A.M. Best Downgrades Ratings of Transamerica Life Canada; Revises Outlook to Negative

Business Wire, April 16, 2008

OLDWICK, N.J. -- A.M. Best Co. has downgraded the financial strength rating (FSR) to A- (Excellent) from A (Excellent) and issuer credit rating (ICR) to "a-" from "a " of Transamerica Life Canada (TLC) (Toronto, Ontario). The outlook for the ratings has been revised to negative from stable.

For year-end 2007, TLC recorded a net loss of CAD 307 million. The loss was mostly attributable to CAD 308 million in charges incurred to strengthen reserves resulting from changes in actuarial assumptions and calculation methods. This was TLC's third consecutive year of significant reserve adjustments following CAD 317 million in 2005 and CAD 183 million in 2006. In addition to the ongoing reserve charges, a CAD 100 million charge also was taken during 2007 to cover an excess management fee issue.

The rating actions reflect the negative impact these charges had on operating earnings, which exceeded A.M. Best's expectations for 2007. Although the cumulative strengthening over the last three years has improved the quality of the balance sheet, A.M. Best remains cautious regarding the future performance of TLC's segregated funds portfolio given the net amount at risk and the maturity of nearly half the block between 2009 and 2011. A.M. Best notes that the company employs hedging to mitigate the majority of the equity risk associated with its segregated fund business.

The ratings of TLC reflect its solid market position in its core business lines, multi-channel distribution platform, favorable investment and mortality experience and adequate capitalization. A.M. Best notes that the company's total shareholders' equity decreased by CAD 257 million during 2007, driven by the aforementioned net loss. However, TLC's year-end 2007 regulatory capital ratio increases compared to the prior year after adjusting for the capital relief received from the recent replacement of its dynamic hedging program with a static put strategy.

Additionally, an important factor in TLC's ratings has been the financial strength and support of the AEGON Group (AEGON) (Netherlands), which has provided its main Canadian operation with over CAD 400 million of capital since 2000. A.M. Best believes that the continuing reserving issues at TLC may compel management to reallocate capital to AEGON's stable, more profitable businesses. The current ratings incorporate A.M. Best's prospective view that TLC is less strategic than AEGON's other insurance subsidiaries. Even so, A.M. Best believes AEGON is still likely to support TLC in the near to medium term.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.> Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.