Fitch turns negative on Dutch insurer Aegon on COVID-19 risk

Fitch Ratings has revised the outlook for Dutch insurance group Aegon NV, its primary North American life insurance subsidiaries Aegon Americas and Edinburgh-based Scottish Equitable to negative from stable.

The agency cited "disruption to economic activity and financial markets from the coronavirus pandemic" as reason for the outlook revision.

The rating action reflects the impact of the economic fallout on Aegon's financial performance. Fitch expects Aegon's underlying earnings to deteriorate, driven by weaker financial performance of Aegon Americas based on adverse equity-market performance, rating migration and credit defaults. However, Fitch notes that Aegon's bottom-line earnings for 1Q20 benefitted from non-operating items, including fair-value gains in non-US businesses.

According to the agency, longer-term risks include the impact of lower interest rates for a longer period on Aegon Americas. Aegon Americas has above-average exposure to market- and interest-sensitive liabilities due to its exposure to variable annuities, long-term care and universal life with secondary guarantees.

"The current economic environment heightens risks around its legacy liabilities and could weaken its balance-sheet strength and financial performance," said Fitch.

Fitch expects Aegon's liquidity position to remain adequate, supported by significant cash capital at the holding company. Aegon has no significant debt maturities in the short-term apart from an $500 million senior issue maturing in December 2020.