Dutch insurance giant Aegon revealed its plans to merge Arizona-based variable annuity captive with Transamerica Life Insurance (TLIC) to see a one-time benefit worth around $1bn.
The merger of the variable annuity captive and TLIC, which will be effective 1 October, 2018, is based on customary regulatory approval.
Aegon’s latest move comes after making changes to the existing US capital framework for variable annuities as proposed by the National Association of Insurance Commissioners (NAIC).
The company believes that the merger of the variable annuity captive and Transamerica Life Insurance could yield a 50%-points benefit to the US RBC ratio owing to the release of reserves and diversification benefits.
Further, the positive impact of the merger on the group Solvency II ratio of the company is anticipated to offset the effect of US tax reform to a great extent in the second half of 2018.
Aegon CEO Alex Wynaendts said: “Merging two of our US entities simplifies our legal structure, increases our capital buffer, and leads to the release of reserves and higher diversification benefits.
“This enables us to further strengthen our capital position in the United States and enhance the robustness of our balance sheet.”
According to Aegon, the variable annuity captive was established in 2015 to manage the volatility of the US RBC ratio caused by misalignment between reserve movements and hedging within the existing variable annuity capital framework.
The Dutch insurer said that NAIC’s recently proposed improvements to the existing variable annuity capital framework will bring down the non-economic volatility of the RBC ratio. As a result, the company said that the use of a variable annuity captive is not needed anymore.
Aegon is looking to adopt the proposed changes from the NAIC in early 2019 in the variable annuity capital framework without any material impact on its capital position.
The insurance major expects the merger to have no material impact on its recurring capital generation in the next 10 years considering the long-dated nature of the variable annuity business.
Last month, Aegon signed a deal to offload the last substantial block of its US life reinsurance business to French life reinsurance company SCOR Global Life.