Subprime exposures take their toll on the investment bank and its life insurer

Standard & Poor's has placed its “AA-“ counterparty credit and financial strength ratings on Merrill Lynch Life Insurance on creditwatch with negative implications.

This rating action follows today's downgrade of Merrill Lynch to A+/Negative/A-1 from AA-/Negative/A-1+.

The ratings on Merrill Lynch Life had Merrill Lynch’s implicit support until the announcement on 13 August 2007 that the parent was selling Merrill Lynch Life to Aegon USA.

"Given the downgrade of Merrill Lynch, if the merger were not to occur, the ratings in Merrill Lynch Life would be lowered to the ‘A' category," said Standard & Poor's credit analyst Ovadiah Jacob. "This would reflect their less strategically significant role to the now lower rated parent.

“However, we still believe that AEGON USA will likely complete the acquisition in the first quarter of 2008 and subsequently integrate the operations in the next 12-24 months."

At the time of the acquisition, S&P will assign an outlook to Merrill Lynch life based on its potential to reach core status within AEGON USA.