Fitch Upgrades Thrivent Financial's IFS Rating to 'AA+'; Outlook Stable

CHICAGO--()--Fitch Ratings has upgraded the Insurer Financial Strength (IFS) rating of Thrivent Financial for Lutherans (Thrivent Financial) and its subsidiary, Thrivent Life Insurance Company (Thrivent Life), collectively referred to as Thrivent, to 'AA+' from 'AA'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Today's upgrade reflects Thrivent's extremely strong level of capitalization, which was enhanced by the material growth in surplus in recent years. Further, Fitch believes management is committed to maintaining statutory capital levels in excess of rating guidelines. The upgrade also considers Thrivent's consistently solid profitability, its favorable position within the Lutheran market and growing franchise within the broader Christian community.

Thrivent has a conservative liability profile with limited exposure to variable annuities with living benefit guarantees. Further, Fitch believes that an extended low interest rate environment is manageable in the context of the company's extremely strong capital position and conservative liability profile, which benefits from a large block of life insurance business.

Fitch considers Thrivent's continued expansion into the broader Christian community from solely the Lutheran market as favorable and reasonably executed thus far. Additionally, Fitch views Thrivent's niche focus and faith-based affiliation, which is bolstered by its charitable support for members and their communities, as a contributing factor to its high policyholder persistency.

Fitch views Thrivent's capitalization as extremely strong and of high quality. Total adjusted capital (TAC) increased 9% to $8.3 billion in 2015, following an increase of 11% in 2014. TAC has increased over 50% since 2011, driven by strong earnings.

The company's risk-based capital (RBC) ratio is among the highest in Fitch's rated universe, at 756% as of year-end 2015. Thrivent has not issued surplus notes to support its capital and has no reliance on capital markets or reinsurance to finance its product reserves and capital. The company's capital strength is also demonstrated by its extremely low operating leverage at 6.0x as of Dec. 31, 2015.

Thrivent's earnings remained very strong in 2015, despite a modest deterioration due to its strategy to return excess surplus to members through increased dividends, as well as its increased fraternal spending. The company increased policyholder dividends 32% to $316 million in 2015. Fitch expects profitability to decline moderately in 2016 driven primarily by more normalized private equity returns.

Fitch considers Thrivent to have an average exposure to interest rates mainly due to its large block of fixed annuities and legacy block of long-term care business. This risk is partially offset by its block of individual participating whole life business. Fitch believes that Thrivent's exposure to withdrawal risk in a spike up interest rate scenario is manageable.

Thrivent's consistent generation of strong operating cash flow, very large portfolio of marketable securities with a strong market-to-book value ratio and strong policyholder persistency partially mitigate disintermediation risk. These strengths offset the high percentage (70%) of the company's $19.6 billion of general account annuity liabilities that are subject to discretionary withdrawals without penalty or market value adjustments at year-end 2015.

Fitch views Thrivent's investment risks as manageable. The company's 2015 risky assets-to-capital ratio of 84% is modestly higher than the life insurance industry's, driven by above-average exposure to equities which is somewhat offset by below-average exposure to below-investment grade (BIG) bonds.

Thrivent's energy exposure is in line with the industry, accounting for roughly 12% of corporate bonds as of year-end 2015. Fitch views Thrivent's BIG energy exposure as above average at 19% of total energy exposure and the company remains susceptible to downward ratings migration in a 'lower for longer' oil price scenario.

With a membership of over 2.3 million, Thrivent is the largest fraternal benefit society in the U.S. The company reported assets under management/administration of over $109 billion as of year-end 2015.

RATING SENSITIVITIES

Factors that could trigger a negative rating action:

--A decrease in estimated RBC below 550% and/or an increase in operating leverage to above 8x;

--A material increase in realized gross investment losses and impairments;

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

Fitch does not anticipate an upgrade given the company's modest size and scale versus 'AAA' rated peers.

FULL LIST OF RATING ACTIONS

Fitch has upgraded the following ratings with a Stable Outlook:

Thrivent Financial for Lutherans

--Long-term Issuer Default Rating (IDR) to 'AA' from 'AA-';

--IFS to 'AA+' from 'AA'.

Thrivent Life Insurance Company

--IFS to 'AA+' from 'AA'.

Fitch has affirmed the following rating:

Thrivent Financial for Lutherans

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

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 16 Sep 2015)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=871172

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1004097

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004097

Endorsement Policy

https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Jamie R. Tucker, CPA
Associate Director
+1-212-612-7856
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Dafina M. Dunmore, CFA
Director
+1-312-368-3136
or
Committee Chairperson
Brian C. Schneider, CPA, CPCU, ARe
Senior Director
+1-312-606-2321
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jamie R. Tucker, CPA
Associate Director
+1-212-612-7856
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Dafina M. Dunmore, CFA
Director
+1-312-368-3136
or
Committee Chairperson
Brian C. Schneider, CPA, CPCU, ARe
Senior Director
+1-312-606-2321
or
Media Relations:
Hannah James, +1 646-582-4947
hannah.james@fitchratings.com