Dutch insurer AEGON has merged its subsidiaries, Arizona-based variable annuity captive with Transamerica Life Insurance Company (TLIC).

The insurer expects one-time capital benefit of around $1bn from the merger. However, the move is pending regulatory approval.

The move, set to be effective from next month, comes after proposed changes by the National Association of Insurance Commissioners (NAIC) to the variable annuity capital framework in the US.

Aegon said that the launch of its variable annuity captive was triggered by the need to manage the volatility of the US RBC ratio.

However, NAIC’s proposed changes to the variable annuity capital framework lower RBC ratio’s non-economic volatility, thereby making a variable annuity captive redundant.

The Netherlands-based firm plans to incorporate these changes from next year without affecting its balance sheet.

According to the insurer, the consolidation of the two US entities will not materially affect its recurring capital generation in the next 10 years.

The insurer also expects the merger’s effect on its group Solvency II ratio to “largely offset” the impact of US tax overhaul in the second half of this year.

CEO Alex Wynaendts said: “Merging two of our US entities simplifies our legal structure, increases our capital buffer, and leads to the release of reserves and higher diversification benefits.

“This enables us to further strengthen our capital position in the United States and enhance the robustness of our balance sheet.”