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

Transcription

1 TRANSAMERICA PREMIER LIFE INSURANCE COMPANY A+ STONEBRIDGE LIFE INSURANCE COMPANY A+ TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY A+ TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY A+ TRANSAMERICA LIFE INSURANCE COMPANY A+ WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO A+ A+ Back to Top 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 1 of 39

2 Ultimate Parent: Aegon N.V. TRANSAMERICA PREMIER 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 RECENT DEVELOPMENTS Effective July 31, 2014, the company changed its name from Monumental Life Insurance Company to Transamerica Premier Life Insurance Company. RATING RATIONALE Rating Rationale: The published rating of the Aegon USA companies reflects that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Transamerica Premier Life Insurance Company sells a full line of insurance products, including individual, credit, and group coverages under life, annuity and accident and health policies as well as various investment products. The company is licensed in 49 states, the District of Columbia, Guam and Puerto Rico. Sales of the company s products are primarily through agents, brokers, financial institutions and direct response methods. The rating of the life insurance companies of Aegon USA reflects 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 rating also reflects 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, albeit reduced, to 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 (top 10 life insurance and variable annuity writer), pensions (top 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. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Aegon USA has taken various initiatives to de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio has been 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) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. Furthermore, the group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. Aegon USA has also reduced its exposure to equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, the rating reflects A.M. Best s assessment of the financial strength and support of the parent, Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon s overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon. 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 IFRS asset impairments have continued to decline over recent years, additional realized losses and impairments are likely to continue given Aegon USA s sizable structured asset portfolio and exposure to direct commercial real estate. Furthermore, the group s substantial variable annuity portfolio exposes its earnings to volatility, as declines in the equity markets would translate to lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve to reduce volatility, the group s earnings remain somewhat correlated to equity market performance. A.M. Best believes the members of Aegon USA are well positioned at the current rating level for the foreseeable future. Factors 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 Capital Adequacy Ratio (BCAR), net operating performance that does not meet A.M. Best s expectations, a decline in the creditworthiness of Aegon, or a deterioration in A.M. Best s view of the strategic importance of these entities to Aegon. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 12/12/13 A+ 04/27/11 A+ 04/09/13 A+ 06/29/10 A+ 04/13/12 A+ 04/23/09 A KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Surplus Valuation Premiums Invest Funds Reserve Written Income Income Year Assets ,727,978 1,436,586 72,351 1,846,861 1,093, , ,851,172 1,174, ,677 1,347, , ,107, , ,524 1,391, , , ,057, , ,992 1,497, , , ,879, , ,972 1,586, , ,874 (*) Within several financial tables of this report, this company is compared against the Multiple Lines Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE Aegon USA is one of the leading life insurance organizations in the U.S. with more than twenty million customers and provides a wide range of life insurance, pensions, long-term savings and investment products. Aegon USA was founded 1989 when Aegon N.V. (Aegon) decided to bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through seven primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company, Transamerica Premier Life Insurance Company, Stonebridge Life Insurance Company, Stonebridge 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 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 2 of 39

3 (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 to the group and the Life was sold to SCOR SE in Historically, the largest contributor to before-tax earnings has been the Life & Protection (L&P) division, which includes the Agency Group selling individual life and supplemental health products to the middle income market. Also included in the L&P division are the Brokerage Group, Transamerica Employee Benefits, Long Term Care and the Affinity Group. The Brokerage Group markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. The Affinity Group specializes in marketing life insurance and supplemental health insurance products to consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its customers. Policies are sold through independent brokerage and at the worksite to individuals and groups. Through Transamerica Employee Benefits, L&P offers voluntary payroll deduction life and supplemental health insurance to employees at their place of work and are designed to supplement employees existing benefit plans. The Individual Savings & Retirement (IS&R) division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Capital Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent financial professionals, agents affiliated with regional broker/dealers or major wirehouse firms and representatives through a large bank network. TCM serves these distribution channels through company-owned and external wholesalers. In 2007, Aegon USA acquired Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York (renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. Transamerica Advisors Life Insurance Company of New York was later merged with and into Transamerica Financial Life effective 7/1/14) as part of a strategic distribution relationship with Merrill Lynch with respect to variable annuities. The acquisition of the Merrill Lynch insurance companies served to place Aegon USA in the top ten of variable annuity sellers in the wirehouse and broker/dealer segment. In late 2009, IS&R reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in the environment. Similar market conditions have continued over recent years and restricted sales of fixed annuities. As a result, IS&R has de-emphasized the sale of fixed annuities and has executed several large fixed annuity coinsurance transactions in recent years. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition to guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services to small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrators and accounting firms. Transamerica Retirement Solutions (TRS) serves almost 4,000 mid-sized to large companies and more than 15,500 small to mid-sized companies across the U.S. TRS offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. In addition, ES&P provides synthetic guaranteed investment contracts primarily to various retirement plans. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies to decrease the liability of the defined benefit plans. BOLI/COLI products were distributed through a select number of niche brokers (including an affiliate, Clark Consulting); however, in December, 2010, ES&P announced its plan to discontinue new sales in the executive non-qualified benefits market and related BOLI/COLI business. The former Institutional Markets Division offered institutional spread products such as traditional fixed rate guarantee investment contracts (GICs), funding agreements (FAs), FA-backed notes as well as fee-based products such as synthetic GICs. In 2009, Aegon announced its plan to run-off its institutional spread based business to reduce capital requirements and credit risk. The institutional line of business also included structured product transactions, such as credit default swaps, synthetic collateralized debt obligations, affordable housing tax credit guarantees and hedge fund principal protection. Going forward, Aegon USA will only continue to offer affordable housing tax credit guarantees. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) ,786, , ,731, , ,783, , ,843, , ,948, , Yr CAGR Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) , ,971, , ,420, , ,422, , ,530, , ,640, Yr CAGR Territory: The company is licensed in the District of Columbia, Guam, Puerto 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 BY-LINE BUSINESS ($000) DPW Prem Assumed Product Line ($000) (%) ($000) (%) Industrial life 1, Ordinary life 655, , Group life 50, , Credit life 9, , Individual annuities 577, , Group annuities 126, Individual A&H 106, , Credit A&H 10, Group A&H 411, , Total 1,948, , Prem Ceded NPW Product Line ($000) (%) ($000) (%) Industrial life 1, Ordinary life 388, , Group life 6, , Credit life 6, , Individual annuities 27, , Group annuities , Individual A&H , Credit A&H 8, , Group A&H 79, , Total 518, ,586, A.M. Best Company, Oldwick, NJ Printed July 31, Page 3 of 39

4 BY-LINE RESERVES ($000) Product Line Industrial life 332, , , , ,413 Ordinary life 4,735,836 4,697,107 4,994,348 4,851,083 4,685,951 Group life 556, , , , ,766 Credit life 1,572 2,493 2,852 37,613 62,665 Supplementary contr 164,403 97,426 78,064 72,658 92,510 Individual annuities 2,713,024 2,892,095 2,867,737 2,916,274 2,960,483 Group annuities 754, , ,916 1,126,679 1,284,215 Deposit type contracts 675, , , ,280 1,170,859 Individual A&H 634, , , , ,470 Credit A&H 6,755 7,328 8,266 32,104 46,876 Group A&H 75,183 80,558 80,622 78,627 75,741 Total 10,651,367 10,922,215 11,433,836 11,573,401 11,865,950 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force ,946 2,882, ,222 11, , ,821 2,956, ,112 14, , ,098 2,709, ,030 7, , ,945 2,655, ,889 10, , ,462 2,564, ,767 7, ,078 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,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, ,004,243 16,405,018 1,775,979 5,697, ,647 62,580, ,814,044 14,676,980 1,377,379 5,383, ,721 59,921,824 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,842,101 1,783, , ,206 4,599, ,948,665 1,553, , ,785 4,708, ,494,451 1,242,148 1,678, ,263 5,790, ,900,993 1,102, , ,636 5,160, ,980,181 1,063, , ,993 4,961, ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force ,100 20, ,093 24, ,671 20, ,878 20, ,610 20, First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) ,946 2,882,017 44, ,821 2,956,307 43, ,098 2,709,218 55, ,945 2,655,507 72, ,462 2,564,439 77, INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) NPW (%) Res (%) NPW Year (000) ,153 3,052, ,197 2,988, ,079 2,945, ,493 2,989, ,450 2,877, GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) NPW (%) Res (%) NPW Year (000) ,277 1,284, ,552 1,126, , , , , , , TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) ,337, ,115, ,938, ,848, ,632, SEPARATE ACCOUNT DATA Sep Acct Assets 14,526,003 12,669,510 11,471,551 11,512,136 10,396,423 % Growth S/A Assets/Adm Assets Sep Acct Reserves 14,476,412 12,656,478 11,457,333 11,479,325 10,357,375 % Ordinary Life % Individual Annuities % Group Annuities Other Liabilities 49,591 13,032 14,218 32,811 39,048 S/A Prems & Deposits 569, , , , ,601 % Individual Annuities % Group Annuities Sep Acct Fees & Charges 40,883 36,701 34,847 32,602 29,143 % Ordinary Life % Individual Annuities % Group Annuities Fees & Chgs to Assets% Sep Acct Ben & Wdrwls 753, , , , ,623 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl to Assets% Back to Top 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 4 of 39

5 GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) Florida 154, , , , ,119 California 137, , , , ,665 New Jersey 118, , , , ,022 Kentucky 117, , , , ,845 Texas 111,135 93,580 90,491 88,781 89,051 Pennsylvania 107, ,371 94,701 91,410 93,752 Maryland 89,784 79,898 75,108 76,166 80,082 Illinois 87,356 87,249 83,135 80,718 84,247 Virginia 84,999 91,065 91,535 83,143 88,116 North Carolina 81,238 74,580 74,013 67,901 66,202 All Other 865, , , , ,679 Total 1,954,551 1,842,607 1,786,685 1,721,706 1,841,780 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 to a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit to the CRO s. The Group Risk and Capital 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 to 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, Aegon Americas which includes all of the North American and Latin American operations of Aegon has a modest amount of country risk exposure with its life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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 both considered Tier 3". 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 statutory earnings results have consistently improved in recent years. While 2011 consolidated statutory earnings were negatively impacted by the accounting treatment related to the structure of its sale of TARe (life reinsurance business) to SCOR S.E., 2012 consolidated statutory earnings were $1.8 billion consolidated statutory earnings were $.9 billion. Furthermore, Aegon USA continues to report solid IFRS results. The Aegon Americas segment (which is largely made up of Aegon USA but also includes operations in Canada and Mexico) has recorded IFRS net income of $1.5 billion (2010), $0.9 billion (2011), $1.3 billion (2012) and $0.5 billion (2013). However, A.M. Best notes that Aegon USA s statutory and IFRS results have until recently been dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $506 million (2010), $349 million (2011), $151 million (2012) and $58 million (2013). PROFITABILITY ANALYSIS ($000) Company Pre-tax Period Oper Operating Total Ending Income Gain Income Return ,020, , ,678 91, ,307 22, , , , , , , , , , , , , ,832 5-Yr Total 2,081,768 1,298, , ,045 Company Industry Composite Period Operating Operating Operating Operating Ending ROR ROE ROR ROE Yr Avg PROFITABILITY TESTS Comm & Ben Paid Exp to NOG Operating to NPW NPW to Tot NOG to Return on Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg NET OPERATING GAIN ($000) Product Line Industrial life -7,167 32,081-1,041 1,183 5,341 Ordinary life 104,325-9, ,457-36, ,224 Group life -2, ,959 9,043 29,464 Credit life ,006 8,446 16,259 Supplementary contr -11,105-9,925-9,574 1,097 6,934 Individual annuities -8,607 9,116-56,951-81, ,365 Group annuities 139,920 73, ,174 77, ,393 Individual A&H -91,011 19,886 33,052 13,722 29,200 Credit A&H 127 2,263 7,245 3,986 7,599 Group A&H 53,714 35,066 38,143 25,447 19,788 Total 178, , ,550 22, ,836 ACCIDENT & HEALTH STATISTICS ($000) Premiums Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results , , , , , , , , , , , , , , ,130 Current Year Experience: Group 391, , ,947 Credit 2,571 2, ,095 Coll renew Non-can. 34,130 34, ,150 Guarant renew 120, , ,901 Non-renew, S.R Other accident 4,844 4, ,127 Other 1,023 1, , A.M. Best Company, Oldwick, NJ Printed July 31, Page 5 of 39

6 INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,093, , , ,200-22,857 33, ,041-28,842-12, ,314-7,876-34, ,329-11,351 96,957 5-Year Total 4,397, ,084-17,225 Company -Industry Composite- Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: Aegon USA s overall risk-based capitalization is adequate to 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 statutory earnings capacity to support its capital position going forward, and that Aegon N.V. is likely to provide additional capital, if needed. Aegon USA s regulatory capital ratio at year-end 2013 remains strong as the group has successfully executed several capital initiatives over recent years, including asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, Aegon USA has continued to accelerate capital release through several fixed annuity coinsurance transactions in 2011 and 2012, while also finalizing the sale of its reinsurance book of business in Current BCAR: 197 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Realized Unrealized Adjusted Capital Income Capital Year Gain Gains Taxes Gains ,020, , , , ,307-22,857 39,987 33, ,130-28,842 31,580-12, ,518-7, ,095-34, ,213-11,351 23,987 96,957 5-Yr Total 2,081, , ,414-17,225 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S ,091-49, , , , , , , , , , , ,980-51, , Yr Total -12,530-1,218, , QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , , , , , , , ,049 68, , ,410 19, , ,336 43,889 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,436,586 72,351 1,508, ,174, ,677 1,326, , ,524 1,163, , ,992 1,003, , ,972 1,215,196 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW Change C&S to Surplus & Dep in NPW to Surplus Year Liab Relief to Capital & Dep Liab Relief CEDED REINSURANCE ANALYSIS Company -Industry Composite- Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage ,180, ,124, ,743, ,457, ,331, 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 ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital ,221, ,963, ,734, ,452, ,180, Company Industry Composite Mtg & Cred Affil Ten Lns Invest Quick Current Year & RE to Cap to Capital Liquidity Liquidity Back to Top 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 6 of 39

7 Investments: With $101.8 billion in general account assets at December 31, 2013 (IFRS basis, excluding policy loans), Aegon Americas 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 to potentially higher realized losses and impairments in the event of another 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 $58 million during On a statutory accounting basis, bonds represent 72% of Aegon USA s investment portfolio and more than 92% are of investment grade quality. However, approximately 23% 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. Direct commercial mortgage loans comprise approximately 10% of invested assets and are backed principally by office, retail, industrial and apartment properties. The commercial loan portfolio is performing well, with the vast majority of loans in good standing. Aegon USA s exposure to alternative assets represents additional risk to 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 less than 4% of the investment portfolio. Remaining assets include investments in common stock and preferred stock, cash and short-term investments. INVESTMENT YIELDS Cash & Invest. Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Ratio Domicile: IA INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Affiliated Total Bonds (000) 12,381,999 12,448,872 13,926,055 14,724,168 15,486,018 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Hybrid Securities Credit Tenant Lns - US Affiliated Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 71, , ,684 70,099 64,291 Unaffiliated Common Affiliated Common Unaffiliated Preferred INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 1,692,860 1,864,851 2,131,124 2,321,498 2,634,705 Commercial Residential Farm Mortgage Quality (%) 90 Days Delinquent In Process of Foreclosure Total Delinquencies Real Estate (000) 7,285 5,203 7,432 6,708 6,920 Property Held for Inc Property Held for Sale INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 2,343,431 3,178,925 2,458,298 3,303,915 4,933,996 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 03/05/1858 Date Commenced: 05/22/1860 Originally incorporated as a mutual company under the title Maryland Mutual Life and Fire Insurance Company, the title was changed in 1870 to Mutual Life Insurance Company of Baltimore. In 1928, the company was converted to the stock basis. During 1935 the title was changed to Monumental Life Insurance Company. The company redomesticated from Maryland to Iowa during During 2014, the present title was adopted. Mergers: Capital 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; Senior Vice President and Controller, Eric J. Martin; Senior Vice President and General Counsel, Craig D. Vermie; Vice President and Secretary, H. Stacey Boyer; Treasurer and Chief Financial Officer, C. Michiel van Katwijk. Directors: Ralph L. Arnold, Brenda K. Clancy, Robert J. Kontz, Mark W. Mullin, Arthur C. Schneider, C. Michiel van Katawijk, 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 2013 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. 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 A.M. Best Company, Oldwick, NJ Printed July 31, Page 7 of 39

8 FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2013 Assets Liabilities Total bonds 12,381,999 + policy reserves 9,975,472 Total preferred stocks 9,541 Policy claims 238,127 Total common stocks 62,268 Deposit type contracts 675,895 Mortgage loans 1,692,860 Interest maint reserve 302,888 Real estate 7,285 Comm taxes expenses 52,426 Contract loans 470,549 Asset val reserve 243,972 Cash & short-term inv 558,923 Funds held reinsurance 4,274,529 Other invested assets 796,355 Other liabilities 619,039 Prems and consids due 178,129 Accrued invest income 166,253 Tot liab w/o sep accts 16,382,347 Other assets 1,029,410 Separate account bus 14,526,003 Tot assets w/o sep accts 17,353,571 Total liabilities 30,908,350 Separate account bus 14,526,003 Common stock 10,137 Surplus notes 160,000 Paid in & contrib surpl 757,199 Unassigned surplus 43,889 Assets 31,879,574 Total 31,879,574 +Analysis of reserves; Life $5,395,451; annuities $3,425,826; supplementary contracts with life contingencies $206,416; accidental death benefits $20,227; disability active lives $20,608; disability disabled lives $110,171; miscellaneous reserves $80,414; accident & health $716,358. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 239,620 Ordinary life 275,487 Matured endowments 9,689 Individual annuities 574,450 Annuity benefits 313,064 Credit life 5,207 Surrender benefits 1,019,522 Group life 48,276 Acc & health benefits 272,277 Group annuities 126,976 Int on policy funds 40,362 Acc & health group 391,933 Supplementary contracts 34,081 Acc & health credit 2,571 Incr life reserves -211,485 Acc & health other 161,336 Incr a & h reserves 154,087 Industrial 33 Res adj reins assumed -10 Total premiums 1,586,270 Commissions 275,346 Supplementary contracts 120,206 Comm exp reins assumed 42,743 investment income 729,329 Interest expenses 9,600 Amort interest maint res 15,572 Insur taxes lic & fees 46,267 Comm & exp reins ceded 209,400 General ins expenses 217,385 Res adj on reins ceded -226,238 transf to sep acct -312,793 income 692 Other expenses 247 Other income 52,271 Misc operating expense -1,331 Mgt and/or service fee 3,279 Other disbursements 138,640 Total 2,490,781 Total 2,287,310 Gain from operations before FIT & div to policyholders ,471 Dividends to policyholders: life... 1,259 Gains from operations after dividends to policyholders ,213 Federal income taxes incurred... 23,987 gain from operations after FIT and dividends ,226 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 2,471,334 Benefits paid 1,911,975 Long-term bond proceeds 2,194,421 Comm, taxes, expenses 800,587 Mortgage loan proceeds 478,341 Long-term bonds acquired 2,136,260 Other cash provided 600,924 Other cash applied 1,692,797 Decr cash & short-term 796,601 Total 6,541,620 Total 6,541,620 Ultimate Parent: Aegon N.V. STONEBRIDGE LIFE INSURANCE COMPANY 187 West 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 rating of the Aegon USA companies reflects that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Stonebridge Life Insurance Company provides traditional ordinary life, credit, and accident and health insurance through credit card issuers. The rating of the life insurance companies of Aegon USA reflects 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 rating also reflects 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, albeit reduced, to 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 (top 10 life insurance and variable annuity writer), pensions (top 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. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Aegon USA has taken various initiatives to de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio has been 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) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. Furthermore, the group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. Aegon USA has also reduced its exposure to equity market risk by increasing the size of its macro equity hedge covering its variable annuity business. Lastly, the rating reflects A.M. Best s assessment of the financial strength and support of the parent, Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon s overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon A.M. Best Company, Oldwick, NJ Printed July 31, Page 8 of 39

9 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 IFRS asset impairments have continued to decline over recent years, additional realized losses and impairments are likely to continue given Aegon USA s sizable structured asset portfolio and exposure to direct commercial real estate. Furthermore, the group s substantial variable annuity portfolio exposes its earnings to volatility, as declines in the equity markets would translate to lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve to reduce volatility, the group s earnings remain somewhat correlated to equity market performance. A.M. Best believes the members of Aegon USA are well positioned at the current rating level for the foreseeable future. Factors 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 Capital Adequacy Ratio (BCAR), net operating performance that does not meet A.M. Best s expectations, a decline in the creditworthiness of Aegon, or a deterioration in A.M. Best s view of the strategic importance of these entities to Aegon. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 12/12/13 A+ 04/27/11 A+ 04/09/13 A+ 06/29/10 A+ 04/13/12 A+ 04/23/09 A KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Surplus Valuation Premiums Invest Funds Reserve Written Income Income Year Assets ,024, ,141 13, ,900 91, , ,157, ,533 15, ,210 96, , ,749, ,091 15, , , , ,676, ,746 16, , , , ,739, ,451 17, ,529 72,463 83,573 (*) Within several financial tables of this report, this company is compared against the Group Accident & Health Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE Aegon USA is one of the leading life insurance organizations in the U.S. with more than twenty million customers and provides a wide range of life insurance, pensions, long-term savings and investment products. Aegon USA was founded 1989 when Aegon N.V. (Aegon) decided to bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through seven primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company, Transamerica Premier Life Insurance Company, Stonebridge Life Insurance Company, Stonebridge 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 to the group and the Life was sold to SCOR SE in Historically, the largest contributor to before-tax earnings has been the Life & Protection (L&P) division, which includes the Agency Group selling individual life and supplemental health products to the middle income market. Also included in the L&P division are the Brokerage Group, Transamerica Employee Benefits, Long Term Care and the Affinity Group. The Brokerage Group markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. The Affinity Group specializes in marketing life insurance and supplemental health insurance products to consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its customers. Policies are sold through independent brokerage and at the worksite to individuals and groups. Through Transamerica Employee Benefits, L&P offers voluntary payroll deduction life and supplemental health insurance to employees at their place of work and are designed to supplement employees existing benefit plans. The Individual Savings & Retirement (IS&R) division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Capital Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent financial professionals, agents affiliated with regional broker/dealers or major wirehouse firms and representatives through a large bank network. TCM serves these distribution channels through company-owned and external wholesalers. In 2007, Aegon USA acquired Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York (renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. Transamerica Advisors Life Insurance Company of New York was later merged with and into Transamerica Financial Life effective 7/1/14) as part of a strategic distribution relationship with Merrill Lynch with respect to variable annuities. The acquisition of the Merrill Lynch insurance companies served to place Aegon USA in the top ten of variable annuity sellers in the wirehouse and broker/dealer segment. In late 2009, IS&R reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in the environment. Similar market conditions have continued over recent years and restricted sales of fixed annuities. As a result, IS&R has de-emphasized the sale of fixed annuities and has executed several large fixed annuity coinsurance transactions in recent years. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition to guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services to small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrators and accounting firms. Transamerica Retirement Solutions (TRS) serves almost 4,000 mid-sized to large companies and more than 15,500 small to mid-sized companies across the U.S. TRS offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. In addition, ES&P provides synthetic guaranteed investment contracts primarily to various retirement plans. ES&P is also a leading provider of single premium group annuities (Terminal Funding), which are used by companies to decrease the liability of the defined benefit plans. BOLI/COLI products were distributed through a select number of niche brokers (including an affiliate, Clark Consulting); however, in December, 2010, ES&P announced its plan to discontinue new sales in the executive non-qualified benefits market and related BOLI/COLI business. The former Institutional Markets Division offered institutional spread products such as traditional fixed rate guarantee investment contracts (GICs), funding agreements (FAs), FA-backed notes as well as fee-based products such as synthetic GICs. In 2009, Aegon announced its plan to run-off its institutional spread based business to reduce capital requirements and credit risk. The institutional line of business also included structured product transactions, such as credit default swaps, synthetic collateralized debt obligations, affordable housing tax credit guarantees and hedge fund principal protection. Going forward, Aegon USA will only continue to offer affordable housing tax credit guarantees A.M. Best Company, Oldwick, NJ Printed July 31, Page 9 of 39

10 TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: 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 BY-LINE BUSINESS ($000) DPW Prem Assumed Product Line ($000) (%) ($000) (%) Ordinary life 79, Group life 110, Credit life Individual A&H 48, Credit A&H Group A&H 238, , Total 478, , Prem Ceded NPW Product Line ($000) (%) ($000) (%) Ordinary life 36, , Group life 74, , Credit life Individual A&H 17, , Credit A&H Group A&H 30, , Total 158, , BY-LINE RESERVES ($000) Product Line Ordinary life 115, , , , ,513 Group life 83,729 80,075 77,698 77, ,734 Supplementary contr Individual annuities 7 7 Group annuities Deposit type contracts 13,783 16,292 19,789 24,425 28,175 Individual A&H 63,020 59,878 59,004 58,417 58,210 Credit A&H Group A&H 501, , , , ,114 Total 777, , , ,742 1,648,339 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force , , , , , , , , , , , , , , , , , , , ,368 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,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, ,413,395 2,829,890 80,825 5,539,389 9,863, ,542,802 2,436,208 64,477 5,230,246 9,273,733 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,554 1,131,255 2, ,715 2,159, , ,093 2, ,451 1,527, , ,252 1, ,575 1,284, , ,624 1, , , ,087 71,842 1, , , ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force ,798 13, ,759 15, ,176 15, ,119 14, ,948 14, First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) , ,237 12, , ,910 11, , ,396 11, , ,081 9, , ,368 7, INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) NPW (%) Res (%) NPW Year (000) GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) NPW (%) Res (%) NPW Year (000) A.M. Best Company, Oldwick, NJ Printed July 31, Page 10 of 39

11 TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 52,284 54,845 56,655 59,901 65,797 Texas 51,694 53,325 53,999 55,331 57,127 Florida 28,454 27,634 27,556 28,133 29,249 Pennsylvania 23,912 24,438 25,180 26,112 26,924 Illinois 21,721 21,459 21,845 22,538 22,976 Ohio 20,987 21,848 22,245 23,213 25,293 Missouri 18,373 14,095 14,537 14,567 15,120 Michigan 18,049 14,541 14,769 15,209 15,630 North Carolina 16,725 13,991 13,261 14,213 13,550 Indiana 16,670 15,079 12,835 12,782 13,353 All Other 213, , , , ,924 Total 482, , , , ,942 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 to a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit to the CRO s. The Group Risk and Capital 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 to 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, Aegon Americas which includes all of the North American and Latin American operations of Aegon has a modest amount of country risk exposure with its life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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 both considered Tier 3". 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 statutory earnings results have consistently improved in recent years. While 2011 consolidated statutory earnings were negatively impacted by the accounting treatment related to the structure of its sale of TARe (life reinsurance business) to SCOR S.E., 2012 consolidated statutory earnings were $1.8 billion consolidated statutory earnings were $.9 billion. Furthermore, Aegon USA continues to report solid IFRS results. The Aegon Americas segment (which is largely made up of Aegon USA but also includes operations in Canada and Mexico) has recorded IFRS net income of $1.5 billion (2010), $0.9 billion (2011), $1.3 billion (2012) and $0.5 billion (2013). However, A.M. Best notes that Aegon USA s statutory and IFRS results have until recently been dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $506 million (2010), $349 million (2011), $151 million (2012) and $58 million (2013). PROFITABILITY ANALYSIS ($000) Company Pre-tax Period Oper Operating Total Ending Income Gain Income Return , , ,014 8, , , , , , , , , , , , , ,679 82,298 83,573 84,123 5-Yr Total 1,095, , , ,858 Company Industry Composite Period Operating Operating Operating Operating Ending ROR ROE ROR ROE Yr Avg PROFITABILITY TESTS Comm & Ben Paid Exp to NOG Operating to NPW NPW to Tot NOG to Return on Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg NET OPERATING GAIN ($000) Product Line Ordinary life 22,094 65,295 5,427-70,972 12,639 Group life -40,439 8,933 6, ,838 28,710 Credit life Supplementary contr 947 7,090 3, Individual annuities Group annuities Individual A&H 15,092 40,013 6,971 1,910 22,922 Credit A&H -1, Group A&H 87, , ,992 55,135 74,886 Total 82, , , , ,210 ACCIDENT & HEALTH STATISTICS ($000) Premiums Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results , , , , , , , , , , , , , , ,638 Current Year Experience: Group 248, , ,868 Credit ,765 Non-can. 20,352 20, ,052 Guarant renew 12,164 8, ,371 Non-renew, S.R Other accident Other , A.M. Best Company, Oldwick, NJ Printed July 31, Page 11 of 39

12 INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,037-6, , ,898-2, ,736-1,224 1, , , ,463 1, Year Total 729,218-8, ,080 Company -Industry Composite- Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: Aegon USA s overall risk-based capitalization is adequate to 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 statutory earnings capacity to support its capital position going forward, and that Aegon N.V. is likely to provide additional capital, if needed. Aegon USA s regulatory capital ratio at year-end 2013 remains strong as the group has successfully executed several capital initiatives over recent years, including asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, Aegon USA has continued to accelerate capital release through several fixed annuity coinsurance transactions in 2011 and 2012, while also finalizing the sale of its reinsurance book of business in Current BCAR: 197 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Realized Unrealized Adjusted Capital Income Capital Year Gain Gains Taxes Gains ,229-6,196 49, , ,303-2, , ,629-1,224 3,978 1, , ,535 2, ,679 1,276 9, Yr Total 1,095,981-8, , ,080 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S ,306-4,351 9, ,797 51, , , , , ,217-47, ,520-5, Yr Total 1, ,169-63, QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus ,945 28, , , ,174 66, ,583 78, ,583 72,868 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,141 13, , ,533 15, , ,091 15, , ,746 16, , ,451 17, ,336 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW Change C&S to Surplus & Dep in NPW to Surplus Year Liab Relief to Capital & Dep Liab Relief CEDED REINSURANCE ANALYSIS Company -Industry Composite- Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage ,636, ,347, ,994, ,422, ,684, 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 ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital , , , , , Company Industry Composite Mtg & Cred Affil Ten Lns Invest Quick Current Year & RE to Cap to Capital Liquidity Liquidity Back to Top 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 12 of 39

13 Investments: With $101.8 billion in general account assets at December 31, 2013 (IFRS basis, excluding policy loans), Aegon Americas 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 to potentially higher realized losses and impairments in the event of another 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 $58 million during On a statutory accounting basis, bonds represent 72% of Aegon USA s investment portfolio and more than 92% are of investment grade quality. However, approximately 23% 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. Direct commercial mortgage loans comprise approximately 10% of invested assets and are backed principally by office, retail, industrial and apartment properties. The commercial loan portfolio is performing well, with the vast majority of loans in good standing. Aegon USA s exposure to alternative assets represents additional risk to 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 less than 4% of the investment portfolio. Remaining assets include investments in common stock and preferred stock, cash and short-term investments. INVESTMENT YIELDS Cash & Invest. Domicile: VT Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Ratio INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 1,306,387 1,235,067 1,238,622 1,537,257 1,394,348 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Hybrid Securities Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 3,449 3, Unaffiliated Common Affiliated Common Unaffiliated Preferred INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 104, , , , ,271 Commercial Real Estate (000) 28,460 29,107 30,184 31,187 32,405 Property Occupied by Co Property Held for Sale 14.7 INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 190, , , , ,885 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 11/19/1900 Date Commenced: 05/07/1906 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, C. Michiel van Katwijk; Chief Investment Officer, Joel L. Coleman; Senior Vice President and Controller, Eric J. Martin; Senior Vice President, Secretary and General Counsel, Craig D. Vermie. Directors: 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 2013 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. 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 A.M. Best Company, Oldwick, NJ Printed July 31, Page 13 of 39

14 FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2013 Assets Liabilities Total bonds 1,306,387 + policy reserves 763,603 Total preferred stocks 3,000 Policy claims 52,831 Total common stocks 449 Deposit type contracts 13,783 Mortgage loans 104,377 Interest maint reserve 29,272 Real estate 28,460 Comm taxes expenses 30,758 Contract loans 29,138 Borrowed money 53,453 Cash & short-term inv 28,727 Asset val reserve 17,885 Rec for securities 53,236 Funds held reinsurance 576,195 Securities-colltrl assts 71,342 Payable for securities lending 71,342 deferred tax asset 50,094 Other liabilities 22,285 Prems and consids due 25,112 Accrued invest income 17,656 Total liabilities 1,631,406 Other assets 21,879 Common stock 2,500 Paid in & contrib surpl 33,083 Unassigned surplus 72,868 Assets 1,739,857 Total 1,739,857 +Analysis of reserves; Life $191,020; annuities $37; supplementary contracts with life contingencies $11; accidental death benefits $3,860; disability active lives $86; disability disabled lives $125; miscellaneous reserves $3,974; accident & health $564,489. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 57,220 Ordinary life 42,987 Matured endowments 8 Credit life 731 Surrender benefits 3,639 Group life 36,487 Acc & health benefits 104,134 Acc & health group 248,264 Int on policy funds 4,590 Acc & health credit 613 Incr life reserves 6,052 Acc & health other 31,446 Incr a & h reserves 3,444 Total premiums 360,529 Commissions 22,853 investment income 72,463 Comm exp reins assumed 14,053 Amort interest maint res 7,824 Insur taxes lic & fees 12,128 Comm & exp reins ceded 49,228 General ins expenses 158,062 income 43 Misc operating expense 8 Other income 12,502 Other disbursements 24,719 Total 502,590 Total 410,910 Gain from operations before FIT & div to policyholders... 91,680 Dividends to policyholders: life... 0 Gains from operations after dividends to policyholders... 91,679 Federal income taxes incurred... 9,382 gain from operations after FIT and dividends... 82,298 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 484,132 Benefits paid 168,515 Long-term bond proceeds 362,124 Comm, taxes, expenses 231,710 Borrowed money 53,266 Long-term bonds acquired 433,856 Other cash provided 32,813 Other cash applied 136,740 Decr cash & short-term 38,487 Total 970,821 Total 970,821 Ultimate Parent: Aegon N.V. TRANSAMERICA ADVISORS LIFE INSURANCE COMPANY 425 West Capital Avenue, Suite 1800 Little Rock, AR 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 rating of the Aegon USA companies reflects that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Transamerica 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 to a general agency agreement by and between the company and MLLA. The rating of the life insurance companies of Aegon USA reflects 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 rating also reflects 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, albeit reduced, to 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 (top 10 life insurance and variable annuity writer), pensions (top 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. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Aegon USA has taken various initiatives to de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio has been 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) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. Furthermore, the group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. Aegon USA has also reduced its exposure to equity market risk by increasing the size of its macro equity hedge covering its 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 14 of 39

15 variable annuity business. Lastly, the rating reflects A.M. Best s assessment of the financial strength and support of the parent, Aegon. As a result, Aegon USA receives rating enhancement in consideration of Aegon s overall creditworthiness and the strategic and financial importance of the U.S. operations to Aegon. 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 IFRS asset impairments have continued to decline over recent years, additional realized losses and impairments are likely to continue given Aegon USA s sizable structured asset portfolio and exposure to direct commercial real estate. Furthermore, the group s substantial variable annuity portfolio exposes its earnings to volatility, as declines in the equity markets would translate to lower fee income and higher required reserves on secondary guarantees. Although additional equity hedging will serve to reduce volatility, the group s earnings remain somewhat correlated to equity market performance. A.M. Best believes the members of Aegon USA are well positioned at the current rating level for the foreseeable future. Factors 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 Capital Adequacy Ratio (BCAR), net operating performance that does not meet A.M. Best s expectations, a decline in the creditworthiness of Aegon, or a deterioration in A.M. Best s view of the strategic importance of these entities to Aegon. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 12/12/13 A+ 04/27/11 A+ 04/09/13 A+ 06/29/10 A+ 04/13/12 A+ 04/23/09 A KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Surplus Valuation Premiums Invest Funds Reserve Written Income Income Year Assets ,102, ,014 8, , , , ,139, ,142 11,572 28, , , ,050, ,047 12,023 16, , , ,031, ,158 12,246 17, , , ,135, ,415 10,710 18, , ,612 (*) Within several financial tables of this report, this company is compared against the Individual Annuity Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. 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 to 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 customers and provides a wide range of life insurance, pensions, long-term savings and investment products. Aegon USA was founded 1989 when Aegon N.V. (Aegon) decided to bring all of its operating companies in the U.S. under a single financial services holding company. Business is conducted through seven primary insurance subsidiaries and include Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company, Transamerica Advisors Life Insurance Company, Transamerica Premier Life Insurance Company, Stonebridge Life Insurance Company, Stonebridge 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 to the group and the Life was sold to SCOR SE in Historically, the largest contributor to before-tax earnings has been the Life & Protection (L&P) division, which includes the Agency Group selling individual life and supplemental health products to the middle income market. Also included in the L&P division are the Brokerage Group, Transamerica Employee Benefits, Long Term Care and the Affinity Group. The Brokerage Group markets life insurance in the retail high net worth market through independent general agents with approximately 400 general agencies and 116,000 contract producers. The Affinity Group specializes in marketing life insurance and supplemental health insurance products to consumers through direct channels such as telemarketing, direct mail, television advertising and the Internet. This group also markets credit life, mortgage life and other life insurance and supplemental health products. Transamerica Long Term Care offers products and services aimed at meeting the long-term care insurance needs of its customers. Policies are sold through independent brokerage and at the worksite to individuals and groups. Through Transamerica Employee Benefits, L&P offers voluntary payroll deduction life and supplemental health insurance to employees at their place of work and are designed to supplement employees existing benefit plans. The Individual Savings & Retirement (IS&R) division offers a wide range of savings and retirement products, including mutual funds, investment advice as well as fixed and variable annuities. Transamerica Capital Management (TCM) is the underwriting and wholesaling broker/dealer for variable annuities and mutual funds. TCM builds relationships with independent financial professionals, agents affiliated with regional broker/dealers or major wirehouse firms and representatives through a large bank network. TCM serves these distribution channels through company-owned and external wholesalers. In 2007, Aegon USA acquired Merrill Lynch Life Insurance Company and ML Life Insurance Company of New York (renamed Transamerica Advisors Life Insurance Company and Transamerica Advisors Life Insurance Company of New York. Transamerica Advisors Life Insurance Company of New York was later merged with and into Transamerica Financial Life effective 7/1/14) as part of a strategic distribution relationship with Merrill Lynch with respect to variable annuities. The acquisition of the Merrill Lynch insurance companies served to place Aegon USA in the top ten of variable annuity sellers in the wirehouse and broker/dealer segment. In late 2009, IS&R reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in the environment. Similar market conditions have continued over recent years and restricted sales of fixed annuities. As a result, IS&R has de-emphasized the sale of fixed annuities and has executed several large fixed annuity coinsurance transactions in recent years. The Employer Solutions and Pensions (ES&P) division includes full-service retirement plan investments and services in addition to guaranteed savings and investment products directed at various segments of the pension industry. The group sells a full range of products and services to small and mid-size corporate, non-profit and government sponsored plans through brokers, agents, consultants, third-party administrators and accounting firms. Transamerica Retirement Solutions (TRS) serves almost 4,000 mid-sized to large companies and more than 15,500 small to mid-sized companies across the U.S. TRS offers a number of specialized services, including innovative plan design, a wide array of investment choices, extensive education programs and online investment education. In addition, ES&P provides synthetic guaranteed investment contracts primarily to various retirement plans. ES&P is also a leading provider of single premium group annuities (Terminal 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 15 of 39

16 Funding), which are used by companies to decrease the liability of the defined benefit plans. BOLI/COLI products were distributed through a select number of niche brokers (including an affiliate, Clark Consulting); however, in December, 2010, ES&P announced its plan to discontinue new sales in the executive non-qualified benefits market and related BOLI/COLI business. The former Institutional Markets Division offered institutional spread products such as traditional fixed rate guarantee investment contracts (GICs), funding agreements (FAs), FA-backed notes as well as fee-based products such as synthetic GICs. In 2009, Aegon announced its plan to run-off its institutional spread based business to reduce capital requirements and credit risk. The institutional line of business also included structured product transactions, such as credit default swaps, synthetic collateralized debt obligations, affordable housing tax credit guarantees and hedge fund principal protection. Going forward, Aegon USA will only continue to offer affordable housing tax credit guarantees. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) , , , , , Yr CAGR Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) , , , , , , , , , , Yr CAGR Territory: 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 BY-LINE BUSINESS ($000) DPW Prem Assumed Product Line ($000) (%) ($000) (%) Ordinary life 9, Individual annuities 16, Total 26, Prem Ceded NPW Product Line ($000) (%) ($000) (%) Ordinary life 5, , Individual annuities 3, , Total 8, , BY-LINE RESERVES ($000) Product Line Ordinary life 1,172,504 1,241,663 1,302,921 1,362,422 1,430,948 Supplementary contr 113, , , , ,531 Individual annuities 283, , , , ,511 Group annuities 19,467 21,677 23,103 25,465 27,975 Deposit type contracts 79,742 83,970 87,112 90,408 99,200 Total 1,668,320 2,065,202 2,248,586 1,901,382 2,103,166 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force , , , , ,897 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,251,048 5,157 7,256, ,780,833 4,458 6,785, ,212,855 4,236 6,217, ,803,549 3,909 5,807, ,549,471 3,689 5,553,159 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,100 1, ,050 1, ,300 5, ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force , , , , , , , , ,650, , First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) , , , , , INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) NPW (%) Res (%) NPW Year (000) , , , , , , , , , , GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) NPW (%) Res (%) NPW Year (000) , , , , , A.M. Best Company, Oldwick, NJ Printed July 31, Page 16 of 39

17 TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) , , , , , SEPARATE ACCOUNT DATA Sep Acct Assets 7,417,777 7,062,393 7,124,732 8,299,985 8,485,194 % Growth S/A Assets/Adm Assets Sep Acct Reserves 7,356,212 6,985,497 7,024,585 8,179,236 8,306,923 % Ordinary Life % Individual Annuities % Group Annuities Deposit Type Liabilities Other Liabilities 61,551 76, , , ,244 S/A Prems & Deposits 25,865 27,872 26,444 39, ,983 % Ordinary Life % Individual Annuities Sep Acct Fees & Charges 162, , , , ,099 % Ordinary Life % Individual Annuities Fees & Chgs to Assets% Sep Acct Ben & Wdrwls 775, , , , ,908 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl to Assets% GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) Florida 6,500 6,455 6,768 7,359 22,881 Texas 3,199 3,929 2,264 4,697 32,842 Illinois 2,418 2,525 1,552 4,154 31,999 California 1,527 2,552 2,759 3,493 26,267 Connecticut 1, ,625 Virginia 1, ,955 Michigan 1, ,002 17,262 Pennsylvania ,791 10,593 New Jersey 839 1,281 1,338 1,527 6,048 South Carolina ,789 9,140 All Other 6,849 9,438 10,092 13, ,712 Total 26,592 28,817 27,588 40, ,325 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 to a risk management culture. SBU s are liability experts, engaging SBU CRO s more globally and moving operational risk from Internal Audit to the CRO s. The Group Risk and Capital 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 to 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, Aegon Americas which includes all of the North American and Latin American operations of Aegon has a modest amount of country risk exposure with its life insurance operations in Canada (through Canadian Premier Life and Transamerica Life Canada) 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 both considered Tier 3". 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 statutory earnings results have consistently improved in recent years. While 2011 consolidated statutory earnings were negatively impacted by the accounting treatment related to the structure of its sale of TARe (life reinsurance business) to SCOR S.E., 2012 consolidated statutory earnings were $1.8 billion consolidated statutory earnings were $.9 billion. Furthermore, Aegon USA continues to report solid IFRS results. The Aegon Americas segment (which is largely made up of Aegon USA but also includes operations in Canada and Mexico) has recorded IFRS net income of $1.5 billion (2010), $0.9 billion (2011), $1.3 billion (2012) and $0.5 billion (2013). However, A.M. Best notes that Aegon USA s statutory and IFRS results have until recently been dampened by significant investment impairments as the group has taken significant, albeit declining IFRS writedowns of $506 million (2010), $349 million (2011), $151 million (2012) and $58 million (2013). PROFITABILITY ANALYSIS ($000) Company Pre-tax Period Oper Operating Total Ending Income Gain Income Return , , , , , , , , , , , , , , , , , , , ,968 5-Yr Total 824, , , ,236 Company Industry Composite Period Operating Operating Operating Operating Ending ROR ROE ROR ROE Yr Avg PROFITABILITY TESTS Comm & Ben Paid Exp to NOG Operating to NPW NPW to Tot NOG to Return on Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg A.M. Best Company, Oldwick, NJ Printed July 31, Page 17 of 39

18 NET OPERATING GAIN ($000) Product Line Ordinary life 55,807 31,245 44,237 44,765 42,999 Supplementary contr 7,484 2,802 3,449 6, ,327 Individual annuities 372, , , , ,776 Group annuities 2,227 4,455 5,726 7,019 23,215 Total 438, , , , ,663 INVESTMENT GAINS ($000) Company Realized Unrealized Inv Capital Capital Year Income Gains Gains ,835-57,376-1, ,323-27,886 1, ,006-18, ,458-37,377-6, , ,510-11,645 5-Year Total 594, ,817-16,877 Company -Industry Composite- Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg BALANCE SHEET STRENGTH Capitalization: Aegon USA s overall risk-based capitalization is adequate to 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 statutory earnings capacity to support its capital position going forward, and that Aegon N.V. is likely to provide additional capital, if needed. Aegon USA s regulatory capital ratio at year-end 2013 remains strong as the group has successfully executed several capital initiatives over recent years, including asset de-risking, continued run-off of institutional spread-based balances and tax-related initiatives. Furthermore, Aegon USA has continued to accelerate capital release through several fixed annuity coinsurance transactions in 2011 and 2012, while also finalizing the sale of its reinsurance book of business in Current BCAR: 197 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Realized Unrealized Adjusted Capital Income Capital Year Gain Gains Taxes Gains ,954-57,376 7,291-1, ,654-27, , ,331-18,668-2, ,138-37, , , ,510-3,844-11,645 5-Yr Total 824, , ,877 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S ,746 25, , ,173 34, , , , , , ,537-89,247 97, Yr Total -9,056-37, , QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , , , , ,778 3, , , , ,217 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,014 8, , ,142 11, , ,047 12, , ,158 12, , ,415 10, ,125 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW Change C&S to Surplus & Dep in NPW to Surplus Year Liab Relief to Capital & Dep Liab Relief CEDED REINSURANCE ANALYSIS Company -Industry Composite- Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage ,002, ,365, ,222, ,100, , 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 ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital , , , , Company Industry Composite Mtg & Cred Affil Ten Lns Invest Quick Current Year & RE to Cap to Capital Liquidity Liquidity A.M. Best Company, Oldwick, NJ Printed July 31, Page 18 of 39

19 Investments: With $101.8 billion in general account assets at December 31, 2013 (IFRS basis, excluding policy loans), Aegon Americas 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 to potentially higher realized losses and impairments in the event of another 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 $58 million during On a statutory accounting basis, bonds represent 72% of Aegon USA s investment portfolio and more than 92% are of investment grade quality. However, approximately 23% 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. Direct commercial mortgage loans comprise approximately 10% of invested assets and are backed principally by office, retail, industrial and apartment properties. The commercial loan portfolio is performing well, with the vast majority of loans in good standing. Aegon USA s exposure to alternative assets represents additional risk to 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 less than 4% of the investment portfolio. Remaining assets include investments in common stock and preferred stock, cash and short-term investments. INVESTMENT YIELDS Cash & Invest. Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Ratio INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 1,560,730 1,670,188 1,576,709 1,468,536 1,198,100 US Government Foreign Government Foreign - All Other State/Special Revenue - US Industrial & Misc - US Hybrid Securities Credit Tenant Lns - US Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 7,637 10,466 34,292 13,350 13,350 Unaffiliated Common Unaffiliated Preferred INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 37,170 42,294 44,355 50,816 57,752 Commercial INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 1,048,831 1,096,313 1,150,237 1,151,917 1,203,900 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 01/27/1986 Date Commenced: 12/23/1986 Domicile: AR Originally incorporated in Washington, the company redomesticated to Arkansas in 1991 just prior to merging with Tandem Insurance Group, Inc. Prior to 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 to Financial Industries Corporation. During October 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 to the growth in company assets from 1989 to 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 into 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; Senior Vice President, Secretary and General Counsel, Richard J. Wirth; Vice President, Treasurer, Controller and Chief Financial Officer, Eric J. Martin; Chief Actuary, Darin Zimmerman. Directors: John T. Mallett, Eric J. Martin, Thomas A. Swank, Richard Wirth. REGULATORY An examination of the financial condition was made as of December 31, 2009, by the insurance department of Arkansas. The 2013 annual independent audit of the company was conducted by Ernst & Young, LLP. The annual statement of actuarial opinion is provided by Donald Krouse. 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 A.M. Best Company, Oldwick, NJ Printed July 31, Page 19 of 39

20 FINANCIAL INFORMATION BALANCE SHEET ($000) - December 31, 2013 Assets Liabilities Total bonds 1,560,730 + policy reserves 1,588,578 Total preferred stocks 7,561 Policy claims 27,133 Total common stocks 76 Deposit type contracts 79,742 Mortgage loans 37,170 Interest maint reserve 8,674 Contract loans 710,087 Comm taxes expenses 3,741 Cash & short-term inv 73,212 Asset val reserve 10,710 Securities-colltrl assts 260,477 Derivatives 51,897 Prems and consids due 64 Payable for securities lending 260,477 Accrued invest income 37,122 Other liabilities -46,925 Other assets 30,943 Tot liab w/o sep accts 1,984,027 Tot assets w/o sep accts 2,717,442 Separate account bus 7,417,777 Separate account bus 7,417,777 Total liabilities 9,401,803 Common stock 2,500 Paid in & contrib surpl 414,698 Unassigned surplus 316,217 Assets 10,135,218 Total 10,135,218 +Analysis of reserves; Life $1,168,227; annuities $283,606; supplementary contracts with life contingencies $132,469; disability active lives $6; disability disabled lives $21; miscellaneous reserves $4,250. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 175,319 Ordinary life 4,748 Annuity benefits 177,529 Individual annuities 13,284 Surrender benefits 602,900 Total premiums 18,031 Int on policy funds 4,164 Supplementary contracts 22,644 Supplementary contracts 22,769 investment income 116,754 Incr life reserves -392,654 Amort interest maint res 2,321 Commissions 34,794 Comm & exp reins ceded 2 Insur taxes lic & fees 2,815 income 8 General ins expenses 13,420 Other income 183,864 transf to sep acct -731,711 Misc operating expense 0 Total 343,624 Total -90,654 Gain from operations before FIT & div to policyholders ,278 Federal income taxes incurred... -3,844 gain from operations after federal income taxes ,122 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 347,387 Benefits paid 992,547 Transf from sep account 746,161 Comm, taxes, expenses 29,094 Long-term bond proceeds 852,656 Long-term bonds acquired 750,939 Other cash provided 92,094 Other invest acquired 283,332 Decr cash & short-term 44,889 Other cash applied 27,274 Total 2,083,187 Total 2,083,187 Ultimate Parent: Aegon N.V. TRANSAMERICA FINANCIAL LIFE INSURANCE COMPANY 440 Mamaroneck Avenue Harrison, New York, NY Exec. Office: 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 RECENT DEVELOPMENTS Effective July 1, 2014, Transamerica Advisors Life Insurance Company of New York was merged with and into Transamerica Financial Life. RATING RATIONALE Rating Rationale: The published rating of the Aegon USA companies reflects that they are integral to Aegon s strategy, fully integrated into the group s operations, a material part of the business profile, significant contributors to earnings and have received explicit financial support when needed. Transamerica Financial Life Insurance Company primarily sells fixed and variable pension and annuity products, group life coverages, life insurance, investment contracts and structured settlements. The company is licensed in 50 states and the District of Columbia. Sales of the company s products are primarily through brokers. The rating of the life insurance companies of Aegon USA reflects 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 rating also reflects 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, albeit reduced, to 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 (top 10 life insurance and variable annuity writer), pensions (top 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. Aegon USA enjoys the efficiencies and competitive advantages of meaningful economies of scale, which have contributed favorably to its historical financial performance. Aegon USA s earnings profile is one of the more diversified in the industry. Product lines that contribute to overall earnings include traditional life, variable life, variable annuities, mutual funds, pensions and accident and health insurance. Aegon USA has taken various initiatives to de-risk its balance sheet and improve its risk profile. The quality of the investment portfolio has been 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) remains in run-off to reduce exposure to credit risk, lower required capital and to shift to a more balanced mix of business between spread- and fee-based products. Furthermore, the group has executed several fixed annuity coinsurance transactions, which have released capital and reduced its spread-based liabilities. Aegon USA has also reduced its exposure to equity 2014 A.M. Best Company, Oldwick, NJ Printed July 31, Page 20 of 39