Business Services Industry

S&P: Transamerica Life Canada Ratings Cut to 'AA-'

Business Wire, Dec 2, 2002

Business Editors

TORONTO--(BUSINESS WIRE)--Dec. 2, 2002

Standard & Poor's Ratings Services today said it lowered the long-term counterparty credit and financial strength ratings on Transamerica Life Canada (TLC; formerly Transamerica Life Insurance Company of Canada) to 'AA-' from 'AA'. The outlook is negative.

The ratings on TLC have been lowered to reflect the relatively high amount of segregated fund risk that the company has taken on relative to its peer group, which has necessitated a strengthening of reserves and the significant infusion of capital from its parent to support regulatory capital requirements. The mature and competitive environment of the Canadian individual life insurance and retirement savings markets continues to place pressure on the industry's asset growth and margins.

The insurer financial strength rating on TLC reflects the strength of the company's existing franchise in its two core businesses (individual life insurance and segregated funds), very strong asset quality, and extremely strong liquidity. TLC's competitive advantages include its low unit cost infrastructure and strong underwriting discipline, which has resulted in favorable mortality experience.

"The overall ratings on TLC continue to reflect the strategic importance of the insurer to the AEGON group of companies," said Standard & Poor's credit analyst Donald Chu. Accordingly, the counterparty credit and financial strength ratings receive the benefit of one full rating category of support from the status quo rating on TLC, with the ceiling being one notch below the AEGON core group rating (AA /Negative/--).

The company strives to be a leader in Canada in each of its chosen markets, including term life, universal life (UL), and segregated funds, while at the same time maintaining its minimum hurdle rates. In the first nine months of 2002, TLC held the number-one market share position in UL with 12% of new sales, and the number-two market share position in the sale of term insurance with 10% of new sales. On the investment side, the company's new segregated fund sales have fallen off dramatically since their peak in 2000 when TLC held a number-one market share position with a little more than 30% of the industry's domestic sales volumes. The decline in sales volumes reflects the wane in investor interest, given the downturn in the global equity markets, less attractive product features, and increases in product pricing, which were brought in to offset the regulatory capital charge now required to support these products.

TLC's investment portfolio is very strong when measured by diversification, quality, and long-term returns. Asset and liability management also is very strong in terms of management information and control systems. TLC limits any mismatch position to levels that are safely supported by its strong capital base.

TLC is a Security Circle insurer, which means it voluntarily underwent Standard & Poor's most comprehensive analysis and was assigned a rating in one of the top four categories for financial security.

The negative outlook reflects Standard & Poor's concerns that a significant amount of senior management's time will be diverted to address the company's segregated fund risk issues and the associated concentration and volatility of this business line. Although TLC is expected to hold a respectable market position in its segregated fund and retail insurance product lines, a sustained downturn in the global equity markets will put continued pressure on the company's management fee revenues and capital base.

Complete ratings information is available to subscribers of RatingsDirect, Standard & Poor's Web-based credit analysis system, at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; under Fixed Income in the left navigation bar, select Credit Ratings Actions.

ANALYTICAL E-MAIL ADDRESSES:

donald_chu@standardandpoors.com

thomas_upton@standardandpoors.com

canadian_ratings@standardandpoors.com