Back to Top MONUMENTAL LIFE INSURANCE COMPANY A+ STONEBRIDGE LIFE INSURANCE COMPANY A+ TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY A+

Transcription

1 MONUMENTAL LIFE INSURANCE COMPANY A+ STONEBRIDGE LIFE INSURANCE COMPANY A+ TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY A+ TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY A+ OF NEW YORK TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY A+ TRANSAMERICA LIFE INSURANCE COMPANY A+ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO A+ A+ Back Top 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 1 of 39

2 Ultimate Parent: AEGON N.V. MONUMENTAL LIFE INSURANCE COMPANY 4333 Edgewood Road N.E. Cedar Rapids, IA Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating Rationale: The published ratings of the AEGON USA companies reflect that they are integral AEGON s strategy, fully integrated in the group s operations, a material part of the business profile, significant contriburs earnings and have received explicit financial support when needed. Monumental 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 investment products, including guaranteed investment contracts and funding agreements. The company is licensed in 49 states, the District of Columbia, Guam and Puer 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 and diverse business profile of the overall operation, large multi-channel distribution platform, diversified sources of earnings and strong cash flow generation. The group also benefits from meaningful economies of scale, strong brand recognition and effective asset/liability and liquidity management. The ratings of AEGON USA 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 group s exposure higher-risk investments (structured securities, direct commercial mortgage loans and various alternative strategies) as well as the equity market sensitivity of its earnings. AEGON USA s business profile remains strong, with competitive market positions in the U.S. life and annuity arena (p 10 life insurance and variable annuity writer), pensions (p 15 defined contribution plan provider) and mutual funds. The group s market positions are supported by a large and diversified distribution system that is made up of independent and career agents, financial institutions, wirehouses and direct response methods. Through both acquisitions and organic growth, AEGON USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably its hisrical financial performance. AEGON USA s earnings profile is one of the more diversified in the industry. Product lines that contribute overall earnings include traditional life, fixed annuities, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Following the global financial crisis, one of AEGON USA s strategic priorities has been reduce its earnings sensitivity financial markets in order realize better earnings stability. To accomplish this, AEGON USA underok various initiatives de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio was upgraded by reducing hedge fund holdings and increasing positions in cash and U.S. Treasuries and other short-term investments. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) is being run-off reduce exposure credit risk, lower required capital and shift a more balanced mix of business between spread and fee-based products. The group also reduced its exposure equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, AEGON USA s ratings reflect A.M. Best s assessment of the financial strength and support of the parent, AEGON. As a result, the stand-alone ratings of AEGON USA receive rating enhancement in consideration of AEGON s overall creditworthiness and the strategic and financial importance of the U.S. operations AEGON. Despite AEGON USA s improved risk profile, A.M. Best notes the possibility of additional, material credit losses within the group s general account investment portfolio. Although pre-tax IFRS asset impairments declined USD 352 million in 2011 from USD 506 million in 2010, additional realized losses and impairments are likely occur in 2012, given AEGON USA s sizable structured asset and direct commercial mortgage loan portfolios. AEGON USA s investments in non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities (CMBS) taled approximately USD 20 billion at December 31, 2011 (IFRS amortized cost basis). Furthermore, the group s substantial variable annuity portfolio exposes its earnings volatility, as declines in the equity markets would translate lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve reduce volatility, the group s earnings remain somewhat correlated equity market performance. A.M. Best believes AEGON USA is well positioned at the current rating level for the foreseeable future. Facrs that could result in negative rating actions for these entities include a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Adequacy Ratio (BCAR) model, net operating performance that does not meet A.M. Best s expectations or a decline in the creditworthiness of AEGON, which could constrain future financial support. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 04/13/12 A+ 04/23/09 A 04/27/11 A+ 06/18/08 A+ 06/29/10 A+ 05/30/07 A+ KEY FINANCIAL INDICATORS ($000) Total Condit l Surplus Reserve Premiums Invest Funds Funds Written Income Income Assets ,935, , ,726 2,428,080 1,465, , ,531,178 1,236, ,442-2,380,731 1,322, , ,727,978 1,436,586 72,351-1,932,803 1,093, , ,851,172 1,174, ,677 1,347, , ,107, , ,524 1,391, , ,708 BUSINESS PROFILE AEGON USA is one of the leading life insurance organizations in the U.S. with more than twenty million cusmers 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 bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through eight primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company of New York, Transamerica Advisors Life Insurance Company, Monumental Life Insurance Company, Snebridge Life Insurance Company, Snebridge Casualty Insurance Company and Western Reserve Life Assurance of Ohio. 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 approximately 1,500 career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and in the direct marketing of life and supplemental accidental death 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 2 of 39

3 and dismemberment (AD&D) insurance. The AEGON USA companies are present in three main lines of business: Life & Protection (L&P), Individual Savings and Retirement, and Employer Solutions and Pensions. The Institutional Markets Division is no longer considered core the group and the Life Reinsurance was sold SCOR SE in August Hisrically, the largest contribur before-tax earnings has been is the L&P division, which includes the career agency operations, conducted through Monumental Life, selling individual life and supplemental health products the middle income market. Also included in the L&P division is Transamerica Insurance & Investments Group (TIIG), Long Term Care and AEGON Direct Marketing Services (ADMS). TIIG markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. ADMS specializes in marketing life insurance and supplemental health insurance products consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Lastly, Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its cusmers. Policies are sold through independent brokerage and at the worksite individuals and groups. The Individual Savings & Retirement division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent 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 (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York) as part of a strategic distribution relationship with Merrill Lynch with respect variable annuities. The acquisition of the Merrill Lynch insurance companies served place AEGON USA in the p ten of variable annuity sellers in the wirehouse and broker/dealer segment. Starting in late 2009, AEGON USA reduced its sales of fixed annuities in response lower market interest rates and lower investment returns available in the environment. Similar market conditions continued in 2010 and continue restrict sales of fixed annuities. As a result, AEGON USA recently decided de-emphasize the sale of fixed annuities. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrars and accounting firms. Diversified Investment Advisors serves almost 4,000 mid-sized large companies while Transamerica Retirement Services serves more than 15,500 small mid-sized companies across the U.S. ES&P offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies 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) however, on December 1, 2010, AEGON announced its plan discontinue new sales in the executive non-qualified benefits market and related BOLI-COLI business. Through Transamerica Worksite Marketing, AEGON USA offers voluntary payroll deduction life and supplemental health insurance employees at their place of work and are designed supplement employees existing benefit plans. 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. On February 17, 2009, AEGON announced its plan run-off its instructional spread based business reduce capital requirements and credit risk. However, AEGON USA continues be a market participant and has a leading market position in synthetic GICs which has been moved the Employer Solutions and Pensions division. 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 offer affordable housing tax credit guarantees. PREMIUM AND RESERVE ANALYSIS Direct Premiums (000) Industrial life 1,670 1,884 2,131 2,384 2,718 Ordinary life 635, , , , ,252 Group life 56,233 66,015 76,437 89, ,247 Credit life 8,534 7,595 7,453 5,913 7,427 Individual annuities 407, , , , ,912 Group annuities 117,364 88, , , ,394 Individual A&H 114, , , , ,871 Credit A&H 9,761 12,614 7,613 2,883 8,905 Group A&H 431, , , , ,963 Other 0 Total 1,783,157 1,731,339 1,786,289 2,433,632 2,663,687 Reins Assumed Prems (000) Ordinary life 3,213 86,008 8,414 8,850 18,649 Group life 6,054 7,394 8,612 9,765 3,291 Credit life 4,466 7,359 9,799 24,582 22,032 Individual annuities 52,459 75,708 73,826 53,207 22,485 Group annuities Individual A&H 72,991 73,010 69, , ,043 Credit A&H -1, ,138 10,291 12,117 Group A&H 74,607 65,475 59,693 6,193 9,392 Total 212, , , , ,010 Reins Ceded Prems (000) Industrial life 1,662 1, ,710 Ordinary life 441, ,497 50, , ,863 Group life 7,652 6,567 6,779 5,506 6,887 Credit life 13,876 2,902 4,183 4,563 6,150 Individual annuities 30,985 43,635 24, Group annuities , ,000 Individual A&H 49 2,489 2,298 4,264 4,524 Credit A&H 22,243 3,769 4,142 5,321 6,845 Group A&H 86,252 76,454 76,884 46,542 42,627 Total 604, , , , ,617 Premiums osits (000) Industrial life ,631 2,384 8 Ordinary life 197, , , , ,326 Group life 54,635 66,841 78,270 94,219 96,651 Credit life ,052 13,069 25,932 23,309 Individual annuities 446, ,612-3,101, , ,491 Group annuities 130, , ,165 4,162,268 6,180,236 Individual A&H 187, , , , ,390 Credit A&H -13,584 9,260 4,609 7,853 14,177 Group A&H 419, , , , ,728 Total 1,422,555 1,420,341 1,971,182 6,084,789 8,486,316 Deposits (incl. above) 30,842 72, ,321 3,880,785 6,058, A.M. Best Company, Oldwick, NJ Printed May 8, Page 3 of 39

4 General Account Reserve Distribution (000) Industrial life 455, , ,413 24, ,842 Ordinary life 4,994,348 4,851,083 4,685,951 1,264,749 5,264,340 Group life 604, , , , ,263 Credit life 2,852 37,613 62, , ,968 Supplementary contracts 78,064 72,658 92, , ,410 Individual annuities 2,867,737 2,916,274 2,960,483 3,094,841 3,218,884 Group annuities 992,916 1,126,679 1,284,215 1,357,102 1,712,268 Deposit type contracts 917, ,280 1,170,859 2,505,054 2,179,743 Individual A&H 431, , , , ,742 Credit A&H 8,266 32,104 46,876 70,054 85,731 Group A&H 80,622 78,627 75,741 67,176 73,824 Total 11,433,836 11,573,401 11,865,950 9,615,592 14,322,017 Geographical breakdown of direct premium writings ($000): Florida, $132,337 (7.4%); New Jersey, $123,304 (6.9%); California, $120,731 (6.7%); Kentucky, $118,490 (6.6%); Pennsylvania, $94,701 (5.3%); other jurisdictions, $1,209,867 (67.2%). RISK MANAGEMENT AEGON USA s ERM program has evolved via a flattening of risk structure; moving strategic business units (SBU s) from a risk compliance culture a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit the CRO s. The Group Risk and Committee (GRCC) provides independent oversight of the group s operations. The GRCC covers all risk types, including credit and market risk, pricing and underwriting risk, operational risk, corporate risk as well as the management of the overall capital position, and reports the group s executive board. Country Risk: AEGON USA has a limited amount of country risk exposure as the company s operations are based in the U.S. However, the company has a modest amount of country risk exposure with its foreign life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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" by A.M. Best s Country Risk Group with Mexico and Brazil considered Tier 3" and Tier 4" respectively. OPERATING PERFORMANCE Operating Results: AEGON USA is the largest of AEGON s country units and produces approximately two-thirds of AEGON s IFRS operating earnings. AEGON USA has one of the more diversified earnings profiles in the industry with a good balance of underwriting income from life insurance products and fee-based income from variable and investment-type products. Boosted by the equity market recovery, AEGON USA s consolidated statury earnings results improved markedly for both 2009 and 2010 after experiencing a $641 million net loss for However, 2011 consolidated statury earnings reported a $2.5 billion net loss, which is primarily attributed the accounting treatment related the structure of its sale of TARe (life reinsurance business) SCOR SE. Nonetheless, AEGON USA continues report solid IFRS results. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Mexico) recorded IFRS net income of $697 million (2009), $1.5 billion (2010) and $933 million (2011) compared a loss of $2 billion for However, A.M. Best notes that AEGON USA s statury and IFRS results continue be dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $1.4 billion (2009), $506 million (2010) and $352 million (2011). Ben Paid NPW Comm & Exp NPW PROFITABILITY TESTS NOG Tot Assets Operating Return on Equity NOG Total Tot Rev Yield Return PROFITABILITY ANALYSIS Operating Gain (000) Industrial life -1,041 1,183 5,341 25,811 27,964 Ordinary life 307,457-36, , , ,015 Group life -2,959 9,043 29,464 28,811 37,739 Credit life 14,006 8,446 16,259 39,306 35,040 Supplementary contracts -9,574 1,097 6, ,100 Individual annuities -56,951-81, ,365 16,169 61,185 Group annuities 181,174 77, ,393 99,660-14,215 Individual A&H 33,052 13,722 29,200 43,035-32,693 Credit A&H 7,245 3,986 7,599 4,207 4,631 Group A&H 38,143 25,447 19,788 53,983 43,262 Total 510,550 22, , , ,028 ACCIDENT AND HEALTH STATISTICS ($000) Premiums Premiums Loss Exp. Written Earned Ratio Ratio Underwriting Results , , , , , , , , , , , , , , ,758 Current Experience: Group 419, , ,199 Credit -13, ,833 Collectively renew Non-can 50,593 50, ,559 Guaranteed renew 129, , ,924 Non-renew, S.R Other accident 6,139 6, ,934 Other 1,355 1, ,736 BALANCE SHEET STRENGTH ization: AEGON USA s overall risk-based capitalization is adequate support its current insurance and investment risks and AEGON N.V. has contributed capital when necessary. A.M. Best believes that AEGON USA has good statury earnings capacity support its capital position going forward, and that AEGON N.V. is likely provide additional capital, if needed. AEGON USA s regulary capital ratio at year-end 2011 increased by 91 percentage points from year-end 2008 due several capital initiatives. These include asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, AEGON USA has continued accelerate capital release through fixed annuity coinsurance transactions in 2011 and the sale of its reinsurance book of business. LEVERAGE TESTS NPW Change Change Liabilities Surplus Relief Reins Leverage in NPW in Current BCAR: A.M. Best Company, Oldwick, NJ Printed May 8, Page 4 of 39

5 SOURCES OF CAPITAL GROWTH ($000) Realized Unrealized Change Other Gains Gains AVR Changes Change in Gain ,028 76,354-12, , , , , ,128-26, ,284-14, , , , , ,091-49, , ,320-22,857 33,627-79, , , ,550-28,842-12,831-30, , ,570 end Asset Valuation Reserve Interest Maintenance Reserve Surplus Notes , ,000 1,200,000 1, ,726 89, ,236, ,000 1, ,442 8, ,436, , ,700 1,444 72,351 58, ,174, , ,000 1, , , , , ,000 1, , ,586 Liquidity: AEGON USA s investment portfolio provides ample liquidity as a majority of the group s assets are in highly liquid public bonds. AEGON USA s liquidity is also supported by $1.5 billion in committed bank lines through AEGON N.V., with whom it has a standing line of credit. LIQUIDITY TESTS Operating Cash Flow ($000) Quick Liquidity Current Liquidity Non-Inv Grade Bonds Delnq & Foreclsd Mtg Mtg & Cred Ten Lns & RE Cap Affil Invest ,508, , ,221, ,963, ,734, INVESTMENT YIELDS Cash & Short Term Invest. Exp. Ratio CAPITAL TRENDS ($000) Sckholdeholder Policy- Divs Divs Mortgages Real Estate Yield Bonds Scks Gross AEGON USA s exposure alternative assets represents additional risk the portfolio and 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 has been reduced from prior years and is currently about 4% of the investment portfolio. Remaining assets include investments in common sck and preferred sck, cash and short-term investments. INVESTMENT DATA Current Distribution of Bonds by Maturity s Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Affiliated Total Bonds (000) 13,926,055 14,724,167 15,486,018 17,962,223 19,489,466 US Government Foreign Government Foreign - All Other State/Special Rev. - US Public Utilities - US Industrial & Misc - US Hybrid Securities Credit Tenant Lns - US Affiliated Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class Mortgages (000) 2,131,124 2,321,498 2,634,705 3,091,985 3,194,935 Commercial Residential Farm Investments: With $115.4 billion in general account assets at December 31, 2011 (IFRS amortized cost basis, excluding policy loans), AEGON USA Mortgage Quality (%) maintains an investment portfolio that is well diversified and generally of high quality, however holdings in structured securities and alternative asset classes 90 Days Delinquent expose the portfolio potentially higher realized losses and impairments In Process of Forecl given the continued economic slowdown. The AEGON Americas segment Total Delinquencies (which is largely made up of AEGON USA but also includes operations in Canada and Latin America) recorded IFRS net impairments of $352 million during Real Estate (000) 7,432 6,708 6,920 9,676 10,905 Bonds represent approximately three-fourths of AEGON USA s investment Property Held for Inc portfolio and more than 90% are of investment grade quality. However, Property Held for Sale approximately 18% of the bond investments are in the form of structured securities including non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Although most of the Scks (000) 128,684 70,099 64,291 1,012,855 1,103,349 structured portfolio is rated investment grade with approximately 60% being rated AAA, A.M. Best believes that mortgage and consumer related loans are Unaffiliated Common likely experience further defaults in light of the recessionary U.S. economic Affiliated Common climate. Unaffiliated Preferred Direct commercial mortgage loans comprise approximately 9% of tal Affiliated Preferred 0.2 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. Nevertheless, A.M. Best expects some defaults as a result of the persistently weak economic conditions A.M. Best Company, Oldwick, NJ Printed May 8, Page 5 of 39

6 Other Inv Assets (000) 2,458,298 3,303,915 4,933,996 3,619,134 1,482,869 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 03/05/1858 Date Commenced: 05/22/1860 Domicile: IA Originally incorporated as a mutual company under the title Maryland Mutual Life and Fire Insurance Company, the title was changed in 1870 Mutual Life Insurance Company of Baltimore. In 1928, the company was converted the sck basis. During 1935 the present title was adopted. The company redomesticated from Maryland Iowa during Mergers: Security Life Insurance Company, North Carolina, 1998; Commonwealth Life Insurance Company, Kentucky, 1998; Peoples Security Life Insurance Company, North Carolina, 1998; Pension Life Insurance Company of America, New Jersey, 2004; Peoples Benefit Life Insurance Company, Iowa, MANAGEMENT Officers: Chairman of the Board, President and Chief Executive Officer, Brenda K. Clancy; Chief Investment Officer, Joel L. Coleman; Executive Vice President and Chief Financial Officer, Darryl D. Butn; Senior Vice President and General Counsel, Craig D. Vermie; Vice President and Secretary, H. Stacey Boyer; Treasurer, Karen R. Wright. Direcrs: Ralph L. Arnold, Darryl D. Butn, Brenda K. Clancy, Robert J. Kontz, Mark W. Mullin, Arthur C. Schneider, Craig D. Vermie. REGULATORY An examination of the financial condition was made as of December 31, 2009, by the insurance departments of Iowa, Maryland, Ohio and Vermont. The 2010 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. Terriry: The company is licensed in the District of Columbia, Guam, Puer Rico, 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. The company is also licensed on United States military installations in foreign countries. Reserve basis: (Current ordinary business): 1980 CSO 4%, 4 1/2% and 5%; CRVM and Level valuation. (Current annuity business): 5.50% and 5.75% CARVM deferred; 83a 6%, 6.25% and 6.50% CARVM immediate; A % both, 5.50% and 5.75% deferred; Greater of AV or CARVM. FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2011 Assets Liabilities *Total bonds 13,926,055 + policy reserves 10,516,561 *Total preferred scks 24,514 Policy claims 195,561 *Total common scks 104,171 Deposit type contracts 917,274 Mortgage loans 2,131,124 Interest maint reserve 156,586 Real estate 7,432 Comm taxes expenses 64,140 Contract loans 487,043 Asset val reserve 182,524 Cash & short-term inv 686,406 Funds held reinsurance 5,889,102 Other invested assets 930,134 Other liabilities 733,195 Prems and consids due 210,050 Accrued invest income 181,264 Tot liab w/o sep accts 18,654,944 Other assets 947,605 Separate account bus 11,471,551 Total Liabilities 30,126,495 Tot assets w/o sep accts 19,635,797 Common sck 10,137 Separate account bus 11,471,551 Surplus notes 160,000 Paid in & contrib surpl 620,791 Unassigned surplus 68,805 Other surplus 121,120 Assets 31,107,348 Total 31,107,348 *Securities are reported on the bases prescribed by the National Association of Insurance Commissioners. +Analysis of reserves; Life $5,813,050; annuities $3,840,063; supplementary contracts with life contingencies $98,654; accidental death benefits $21,956; disability active lives $23,115; disability disabled lives $107,885; miscellaneous reserves $91,203; accident & health $520,636. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 183,623 Ordinary life 197,702 Matured endowments 9,812 Individual annuities 429,079 Annuity benefits 275,877 Credit life -876 Disability benefits 0 Group life 54,635 Surrender benefits 731,102 Group annuities 117,400 Acc & health benefits 305,136 Acc & health group 419,519 Int on policy funds 40,624 Acc & health credit -13,584 Supplementary contracts 17,016 Acc & health other 187,830 Incr life reserves -108,479 Industrial 8 Incr a & h reserves 15,919 Total premiums 1,391,713 Res adj reins assumed -21 Supplementary contracts 11,509 Commissions 253,225 investment income 842,041 Comm exp reins assumed 67,337 Amort interest maint res 4,412 Reinsurance expenses 6 Comm & exp reins ceded 529,883 Interest expenses 9,600 Res adj on reins ceded -151,484 Insur taxes lic & fees 28,925 Other income 39,545 General ins expenses 219,655 Mgt and/or service fee 1,147 transf sep acct -136,670 Misc operating expense 1,139 Other disbursements 211,468 Total 2,668,767 Total 2,125,295 Gain from operations before FIT & div policyholders ,472 Dividends policyholders: life... 1,342 Gains from operations after dividends policyholders ,130 Federal income taxes incurred... 31,580 gain from operations after FIT and dividends ,550 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 2,889,715 Benefits paid 1,594,795 Long-term bond proceeds 2,889,949 Comm, taxes, expenses 782,498 Other invest proceeds 528,785 Long-term bonds acquired 2,112,595 Other cash provided 140,631 Other cash applied 2,681,197 Decr cash & short-term 722,004 Total 7,171,085 Total 7,171, A.M. Best Company, Oldwick, NJ Printed May 8, Page 6 of 39

7 SEPARATE ACCOUNT DATA Sep Acct Assets 11,471,551 11,512,136 10,396,423 8,811,340 11,757,527 % Growth S/A Assets/Adm Assets Sep Acct Reserves 11,457,333 11,479,325 10,357,375 8,752,381 11,729,881 % Ordinary Life % Individual Annuities % Group Annuities Other Liabilities 14,218 32,811 39,048 58,960 27,646 S/A Prems osits 402, , , , ,977 % Individual Annuities % Group Annuities Sep Acct Fees & Charges 34,847 32,602 29,143 34,249 37,678 % Ordinary Life % Individual Annuities % Group Annuities Fees & Chgs Assets% Sep Acct Ben & Wdrwls 541, , , , ,932 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl Assets% Ord. Lapse Ratio % ORDINARY LIFE STATISTICS Average 1st Yr Ord. Policy Avg. Prem / (in dollars) Prem Total 1st Yr Comm / 1st Yr Prem Gen. Exp. / Policies In Force Issued In Force ($/M) Prem ,855 20, ,706 20, ,100 20, ,093 24, ,671 20, # Policies Issued (000) # Policies in Force (000) First Premium (000) Gen l Exp / Reserves (%) Return on Reserves (%) ,098 59, ,000 49, ,882 44, ,956 43, ,709 55, INDIVIDUAL ANNUITY STATISTICS Comm & Res & Exp Exp Dep Liab Res NPW & (000) Liab (%)* Dep (%) Wdrwls NPW & Dep (%) Wdrwls Res Liab (%)* NPW & Dep (000) ,491 14,350, ,097 11,585, ,318 12,545, ,612 13,285, ,946 13,190, * Includes Separate Account reserves. GROUP ANNUITY STATISTICS Comm & Res & Exp Exp Dep Liab Res NPW & (000) Liab (%)* Dep (%) Wdrwls NPW & Dep (%) Wdrwls Res Liab (%)* NPW & Dep (000) ,180,236 4,587, ,162,268 4,249, ,165 3,304, ,635 3,257, ,129 3,107, * Includes Separate Account reserves. TOTAL ANNUITY ACTUARIAL RESERVES & DEPOSIT TYPE LIABILITIES BY WITHDRAWAL CHARACTERISTICS With No Total Annuity Min or No Surrender With Surrender Res Surrender Charge 5% MVA Allowed Liab (000) Charge (%)* or more (%)* (%)* (%)* ,466, ,683, ,316, ,319, ,797, * Includes Separate Account reserves. NEW LIFE BUSINESS ISSUED ($000) Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,464,733 2,637,825 1,010, ,462 6,908, ,077,812 1,936,043 2,244, ,558 6,703, ,842,101 1,783, , ,206 4,599, ,948,665 1,553, , ,785 4,708, ,494,451 1,242,148 1,678, ,263 5,790, Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Adds Term Credit Group Industrial ,482,983 23,370,775 5,968,719 9,636, ,804 79,315, ,069,494 21,887,163 5,302,910 8,368, ,593 75,449, ,188,134 21,063,919 3,579,243 7,426, ,996 71,047, ,206,937 35,964,246 7,197,140 6,702, ,088 87,827, ,826,523 18,938,266 2,139,276 6,085, ,666 64,716,537 Ultimate Parent: AEGON N.V. STONEBRIDGE LIFE INSURANCE COMPANY 29 South Main Street Rutland, VT Exec. Office: 4333 Edgewood Road N.E., Cedar Rapids, IA Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating Rationale: The published ratings of the AEGON USA companies reflect that they are integral AEGON s strategy, fully integrated in the group s operations, a material part of the business profile, significant contriburs earnings and have received explicit financial support when needed. Snebridge Life Insurance Company provides traditional ordinary life, credit, and accident and health insurance through credit card issuers. The ratings of the life insurance companies of AEGON USA reflect the strong and diverse business profile of the overall operation, large multi-channel distribution platform, diversified sources of earnings and strong cash flow generation. The group also benefits from meaningful economies of scale, strong brand recognition and effective asset/liability and 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 7 of 39

8 liquidity management. The ratings of AEGON USA 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 group s exposure higher-risk investments (structured securities, direct commercial mortgage loans and various alternative strategies) as well as the equity market sensitivity of its earnings. AEGON USA s business profile remains strong, with competitive market positions in the U.S. life and annuity arena (p 10 life insurance and variable annuity writer), pensions (p 15 defined contribution plan provider) and mutual funds. The group s market positions are supported by a large and diversified distribution system that is made up of independent and career agents, financial institutions, wirehouses and direct response methods. Through both acquisitions and organic growth, AEGON USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably its hisrical financial performance. AEGON USA s earnings profile is one of the more diversified in the industry. Product lines that contribute overall earnings include traditional life, fixed annuities, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Following the global financial crisis, one of AEGON USA s strategic priorities has been reduce its earnings sensitivity financial markets in order realize better earnings stability. To accomplish this, AEGON USA underok various initiatives de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio was upgraded by reducing hedge fund holdings and increasing positions in cash and U.S. Treasuries and other short-term investments. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) is being run-off reduce exposure credit risk, lower required capital and shift a more balanced mix of business between spread and fee-based products. The group also reduced its exposure equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, AEGON USA s ratings reflect A.M. Best s assessment of the financial strength and support of the parent, AEGON. As a result, the stand-alone ratings of AEGON USA receive rating enhancement in consideration of AEGON s overall creditworthiness and the strategic and financial importance of the U.S. operations AEGON. Despite AEGON USA s improved risk profile, A.M. Best notes the possibility of additional, material credit losses within the group s general account investment portfolio. Although pre-tax IFRS asset impairments declined USD 352 million in 2011 from USD 506 million in 2010, additional realized losses and impairments are likely occur in 2012, given AEGON USA s sizable structured asset and direct commercial mortgage loan portfolios. AEGON USA s investments in non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities (CMBS) taled approximately USD 20 billion at December 31, 2011 (IFRS amortized cost basis). Furthermore, the group s substantial variable annuity portfolio exposes its earnings volatility, as declines in the equity markets would translate lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve reduce volatility, the group s earnings remain somewhat correlated equity market performance. A.M. Best believes AEGON USA is well positioned at the current rating level for the foreseeable future. Facrs that could result in negative rating actions for these entities include a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Adequacy Ratio (BCAR) model, net operating performance that does not meet A.M. Best s expectations or a decline in the creditworthiness of AEGON, which could constrain future financial support. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 04/13/12 A+ 04/23/09 A 04/27/11 A+ 06/18/08 A+ 06/29/10 A+ 05/30/07 A+ KEY FINANCIAL INDICATORS ($000) Total Condit l Surplus Reserve Premiums Invest Funds Funds Written Income Income Assets ,206, ,534 19, ,995 96, , ,138, ,446 19, , , , ,024, ,141 13, ,900 91, , ,157, ,533 15, ,210 96, , ,749, ,091 15, , , ,427 BUSINESS PROFILE AEGON USA is one of the leading life insurance organizations in the U.S. with more than twenty million cusmers 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 bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through eight primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company of New York, Transamerica Advisors Life Insurance Company, Monumental Life Insurance Company, Snebridge Life Insurance Company, Snebridge Casualty Insurance Company and Western Reserve Life Assurance of Ohio. 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 approximately 1,500 career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and in the direct marketing of life and supplemental accidental death and dismemberment (AD&D) insurance. The AEGON USA companies are present in three main lines of business: Life & Protection (L&P), Individual Savings and Retirement, and Employer Solutions and Pensions. The Institutional Markets Division is no longer considered core the group and the Life Reinsurance was sold SCOR SE in August Hisrically, the largest contribur before-tax earnings has been is the L&P division, which includes the career agency operations, conducted through Monumental Life, selling individual life and supplemental health products the middle income market. Also included in the L&P division is Transamerica Insurance & Investments Group (TIIG), Long Term Care and AEGON Direct Marketing Services (ADMS). TIIG markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. ADMS specializes in marketing life insurance and supplemental health insurance products consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Lastly, Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its cusmers. Policies are sold through independent brokerage and at the worksite individuals and groups. The Individual Savings & Retirement division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent 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 (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York) as part of a strategic distribution relationship with Merrill Lynch with respect variable annuities. The acquisition of the Merrill Lynch insurance companies served place AEGON USA in the p ten of variable annuity sellers in the wirehouse and 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 8 of 39

9 broker/dealer segment. Starting in late 2009, AEGON USA reduced its sales of fixed annuities in response lower market interest rates and lower investment returns available in the environment. Similar market conditions continued in 2010 and continue restrict sales of fixed annuities. As a result, AEGON USA recently decided de-emphasize the sale of fixed annuities. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrars and accounting firms. Diversified Investment Advisors serves almost 4,000 mid-sized large companies while Transamerica Retirement Services serves more than 15,500 small mid-sized companies across the U.S. ES&P offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies 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) however, on December 1, 2010, AEGON announced its plan discontinue new sales in the executive non-qualified benefits market and related BOLI-COLI business. Through Transamerica Worksite Marketing, AEGON USA offers voluntary payroll deduction life and supplemental health insurance employees at their place of work and are designed supplement employees existing benefit plans. 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. On February 17, 2009, AEGON announced its plan run-off its instructional spread based business reduce capital requirements and credit risk. However, AEGON USA continues be a market participant and has a leading market position in synthetic GICs which has been moved the Employer Solutions and Pensions division. 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 offer affordable housing tax credit guarantees. PREMIUM AND RESERVE ANALYSIS Direct Premiums (000) Ordinary life 83,614 82,772 83,799 83,111 87,758 Group life 133, , , , ,257 Credit life 2,139 2,394 2,812 3,330 3,602 Individual A&H 41,874 42,808 39,311 36,411 35,975 Credit A&H 2,368 2,672 3,218 3,989 4,361 Group A&H 224, , , , ,362 Total 487, , , , ,314 Reins Assumed Prems (000) Ordinary life Group life Individual A&H Group A&H 49,027 42,271 38,099 3,773 5,118 Total 49,158 42,433 38,028 4,734 6,175 Reins Ceded Prems (000) Ordinary life 42, ,950 4,915 1,974 9,787 Group life 89, ,146 4,207 4,003 9,231 Individual A&H 17,792 18,599 15,585 12,006 11,810 Group A&H 14,182 15,387 14,040 31,270 14,666 Total 164, ,082 38,747 49,252 45,494 Premiums osits (000) Ordinary life 40, ,045 78,784 81,483 78,336 Group life 44, , , , ,630 Credit life 2,139 2,394 2,812 3,330 3,602 Individual annuities Group annuities 765 4,134 5,534 6,300 56,088 Individual A&H 24,112 24,239 23,757 24,476 24,252 Credit A&H 2,368 2,672 3,218 3,989 4,361 Group A&H 258, , , , ,813 Total 373, , , , ,122 Deposits (incl. above) 997 4,377 5,775 6,403 56,127 General Account Reserve Distribution (000) Ordinary life 112, , , , ,794 Group life 77,698 77, , , ,531 Supplementary contracts Individual annuities Group annuities Deposit type contracts 19,789 24,425 28,175 31,823 44,885 Individual A&H 59,004 58,417 58,210 67,766 58,001 Credit A&H Group A&H 497, , , , ,189 Total 767, ,742 1,648,339 1,660,830 1,705,085 Geographical breakdown of direct premium writings ($000): California, $56,655 (11.9%); Texas, $53,999 (11.3%); Florida, $27,556 (5.8%); Pennsylvania, $25,180 (5.3%); Ohio, $22,245 (4.7%); other jurisdictions, $290,297 (61.0%). RISK MANAGEMENT AEGON USA s ERM program has evolved via a flattening of risk structure; moving strategic business units (SBU s) from a risk compliance culture a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit the CRO s. The Group Risk and Committee (GRCC) provides independent oversight of the group s operations. The GRCC covers all risk types, including credit and market risk, pricing and underwriting risk, operational risk, corporate risk as well as the management of the overall capital position, and reports the group s executive board. Country Risk: AEGON USA has a limited amount of country risk exposure as the company s operations are based in the U.S. However, the company has a modest amount of country risk exposure with its foreign life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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" by A.M. Best s Country Risk Group with Mexico and Brazil considered Tier 3" and Tier 4" respectively. OPERATING PERFORMANCE Operating Results: AEGON USA is the largest of AEGON s country units and produces approximately two-thirds of AEGON s IFRS operating earnings. AEGON USA has one of the more diversified earnings profiles in the industry with a good balance of underwriting income from life insurance products and fee-based income from variable and investment-type products. Boosted by the equity market recovery, AEGON USA s consolidated statury earnings results improved markedly for both 2009 and 2010 after experiencing a $641 million net loss for However, 2011 consolidated statury earnings reported a $2.5 billion net loss, which is primarily attributed the accounting treatment related the structure of its sale of TARe (life reinsurance business) SCOR SE. Nonetheless, AEGON USA continues 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 9 of 39

10 report solid IFRS results. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Mexico) recorded IFRS net income of $697 million (2009), $1.5 billion (2010) and $933 million (2011) compared a loss of $2 billion for However, A.M. Best notes that AEGON USA s statury and IFRS results continue be dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $1.4 billion (2009), $506 million (2010) and $352 million (2011). Ben Paid NPW Comm & Exp NPW PROFITABILITY TESTS NOG Tot Assets Operating Return on Equity NOG Total Tot Rev Yield Return PROFITABILITY ANALYSIS Operating Gain (000) Ordinary life 5,427-70,972 12,639 43,122-22,232 Group life 6, ,838 28,710 34,123 6,200 Credit life Supplementary contracts 3, ,297 1,755 Individual annuities Group annuities Individual A&H 6,971 1,910 22,922 2,841 6,399 Credit A&H ,106 Group A&H 141,992 55,135 74, , ,927 Total 164, , , , ,967 ACCIDENT AND HEALTH STATISTICS ($000) Premiums Premiums Loss Exp. Written Earned Ratio Ratio Underwriting Results , , , , , , , , , , , , , , ,015 Current Experience: Group 258, , ,003 Credit 2,368 2, Non-can 20,445 20, Guaranteed renew 3,407 3, ,172 Non-renew, S.R Other accident Other ,317 BALANCE SHEET STRENGTH ization: AEGON USA s overall risk-based capitalization is adequate support its current insurance and investment risks and AEGON N.V. has contributed capital when necessary. A.M. Best believes that AEGON USA has good statury earnings capacity support its capital position going forward, and that AEGON N.V. is likely provide additional capital, if needed. AEGON USA s regulary capital ratio at year-end 2011 increased by 91 percentage points from year-end 2008 due several capital initiatives. These include asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, AEGON USA has continued accelerate capital release through fixed annuity coinsurance transactions in 2011 and the sale of its reinsurance book of business. LEVERAGE TESTS NPW Change Change Liabilities Surplus Relief Reins Leverage in NPW in Current BCAR: 202 SOURCES OF CAPITAL GROWTH ($000) Realized Unrealized Change Other Gains Gains AVR Changes Change in Gain ,967-1,144-53,348-1,979 5,784 61, ,942 1, ,904-69, ,210-6, ,274 5,306-4,351 9, ,692-2, ,797 51, , ,650-1,224 1, , ,442 end Asset Valuation Reserve Interest Maintenance Reserve Surplus Notes ,534 25,000 19,352 39, , ,000 19,200 49, ,141 85,000 13,894 49, , ,000 15,691 38, , ,000 15,723 38,621 Liquidity: AEGON USA s investment portfolio provides ample liquidity as a majority of the group s assets are in highly liquid public bonds. AEGON USA s liquidity is also supported by $1.5 billion in committed bank lines through AEGON N.V., with whom it has a standing line of credit. Operating Cash Flow ($000) LIQUIDITY TESTS Non-Inv Grade Current Bonds Liquidity Delnq & Foreclsd Mtg Mtg & Cred Ten Lns & RE Cap Affil Invest Quick Liquidity , , , , , INVESTMENT YIELDS Cash & Short Term Invest. Exp. Ratio CAPITAL TRENDS ($000) Sckholdeholder Policy- Divs Divs Mortgages Real Estate Yield Bonds Scks Gross Investments: With $115.4 billion in general account assets at December 31, 2011 (IFRS amortized cost basis, excluding policy loans), AEGON USA maintains an investment portfolio that is well diversified and generally of high quality, however holdings in structured securities and alternative asset classes expose the portfolio potentially higher realized losses and impairments given the continued economic slowdown. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Latin America) recorded IFRS net impairments of $352 million during A.M. Best Company, Oldwick, NJ Printed May 8, Page 10 of 39

11 Bonds represent approximately three-fourths of AEGON USA s investment portfolio and more than 90% are of investment grade quality. However, approximately 18% of the bond investments are in the form of structured securities including non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Although most of the structured portfolio is rated investment grade with approximately 60% being rated AAA, A.M. Best believes that mortgage and consumer related loans are likely experience further defaults in light of the recessionary U.S. economic climate. Direct commercial mortgage loans comprise approximately 9% of tal 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. Nevertheless, A.M. Best expects some defaults as a result of the persistently weak economic conditions. AEGON USA s exposure alternative assets represents additional risk the portfolio and 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 has been reduced from prior years and is currently about 4% of the investment portfolio. Remaining assets include investments in common sck and preferred sck, cash and short-term investments. INVESTMENT DATA Current Distribution of Bonds by Maturity s Yrs-Avg Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Maturity Total Bonds (000) 1,238,622 1,537,257 1,394,348 1,562,299 1,522,451 US Government Foreign Government Foreign - All Other State/Special Rev. - US Public Utilities - US Industrial & Misc - US Hybrid Securities Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class Mortgages (000) 148, , , , ,580 Commercial Real Estate (000) 30,184 31,187 32,405 33,614 36,922 Property Occupied by Co Property Held for Sale 7.3 Scks (000) ,522 64,040 Unaffiliated Common Affiliated Common Unaffiliated Preferred Other Inv Assets (000) 160, , ,885 55, ,175 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 11/19/1900 Date Commenced: 05/07/1906 Domicile: VT Originally incorporated as The Vermont Accident Insurance Company, the present title was adopted in Mergers: J. C. Penney Insurance Company, California, 1979; Veterans Life Insurance Company, Illinois, MANAGEMENT Officers: President, Edward H. Walker III; Chief Operating Officer, Brenda K. Clancy; Chief Financial Officer, Darryl D. Butn; Chief Investment Officer, Joel L. Coleman; Senior Vice President, Secretary and General Counsel, Craig D. Vermie. Direcrs: Scott W. Ham, John R. Hunter, Glyn D. Mangum, Jr., Martha A. McConnell, Brian A. Smith, Craig D. Vermie, Edward H. Walker III. REGULATORY An examination of the financial condition was made as of December 31, 2009, by the insurance departments of Iowa, Maryland, Ohio and Vermont. The 2010 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. Terriry: The company is licensed in the District of Columbia, 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. The company is also licensed in Canada. Reserve basis: (Current ordinary business): 1980 CSO 4 1/2% CARVM and net level, 5% and 5 1/2%; CRVM valuation. (Current group business): 1980 CSO 4 1/2% and 5%; CRVM valuation. REINSURANCE The company maintains reinsurance agreements with several non-affiliated insurance companies. Only nominal amounts of ordinary life and A&H insurance in-force are ceded. Approximately 15% of group life insurance in-force is ceded. Maximum net retention on any one life is $1,000,000 for both ordinary life and group life policies. FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2011 Assets Liabilities *Total bonds 1,238,622 + policy reserves 747,243 *Total preferred scks 14 Policy claims 57,182 *Total common scks 614 Deposit type contracts 19,789 Mortgage loans 148,699 Interest maint reserve 38,621 Real estate 30,184 Comm taxes expenses 36,404 Contract loans 31,018 Asset val reserve 15,723 Cash & short-term inv 61,930 Funds held reinsurance 577,554 Securities-colltrl assts 49,865 Payable for securities lending 49,865 deferred tax asset 101,487 Other liabilities 46,178 Prems and consids due 21,021 Total Liabilities 1,588,559 Accrued invest income 16,621 Common sck 2,500 Other assets 49,575 Paid in & contrib surpl 33,083 Unassigned surplus 66,917 Other surplus 58,591 Assets 1,749,650 Total 1,749, A.M. Best Company, Oldwick, NJ Printed May 8, Page 11 of 39

12 *Securities are reported on the bases prescribed by the National Association of Insurance Commissioners. +Analysis of reserves; Life $181,577; annuities $34; supplementary contracts with life contingencies $12; accidental death benefits $3,019; disability active lives $97; disability disabled lives $5; miscellaneous reserves $5,843; accident & health $556,657. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 44,073 Ordinary life 40,938 Matured endowments 6 Credit life 2,139 Annuity benefits 1 Group life 44,287 Surrender benefits 3,579 Acc & health group 258,913 Acc & health benefits 92,304 Acc & health credit 2,368 Int on policy funds 88 Acc & health other 24,112 Incr life reserves -118 Total premiums 372,757 Incr a & h reserves 2,044 investment income 127,736 Commissions 22,755 Amort interest maint res 7,318 Comm exp reins assumed 17,040 Comm & exp reins ceded 47,113 Reinsurance expenses 9,600 Other income 5,666 Insur taxes lic & fees 14,898 General ins expenses 161,661 Misc operating expense 26 Other disbursements 24,006 Total 560,591 Total 391,963 Gain from operations before FIT & div policyholders ,629 Federal income taxes incurred... 3,978 gain from operations after federal income taxes ,650 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 534,302 Benefits paid 147,107 Long-term bond proceeds 554,385 Comm, taxes, expenses 233,940 Other invest proceeds 188,083 Long-term bonds acquired 247,810 Other cash provided 2,143 Div sckholders 339,000 Other cash applied 250,612 Incr cash & short-term 60,444 Total 1,278,913 Total 1,278,913 Ord. Lapse Ratio % ORDINARY LIFE STATISTICS Average 1st Yr Ord. Policy Avg. Prem / (in dollars) Prem Total 1st Yr Comm / 1st Yr Prem Gen. Exp. / Policies In Force Issued In Force ($/M) Prem ,945 9, ,723 11, ,798 13, ,759 15, ,176 15, # Policies Issued (000) # Policies in Force (000) First Premium (000) Gen l Exp / Reserves (%) Return on Reserves (%) , , , , , NEW LIFE BUSINESS ISSUED ($000) Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) , ,247 3,755 1,372,843 1,736, , ,193 3,554 1,047,436 2,052, ,554 1,131,255 2, ,715 2,159, , ,093 2, ,451 1,527, , ,252 1, ,575 1,284, Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Adds Term Credit Group Industrial ,589,327 1,651, ,208 7,592,389 11,164, ,454,139 2,161, ,399 7,091,102 10,993, ,483,850 2,778, ,870 6,594,891 11,095, ,443,876 3,009, ,911 6,176,387 10,839, ,451,339 3,063, ,724 5,858,295 10,565,043 Ultimate Parent: AEGON N.V. TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY 425 West Avenue, Suite 1800 Little Rock, AR Exec. Office: 4333 Edgewood Road NE, Cedar Rapids, IA Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating Rationale: The published ratings of the AEGON USA companies reflect that they are integral AEGON s strategy, fully integrated in the group s operations, a material part of the business profile, significant contriburs earnings and have received explicit financial support when needed. Transamerica Advisors Life Insurance Company has sold non-participating annuity products, including variable annuities, modified guaranteed annuities and immediate annuities. The company s annuity products were sold by licensed agents of Merrill Lynch Life Agency, Inc. (MLLA), pursuant a general agency agreement by and between the company and MLLA. The ratings of the life insurance companies of AEGON USA reflect the strong and diverse business profile of the overall operation, large multi-channel distribution platform, diversified sources of earnings and strong cash flow generation. The group also benefits from meaningful economies of scale, strong brand recognition and effective asset/liability and liquidity management. The ratings of AEGON USA 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 group s exposure higher-risk investments (structured securities, direct commercial mortgage loans and various alternative strategies) as well as the equity market sensitivity of its earnings. AEGON USA s business profile remains strong, with competitive market positions in the U.S. life and annuity arena (p 10 life insurance and variable annuity writer), pensions (p 15 defined contribution plan provider) and mutual funds. The group s market positions are supported by a large and diversified distribution system that is made up of independent and career agents, financial institutions, wirehouses and direct response methods. Through both acquisitions and organic growth, AEGON USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably its hisrical financial performance. AEGON USA s earnings profile is one of the more diversified in the industry. Product lines that contribute overall earnings include traditional life, fixed annuities, variable life, variable annuities, mutual funds, pensions and 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 12 of 39

13 accident and health insurance. Following the global financial crisis, one of AEGON USA s strategic priorities has been reduce its earnings sensitivity financial markets in order realize better earnings stability. To accomplish this, AEGON USA underok various initiatives de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio was upgraded by reducing hedge fund holdings and increasing positions in cash and U.S. Treasuries and other short-term investments. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) is being run-off reduce exposure credit risk, lower required capital and shift a more balanced mix of business between spread and fee-based products. The group also reduced its exposure equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, AEGON USA s ratings reflect A.M. Best s assessment of the financial strength and support of the parent, AEGON. As a result, the stand-alone ratings of AEGON USA receive rating enhancement in consideration of AEGON s overall creditworthiness and the strategic and financial importance of the U.S. operations AEGON. Despite AEGON USA s improved risk profile, A.M. Best notes the possibility of additional, material credit losses within the group s general account investment portfolio. Although pre-tax IFRS asset impairments declined USD 352 million in 2011 from USD 506 million in 2010, additional realized losses and impairments are likely occur in 2012, given AEGON USA s sizable structured asset and direct commercial mortgage loan portfolios. AEGON USA s investments in non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities (CMBS) taled approximately USD 20 billion at December 31, 2011 (IFRS amortized cost basis). Furthermore, the group s substantial variable annuity portfolio exposes its earnings volatility, as declines in the equity markets would translate lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve reduce volatility, the group s earnings remain somewhat correlated equity market performance. A.M. Best believes AEGON USA is well positioned at the current rating level for the foreseeable future. Facrs that could result in negative rating actions for these entities include a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Adequacy Ratio (BCAR) model, net operating performance that does not meet A.M. Best s expectations or a decline in the creditworthiness of AEGON, which could constrain future financial support. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 04/13/12 A+ 06/18/08 A+ 04/27/11 A+ 01/11/08 A+ 06/29/10 A+ 08/15/07 A u 04/23/09 A KEY FINANCIAL INDICATORS ($000) Total Condit l Surplus Reserve Premiums Invest Funds Funds Written Income Income Assets ,911, ,011 10, , , , ,341, ,135 1, , , , ,102, ,014 8, , , , ,139, ,142 11,572 28, , , ,050, ,047 12,023 16, , ,218 BUSINESS PROFILE On December 28, 2007, Merrill Lynch Life Insurance Company and its affiliate, ML Life Insurance Company of New York (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York), were acquired by AEGON USA, Inc. for $1.12 billion and $130 million respectively. Transamerica Advisors Life Insurance Company is licensed sell life insurance and annuity contracts in all states except New York, as well as the District of Columbia, Guam and the U.S. Virgin Islands. Life insurance and annuity products sold in New York are marketed exclusively through Transamerica Advisors Life Insurance Company of New York. The companies primarily market variable annuities and distribute their products exclusively through Merrill Lynch s network of over 15,000 financial advisors. AEGON USA is one of the leading life insurance organizations in the U.S. with more than twenty million cusmers 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 bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through eight primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company of New York, Transamerica Advisors Life Insurance Company, Monumental Life Insurance Company, Snebridge Life Insurance Company, Snebridge Casualty Insurance Company and Western Reserve Life Assurance of Ohio. 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 approximately 1,500 career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and in the direct marketing of life and supplemental accidental death and dismemberment (AD&D) insurance. The AEGON USA companies are present in three main lines of business: Life & Protection (L&P), Individual Savings and Retirement, and Employer Solutions and Pensions. The Institutional Markets Division is no longer considered core the group and the Life Reinsurance was sold SCOR SE in August Hisrically, the largest contribur before-tax earnings has been is the L&P division, which includes the career agency operations, conducted through Monumental Life, selling individual life and supplemental health products the middle income market. Also included in the L&P division is Transamerica Insurance & Investments Group (TIIG), Long Term Care and AEGON Direct Marketing Services (ADMS). TIIG markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. ADMS specializes in marketing life insurance and supplemental health insurance products consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Lastly, Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its cusmers. Policies are sold through independent brokerage and at the worksite individuals and groups. The Individual Savings & Retirement division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent 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 (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York) as part of a strategic distribution relationship with Merrill Lynch with respect variable annuities. The acquisition of the Merrill Lynch insurance companies served place AEGON USA in the p ten of variable annuity sellers in the wirehouse and broker/dealer segment. Starting in late 2009, AEGON USA reduced its sales of fixed annuities in response lower market interest rates and lower investment returns available in the environment. Similar market conditions continued in 2010 and continue restrict sales of fixed annuities. As a result, AEGON USA recently decided de-emphasize the sale of fixed annuities. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services small and mid-size corporate, non-profit and government sponsored plans through 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 13 of 39

14 brokers, agents, consultants, third-party administrars and accounting firms. Diversified Investment Advisors serves almost 4,000 mid-sized large companies while Transamerica Retirement Services serves more than 15,500 small mid-sized companies across the U.S. ES&P offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies 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) however, on December 1, 2010, AEGON announced its plan discontinue new sales in the executive non-qualified benefits market and related BOLI-COLI business. Through Transamerica Worksite Marketing, AEGON USA offers voluntary payroll deduction life and supplemental health insurance employees at their place of work and are designed supplement employees existing benefit plans. 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. On February 17, 2009, AEGON announced its plan run-off its instructional spread based business reduce capital requirements and credit risk. However, AEGON USA continues be a market participant and has a leading market position in synthetic GICs which has been moved the Employer Solutions and Pensions division. 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 offer affordable housing tax credit guarantees. PREMIUM AND RESERVE ANALYSIS Direct Premiums (000) Ordinary life 10,392 10,742 10,603 12,688 16,040 Individual annuities 17,206 30, , , ,176 Group annuities 108 1,319 Total 27,599 40, , , ,535 Reins Assumed Prems (000) Individual annuities Total Reins Ceded Prems (000) Ordinary life 7,252 7,942 4,335 11,887 22,165 Individual annuities 4,310 4,925 5,267 5,761 6,127 Total 11,563 12,867 9,602 17,648 28,292 Premiums osits (000) Ordinary life 3,140 2,801 6, ,125 Individual annuities 33,206 42, , , ,248 Group annuities 108 1,319 Total 36,346 44, , , ,442 Deposits (incl. above) 20,151 16,704 14,099 23,843 1,460 General Account Reserve Distribution (000) Ordinary life 1,302,921 1,362,422 1,430,948 1,520,861 1,610,318 Supplementary contracts 111, , ,531 Individual annuities 724, , , , ,990 Group annuities 23,103 25,465 27,975 12,881 Deposit type contracts 87,112 90,408 99, , ,219 Total 2,248,586 1,901,382 2,103,166 2,455,022 2,136,526 Geographical breakdown of direct premium writings ($000): Florida, $6,768 (24.5%); California, $2,759 (10.0%); Texas, $2,264 (8.2%); Alabama, $2,051 (7.4%); Illinois, $1,552 (5.6%); other jurisdictions, $12,204 (44.2%). RISK MANAGEMENT AEGON USA s ERM program has evolved via a flattening of risk structure; moving strategic business units (SBU s) from a risk compliance culture a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit the CRO s. The Group Risk and Committee (GRCC) provides independent oversight of the group s operations. The GRCC covers all risk types, including credit and market risk, pricing and underwriting risk, operational risk, corporate risk as well as the management of the overall capital position, and reports the group s executive board. Country Risk: AEGON USA has a limited amount of country risk exposure as the company s operations are based in the U.S. However, the company has a modest amount of country risk exposure with its foreign life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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" by A.M. Best s Country Risk Group with Mexico and Brazil considered Tier 3" and Tier 4" respectively. OPERATING PERFORMANCE Operating Results: AEGON USA is the largest of AEGON s country units and produces approximately two-thirds of AEGON s IFRS operating earnings. AEGON USA has one of the more diversified earnings profiles in the industry with a good balance of underwriting income from life insurance products and fee-based income from variable and investment-type products. Boosted by the equity market recovery, AEGON USA s consolidated statury earnings results improved markedly for both 2009 and 2010 after experiencing a $641 million net loss for However, 2011 consolidated statury earnings reported a $2.5 billion net loss, which is primarily attributed the accounting treatment related the structure of its sale of TARe (life reinsurance business) SCOR SE. Nonetheless, AEGON USA continues report solid IFRS results. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Mexico) recorded IFRS net income of $697 million (2009), $1.5 billion (2010) and $933 million (2011) compared a loss of $2 billion for However, A.M. Best notes that AEGON USA s statury and IFRS results continue be dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $1.4 billion (2009), $506 million (2010) and $352 million (2011). Ben Paid NPW Comm & Exp NPW PROFITABILITY TESTS NOG Tot Assets Operating Return on Equity NOG Total Tot Rev Yield Return PROFITABILITY ANALYSIS Operating Gain (000) Ordinary life 44,237 44,765 42,999 78,535 35,934 Supplementary contracts 3,449 6, ,327 Individual annuities -374, , , ,598 75,141 Group annuities 5,726 7,019 23,215-24,548-3,580 Total -321, , , , , A.M. Best Company, Oldwick, NJ Printed May 8, Page 14 of 39

15 BALANCE SHEET STRENGTH ization: AEGON USA s overall risk-based capitalization is adequate support its current insurance and investment risks and AEGON N.V. has contributed capital when necessary. A.M. Best believes that AEGON USA has good statury earnings capacity support its capital position going forward, and that AEGON N.V. is likely provide additional capital, if needed. AEGON USA s regulary capital ratio at year-end 2011 increased by 91 percentage points from year-end 2008 due several capital initiatives. These include asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, AEGON USA has continued accelerate capital release through fixed annuity coinsurance transactions in 2011 and the sale of its reinsurance book of business. LEVERAGE TESTS Liabilities NPW Change in NPW Change in Surplus Reins Relief Leverage Current BCAR: 202 SOURCES OF CAPITAL GROWTH ($000) Realized Unrealized Change Other Gains Gains AVR Changes Change in Gain ,494 1, ,492-52, ,611 34,749-2,301 8, ,323-9, ,663-57,376-1,103-6,746 25, , ,128-27,886 1,683-3,173 34, , ,551-18, , ,096 end Asset Valuation Reserve Interest Maintenance Reserve Surplus Notes , ,731 10,618 11, ,135 1,654 8, ,014 8,400 7, ,142 11,572 9, ,047 12,023 13,743 Liquidity: AEGON USA s investment portfolio provides ample liquidity as a majority of the group s assets are in highly liquid public bonds. AEGON USA s liquidity is also supported by $1.5 billion in committed bank lines through AEGON N.V., with whom it has a standing line of credit. LIQUIDITY TESTS Operating Cash Flow ($000) Quick Liquidity Current Liquidity Non-Inv Grade Bonds Delnq & Foreclsd Mtg Mtg & Cred Ten Lns & RE Cap Affil Invest , , , , , INVESTMENT YIELDS Cash & Short Term Invest. Exp. Ratio CAPITAL TRENDS ($000) Sckholdeholder Policy- Divs Divs Mortgages Real Estate Yield Bonds Scks Gross Investments: With $115.4 billion in general account assets at December 31, 2011 (IFRS amortized cost basis, excluding policy loans), AEGON USA maintains an investment portfolio that is well diversified and generally of high quality, however holdings in structured securities and alternative asset classes expose the portfolio potentially higher realized losses and impairments given the continued economic slowdown. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Latin America) recorded IFRS net impairments of $352 million during Bonds represent approximately three-fourths of AEGON USA s investment portfolio and more than 90% are of investment grade quality. However, approximately 18% of the bond investments are in the form of structured securities including non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Although most of the structured portfolio is rated investment grade with approximately 60% being rated AAA, A.M. Best believes that mortgage and consumer related loans are likely experience further defaults in light of the recessionary U.S. economic climate. Direct commercial mortgage loans comprise approximately 9% of tal 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. Nevertheless, A.M. Best expects some defaults as a result of the persistently weak economic conditions. AEGON USA s exposure alternative assets represents additional risk the portfolio and 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 has been reduced from prior years and is currently about 4% of the investment portfolio. Remaining assets include investments in common sck and preferred sck, cash and short-term investments. INVESTMENT DATA Current Distribution of Bonds by Maturity s Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 1,576,709 1,468,536 1,198,100 1,305,604 1,182,105 US Government Foreign Government Foreign - All Other State/Special Rev. - US Public Utilities - US Industrial & Misc - US Hybrid Securities Credit Tenant Lns - US Back Top Private Issues Public Issues A.M. Best Company, Oldwick, NJ Printed May 8, Page 15 of 39

16 Bond Quality (%) Class Class Class Class Class Class Mortgages (000) 44,355 50,816 57,752 63,157 Commercial Farm 5.6 Scks (000) 34,292 13,350 13,350 51,876 30,329 Unaffiliated Preferred Other Inv Assets (000) 1,150,237 1,151,917 1,203,900 1,170,867 1,086,992 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 01/27/1986 Date Commenced: 12/23/1986 Domicile: AR Originally incorporated in Washingn, the company redomesticated Arkansas in 1991 just prior merging with Tandem Insurance Group, Inc. Prior 1988, activities of Merrill Lynch Life had involved the sale of a nominal volume of ordinary life insurance, but beginning in 1989, substantial growth in net premium income resulted from a new corporate emphasis on the sale of single premium deferred annuities and modified guaranteed annuities. During 1990, MLLIC assumption reinsured all of Family Life Insurance Company s (its former parent and a then indirect wholly owned subsidiary of ML & Co.) life insurance and annuity business which had been marketed through the ML & Co. retail distribution network. This transaction occurred in anticipation of the June 1991 sale of Family Life and its traditional mortgage protection business Financial Industries Corporation. During Ocber 1991, MLLIC and Tandem Insurance Group, Inc., merged, with the former being the surviving entity. These transactions, combined with the assumption of a large block of ML & Co. sold variable life insurance business from Monarch Life, contributed significantly the growth in company assets from The general account asset base has experienced declines since 1991 resulting from a significant part of MLLIC s general account annuity contracts reaching the end of their initial interest rate guarantee periods. MLLIC has offset this decline by conversion of a large portion of this business in its modified guaranteed annuity and variable annuity products. During the first quarter of 2003 MLLIC discontinued manufacturing and selling single premium variable life insurance products. In 2010, the present title was adopted. Mergers: Tandem Insurance Group, Inc., Illinois, MANAGEMENT Officers: President, Thomas A. Swank; Chief Investment Officer, Joel L. Coleman; Secretary, Darin D. Smith; Treasurer and Chief Financial Officer, Eric J. Martin; Chief Actuary, Darin Zimmerman. Direcrs: Robert R. Frederick, John T. Mallett, Eric J. Martin, Darin D. Smith, Thomas A. Swank. REGULATORY An examination of the financial condition was made as of December 31, 2009, by the insurance department of Arkansas. The 2010 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. Terriry: The company is licensed in the District of Columbia, Guam, 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. Reserve basis: (Current ordinary business): None. (Individual annuity business): Deferred variable annuities Market Value CSV. Immediate annuities 2000 Table a 5.5%. (Modified Guarantee Annuity): Market value CARVM. REINSURANCE The maximum net retention on any one life is $500,000 for ordinary and variable life business. FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2011 Assets Liabilities *Total bonds 1,576,709 + policy reserves 2,161,474 *Total preferred scks 34,292 Policy claims 38,344 Mortgage loans 44,355 Deposit type contracts 87,112 Contract loans 792,602 Interest maint reserve 13,743 Cash & short-term inv 105,824 Comm taxes expenses 6,830 Securities-colltrl assts 243,891 Asset val reserve 12,023 Prems and consids due 62 Payable for securities lending 243,891 Accrued invest income 37,360 Other liabilities -75,445 Other assets 90,922 Tot liab w/o sep accts 2,487,972 Tot assets w/o sep accts 2,926,018 Separate account bus 7,124,732 Separate account bus 7,124,732 Total Liabilities 9,612,704 Common sck 2,500 Paid in & contrib surpl 414,698 Unassigned surplus 3,269 Other surplus 17,580 Assets 10,050,750 Total 10,050,750 *Securities are reported on the bases prescribed by the National Association of Insurance Commissioners. +Analysis of reserves; Life $1,302,865; annuities $724,036; supplementary contracts with life contingencies $134,518; disability active lives $8; disability disabled lives $31; miscellaneous reserves $17. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 166,161 Ordinary life 3,140 Annuity benefits 189,839 Individual annuities 13,055 Surrender benefits 794,623 Total premiums 16,195 Int on policy funds 5,071 Supplementary contracts 12,259 Supplementary contracts 24,810 investment income 121,006 Incr life reserves 350,501 Amort interest maint res 1,960 Res adj reins assumed -21,909 Comm & exp reins ceded -15 Commissions 41,618 Other income 202,936 Comm exp reins assumed 1,184 Mgt and/or service fee 2 Insur taxes lic & fees -3,007 General ins expenses 10,930 transf sep acct -881,153 Misc operating expense 5 Total 354,342 Total 678,673 Gain from operations before FIT & div policyholders ,331 Federal income taxes incurred... -2,780 gain from operations after federal income taxes , A.M. Best Company, Oldwick, NJ Printed May 8, Page 16 of 39

17 CASH FLOW ANALYSIS ($000) TOTAL ANNUITY ACTUARIAL RESERVES & DEPOSIT TYPE LIABILITIES BY WITHDRAWAL CHARACTERISTICS Funds Provided Funds Applied With No Gross cash from oper 357,948 Benefits paid 1,162,181 Total Annuity Min or No Surrender With Surrender Res Surrender Charge 5% MVA Allowed Transf from sep account 907,537 Comm, taxes, expenses 37,388 Liab (000) Charge (%)* or more (%)* (%)* (%)* Long-term bond proceeds 228,585 Long-term bonds acquired 350, ,355, Other cash provided 117,771 Other invest acquired 103, ,704, Decr cash & short-term 48,436 Other cash applied 6, ,256, Total 1,660,276 Total 1,660, ,044, ,491, SEPARATE ACCOUNT DATA * Includes Separate Account reserves. NEW LIFE BUSINESS ISSUED ($000) Total Non- Whole Life Industrial Insurance Par Par & Endow. Term Credit Group Issued (%) (%) Sep Acct Assets 7,124,732 8,299,985 8,485,194 7,658,789 11,527,304 % Growth S/A Assets/Adm Assets Sep Acct Reserves 7,024,585 8,179,236 8,306,923 7,462,115 11,328,381 % Ordinary Life % Individual Annuities % Group Annuities Deposit Type Liabilities Other Liabilities 100, , , , ,923 S/A Prems osits 26,444 39, , , ,199 % Ordinary Life % Individual Annuities % Group Annuities Sep Acct Fees & Charges 174, , , , ,148 % Ordinary Life % Individual Annuities Fees & Chgs Assets% Sep Acct Ben & Wdrwls 929, , ,908 1,133,373 1,669,369 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl Assets% INDIVIDUAL ANNUITY STATISTICS Comm & Res & Exp Exp Dep Liab Res NPW & (000) Liab (%)* Dep (%) Wdrwls NPW & Dep (%) Wdrwls Res Liab (%)* NPW & Dep (000) ,248 9,115, ,273 6,520, ,535 7,084, ,163 6,894, ,206 6,369, * Includes Separate Account reserves. GROUP ANNUITY STATISTICS Comm & Res & Exp Exp Dep Liab Res NPW & (000) Liab (%)* Dep (%) Wdrwls NPW & Dep (%) Wdrwls Res Liab (%)* NPW & Dep (000) , , , , , , * Includes Separate Account reserves ,184 1, ,807 1, ,100 1, ,050 1, Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Adds Term Credit Group Industrial ,376,330 5,706 9,382, ,953,359 5,452 7,958, ,251,048 5,157 7,256, ,780,833 4,458 6,785, ,212,855 4,236 6,217,091 Ultimate Parent: AEGON N.V. TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY OF NEW YORK 4 Manhattanville Road Purchase, NY Exec. Office: 4333 Edgewood Road NE, Cedar Rapids, IA Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A+ Outlook: Stable Best s Financial Size Category: XV RATING RATIONALE Rating Rationale: The published ratings of the AEGON USA companies reflect that they are integral AEGON s strategy, fully integrated in the group s operations, a material part of the business profile, significant contriburs earnings and have received explicit financial support when needed. Transamerica Advisors Life Insurance Company of New York has sold non-participating annuity products, including variable annuities, modified guaranteed annuities and immediate annuities. The company s annuity products were sold by licensed agents of Merrill Lynch Life Agency, Inc. (MLLA), pursuant a general agency agreement by and between the company and MLLA. As of September 30, 2009, the company, in addition no longer issuing life insurance products, no longer issues variable annuity and market value adjusted annuity products A.M. Best Company, Oldwick, NJ Printed May 8, Page 17 of 39

18 On December 28, 2007, the company and its affiliate, Transamerica Advisors Life Insurance Company, formerly known as Merrill Lynch Life Insurance Company, were acquired by AEGON USA, Inc., for $0.13 billion and $1.12 billion, respectively, for a tal price for both entities of $1.25 billion. Prior the acquisition date, the company was a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc., which was an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. The ratings of the life insurance companies of AEGON USA reflect the strong and diverse business profile of the overall operation, large multi-channel distribution platform, diversified sources of earnings and strong cash flow generation. The group also benefits from meaningful economies of scale, strong brand recognition and effective asset/liability and liquidity management. The ratings of AEGON USA 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 group s exposure higher-risk investments (structured securities, direct commercial mortgage loans and various alternative strategies) as well as the equity market sensitivity of its earnings. AEGON USA s business profile remains strong, with competitive market positions in the U.S. life and annuity arena (p 10 life insurance and variable annuity writer), pensions (p 15 defined contribution plan provider) and mutual funds. The group s market positions are supported by a large and diversified distribution system that is made up of independent and career agents, financial institutions, wirehouses and direct response methods. Through both acquisitions and organic growth, AEGON USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably its hisrical financial performance. AEGON USA s earnings profile is one of the more diversified in the industry. Product lines that contribute overall earnings include traditional life, fixed annuities, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Following the global financial crisis, one of AEGON USA s strategic priorities has been reduce its earnings sensitivity financial markets in order realize better earnings stability. To accomplish this, AEGON USA underok various initiatives de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio was upgraded by reducing hedge fund holdings and increasing positions in cash and U.S. Treasuries and other short-term investments. The institutional spread-based business (primarily guaranteed interest contracts, funding agreements and funding agreement-backed securities) is being run-off reduce exposure credit risk, lower required capital and shift a more balanced mix of business between spread and fee-based products. The group also reduced its exposure equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, AEGON USA s ratings reflect A.M. Best s assessment of the financial strength and support of the parent, AEGON. As a result, the stand-alone ratings of AEGON USA receive rating enhancement in consideration of AEGON s overall creditworthiness and the strategic and financial importance of the U.S. operations AEGON. Despite AEGON USA s improved risk profile, A.M. Best notes the possibility of additional, material credit losses within the group s general account investment portfolio. Although pre-tax IFRS asset impairments declined USD 352 million in 2011 from USD 506 million in 2010, additional realized losses and impairments are likely occur in 2012, given AEGON USA s sizable structured asset and direct commercial mortgage loan portfolios. AEGON USA s investments in non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities (CMBS) taled approximately USD 20 billion at December 31, 2011 (IFRS amortized cost basis). Furthermore, the group s substantial variable annuity portfolio exposes its earnings volatility, as declines in the equity markets would translate lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve reduce volatility, the group s earnings remain somewhat correlated equity market performance. A.M. Best believes AEGON USA is well positioned at the current rating level for the foreseeable future. Facrs that could result in negative rating actions for these entities include a significant and sustained decline in consolidated risk-adjusted capitalization as measured by Best s Adequacy Ratio (BCAR) model, net operating performance that does not meet A.M. Best s expectations or a decline in the creditworthiness of AEGON, which could constrain future financial support. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 04/13/12 A+ 06/18/08 A+ 04/27/11 A+ 01/11/08 A+ 06/29/10 A+ 08/15/07 A u 04/23/09 A KEY FINANCIAL INDICATORS ($000) Total Condit l Surplus Reserve Premiums Invest Funds Funds Written Income Income Assets ,169,230 76, ,849 8,260 19, ,362 51, ,139 8,155-13, ,568 81, ,588 7,570 22, ,182 95, ,071 8,137 14, ,740 58, ,897-13,012 BUSINESS PROFILE On December 28, 2007, Merrill Lynch Life Insurance Company and its affiliate, ML Life Insurance Company of New York (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York), were acquired by AEGON USA, Inc. for $1.12 billion and 130 million respectively. Transamerica Advisors Life Insurance Company is licensed sell life insurance and annuity contracts in all states except New York, as well as the District of Columbia, Guam and the U.S. Virgin Islands. Life insurance and annuity products sold in New York are marketed exclusively through Transamerica Advisors Life Insurance Company of New York. The companies primarily market variable annuities and distribute their products exclusively through Merrill Lynch s network of over 15,000 financial advisors. AEGON USA is one of the leading life insurance organizations in the U.S. with more than twenty million cusmers 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 bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through eight primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company of New York, Transamerica Advisors Life Insurance Company, Monumental Life Insurance Company, Snebridge Life Insurance Company, Snebridge Casualty Insurance Company and Western Reserve Life Assurance of Ohio. 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 approximately 1,500 career agents as well as financial planners, banks, brokers and independent consultants. It is also prominent in the home service market and in the direct marketing of life and supplemental accidental death and dismemberment (AD&D) insurance. The AEGON USA companies are present in three main lines of business: Life & Protection (L&P), Individual Savings and Retirement, and Employer Solutions and Pensions. The Institutional Markets Division is no longer considered core the group and the Life Reinsurance was sold SCOR SE in August Hisrically, the largest contribur before-tax earnings has been is the L&P division, which includes the career agency operations, conducted through Monumental Life, selling individual life and supplemental health products the middle income market. Also included in the L&P division is Transamerica Insurance & Investments Group (TIIG), Long Term Care and 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 18 of 39

19 AEGON Direct Marketing Services (ADMS). TIIG markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. ADMS specializes in marketing life insurance and supplemental health insurance products consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Lastly, Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its cusmers. Policies are sold through independent brokerage and at the worksite individuals and groups. The Individual Savings & Retirement division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent 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 (since renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York) as part of a strategic distribution relationship with Merrill Lynch with respect variable annuities. The acquisition of the Merrill Lynch insurance companies served place AEGON USA in the p ten of variable annuity sellers in the wirehouse and broker/dealer segment. Starting in late 2009, AEGON USA reduced its sales of fixed annuities in response lower market interest rates and lower investment returns available in the environment. Similar market conditions continued in 2010 and continue restrict sales of fixed annuities. As a result, AEGON USA recently decided de-emphasize the sale of fixed annuities. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrars and accounting firms. Diversified Investment Advisors serves almost 4,000 mid-sized large companies while Transamerica Retirement Services serves more than 15,500 small mid-sized companies across the U.S. ES&P offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies 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) however, on December 1, 2010, AEGON announced its plan discontinue new sales in the executive non-qualified benefits market and related BOLI-COLI business. Through Transamerica Worksite Marketing, AEGON USA offers voluntary payroll deduction life and supplemental health insurance employees at their place of work and are designed supplement employees existing benefit plans. 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. On February 17, 2009, AEGON announced its plan run-off its instructional spread based business reduce capital requirements and credit risk. However, AEGON USA continues be a market participant and has a leading market position in synthetic GICs which has been moved the Employer Solutions and Pensions division. 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 offer affordable housing tax credit guarantees. PREMIUM AND RESERVE ANALYSIS Direct Premiums (000) Ordinary life Individual annuities ,598 9,721 36,595 Total ,713 9,852 36,721 Reins Ceded Prems (000) Ordinary life , ,387 Individual annuities Total , ,872 Premiums osits (000) Ordinary life , ,261 Individual annuities 1,901 2,783 4,554 11,766 36,110 Total 1,970 3,761 2,985 11,664 34,849 Deposits (incl. above) 1,681 2,691 1,397 2,525 General Account Reserve Distribution (000) Ordinary life 65,095 71,614 76,733 85,231 80,817 Supplementary contracts 11,787 12,089 12,490 Individual annuities 33,648 12,500 16,812 44,212 27,295 Deposit type contracts 7,579 7,950 7,187 7,939 7,709 Total 118, , , , ,820 Geographical breakdown of direct premium writings ($000): New York, $397 (56.2%); Florida, $299 (42.3%); other jurisdictions, $11 (1.5%). RISK MANAGEMENT AEGON USA s ERM program has evolved via a flattening of risk structure; moving strategic business units (SBU s) from a risk compliance culture a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit the CRO s. The Group Risk and Committee (GRCC) provides independent oversight of the group s operations. The GRCC covers all risk types, including credit and market risk, pricing and underwriting risk, operational risk, corporate risk as well as the management of the overall capital position, and reports the group s executive board. Country Risk: AEGON USA has a limited amount of country risk exposure as the company s operations are based in the U.S. However, the company has a modest amount of country risk exposure with its foreign life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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" by A.M. Best s Country Risk Group with Mexico and Brazil considered Tier 3" and Tier 4" respectively. OPERATING PERFORMANCE Operating Results: AEGON USA is the largest of AEGON s country units and produces approximately two-thirds of AEGON s IFRS operating earnings. AEGON USA has one of the more diversified earnings profiles in the industry with a good balance of underwriting income from life insurance products and fee-based income from variable and investment-type products. Boosted by the equity market recovery, AEGON USA s consolidated statury earnings results improved markedly for both 2009 and 2010 after experiencing a $641 million net loss for However, 2011 consolidated statury earnings reported a $2.5 billion net loss, which is primarily attributed the accounting treatment related the structure of its sale of TARe (life reinsurance business) SCOR SE. Nonetheless, AEGON USA continues report solid IFRS results. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Mexico) recorded IFRS net income of $697 million (2009), $1.5 billion (2010) and 2012 A.M. Best Company, Oldwick, NJ Printed May 8, Page 19 of 39

20 $933 million (2011) compared a loss of $2 billion for However, A.M. Best notes that AEGON USA s statury and IFRS results continue be dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $1.4 billion (2009), $506 million (2010) and $352 million (2011). Ben Paid NPW Comm & Exp NPW PROFITABILITY TESTS NOG Tot Assets Operating Return on Equity NOG Total Tot Rev Yield Return PROFITABILITY ANALYSIS Operating Gain (000) Ordinary life 3,613 5,207 4, ,676 Supplementary contracts ,146 Individual annuities -16,256 8,877 37,383-14,189 16,293 Total -12,422 14,680 23,940-13,744 19,969 BALANCE SHEET STRENGTH ization: AEGON USA s overall risk-based capitalization is adequate support its current insurance and investment risks and AEGON N.V. has contributed capital when necessary. A.M. Best believes that AEGON USA has good statury earnings capacity support its capital position going forward, and that AEGON N.V. is likely provide additional capital, if needed. AEGON USA s regulary capital ratio at year-end 2011 increased by 91 percentage points from year-end 2008 due several capital initiatives. These include asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, AEGON USA has continued accelerate capital release through fixed annuity coinsurance transactions in 2011 and the sale of its reinsurance book of business. LEVERAGE TESTS Liabilities NPW Change in NPW Change in Surplus Reins Relief Leverage Current BCAR: 202 SOURCES OF CAPITAL GROWTH ($000) Realized Unrealized Change Other Gains Gains AVR Changes Change in Gain , , , ,732-24, ,940-1, ,310 29, , , , ,264-37,391 end Asset Valuation Reserve Interest Maintenance Reserve Surplus Notes ,871 5, ,928 7, , , , ,111 25, ,419 Liquidity: AEGON USA s investment portfolio provides ample liquidity as a majority of the group s assets are in highly liquid public bonds. AEGON USA s liquidity is also supported by $1.5 billion in committed bank lines through AEGON N.V., with whom it has a standing line of credit. LIQUIDITY TESTS Operating Cash Flow ($000) Quick Liquidity Current Liquidity Non-Inv Grade Bonds Delnq & Foreclsd Mtg Mtg & Cred Ten Lns & RE Cap Affil Invest , , , , , INVESTMENT YIELDS Cash & Short Term Invest. Exp. Ratio CAPITAL TRENDS ($000) Sckholdeholder Policy- Divs Divs Mortgages Real Estate Yield Bonds Scks Gross Investments: With $115.4 billion in general account assets at December 31, 2011 (IFRS amortized cost basis, excluding policy loans), AEGON USA maintains an investment portfolio that is well diversified and generally of high quality, however holdings in structured securities and alternative asset classes expose the portfolio potentially higher realized losses and impairments given the continued economic slowdown. The AEGON Americas segment (which is largely made up of AEGON USA but also includes operations in Canada and Latin America) recorded IFRS net impairments of $352 million during Bonds represent approximately three-fourths of AEGON USA s investment portfolio and more than 90% are of investment grade quality. However, approximately 18% of the bond investments are in the form of structured securities including non-agency mortgage-backed securities, asset-backed securities and commercial mortgage-backed securities. Although most of the structured portfolio is rated investment grade with approximately 60% being rated AAA, A.M. Best believes that mortgage and consumer related loans are likely experience further defaults in light of the recessionary U.S. economic climate. Direct commercial mortgage loans comprise approximately 9% of tal 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. Nevertheless, A.M. Best expects some defaults as a result of the persistently weak economic conditions. AEGON USA s exposure alternative assets represents additional risk the portfolio and 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 has been reduced from prior years and is currently about 4% of the investment portfolio. Remaining assets include investments in common sck and preferred sck, cash and short-term investments. INVESTMENT DATA Current Distribution of Bonds by Maturity s Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Yrs-Avg Maturity Total A.M. Best Company, Oldwick, NJ Printed May 8, Page 20 of 39