April 5, 2012 / 2:02 PM / 5 years ago

TEXT-Fitch affirms Aegon's Zest VIF notes at 'A'

April 5 - Fitch Ratings has affirmed Scottish Equitable plc's (Scottish
Equitable) GBP250m value of in-force (VIF) securitisation fixed-rate loan
amortising notes due 2023 at 'A'. Scottish Equitable is the principal UK
subsidiary of AEGON N.V. ('A'/ Stable)	
	
The affirmation reflects Fitch's expectations, based on discussion with 	
management that the surplus arising on the notes in 2011 will not deviate 	
significantly from projections. On receipt of full updated projections as at 	
YE2011, Fitch will conduct a full review of the performance of the transaction 	
against expectations including analysis of the surplus arising, any changes to 	
assumptions underlying projections and stress-testing of the transaction's 	
projected cash flows.	
	
The Zest notes are repaid from the securitised future profits arising from a 	
book of unit-linked pensions business held by Scottish Equitable. In the event 	
of insufficient surplus arising to pay the loan or interest, note holders will 	
not have recourse to AEGON N.V. or Scottish Equitable.  However, in the event of	
a default by Scottish Equitable despite sufficient surplus arising, note holders	
will have recourse to AEGON N.V.  The issued notes do not benefit from a 	
financial guarantee insurance policy.	
	
Although the transaction is a contingent loan with no recourse to the sponsor, 	
the notes' rating has been established under Fitch's Corporate Finance 	
methodology. This is because, in Fitch's opinion, the transaction has no 	
significant structured finance elements. 	
	
The rating is based on analysis of the transaction documents, the volatility of 	
underlying profit sources, and analysis and stress-testing of the transaction's 	
projected cash-flows. Fitch's rating process at the outset of the transaction 	
included a review of the embedded value methodology, assumptions and actuarial 	
model developed by Scottish Equitable. Tillinghast, an actuarial consulting firm	
of Towers Watson, independently reviewed the model and the assumptions used. 	
	
The key rating triggers that could result in a downgrade include markets 	
performing worse than expected over an extended period, a change to the basis 	
for calculation of future cash flows or transaction underperformance of more 	
than GBP15m in one year. 	
	
Zest could be subject to a downgrade if, in Fitch's opinion, future cash-flows 	
are unlikely to be sufficient to cover the repayment of the loan and interest 	
payments under a 'A' stressed scenario or if the transaction underperforms by 	
more than GBP15m in one year or GBP30m on a cumulative basis. The transaction 	
could also be downgraded if Fitch's opinion of Scottish Equitable's credit 	
quality deteriorates. Zest could be upgraded if repayments exceed modelled 	
projections by GBP30m (currently GBP6m) cumulatively or by GBP15m in one year.	
	
Additional information is available at www.fitchratings.com.	
	
The ratings above were solicited by, or on behalf of, the issuer, and therefore,	
Fitch has been compensated for the provision of the ratings.	
	
Applicable criteria, 'Insurance Rating Methodology', dated 22 September 2011, is	
available at www.fitchratings.com.	
	
Applicable Criteria and

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