Moody's affirms Aegon's ratings; revises outlook to negative
New York, October 29, 2008 -- Moody's Investors Service has affirmed the A2 senior debt rating
of AEGON N.V., the holding company, and the
Aa3 insurance financial strength (IFS) ratings of AEGON USA's life
insurance operating companies (collectively "AEGON USA"), wholly
indirectly-owned subsidiaries of AEGON N.V..
The outlook on all ratings was revised to negative from stable.
The short-term ratings of AEGON N.V. and all subsidiaries
were affirmed. A complete list of ratings follows below.
The rating affirmations reflect Moody's view that the recently announced
3.0bn capital injection by the Dutch State provides a substantial
buffer to the Group to offset both the capital deterioration that has
occurred and that which Moody's anticipates will occur as the result
of future impairment in the investment portfolio. Moody's
expects that the funds will be used over time, to support strong
capitalization levels at the operating companies.
The negative outlooks for AEGON USA and AEGON N.V. are driven
by the risk that losses and impairments could exceed Moody's expectations.
In particular, in the US operation, there is still potential
for additional realized losses related to the sizeable portfolio of US
financial sector securities, residential mortgage-backed
securities and asset-backed securities, commercial mortgage-backed
securities, and alternative investments. In the current environment
these investments are largely illiquid and their market valuations continue
to decline. Moody's added that the ratings could be lowered
if realized losses reduce capital adequacy in the US to a level below
expectations for the current Aa3 rating - NAIC below 325%
- and if the financial leverage for AEGON N.V. exceeds
35% on a long-term basis.
On October 28, 2008, AEGON N.V.announced a preliminary
third-quarter 2008 net loss of approximately 350 million,
mostly driven by impairments in the fixed income portfolio -- and
largely from investments at AEGON USA - and underperformance of
fair value items. It also announced a 3.0 billion
capital injection from the Dutch State. The capital injection will
be arranged through an equity subscription by Vereniging AEGON ("the
Association"), with the Association's participation
itself funded by the Dutch State. The securities raised will qualify
as Core Tier 1 capital for AEGON N.V.
Moody's notes that despite good underlying insurance performance
- 3Q08 underlying earnings before-tax of approximately 500
million - the Group's bottom line profitability and capitalisation
have been weakened by the continuing asset-related losses.
Earnings, in particular, have been hit by impairments on US-held
fixed income exposures, with total impairment charges of approximately
400 million pre-tax. Reported shareholders'
equity has declined substantially to approximately 9.4 billion
in 3Q08 from 11.6 billion in 2Q08, driven by spread
widening and consequent declining revaluation reserves.
The rating agency notes that, in addition to the new capital buffer
provided by the Dutch State, the current ratings continue to reflect
the strength of AEGON USA's underlying business. The group
maintains leading positions in the US life insurance and asset accumulation
markets, benefiting from strong business and distribution diversification,
and solid liquidity.
The following ratings were affirmed with a negative outlook:
- AEGON N.V.: Senior unsecured debt at A2;
subordinated debt at A3; junior subordinated debt at A3;
- AEGON Funding Company, LLC: senior unsecured debt
at A2;
- Transamerica Corporation: preferred stock at Baa2.
- Commonwealth General Corporation: senior debt (MTN program)
at A2.
- Transamerica Life Insurance Company: long-term insurance
financial strength rating at Aa3;
- Transamerica Financial Life Insurance Company: long-term
insurance financial strength rating at Aa3;
- Western Reserve Life Assurance Co of Ohio: insurance financial
strength rating at Aa3.
- Transamerica International Re (Bermuda) Ltd.: insurance
financial strength rating at Aa3.
- Monumental Life Insurance Company: long-term insurance
financial strength rating at Aa3;
- Monumental Global Funding Limited: long-term program
rating at Aa3.
- Monumental Global Funding II: long-term program
rating at Aa3;
- Monumental Global Funding III: long-term program
rating at Aa3;
- Stonebridge Life Insurance Company: insurance financial
strength rating at Aa3;
- Merrill Lynch Life Insurance Company: insurance financial
strength rating at Aa3;
- ML Life Insurance Company of New York: insurance financial
strength rating at Aa3;
- Transamerica Capital II: preferred stock rating of Baa1;
- Transamerica Capital III: preferred stock rating of Baa1;
- Transamerica Finance Corporation: guaranteed (by Aegon
N.V.) senior debt rating at A2
The following ratings were affirmed with a stable outlook:
- AEGON N.V.: commercial paper at Prime-1;
- AEGON Funding Company, LLC: commercial paper at Prime-1;
- Transamerica Life Insurance Company: short-term
insurance financial strength rating at Prime-1;
- 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;
- Monumental Global Funding III: short-term program
rating at Prime-1.
Based in The Hague, Aegon N.V. had total assets amounting
to 296 billion at end-June 2008 (YE 2007: 314
billion) and reported a net profit of 429 million for the 6 months
ending June 2008 (end-June 2007: 1,362 million).
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