25 September 2018Analysis

Aegon to boost US capital position $1bn through captive merger

Dutch life insurance company Aegon is merging two of its legal entities -  its Arizona-based variable annuity captive with Transamerica Life Insurance Company (TLIC) - which it expects to boost its US capital position by approximately $1 billion.

Effective October 1, 2018, this development follows proposed changes to the existing US capital framework for variable annuities proposed by the National Association of Insurance Commissioners (NAIC).

According to Aegon, the NAIC's changes reduce the non-economic volatility of the risk-based capital (RBC) ratio, which it suggested makes the use of a variable annuity captive no longer necessary. In 2019, Aegon intends to early adopt the proposed changes in the variable annuity capital framework without any material effect on its capital position.

The merger between the variable annuity captive and TLIC is expected to result in a 50 percentage-point benefit to the US RBC ratio or approximately $1 billion one-time capital generation as a result of the release of reserves and diversification benefits.

Aegon also expects a beneficial impact on its group Solvency II ratio, which is to largely offset the impact of US tax reform in the second half of 2018. Aegon expects that the merger will have no material impact on its recurring capital generation in the coming 10 years given the long-dated nature of the variable annuity business.

“Merging two of our US entities simplifies our legal structure, increases our capital buffer, and leads to the release of reserves and higher diversification benefits”, said Alex Wynaendts, CEO of Aegon. “This enables us to further strengthen our capital position in the United States and enhance the robustness of our balance sheet.”