Best s Rating Report

Transcription

1 TRANSAMERICA LIFE INSURANCE COMPANY A+ TRANSAMERICA PREMIER LIFE INSURANCE COMPANY A+ TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY A+ TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY A+ A+ Printed February 1, Page 1 of 42

2 Ultimate Parent: Aegon N.V. TRANSAMERICA LIFE INSURANCE COMPANY 4333 Edgewood Road N.E. Cedar Rapids, IA Web: Tel.: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Negative Best s Financial Size Category: XV RECENT DEVELOPMENTS Effective October 1, 2015, Stonebridge Life Insurance Company merged with and into Transamerica Life Insurance Company. The company has recently divested itself of its BOLI/COLI and payout annuity businesses. RATING RATIONALE Rating Rationale: The published ratings of the Aegon USA companies reflect that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Transamerica Life Insurance Company (TLIC) sells individual non-participating whole life, endowment and term contracts, structured settlements and pension products, as well as a broad line of single fixed and flexible premium annuity products. In addition, TLIC offers group life, universal life, credit life and individual and specialty health coverages. The company is licensed in 49 states and the District of Columbia, Guam, Puerto Rico and US Virgin Islands. Sales of the company s products are primarily through a network of agents, brokers and financial institutions. The ratings of the life insurance companies of Aegon USA reflect the strong business profile, adequate risk-adjusted capitalization, strong enterprise risk management, and an underlying trend of statutory and IFRS profitability. The ratings also reflect A.M. Best s assessment of the financial strength and support of the parent, Aegon N.V. (Aegon). Partially offsetting these strengths is the increasing focus on sales of products that have unfavorable risk characteristics from a product creditworthiness standpoint, as well as the equity market sensitivity of its earnings and significant reliance on captive reinsurance. Aegon USA s business profile is viewed as strong by A.M. Best, with competitive market positions in the U.S. life and annuity areas. The group s market positions are supported by a large and diversified distribution system that is made up of both independent and career agents, financial institutions, wirehouses and direct response channels. Subsequently, in late 2016 the company exited the Affinity, Direct TV, and Direct Mail channels that were part of the accident and health (A&H) line of business in the US. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. There should be lower dependency on release of required surplus as the fee-based business grows. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and A&H insurance. Additional rating consideration includes A.M. Best s assessment of the financial strength and support of the parent, Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon s overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon. Several years ago the company pursued a strategic shift to focus on selling products such as variable annuities, mutual funds, and 401(k)s and has de-emphasized sales of its spread-based products, especially fixed annuities. In a stable equity market, the required capital on variable annuities is generally less than for fixed annuities and other spread-based products. However, from a product creditworthiness perspective, A.M. Best views variable annuities with living benefits as displaying some of the highest risk characteristics and being vulnerable to tail risks, which could lead to an increase in the required capital to support this segment. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. The group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. A.M. Best also notes that over recent years, Aegon USA has come to rely heavily on captive reinsurance to fund reserves generated by term life and universal life insurance with secondary guarantees. Aegon USA has also reduced its exposure to equity market risk by increasing the size of its macro-equity hedge covering its variable annuity business. However, while the additional equity hedging will serve to reduce volatility in some financial metrics, the group s earnings via fee income remain somewhat correlated to equity market performance. A positive rating action could result from a material improvement in A.M. Best s view of the credit profile of Aegon. A negative rating action could result if there is a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Capital Adequacy Model. A significant and sustained decline in net operating performance could also result in a negative rating action, as well as a further decline in A.M. Best s view of Aegon s credit profile, or a change in A.M. Best s view of the strategic importance of Aegon USA to Aegon. Printed February 1, Page 2 of 42

3 FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 05/05/17 A+ 12/12/13 A+ 04/15/16 A+ 04/09/13 A+ 02/11/15 A+ KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Net Net Surplus Valuation Premiums Invest Funds Reserve Written Income Net Income Year Assets ,174,159 5,584, ,867 12,144,464 3,070,610 1,174, ,015,919 4,826, ,957 15,806,999 2,466, , ,197,750 5,985, ,987 16,191,362 2,354, , ,035,999 5,458, ,321 14,777,001 2,323, , ,790,027 5,234, ,683 13,943,320 2,453, ,091 (*) Within several financial tables of this report, this company is compared against the Group Annuity Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. Note: Net premiums written include annuity and other fund deposits. BUSINESS PROFILE Aegon USA is one of the leading life insurance organizations in the U.S. with more than twenty million customers and provides a wide range of life insurance, pensions, long-term savings and investment products. Aegon USA was founded 1989 when Aegon N.V. (Aegon) decided to bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through five primary insurance subsidiaries and includes Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company, Transamerica Premier Life Insurance Company, and Transamerica Casualty Insurance Company. The Aegon USA group of companies is fully integrated and share senior and investment management along with support services. Aegon USA uses a variety of distribution channels, each of which conducts business through one or more of the Aegon USA life insurance companies. The channels are both owned and non-owned and include career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and focused on agent-sold business as well as the worksite, employer-based market. Through 2015, the Aegon USA companies were divisionally organized into two primary business divisions: Life & Protection (L&P) and Investments & Retirement (I&R). Beginning in 2016, Aegon USA has restructured into a functionally organized business centered around the Transamerica brand. As a result, the company has eliminated its previous divisional alignment and created a unified organization that is functionally aligned (i.e. distribution, operations, finance, etc.). As a result of its recently implemented reorganization in the U.S., there has been a delayering of management via the elimination of redundant processes and a restructuring of its U.S. distribution footprint. The current product lines sold through Aegon USA s life companies include, life, accident & health, mutual funds, variable annuities, fixed annuities, retirement plans, and stable value solutions. The product lines are now organized by distribution channel in order to ensure better alignment with customers, and fall into four main categories of brokerage, partner, institutional/worksite, and wholesale. The brokerage distribution channel offers life insurance & long-term care products through third-party outlets of brokerage general agents or independent wholesale organizations. These are typically non-registered products sold through independent insurance agents and financial institutions. The Partner network known as the Transamerica Financial Network, provides advice and guidance to individuals to meet their protection as well as investment needs including a Transamerica Agency Network of approximately 1,700 agents, and over 54,000 associates in the (World Financial Group). This channel provides the same life & health products as the brokerage channel, with a focus on the middle and emerging affluent markets. The Institutional/Worksite channel focuses on the sale of products to consumers through the employer segment, also known as the worksite. The Wholesale channel consists of Independent broker-dealers that want a direct relationship with Aegon USA, and broken out into three areas such as banks, wirehouses, and independent financial partners that are dedicated to one product line, but work closely to refer advisers across Aegon s USA s other multiple product lines. On 12/7/2016, Aegon also announced that it was exiting the Affinity, Direct TV, and Direct Mail channels, which were part of the accident & health line of business in the U.S., which no longer fit with its strategic objectives. The newly restructured organization is now better aimed at meeting customer needs and creating a consistent positive experience. The former Life & Protection (L&P) division included the Agency Group selling individual life and supplemental health products to the middle income market. Also included in the L&P division were the Brokerage Group, Transamerica Employee Benefits, Long Term Care and the Affinity Group. The Brokerage Group marketed life insurance in the retail high net worth market through independent general agents and contract producers. The Affinity Group specialized in marketing life insurance and supplemental health insurance products to consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also marketed credit life, mortgage life and other life insurance and supplemental health products. Transamerica Long Term Care offered products and services aimed at meeting the long-term care insurance needs of its customers. Policies were sold through independent brokerage and at the worksite to individuals and groups. Through Transamerica Employee Benefits, L&P offered voluntary payroll deduction life and supplemental health insurance to employees at their place of work which are designed to supplement employees existing benefit plans. The former Investment & Retirement (I&R) division offered a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Capital Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent Printed February 1, Page 3 of 42

4 financial professionals, agents affiliated with regional broker/dealers or major wirehouse firms and representatives through a large bank network. TCM serves these distribution channels through company-owned and external wholesalers. In 2007, Aegon USA acquired Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York (renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. Transamerica Advisors Life Insurance Company of New York was later merged with and into Transamerica Financial Life Insurance Company, effective 7/1/14) as part of a strategic distribution relationship with Merrill Lynch with respect to variable annuities. The acquisition of the Merrill Lynch insurance companies served to place Aegon USA in the top ten of variable annuity sellers in the wirehouse and broker/dealer channels. In late 2009, I&R reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in the environment. Similar market conditions have continued over recent years and restricted sales of fixed annuities. As a result, I&R de-emphasized the sale of fixed annuities and executed several large fixed annuity coinsurance transactions in recent years. Incorporated within the I&R division was the former Employer Solutions and Pensions (ES&P) division. This business included full-service retirement plan investments and services in addition to guaranteed savings and investment products directed at various segments of the pension industry. The group sold a full range of products and services to small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrators and accounting firms. Effective 12/31/2015, Aegon USA acquired the defined contribution administration book of business of Mercer HR Services, LLC. The transaction propelled the company to a top ten defined contribution record-keeper based on plan participants and assets, adding 917,000 and $71 billion, respectively. Transamerica Retirement Solutions (TRS) served mid-sized to large companies and small to mid-sized companies across the U.S. TRS offered a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. In addition, ES&P provided synthetic guaranteed investment contracts primarily to various retirement plans. ES&P was also a leading provider of single premium group annuities (Terminal Funding), which are used by companies to decrease the liability of the defined benefit plans. BOLI/COLI products were distributed through a select number of niche brokers (including an affiliate, Clark Consulting, which was sold in September 2015); however, in December 2010, ES&P discontinued new sales in the executive non-qualified benefits market and related BOLI/COLI business. The former Institutional Markets Division offered institutional spread products such as traditional fixed rate guarantee investment contracts (GICs), funding agreements (FAs), FA-backed notes as well as fee-based products such as synthetic GICs. In 2009, Aegon announced its plan to run-off its institutional spread based business to reduce capital requirements and credit risk. The institutional line of business also included structured product transactions, such as credit default swaps, synthetic collateralized debt obligations, affordable housing tax credit guarantees and hedge fund principal protection. Going forward, Aegon USA will only continue to offer affordable housing tax credit guarantees. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) ,872, ,986, ,300, ,570, ,819, ,576, ,589, ,488, ,001, ,511, Yr CAGR Reinsurance Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) ,713, ,315, ,064, ,969, ,204, ,494, ,301, ,352, ,569, ,000, Yr CAGR Territory: The company is licensed in the District of Columbia, Guam, Puerto Rico, U.S. Virgin Islands, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY BY-LINE BUSINESS ($000) Reinsurance DPW Prem Assumed Product Line ($000) (%) ($000) (%) Ordinary life 2,413, ,430, Group life 232, Credit life 8, Individual annuities 3,485, , Group annuities 6,718, Individual A&H 542, , Credit A&H 11, Group A&H 587, , Total 14,001, ,511, Printed February 1, Page 4 of 42

5 Reinsurance Prem Ceded NPW Product Line ($000) (%) ($000) (%) Ordinary life 2,887, , Group life 83, , Credit life , Individual annuities -1,762, ,294, Group annuities -190, ,909, Individual A&H 431, , Credit A&H , Group A&H 120, , Total 1,569, ,943, BY-LINE RESERVES ($000) Product Line Ordinary life 13,600,230 13,870,106 13,649,443 13,872,004 13,521,586 Group life 1,020,180 1,013,137 1,112,446 1,120,835 1,113,029 Credit life 7,357 6, Supplementary contr 432, , , , ,031 Individual annuities 11,790,433 9,572,989 10,921,943 9,314,992 9,885,783 Group annuities 5,414,009 5,182,270 5,431,048 5,752,137 5,985,678 Deposit type contracts 3,370,720 2,738,140 3,068,610 3,736,779 5,203,952 Individual A&H 4,185,433 3,910,450 3,565,465 3,428,931 3,294,574 Credit A&H 13,263 16,335 12,114 13,669 15,836 Group A&H 911, , , , ,071 Total 40,745,779 37,611,842 39,124,813 38,600,102 40,346,862 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force ,539 9,304, , , , ,634 7,732, , , , ,637 6,719,736 12, , , ,544 6,524, ,496 86, , ,002 6,336, ,002 80, ,005 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,975, ,133,271 1,922,238 22,475,181 1,142,505, ,781, ,655,801 1,995,292 21,222,988 1,094,655, ,973, ,808,833 1,906,359 20,706,698 1,073,395, ,841, ,434,256 1,659,326 22,077,653 1,068,012, ,308, ,604, ,976 22,369,247 1,054,772,412 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,050,694 10,828,261 1,535,279 2,192,903 41,607, ,851, ,567 1,749,800 1,818,139 45,680, ,994,741 38,941,352 1,675,613 2,792,910 49,404, ,603,553 41,091,411 1,546,200 2,736,141 47,977, ,091,657 36,344, ,980 2,987,197 40,664, ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force , , , , , , , , , , First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) ,539 9,304, , ,634 7,732, , ,637 6,719, , ,544 6,524, , ,002 6,336, , INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) ,424,963 10,282, ,190,145 9,740, ,683,497 11,342, ,870,210 9,977, ,294,331 12,222, GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) ,523,123 5,985, ,303,280 5,752, ,967,566 5,431, ,048,152 5,182, ,909,735 5,414, Printed February 1, Page 5 of 42

6 TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) ,268, ,492, ,773, ,159, ,636, SEPARATE ACCOUNT DATA Sep Acct Assets 73,774,288 72,130,155 70,574,605 61,020,158 48,684,223 % Growth S/A Assets/Adm Assets Sep Acct Reserves 70,769,562 67,204,016 65,776,928 57,186,910 44,062,076 % Ordinary Life % Individual Annuities % Group Annuities Deposit Type Liabilities 60,039 79, , , ,693 Other Liabilities 2,807,549 4,709,929 4,557,832 3,586,424 4,371,546 Sep Acct Surplus 119, , ,905 99,918 75,685 S/A Prems & Deposits 8,746,738 12,177,702 13,103,887 12,426,910 9,333,304 % Ordinary Life % Individual Annuities % Group Annuities Sep Acct Fees & Charges 1,327,694 1,282,183 1,087, , ,130 % Ordinary Life % Individual Annuities % Group Annuities Fees & Chgs to Assets% Sep Acct Ben & Wdrwls 8,585,352 9,291,246 7,244,498 5,875,731 6,949,613 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl to Assets% GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) North Carolina 1,827,801 1,951,291 1,727,491 1,500,415 1,309,242 California 1,725,961 2,036,986 1,896,548 1,853,495 1,746,660 Iowa 1,447,296 2,522,242 1,835,123 2,978,227 1,187,129 Texas 907, , , , ,441 Florida 873,298 1,166,509 1,394,369 1,260, ,668 Illinois 520, , , , ,889 Pennsylvania 470, , , , ,948 New Jersey 409, , , , ,718 Ohio 375, , , , ,450 Michigan 374, , , , ,681 All Other 5,097,808 6,543,059 7,695,508 6,501,327 5,515,479 Total 14,029,895 18,132,858 18,992,408 18,329,037 13,942,303 RISK MANAGEMENT Aegon USA has a fully integrated enterprise risk management (ERM) structure/program in place to assess current and emerging risk, as well govern future decisions. The company s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the company. Within this program, objectives and risk tolerances are set and roles and responsibilities are clearly defined across all levels of the organization. Aegon USA s ERM program is overseen by a governance structure that has three basic layers: A Supervisory Board Risk Committee, the Executive Board and an ERM & Group Risk & Capital Committee. Developed and re-established certain risk standards with enterprise wide held risk, controls, and SOx training, while implementing new risk reporting. The governance structure has also been enhanced by establishing the Market Compliance and Conduct Committee, and adding Product & Distribution heads bringing stronger alignment amongst the functional leaders. In 2016 the company has begun a formal compliance attestation process on all risk policies with an intent on streamlining and strengthening the new governance structure. A.M. Best views Aegon USA s ERM capabilities to be strong for its size and business profile. Country Risk: Aegon USA has a limited amount of country risk exposure as the company s operations are based in the U.S. However, Aegon Americas which includes all of the North American and Latin American operations of Aegon has a modest amount of country risk exposure with its life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada (sold in July 2015)) and Latin America with Mexico and Brazil. In 2006, Aegon acquired a 49% interest in Seguros Argos, a Mexican life insurance company. As part of the joint venture, Aegon and Seguros Argos set up a jointly owned pension fund company, Afore Argos. In 2009, Aegon acquired a 50% interest in Mongeral S.A. Seguros e Previdencia, Brazil s 6th largest independent life insurer. The U.S. and Canada are considered Tier 1" Printed February 1, Page 6 of 42

7 by A.M. Best s Country Risk Group with Mexico and Brazil both considered Tier 3". OPERATING PERFORMANCE Operating Results: Aegon USA Group has one of the more diversified earnings profiles in the industry with earnings being generated from life insurance products and increasingly from fee-based income from variable and investment-type products. Aegon USA Group reported a pre-tax statutory operating gain of approximately $1.4 billion in 2016 as compared to a 2015 pre-tax statutory operating gain of approximately $0.6 billion. The strong 2016 results were mainly driven by lower underwriting losses, along with higher investment income, as well as aggressive expense reductions. Gross deposits increased to $45.3 billion in 2016 compared with 2015, as a result of the deposits from the defined contribution business acquired from Mercer back in 2015, which offset lower variable annuity deposits. A.M. Best expects that Aegon USA Group will continue to maintain an underlying trend of profitability on both a statutory and IFRS basis. However, margins may be challenged by the low interest rate environment. PROFITABILITY ANALYSIS ($000) Company Pre-tax Net Period Net Oper Operating Net Total Ending Income Gain Income Return ,407,726 1,556,695 1,174,667 1,176, ,143,403 1,422, , , ,584 47, ,423 1,237, ,517 91, , , , , , ,963 5-Yr Total 3,586,589 3,897,862 1,871,417 2,426,753 Company Industry Composite Period Operating Operating Operating Operating Ending ROR (%) ROE (%) ROR (%) ROE (%) Yr Avg PROFITABILITY TESTS Comm & Pre-tax Ben Paid Exp to NOG Operating Invest to NPW NPW to Tot NOG to Return on Net Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg (*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications NET OPERATING GAIN ($000) Product Line Ordinary life -556,596-1,056,567 38,105 24, ,691 Group life -9, ,993-38,332-39,058 50,763 Credit life -1,107-4, ,278 1,729 Supplementary contr -45,418-48,588 8,526-50,979-46,307 Individual annuities 777, , ,230 1,224, ,936 Group annuities 115,128-5,890-4,310 56,814 56,705 Individual A&H 72,997 79,408 77, , ,626 Credit A&H 2,419 1,414-1,534 5,275 14,109 Group A&H 143,957 77,359 95,043 95, ,444 Other 280, ,370 Total 779,799 91,795 47,019 1,422,552 1,556,695 ACCIDENT & HEALTH STATISTICS ($000) Net Premiums Net Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results , , , ,041,484 1,039, , ,794,008-2,798, , , , , , , ,462 Current Year Experience: Group 498, , ,890 Credit 11,780 12, Non-can. 15,985 15, ,965 Guarant renew 102, , ,216 Non-renew, S.R ,987 Other accident 2,750 3, Other Printed February 1, Page 7 of 42

8 INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains ,070, ,029 2, ,466,599-1,281, , ,354, , , ,323, ,668 95, ,453, , ,128 5-Year Total 12,669,751-2,026, ,336 Company -Industry Composite- Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg (*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications BALANCE SHEET STRENGTH Capitalization: Aegon USA s overall risk-based capitalization is adequate to support its current insurance and investment risks. A.M. Best believes that Aegon USA has good statutory earnings capacity to support its capital position going forward. A.M. Best also notes that over recent years, Aegon USA has come to rely heavily on captive reinsurance to fund its reserves associated with term life insurance and universal life with secondary guarantees. Financing provided to these captives include, but are not limited to, surplus notes, letters of credit and parental guarantees. As part of our assessment of a rating unit s balance sheet strength, A.M. Best considers not only the capital adequacy ratios, but also the quality of capital supporting such ratios. A.M. Best believes that the quality of capital for an operating company that has ceded XXX and/or AXXX reserves to a domestic or offshore captive as not as strong as for an operating company with similar risk-adjusted capital ratios that self-funds its XXX and AXXX reserves. Finally, Aegon USA has received capital contributions in the past from its ultimate parent, Aegon N.V. Given that Aegon USA is such an integral part of Aegon N.V., A.M. Best believes that they would likely provide additional capital if needed in the future. A.M. Best views the capital profile to be a material supporting factor to the rating of the group. Current BCAR: 191 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Net Realized Unrealized Adjusted Capital Income Capital Year Gain Gains Taxes Gains ,407, , ,969 2, ,143,403-1,281, , , , , , , , ,668-32,278 95, , , , ,128 5-Yr Total 3,586,589-2,026, , ,336 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S , , , , , , , ,087 1,159, , , , , , , Yr Total 215,419-2,694,063-51, QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,000 1,597 3,330,410 2,102, ,000 1,597 3,359,296 1,315, ,000 1,597 3,364,848 2,469, ,000 1,597 3,051,463 2,255, ,000 1,282 2,738,274 2,345,199 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,584, ,867 6,517, ,826, ,957 5,702, ,985, ,987 6,733, ,458, ,321 6,198, ,234, ,683 6,048,439 Printed February 1, Page 8 of 42

9 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW & Dep Change C&S to Surplus to Total in NPW to Surplus Year Liab(%) Relief(%) Capital & Dep(%) Liab(%) Relief(%) CEDED REINSURANCE ANALYSIS Company -Industry Composite- Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage ,005,507, ,761, ,175, ,895, ,395, Loss Reserves: While loss reserving practices has not been a material concern from a ratings perspective, Aegon USA s reserve profile is changing as the company focuses on selling fee-based products, especially variable annuities with living benefit riders, while de-emphasizing spread-based products, especially tradition fixed annuities. An additional aspect of this shift is that mortality reserves also are playing a less dominant role than in the past. Some positive trends as it relates to the improved risk profile of the company s legacy block of variable annuities with living benefit riders are noted. Management actions, such as buyouts of variable annuities that are in the money, has caused the related net amount at risk before hedging and reinsurance as a percent of account value and surplus to decline significantly over the past several years. Liquidity: Aegon USA has adequate cash and liquid assets to protect against adverse liquidity scenarios. The company manages so that liquidity requirements could be met in stress scenarios which factor in a combination of events over monthly horizon points over an extended period of time. Liquidity impacts due to rating downgrades are also factored into the company s stress testing. The company manages liquidity so that a positive cash balance can be maintained during the first 6 months of a modeled scenario with illiquid asset sales not allowed during this period. The company also forecasts liquidity to be positive over a two year period. Aegon USA s liquidity is also supported by $1.5 billion in available syndicated borrowings for emergency use only in committed bank lines through the ultimate parent AEGON, N.V. The group also has available to them the ability to access the FHLB as well as other normal operating lines of credit outside of emergency use funding. Liquidity is considered adequate and supports the level of business complexity in which the company operates. LIQUIDITY ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital , , ,083, ,470, , Company Industry Composite Mortgage Affil & RE Invest Quick Current Year to Capital to Capital Liquidity Liquidity Investments: Aegon USA employs an Asset Liability Management focused investment strategy utilizing fixed income securities for a majority of its invested general account assets. However, a small portion of the investments are managed on a total return basis utilizing hedge funds for the most part. Almost the entire investment portfolio is managed in-house by Aegon Asset Management. As of year-end 2016, bonds represented 70.9% of Aegon USA s investment portfolio and 93.5% are of investment grade quality. Common stock accounts for about 3.2% of the portfolio, of which a large portion is affiliated. Direct commercial mortgage loans comprise approximately 10% of invested assets and are backed principally by office, retail, industrial and apartment properties. The commercial loan portfolio is performing well, with the vast majority of loans in good standing. Aegon USA s exposure to alternative assets consists of investments in higher risk and less liquid assets, such as hedge funds, private equity, mezzanine debt and real estate. A.M. Best notes that the alternative asset exposure is less than 5% of the investment portfolio. Over recent years, Aegon has taken steps to improve the risk profile of its investment portfolio with below investment grade (BIG) bonds and what A.M. Best deems as high risk assets playing less of a role. BIGs as a percent of total capital are about 41% as of year-end 2016, down from a high of 60% in Printed February 1, Page 9 of 42

10 INVESTMENT YIELDS Cash & Invest. Net Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Net Ratio INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Affiliated Total Bonds (000) 38,632,034 34,097,070 35,685,611 37,493,217 37,957,060 US Government Foreign Government State/Special Revenue - US Industrial & Misc - US Affiliated Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 2,650,404 2,193,931 2,074,898 1,770,537 1,780,784 Unaffiliated Common Affiliated Common Unaffiliated Preferred Affiliated Preferred INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 5,641,558 5,363,099 5,544,697 5,740,912 5,868,661 Commercial Farm Mortgage Quality (%) 90 Days Delinquent 0.2 In Process of Foreclosure 0.1 Total Delinquencies Real Estate (000) 121, , , , ,161 Property Occupied by Co Property Held for Inc Property Held for Sale Investments - Other Invested Assets: Aegon uses derivatives, such as swaps, options, futures and forward contracts to hedge some of the exposures related to both investments backing insurance products and company borrowings. A.M. Best notes as a positive Aegon s use of equity futures contracts to hedge liability risk with the equity sensitive products, such as variable annuities. While this strategy may help mitigate some of the tail risk associated with these liabilities, there is still the presence of policyholder behavior risk, which cannot be hedged. As a result, there is the possibility of hedge breakage in a stressed market environment. INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 7,419,078 9,519,130 9,537,707 8,435,556 10,280,936 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 04/19/1961 Date Commenced: 03/19/1962 Domicile: IA Originally incorporated as American Public Life Insurance Company, Inc., the company was renamed NN Investors Life Insurance Company, Inc. in In early 1991, as part of the assumption of essentially all the assets, liabilities and operations of Pacific Fidelity Life Insurance Company and National Old Line Insurance Company, the company was renamed PFL Life Insurance Company. During 2001, the present title was adopted. Mergers: Investors Fidelity Life Insurance Company, Alabama, 1982; Investors Life of Florida Insurance Company, 1986; Transamerica Assurance Company, Missouri, 2004; Transamerica Life Insurance & Annuity Company, Printed February 1, Page 10 of 42

11 North Carolina, 2005; Transamerica Occidental Life Insurance Company, Iowa, 2008; Life Investors Insurance Company of America, Iowa, Reinsurances: United Group Insurance Company, Texas, MANAGEMENT Officers: Chairman of the Board, Mark W. Mullin; President, Blake S. Bostwick; Executive Vice President, Secretary and General Counsel, Jason Orlandi; Senior Vice President and Controller, Eric J. Martin. Directors: Blake S. Bostwick, Mark W. Mullin, Jason Orlandi, David Schulz, C. Michiel van Katwijk. REGULATORY An examination of the financial condition was made as of December 31, 2014, by the insurance department of Iowa. The 2016 annual independent audit of the company was conducted by PricewaterhouseCoopers, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. Reserve basis: (Current ordinary business): 1980 CSO 3%, 4%, and 4 1/2%; CRVM and Net Level valuation. (Current annuity business): 5.50%, 6.25%, 6.75%; 83a, 6.35% immediate. REINSURANCE Maximum net retention on any one life is $500,000 for ordinary life business and $500,000 for group life contracts. FINANCIAL INFORMATION BALANCE SHEET ($000) - YE 2016 Assets Liabilities Total bonds 38,632,034 +Net policy reserves 37,375,059 Total preferred stocks 102,709 Policy claims 549,053 Total common stocks 2,547,696 Deposit type contracts 3,370,720 Mortgage loans 5,641,558 Interest maint reserve 894,015 Real estate 121,897 Comm taxes expenses 288,131 Contract loans 607,746 Borrowed money 2,267,594 Cash & short-term inv 1,470,814 Asset val reserve 813,683 Securities-colltrl assts 2,303,603 Funds held reinsurance 2,035,070 Other invested assets 1,927,635 Funds held coinsur 1,568,878 Prems and consids due 149,211 Derivatives 1,314,458 Accrued invest income 510,947 Payable for securities lending 2,303,603 Other assets 3,999,892 Other liabilities 119,953 Tot assets w/o sep accts 58,015,739 Tot liab w/o sep accts 52,900,216 Separate account bus 73,774,288 Separate account bus 73,655,055 Total liabilities 126,555,271 Common stock 6,762 Preferred stock 1,282 Treas stock preferred -58,000 Surplus notes 150,000 Paid in & contrib surpl 2,789,512 Unassigned surplus 1,767,263 Other surplus 577,936 Assets 131,790,027 Total 131,790,027 +Analysis of reserves; Life $14,053,396; annuities $17,189,479; supplementary contracts with life contingencies $447,135; accidental death benefits $7,703; disability active lives $10,103; disability disabled lives $43,317; miscellaneous reserves $513,249; accident & health $5,110,678. Printed February 1, Page 11 of 42

12 SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 1,543,390 Ordinary life 956,090 Matured endowments 33 Individual annuities 5,294,331 Annuity benefits 1,157,200 Credit life 8,842 Surrender benefits 9,770,320 Group life 150,075 Acc & health benefits 327,969 Group annuities 6,909,735 Int on policy funds 79,184 Acc & health group 496,151 Supplementary contracts 74,452 Acc & health credit 11,780 Incr life reserves 1,259,920 Acc & health other 116,317 Incr a & h reserves 286,632 Total premiums 13,943,320 Res adj reins assumed -188,295 Supplementary contracts 79,332 Commissions 955,517 Net investment income 2,453,819 Comm exp reins assumed 74,418 Amort interest maint res 79,380 Interest expenses 9,000 Comm & exp reins ceded 451,545 Insur taxes lic & fees 125,864 Res adj on reins ceded 13,653 General ins expenses 886,561 Reinsurance income 7,326 Net transf to sep acct 1,365,071 Other income 1,522,047 Other expenses 147,647 Mgt and/or service fee 8,788 Total 18,559,211 Total 17,874,884 Gain from operations before FIT & div to policyholders ,327 Dividends to policyholders: life... 5,969 Gains from operations after dividends to policyholders ,358 Federal income taxes incurred ,441 Net gain from operations after FIT and dividends ,799 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 16,525,728 Benefits paid 13,002,709 Long-term bond proceeds 10,795,896 Comm, taxes, expenses 1,897,305 Other invest proceeds 2,141,489 Long-term bonds acquired 12,682,216 Borrowed money 1,769,852 Other cash applied 4,502,019 Other cash provided 41,992 Decr cash & short-term 809,292 Total 32,084,250 Total 32,084,250 Ultimate Parent: Aegon N.V. TRANSAMERICA PREMIER LIFE INSURANCE COMPANY 4333 Edgewood Road N.E. Cedar Rapids, IA Web: Tel.: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Negative Best s Financial Size Category: XV RECENT DEVELOPMENTS Effective July 31, 2014, the company changed its name from Monumental Life Insurance Company to Transamerica Premier Life Insurance Company. Effective October 1, 2014, Western Reserve Life Assurance Co. of Ohio merged with and into Transamerica Premier Life Insurance Company. The company has recently divested itself of its BOLI/COLI and payout annuity businesses. RATING RATIONALE Rating Rationale: The published ratings of the Aegon USA companies reflect that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Transamerica Premier Life Insurance Company sells a full line of insurance products, including individual, credit, and group coverages under life, annuity and accident and health policies as well as various investment products. The company is licensed in 49 states, the District of Columbia, Guam and Puerto Rico. Sales of the company s products are primarily through agents, brokers, financial institutions and direct response methods. The ratings of the life insurance companies of Aegon USA reflect the strong business profile, adequate risk-adjusted capitalization, strong enterprise risk management, and an underlying trend of statutory and IFRS profitability. The ratings also reflect A.M. Best s assessment of the financial strength and support of the parent, Aegon N.V. (Aegon). Partially offsetting these strengths is the increasing focus on sales of products that have unfavorable risk characteristics from a product creditworthiness standpoint, as well as the Printed February 1, Page 12 of 42

13 equity market sensitivity of its earnings and significant reliance on captive reinsurance. Aegon USA s business profile is viewed as strong by A.M. Best, with competitive market positions in the U.S. life and annuity areas. The group s market positions are supported by a large and diversified distribution system that is made up of both independent and career agents, financial institutions, wirehouses and direct response channels. Subsequently, in late 2016 the company exited the Affinity, Direct TV, and Direct Mail channels that were part of the accident and health (A&H) line of business in the US. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. There should be lower dependency on release of required surplus as the fee-based business grows. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and A&H insurance. Additional rating consideration includes A.M. Best s assessment of the financial strength and support of the parent, Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon s overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon. Several years ago the company pursued a strategic shift to focus on selling products such as variable annuities, mutual funds, and 401(k)s and has de-emphasized sales of its spread-based products, especially fixed annuities. In a stable equity market, the required capital on variable annuities is generally less than for fixed annuities and other spread-based products. However, from a product creditworthiness perspective, A.M. Best views variable annuities with living benefits as displaying some of the highest risk characteristics and being vulnerable to tail risks, which could lead to an increase in the required capital to support this segment. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. The group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. A.M. Best also notes that over recent years, Aegon USA has come to rely heavily on captive reinsurance to fund reserves generated by term life and universal life insurance with secondary guarantees. Aegon USA has also reduced its exposure to equity market risk by increasing the size of its macro-equity hedge covering its variable annuity business. However, while the additional equity hedging will serve to reduce volatility in some financial metrics, the group s earnings via fee income remain somewhat correlated to equity market performance. A positive rating action could result from a material improvement in A.M. Best s view of the credit profile of Aegon. A negative rating action could result if there is a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Capital Adequacy Model. A significant and sustained decline in net operating performance could also result in a negative rating action, as well as a further decline in A.M. Best s view of Aegon s credit profile, or a change in A.M. Best s view of the strategic importance of Aegon USA to Aegon. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 05/05/17 A+ 12/12/13 A+ 04/15/16 A+ 04/09/13 A+ 02/11/15 A+ KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Net Net Surplus Valuation Premiums Invest Funds Reserve Written Income Net Income Year Assets ,658,008 1,130, ,031 1,984, , , ,280,035 1,345, ,614 2,124, , , ,248,242 1,774, ,773 6,292, , , ,649,416 1,507, ,586 3,095, , , ,515,552 1,677, ,467 3,298, , ,879 (*) Within several financial tables of this report, this company is compared against the Multiple Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE Aegon USA is one of the leading life insurance organizations in the U.S. with more than twenty million customers and provides a wide range of life insurance, pensions, long-term savings and investment products. Aegon USA was founded 1989 when Aegon N.V. (Aegon) decided to bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through five primary insurance subsidiaries and includes Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company, Transamerica Premier Life Insurance Company, and Transamerica Casualty Insurance Company. The Aegon USA group of companies is fully integrated and share senior and investment management along with support services. Aegon USA uses a variety of distribution channels, each of which conducts business through one or more of the Aegon USA life insurance companies. The channels are both owned and non-owned and include career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and focused on agent-sold business as well as the worksite, employer-based market. Through 2015, the Aegon USA companies were divisionally organized into two primary business divisions: Life & Protection (L&P) and Investments & Retirement (I&R). Beginning in 2016, Aegon USA has restructured into a functionally organized business centered around the Transamerica brand. As a result, the company has eliminated its previous divisional alignment and created a unified organization that is functionally aligned (i.e. distribution, operations, finance, etc.). As a result of its recently implemented reorganization in the Printed February 1, Page 13 of 42