Aegon expects to make a one-time benefit to capital generation of approximately $1 billion by merging its Arizona-based variable annuity captive insurer with another of its subsidiaries, Transamerica Life Insurance Company (TLIC).
The merger of the two legal entities is effective 1 October 2018, subject to customary regulatory approval.
Aegon set up the variable annuity captive in 2015 as there was a need to manage the volatility of the US risk-based capital (RBC) ratio due to misalignment between reserve movements and hedging within the existing variable annuity capital framework.
The National Association of Insurance Commissioners (NAIC) recently proposed improvements to the existing variable annuity capital framework, which reduces the non-economic volatility of the RBC ratio, meaning that the use of a variable annuity captive is no longer required.
Aegon intends to early adopt the proposed changes in the variable annuity captive framework in 2019, which it expects to have no effect on its capital position.
The merger is expected to cause a 50 percent points benefit to the US RBC ratio or approximate $1 billion one-time capital generation as a result of the release of reserves and diversification benefits.
The move is also predicted to have a beneficial impact on Aegon’s group Solvency II ratio, which will largely offset the impact of US tax reform in the second half of 2018.
Additionally, Aegon expects the merger to have no material impact on its recurring capital general over the next 10 years given the long-dated nature of the variable annuity business.
Alex Wynaendts, CEO of Aegon, commented: “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.”
“This enables us to further strengthen our capital position in the US and enhance the robustness of our balance sheet.”
