RPT-Fitch affirms Aegon's ratings; outlook negative
May 3 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Aegon N.V.'s (Aegon) Long-term Issuer Default Rating (IDR) at 'A' and senior unsecured debt at 'A-'. Fitch has also affirmed Aegon's primary North American life insurance subsidiaries (Aegon Americas) Insurer Financial Strength (IFS) ratings at 'AA-'. The Outlooks on Aegon's Long-term IDR and the IFS ratings of its primary North American life insurance subsidiaries are Negative. A full list of rating actions is at the end of this comment.
KEY RATING DRIVERS
The affirmations reflect Aegon's continued capital strength and the significant cash held at the holding company level. Aegon's ratings continue to reflect the diversification of both its products and distribution, particularly in US retail markets, its measured risk appetite and its focus on cost control.
Offsetting this, earnings remain under pressure in Aegon's main markets, although Fitch expects profitability to gradually improve as Aegon continues to move to less volatile fee-based business and executes its strategy to focus on core operations, scale back non-core operations and improve operating efficiency.
The Negative Outlook reflects Aegon's high financial leverage as calculated by Fitch (33% at 31 December 2012) and low fixed-charge cover (around 5x in 2012), which remain materially outside stated guidelines for the rating level. The ratings are likely to be downgraded if financial leverage does not improve to below 30% and fixed-charge cover to above 5x. However, Fitch understands that Aegon will retire USD750m of senior notes in 2013. This, in combination with retained earnings boosting capital, should drive financial leverage down.
Aegon's credit-related investment losses have declined, with impairments falling consistently since peaking in 2008. Aegon's unrealised losses on structured credit products also shrank significantly in 2012 as market conditions improved but Aegon remains exposed to financial and credit market conditions through its holdings of US residential mortgage-backed securities and commercial mortgage-related investments. Continued...