Aegon N.V. says Transamerica, its U.S. subsidiary, will be ending the sale of many products with guarantees that shield the holders against interest rate risk and other forms of investment risk.
The list includes fixed annuities; variable annuities that provide substantial living benefits or death benefit guarantees; and individual long-term care insurance.
(Related: 7 Things to Know About Jackson’s Realignment)
A Netherlands-based company, Aegon acquired San Francisco-based Transamerica in 1999.
The yield on a typical high-grade U.S. corporate bond has fallen to about 3% today, from about 7.5% in 1999.
The low bond yields and the low “spread” between corporate bond rates and Treasury bond rates, mean that life insurers have a hard time using high-quality investments to generate the kinds of investment yields that traditionally have helped support many types policies.
Many other companies, including MetLife Inc., AXA S.A., Prudential PLC and American International Group Inc., have started or completed similar major transformations in recent years, in part because of concerns about low interest rates.
Aegon executives then spelled out what kinds of changes are ahead for the U.S. operations recently, during a Capital Markets Day web meeting.
The company is splitting its businesses in the United States and other core markets into two categories, according to the meeting presentation.
Fixed annuities and other products that offer substantial guarantees, including variable annuities with significant living benefits and significant death benefits, are going into a “financial assets” category.
Aegon is ending the sale of products in the financial assets category and looking at ways to reduce exposure to those products.
Aegon has also established a “strategic assets” category, for businesses that it wants to keep.
Transamerica products in the strategic assets category include individual life insurance policies, individual investment products, worksite solutions products, including small retirement plans, and accumulation variable annuities, without significant exposure to crediting rate guarantees.
— Read MetLife May End Up Looking More Like Af)lac and Unum, on ThinkAdvisor.