lower level than before the outset of the financial crisis.

The rating agency added that the negative outlook on the ratings reflects the existence of negative pressure from (i) the uncertainties related to the ultimate decision by the European Commission (EC) on the €3.0 billion State-aid received by AEGON in 2008 and (ii) the depressed group profits, which are expected to continue to be impacted by asset impairments and challenging economic environment in the short-term.

Commenting on the affirmation of ratings of AEGON's US operations, Moody's said that it continued to be based on the company's strong positions in the U.S. life and retirement services markets. "Despite the company's decision to exit and/or de-emphasize certain non-core businesses (i.e., institutional investment products, life reinsurance, certain annuity products), we expect AEGON USA to remain a solid, albeit somewhat smaller player in the U.S. over time." said Vice President and Senior Credit Officer, Laura Bazer. "Because these non-core businesses carry higher levels of risk than many of AEGON's traditional businesses, we view reduction in these exposures as a credit positive," the analyst added.

As concerns the UK and the Dutch business, the group enjoys a strong brand recognition and leading market positions with a good product diversification. Nevertheless the stand-alone fundamentals of the UK operation have suffered in 2009 both in terms of profitability and capital, and the group has recently announced a restructuring plan to address the unit's low profitability by cutting costs by 25% by end 2011 and focusing on selected business lines.

The group's capital position also recovered over the last 12 months with excess capital on their internal model of €3.7 billion at the end of the first quarter 2010, up €1.0 billion relative to the first quarter 2009, thanks to the various capital preservation initiatives undertaken by the group over the last few quarters.

NEGATIVE OUTLOOK

Commenting on the negative rating outlook, Moody's mentioned the uncertainties related to the ultimate decision by the EC on the €3.0 billion State-aid received by AEGON in 2008. Moody's noted that it continues to closely monitor the situation in this regard and expects that a decision may be reached within the next few months, at which time it will evaluate the rating implications of any deviations from the current strategy.

Separate from the uncertainty related to the EC outcome, AEGON still faces significant financial challenges in the coming quarters, particularly from its US operations. These include continuing above-average asset losses and depressed earnings in 2010, arising from structured real estate-related assets, commercial mortgage loans, and alternative investments; uncertainty about the disposal of the U.S. life reinsurance business; and high financial leverage and constrained coverage ratios on a consolidated AEGON basis. According to the rating agency, de-risking initiatives put in place to strengthen the group's financial profile, whilst beneficial in the long-term, will take some time to complete.

Moody's said that the following factors could prompt a downgrade of AEGON USA and AEGON N.V. ratings: (i) completion of the EC's review of AEGON's plans with substantially negative consequences for the group's business or financial profile, (ii) consolidated financial leverage exceeding 40% and earnings coverage below 4 times on an IFRS basis for a sustained period, or (iii) for the U.S. operations, pre-tax asset impairments above $2.0 billion in 2010 or a consolidated NAIC RBC ratio of less than 300%.

Moody's said that the following factors could move AEGON's outlook back to stable from negative: (i) completion of the EC's review of AEGON's plans with no adverse consequences to the group's business or financial profile, (ii) consolidated financial leverage in the mid 30% and earnings coverage in the 6-8x range on an IFRS basis, (iii) improved profitability with sustained return on capital (as defined by Moody's) in the mid single digits, and (iv) for the U.S. operations, pre-tax asset impairments of no more than $750 million in 2010 and a consolidated NAIC RBC ratio of at least 325% on a sustainable basis.

The following ratings were affirmed with a negative outlook:

- AEGON N.V.: Senior unsecured debt A3;

- AEGON Funding Company, LLC: guaranteed (by AEGON N.V.) senior unsecured debt A3;

- AEGON N.V.: perpetual capital securities and perpetual subordinated debt Baa2;

- Transamerica Capital II: trust preferred stock rating Baa3;

- Transamerica Capital III: trust preferred stock rating Baa3;

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

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

- Transamerica Life Insurance Company: long-term insurance financial strength rating A1;

- Transamerica Financial Life Insurance Company: long-term insurance financial strength rating A1;

- 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;

- 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 affirmed with a stable outlook:

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

- AEGON N.V.: short-term rating for commercial paper Prime-2;

- AEGON Funding Company, LLC: short-term rating for commercial paper Prime-2;

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

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

The following ratings were withdrawn

- Merrill Lynch Life Insurance Company: insurance financial strength rating at A1;

- ML Life Insurance Company of New York: insurance financial strength rating at A1;

The last rating action on the group's hybrids ratings was on May 25, 2010, when Moody's confirmed with a negative outlook the Baa2 long-term rating for the perpetual capital securities and perpetual subordinated securities of AEGON N.V. and the Baa3 long-term rating for the trust preferred securities of Transamerica Capital II and Transamerica Capital III.

The last rating action on AEGON N.V. took place on 17 February 2009, when Moody's downgraded AEGON N.V.'s senior debt to A3 from A2 and the insurance financial strength ratings of AEGON's U.S. life insurance operating companies to A1 from Aa3. In the same rating action, Moody's also downgraded to Prime-2 from Prime-1 the short term ratings for commercial paper of AEGON N.V and AEGON Funding Company LLC., and affirmed at Prime-1 the short-term IFS ratings of several AEGON USA subsidiaries.

The principal methodology used in rating AEGON N.V. and AEGON US was "Moody's Global Rating Methodology for Life Insurers", published in May 2010, which can be found on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating these issuers can also be found in the Rating Methodologies sub-directory on Moody's website.

Based in The Hague, Aegon N.V. had total assets amounting to €299 billion as at 31 December 2009 (YE 2008: €289 billion) and reported a net profit of €204 million in 2009 (2008: loss €1,082 million).

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

London
Antonello Aquino
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

New York
Laura Bazer
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms AEGON's ratings; maintains negative outlook
No Related Data.
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