Business & Finance
Business and Finance
Business and Finance
Mon, July 12, 2010 A.M. Best Revises Outlook to Positive for Transamerica Life Canada
OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) of Transamerica Life Canada (TLC)(Toronto, Ontario). A.M. Best also has revised the outlook to positive from negative and affirmed the issuer credit rating of abbb+a of TLC. TLC is an indirect, wholly owned subsidiary of AEGON N.V. (AEGON) (The Hague, the Netherlands) (NYSE: AEG), one of the worlda™s largest providers of life insurance, pensions and long-term savings and investment products.
The revised outlook recognizes the recent improvement in TLCa™s financial results. For 2009, TLC reported net income of CAD 87.2 million after experiencing significant losses in 2008 and 2007, due primarily to reserve strengthening charges related to segregated fund guarantee payments and changes in actuarial assumptions. In addition, A.M. Best notes TLCa™s enhanced risk management practices, specifically the application of more comprehensive hedging strategies. Moreover, the company has maintained adequate liquidity to fund the considerable level of segregated fund maturities that occurred in the first quarter of 2010.
TLC underwent a change in leadership in September 2008, which coincided with the onset of the global financial crisis. Since that time, the company has improved its risk profile by implementing static put hedging programs and smaller dynamic residual programs for its internally and externally managed segregated fund portfolios. With two additional macro hedge programs implemented in 2009, the company has now hedged over 90% of its equity risk exposure. Also, TLC has discontinued product offerings with more aggressive features and has fully reflected the cost of risk mitigation in its pricing. The company saw over $1 billion of its segregated fund guarantees mature in the first quarter of 2010 and came through the event without any operational or administrative issues as policyholder obligations were fully met by making all maturity payments, including significant top-up amounts.
Despite the increased hedging, TLCa™s profitability still remains sensitive to equity market performance as a result of the remaining equity basis risk on hedged business. A.M. Best notes that TLC recorded a net of loss CAD 35 million for the first quarter of 2010 due mostly to losses associated with the aforementioned segregated fund maturities. As a result, A.M. Best believes that TLCa™s earnings will continue to be pressured for the remainder of 2010 as global stock markets experience higher relative volatility.
The ratings of TLC reflect its solid market positions in its core business lines, multi-channel distribution platform, reduced risk profile and adequate capitalization. Additionally, TLCa™s ratings receive enhancement due to the financial strength and support of AEGON, which has provided TLC with over CAD 700 million in net capital infusions since 2002.
For Besta™s Credit Ratings, an overview of the rating process and rating methodologies, please visit [ www.ambest.com/ratings ].
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at [ www.ambest.com/ratings/methodology ].
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit [ www.ambest.com ].
