Fitch downgrades Aegon

26 July 2010 0:00 am | Updated: 27 July 2010 8:05 am | By Leah Milner

Fitch has downgraded a number of Aegon’s international ratings, citing the cost of providing guarantees on the insurer’s US variable annuity business as one of the factors that his impacted its earnings.

The downgrades reflect Fitch’s concerns over the cumulative impact of difficult financial markets on Aegon’s capital position and earnings profile.

The agency says Aegon has experienced higher-than-expected capital and earnings volatility over the economic cycle and relative to major peers.

This volatility has been largely due to credit-related investment losses and exposure linked to guaranteed benefits on Aegon’s US variable annuity business.

Aegon recently launched a new guaranteed income option on an investment bond it offers in the UK market.

Fitch says that while the capital position has strengthened and become less volatile as a result of Aegon’s increased hedging and derisking, the company’s gross financial leverage has increased following the issuance of €1bn, $500m and £400m in senior debt in 2009.

Aegon continues to hold significant cash balances at the level of the holding company and net financial leverage remains within the company’s targets.

The agency has downgraded Aegon N.V’s long-term issuer default rating to ’A’ from ’A+’, and senior unsecured debt to ’A-’ from ’A’.

Fitch has also downgraded the financial strength ratings of Aegon’s primary North American life insurance subsidiaries to ’AA-’ from ’AA’.

The company’s banking subsidiary, Aegon Bank N.V, has also been downgraded.

If you enjoyed this article, sign up here to receive daily email updates from Money Marketing and Follow @_moneymarketing