AM Best Affirms Credit Ratings of Members of Aegon Ltd.’s U.S. Subsidiaries
- AM Best affirms Aegon Ltd.'s U.S. life/health subsidiaries' Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings of “a+” (Excellent)
- Aegon USA's balance sheet strength is assessed as very strong, with strong operating performance and favorable business profile
- Aegon Ltd. reached an agreement to sell its Dutch operations and converted into a Bermuda Limited company
- Aegon USA's operating earnings have been positive with diversified product lines
- Aegon USA's overall top-line premium growth has been pressured in recent years
- The group does have interest rate sensitivity risk on its balance sheet
Insights
The affirmation of Aegon USA Group's Financial Strength Rating of A (Excellent) and Long-Term Issuer Credit Ratings of 'a+' by AM Best indicates a robust financial position. This is significant for investors and stakeholders since such ratings influence a company's ability to attract investment, secure favorable loan terms and maintain customer confidence. The stable outlook suggests a predictable performance trajectory, which is reassuring in volatile markets.
The sale of Aegon Ltd.'s European operations and its conversion into a Bermuda Limited company are strategic moves that could potentially streamline operations and reduce regulatory overhead. However, the realized losses in the fixed income portfolio due to divestments to maintain liquidity are a concern, as they have impacted the group's risk-adjusted capitalization. This demonstrates the importance of liquidity management in maintaining financial stability.
The diversification of earnings across various product lines and the strategic shift towards a less capital-intensive business model are positive indicators of the company's adaptability and risk management strategies. The interest rate sensitivity and the high-risk characteristics of the variable annuities with living benefit riders are areas of concern, but the company's proactive hedging strategies and closing of this product line to new business demonstrate a commitment to risk mitigation.
The life/health insurance industry is sensitive to external factors like interest rates and economic downturns, which can affect policyholder behavior and investment returns. Aegon USA's geographical diversification and its broad product line serve as a hedge against localized economic downturns and market volatility, which is a strategic advantage in the industry.
The pressure on top-line premium growth reflects competitive challenges in the life insurance sector and possibly changing consumer preferences. Aegon USA's response to these challenges, through targeted growth and strategic exits from certain lines, shows a dynamic approach to maintaining market position.
Understanding the implications of Aegon USA's interest rate sensitivity is crucial for stakeholders, as it can affect the company's investment income and the pricing of its products. The company's risk management in this area, particularly with regard to its variable annuities, will continue to be a key factor in its financial health.
AM Best's assessment of Aegon USA's appropriate enterprise risk management is a testament to the company's strategic planning and execution capabilities. Effective risk management is essential in the insurance industry, where companies must balance investment risks with the need to meet long-term policyholder obligations.
The company's positive operating earnings and double-digit return on equity over the longer term indicate a strong capacity to generate profits, which is a critical aspect of sustaining growth and shareholder value. However, the company's sensitivity to interest rate fluctuations and the associated tail risks in its annuity products necessitate sophisticated hedging strategies to protect against adverse market movements.
The COVID-19 pandemic's impact on mortality rates and its subsequent reversion to pre-pandemic levels is a reminder of the unpredictable nature of risk in the life/health insurance industry. Companies must continuously adapt to emerging risks and ensure their actuarial assumptions reflect current realities.
The ratings reflect Aegon USA’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management.
Aegon Ltd., Aegon USA’s ultimate parent, announced on Oct. 27, 2022, that it has reached an agreement to sell its Dutch pension, life and non-life insurance, banking, and mortgage origination operations to ASR Nederland N.V. The transaction closed on July 4, 2023. On Sept. 30, 2023, Aegon Ltd.’s extraordinary general meeting of shareholders approved its cross-border conversion into a Bermuda Limited company. The company was renamed to Aegon Ltd. from Aegon N.V. and on Oct. 1, 2023, the Bermuda Monetary Authority became Aegon Ltd.’s group supervisor. AM Best expects this arrangement to have a minimal impact to the group’s overall
Aegon USA’s operating earnings have been positive over the longer term with double-digit return on equity and diversified earnings across different product lines. The company was impacted by higher mortality in recent years due to COVID-19, but that has reverted toward pre-pandemic levels broadly since mid-year 2022. However, Aegon USA’s overall top-line premium growth has been pressured in recent years, where direct premium declined in 2021 and 2022. Aegon USA’s overall business profile remains favorable with continued progress toward building a less capital-intensive book of business, driven by targeted growth and strategic exits and buyouts in certain lines. The group’s diverse product line of traditional life, indexed universal life, variable annuities (VA) without interest sensitive living and death benefit riders, mutual funds, retirement plans, and accident and health insurance contribute to operating earnings. With the Transamerica brand having a large operating footprint, Aegon USA’s business also is viewed as geographically diversified. The group does have interest rate sensitivity risk on its balance sheet. AM Best views the group’s VA with living benefit riders as displaying some of the highest risk characteristics, as well as being vulnerable to tail risks, though Aegon
This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.
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Louis Silvers
Senior Financial Analyst
+1 908 882 2316
louis.silvers@ambest.com
Wayne Kaminski
Associate Director
+1 908 882 1916
wayne.kaminski@ambest.com
Christopher Sharkey
Associate Director, Public Relations
+1 908 882 2310
christopher.sharkey@ambest.com
Al Slavin
Senior Public Relations Specialist
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al.slavin@ambest.com
Source: AM Best
FAQ
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