Aegon merges legal entities to boost US capital position

Dutch insurance group Aegon is merging two of its US legal entities in a move that is expected to generate a one-time capital benefit of approximately $1 billion.

With effect from October 1, Aegon will merge its Arizona-based variable annuity captive with Transamerica Life Insurance Company (TLIC).

“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.”

The company said the move follows changes to the existing US capital framework for variable annuities proposed by the National Association of Insurance Commissioners (NAIC). The NAIC's recently proposed changes reduce the non-economic volatility of the RBC ratio, and for this reason the use of a variable annuity captive is no longer required.

According to Aegon, the rationale behind setting up the variable annuity captive in 2015 was the need to manage the volatility of the US RBC ratio as a consequence of misalignment between reserve movements and hedging within the existing variable annuity capital framework.

The company said in 2019 it intends to early adopt the proposed changes in the variable annuity capital framework without any material effect on its capital position.

The beneficial impact of this merger on Aegon’s group Solvency II ratio is expected 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.

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