Standard & Poor’s Ratings Services said it placed its ratings on Toronto-based Transamerica Life Canada on CreditWatch with negative implications, following the company’s move to strengthen its policy reserves during the first nine months of 2005.

The rating agency reports that the company’s reserves were strengthened following the appointed actuary’s review of the company’s current assumptions, changes in economic variables, and requirements to comply with new standards of practice and regulatory requirements. The impact of these adjustments resulted in a $38 million net loss during the first nine months of 2005.

“As is normally the practice in Canada, a portion of the reserve increase was allocated to provisions for adverse deviation, which could emerge as future earnings if the actuarial base case scenario emerges,” it says.

“Although we consider the reserve adjustments to be material, the impact of the reserve strengthening has been more than offset by a capital infusion by the parent,” said Standard & Poor’s credit analyst Donald Chu.

The insurer financial strength rating on TLC reflects the strength of the company’s existing franchise in its two core businesses (individual life insurance and segregated funds), the past and expected future operating performance of the life insurance operations, strong asset quality and capital position, and extremely strong liquidity, S&P notes.

The ratings also reflect the relatively high amount of segregated fund risk that the company has taken on relative to its peer group, which in the past has necessitated a significant infusion of capital from its parent, AEGON N.V., to support its regulatory capital requirements, S&P adds.

The CreditWatch placement reflects Standard & Poor’s increased concerns over the level and volatility of TLC’s earnings profile, it explains. The CreditWatch will be resolved by the end of April “to allow for a full and comprehensive review of the company’s year-end financial results and actuarial adjustments. Any further material reserve adjustments, lapse in earnings strength as
measured on a Canadian GAAP basis, or deterioration of the Canadian franchise could result in a one- to two-notch lowering of the ratings,” it says.

“The outlook could be revised to stable if the bulk of the 2005 reserve adjustments are seen as one-time in nature, are in line with the market, and there is clear evidence that the company’s 2006 earnings will be brought back to the levels seen during fiscal 2004,” it adds.