Fitch Affirms Thrivent Financial for Lutherans' IFS Rating at 'AA'; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the ratings of Thrivent Financial for Lutherans (Thrivent Financial) and its subsidiary, Thrivent Life Insurance Company (Thrivent Life), collectively referred to as Thrivent hereafter. The affirmed ratings include Thrivent's 'AA' Insurer Financial Strength (IFS) and its 'AA-' long-term Issuer Default Rating (IDR). The Rating Outlook is Stable. A complete list of rating actions is provided at the end of this release.

Fitch's ratings of Thrivent Financial reflect the organization's strong capitalization with very low use of financial leverage, high quality investment portfolio, consistent profitability and favorable market franchise within the Lutheran market. In addition, Thrivent has a conservative liability profile with limited exposure to variable annuities with living benefit guarantees.

The Stable Outlook is driven by Thrivent Financial's strong capital base and Fitch's expectations of continued sustainable solid operating performance for 2012, supported by conservative investment and product offerings. Fitch believes that the pressure on profitability and capital driven by an extended low interest rate scenario and future investment losses is manageable in the context of the company's capital position and liability profile.

Thrivent Financials' capitalization is strong and of high quality, improving on both an absolute and a risk-adjusted basis in 2011. Thrivent Financial's total adjusted capital (TAC) increased 6.8% to $5.4 billion and a risk based capital (RBC) ratio of approximately 474% at Sept. 30, 2011, as compared to year-end 2010 TAC of $5.1 billion and a RBC of 454%. The organization has not issued surplus notes to support its capital and the company's reliance on capital markets to finance its product reserves and capital base are low.

Profitability for Thrivent Financial is viewed as consistent, but moderate, converging around the mid-single digits. Thrivent's operating earnings improved for the first nine months of 2011 reflect the growing contributions of the annuity business and the stable results of Thrivent's life insurance business. Thrivent's investment income has improved due to increasing assets under management, despite declining yields due to the low interest rate environment. Profitability in 2011 has benefited from favorable lapse rates for both life and annuity, generally favorable mortality and good expense management.

Fitch believes that a prolonged low interest rate environment could increase earnings pressure due to margin compression for Thrivent and other industry participants in the annuity and interest sensitive life insurance business.

Thrivent manages a high quality, well-diversified, liquid investment portfolio that has performed relatively well in terms of credit and return over the last three years. Thrivent's holdings of risky assets (below investment grade bonds, common stocks, mortgages and alternative assets) are moderately above the life industry average, but with lower investment in areas of risk that have troubled other insurers. The overall quality of Thrivent's investment portfolio has improved in 2011 with lower investment in below investment grade bonds and common stocks at Sept. 30, 2011, versus at year-end 2010. Fitch is comfortable with Thrivent Financial's mortgage-related allocation due to the quality of these assets.

Thrivent's credit related investment losses have declined materially over the past two years in line with peers. The company's reported credit related impairments through the first nine months of 2011 have been low at less than $22 million. Gross credit related losses declined to $73 million for 2010 compared to $179 million in 2009.

Fitch believes Thrivent Financial is strongly positioned within the Lutheran market, but that the company's narrow focus presents challenges for long-term growth opportunities. Thrivent Financial provides a variety of fraternal programs and services, life insurance, retirement, disability income and other risk protection and asset accumulation products to its membership. Its affiliates also offer its members a family of mutual funds, and trust and banking services. At Sept. 30, 2011, Thrivent Financial and Thrivent Life reported total statutory assets of $61.4 billion and $3 billion, respectively, and capital and surplus of $4 billion and $189 million, respectively.

Factors that could trigger a negative rating action:

--A decrease in estimated RBC below 390%.

--A material increase in realized gross investment losses and impairments in 2012.

--Material negative trends in earnings and/or fraternal membership.

Factors that could trigger a positive rating action:

--A material increase in profitability and/or fraternal membership.

--A sustained increase in estimated RBC above 480%.

Fitch has affirmed the following ratings with a Stable Outlook:

Thrivent Financial for Lutherans

--Long-term IDR at 'AA-';

--Short-term IDR at 'F1+';

--IFS at 'AA'.

Thrivent Life Insurance Company

--IFS at 'AA'.

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 and Related Research:

--'Insurance Rating Methodology' (Sept. 22, 2011).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=651018

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Contacts

Fitch Ratings
Primary Analyst:
Andrew Davidson, CFA, +1-312-368-3144
Senior Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Bruce Cox, +1-312-606-2316
Director
or
Committee Chairperson:
Brian Schneider, +1-312-606-2321
Senior Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Andrew Davidson, CFA, +1-312-368-3144
Senior Director
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst:
Bruce Cox, +1-312-606-2316
Director
or
Committee Chairperson:
Brian Schneider, +1-312-606-2321
Senior Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
Email: brian.bertsch@fitchratings.com