Moody’s says the downgrade reflects “the deterioration in Aegon’s profitability and financial flexibility”.
Senior analyst Antonello Aquino says: “We expect continued pressure on Aegon’s financial profile over the medium-term from additional investment losses, the impact of depressed equity markets, and the recessionary environment”.
Aegon reported its decline in income was the result of
investment impairments as well as increasing reserves for guarantees – particularly for variable annuity products in the US – accelerated amortisation of deferred acquisition costs and lower fees.
Aquino says: “We expect the weak global economic circumstances to continue, and the resulting high level of equity market volatility and declining government interest rates to exert pressure on Aegon’s insurance sales volumes and profitability.”
Moody’s says it expects higher levels of asset impairments in 2009 and beyond given the Group’s exposure to higher-risk asset classes, together with the deepening recession.
In particular, the rating agency says meaningful investment losses are likely to develop on Aegon USA’s real-estate and structured securities given its revised expectations for these asset classes, as well as rising corporate default rates as a result of the economy.
Aquino says: “Similarly to other US players, Aegon USA maintains a sizeable holding of mortgage and asset-backed securities – £21.55bn at September 2008 – and an extensive corporate bond portfolio – £37.9bn, over 50% of which is rated Baa or below.”