S&P Revises its Outlook on Aegon and Core Subs to Negative; Affirms Ratings

May 2, 2008

Standard & Poor’s Ratings Services has revised its outlook on Netherlands-based AEGON N.V. and its core subsidiaries to negative from stable. Concurrently S&P affirmed its ‘A+/A-1’ counterparty credit rating on AEGON N.V. and its ‘AA’ long-term counterparty credit and insurer financial strength ratings on AEGON’s core operating subsidiaries.

“The outlook revision reflects heightened concerns about the effect realized credit losses and impairments could have on the rating profile for AEGON’s U.S. operations,” explained S&P credit analyst Mark Button.

S&P also indicated that the revision reflects the reduction in the group’s flexibility to meet S&P’s “capital, leverage, and debt servicing ratio expectations. The continued weakness of the U.S. dollar against the Euro is likely to exacerbate these pressures.”

AEGON is the holding company of one of the world’s largest life insurance groups. The group’s revenue generating investments totaled €371 billion ($573.6 billion) at year-end 2007. S&P noted: “The group’s operating entities enjoy very strong, well-diversified competitive positions; very strong capital adequacy and capital quality; very strong financial flexibility; and strong risk controls for most risks. These positive factors are partially offset by a difficult industry wide operating environment in AEGON’s core markets, and its exposure to investment markets.

“We consider it critical to maintain the strength of AEGON’s U.S. business because it contributes significantly to group earnings and cash flow. However, the weakening U.S. economy and turbulence in credit markets are creating negative pressures.

“The negative outlook reflects the increasing risk of material realized losses and impairments in AEGON USA’s general account. To a lesser extent, the negative outlook also reflects heightened credit risk due to positions in credit derivatives and the potential for increased earnings volatility related to financial market developments.”

Button added: “We believe general account realized losses and impairments could exceed long-term assumptions over the next 18 months.”

S&P said that the “ratings could be lowered if realized losses reduce capital adequacy in the U.S. to a level below expectations for the current ratings. As a key driver of the group’s ratings, any deterioration in AEGON USA’s rating profile would affect ratings on AEGON and its other core operating subsidiaries in The Netherlands and the U.K.

“The outlook could be restored to stable if the investment portfolio loss exposures subside and AEGON USA’s very strong capitalization remains intact, while maintaining its earnings profile and dividend payments to AEGON.”

Source; Standard & Poor’s – www.standardandpoors.com

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