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Announcement:

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

Global Credit Research - 18 Aug 2010

London, 18 August 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.

Moody's affirmation follows the approval by the European Commission (EC) in respect of AEGON's EUR3.0 billion recapitalisation received from the Dutch State in the last quarter of 2008. As part of this approval, AEGON will implement further changes to its activities to rebalance its business model. Moody's affirmation of the group's A3 senior debt ratings reflects the rating agency's view that most of the measures required by the EC are in line with the previously announced strategy of the group.

In particular, the USD25 billion reduction in the U.S. subsidiaries' general account assets from the year-end 2007 level should be achieved over the next two years given the previously announced run-off of the institutional spread business and de-emphasis of fixed annuities in the U.S. Similarly, the increase in the hedging program on the U.S. back-book variable annuity business was already announced by the group as a part of its strategic re-orientation.

Antonello Aquino, Moody's lead analyst for AEGON, commented, "We continue to believe that these de-risking initiatives are beneficial for the group's overall credit profile given the deleveraging and reduced sensitivity of both earnings and capital to financial market volatility, despite the group's diminished earnings diversification".

As part of the agreement with the EC, AEGON also announced that it will shortly repay another EUR500 million of the original EUR3 billion capital received from the Dutch State (leaving EUR1.5 billion outstanding). Moody's noted positively that the premium payable by AEGON on this EUR500 million tranche was reduced from the original 50% (EUR250 million additional payment), to approximately 10% (EUR52 million).

However, the rating agency noted the group's decision to repay this tranche from existing internal resources, reducing the group's level of excess capital and adding to the reduction of excess capital of about EUR640 million reported in the second quarter of 2010, mainly as a result of assumption changes in the capital model. Mr. Aquino noted, "While the group currently maintains a robust level of regulatory capital under Solvency I, we remain cautious about the group's capitalisation under the future capital regime of Solvency II, set for implementation at the end of 2012".

Moody's affirmation of the group's Baa2 subordinated debt ratings reflects the EC's decision not to force coupon deferral on these securities as part of its approval of AEGON's State-aid package.

However, given the restructuring of the group and the continued presence of state aid capital, the agency believes that there is still some remote risk of coupon deferral on these securities. In addition, Moody's notes that if the group is not able to comply with the terms agreed with the EC, there remains some risk that AEGON's state aid approval may be re-opened. Consequently, the notching on the subordinated debt securities (relative to the senior debt securities) is 1-notch wider than typically seen for other insurance groups that have not received government aid.

Moody's negative outlook on AEGON reflects continuing pressure on the group's capitalisation, particularly in its key U.S. operation, given AEGON's commitment to fully repay the Dutch government by June 2011. The agency will continue to monitor the capital position both at the group and operating companies level and the source of financing the company intends to use to repay the remaining State-aid capital. In addition, Moody's expects the group's profitability, albeit having improved more recently and showing signs of stabilisation, to remain somewhat depressed (relative to historical earnings) in future quarters.

Other previously-cited factors contributing to the negative outlook are the constrained coverage ratios on a consolidated AEGON basis and uncertainty related to the restructuring situation of the group, specifically concerning the disposal of the U.S. life reinsurance business and restructuring of the UK operation.

Given the negative outlook on AEGON, Moody's said that the following factors could prompt a downgrade of AEGON N.V. and AEGON USA ratings: (i) deterioration of AEGON NV and AEGON USA's capital adequacy (i.e., consolidated NAIC RBC ratio of less than 300%; (ii) consolidated financial leverage exceeding 40% and earnings coverage below 4 times on an IFRS basis for a sustained period; or (iii) investment losses above USD2 billion in the U.S. operations in 2010.

Conversely the following factors could move AEGON's outlook back to stable from negative: (i) completion of the repayment by AEGON of the remaining Dutch government aid by June 2011, without deterioration of capital adequacy at AEGON N.V. and AEGON USA (i.e., consolidated NAIC RBC ratio remaining above 325% on a sustainable basis; (ii) total asset impairments in 2010 of less than USD750 million in the US operations; (iii) improved profitability with a return on capital (as defined by Moody's) in the 4%-6% range in 2010; and (iv) consolidated financial leverage in the mid 30s and earnings coverage in the 6-8x range on a IFRS 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:

- 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 last rating action on AEGON N.V. took place on July 9, 2010, when Moody's affirmed the A3 senior debt and Baa2 subordinated debt ratings of AEGON N.V. and the A1 insurance financial strength ratings of AEGON's U.S. life insurance operating companies and maintained a negative outlook on all of AEGON's long-term ratings.

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

London
Simon Harris
MD - Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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