NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed all ratings for Massachusetts Mutual Life Insurance Company (MassMutual), its wholly owned domestic insurance subsidiaries and affiliates. The Rating Outlook is Stable. A complete list of ratings follows at the end of this press release.
KEY RATING DRIVERS
Fitch's ratings reflect MassMutual's strong competitive position in several major and broadly diversified business lines, strong capital levels, good profitability and investment performance. The ratings also consider the ongoing impact of the low interest rate environment and potential financial market volatility.
MassMutual's strong market position in life insurance is driven by sales of core participating whole life product. MassMutual's large and stable block of traditional cash value life insurance provides favorable credit characteristics including long duration participating liabilities, relatively predictable cash flows, limited disintermediation risk, and limited guarantee provisions. Fitch believes that the company's strong brand name, productive career distribution system, and diversification of earnings and cash flows provided by its asset management capabilities provide significant competitive advantages.
MassMutual's statutory capital is very strong and in line with rating expectations. At Dec. 31, 2015, total adjusted statutory capital (TAC) was $17.3 billion, and the risk-based capital (RBC) ratio was 500%, which is above the company's target range of 425% to 475%. Fitch notes the company's use of surplus notes to fund capital, which is higher relative to peers, but is largely offset by the company's conservative valuation of its asset management subsidiaries in reported statutory capital and lack of use of captives to finance redundant reserves. TAC increased $1 billion or 6% in 2015 due to positive contributions from statutory operating earnings and a $500 million surplus notes issuance earlier in the year.
As of year-end 2015, MassMutual reported low operating leverage of 8.0x and higher proforma financial leverage, measured as surplus notes to TAC, of 13%. While surplus notes to TAC is above average relative to mutual insurer peers, the ratio remains within Fitch's 15% guideline for standard surplus note notching. Fitch expects statutory financial leverage to decline modestly longer term due to growth in statutory capital.
Fitch considers MassMutual's profitability as moderate on an absolute basis, but favorable on a risk-adjusted basis and comparable to mutual peers. Statutory results for full-year 2015 were lower than the prior year, primarily as a result of the absence of a one-time gain in 2014 from a real estate sale transaction as well as lower investment margins and higher mortality claims but partially offset by higher dividends from subsidiaries.
MassMutual manages a diversified and liquid investment portfolio that has performed within expectations over the last few years. Investment losses were higher in 2015 due to energy and commodities related impairments but remained manageable relative to the size of the total investment portfolio. MassMutual's risky asset ratio of 99% as of Dec. 31, 2015, which includes below investment grade bonds, troubled real estate, unaffiliated common stock and Schedule BA assets, is somewhat higher than the life industry but well within range of large mutual peers.
The ratings on C.M. Life Insurance Company (CM Life) and MML Bay State Life Insurance Company (MML Bay State), which are wholly owned subsidiaries of MassMutual, are based on Fitch's view that these entities are core operating companies within the MassMutual organization.
MassMutual Global Funding, LLC is a limited liability company domiciled in the Cayman Islands. MassMutual Global Funding II is a statutory trust domiciled in the state of Delaware. The company and trust were established for the sole purpose of issuing debt instruments secured by funding agreements issued by MassMutual.
RATING SENSITIVITIES
Key rating triggers that could lead to an upgrade include:
--NAIC RBC above 425%;
--Surplus notes to TAC ratio below 9%;
--Further growth and higher business concentrations in participating whole life business.
Key rating triggers that could lead to a downgrade include:
--Significant decline in TAC or NAIC risk-based capital ratio below 400%;
--Increased volatility in earnings due to higher than expected credit-related losses.
Rating triggers that could lead to wider notching of MassMutual's IDR rating include:
--Surplus notes to TAC ratio above 15%.
Fitch has affirmed the following ratings with a Stable Outlook:
Massachusetts Mutual Life Insurance Company
--Insurer Financial Strength (IFS) at 'AA+';
--Issuer Default Rating (IDR) at 'AA';
--$250 million 7.625% surplus notes due Nov. 15, 2023 at 'AA-';
--$100 million 7.5% surplus notes due March 1, 2024 at 'AA-';
--$250 million 5.625% surplus notes due May 15, 2033 at 'AA-';
--$750 million 8.875% surplus notes due June 1, 2039 at 'AA-';
--$400 million 5.375% surplus notes due Dec. 1, 2041 at 'AA-';
--$500 million 4.50% surplus notes due April 15, 2065 at 'AA-';
--Short-Term IDR at 'F1+';
--Commercial paper program at 'F1+'.
C.M. Life Insurance Company
MML Bay State Life Insurance Company
--IFS at 'AA+'.
MassMutual Global Funding, LLC
MassMutual Global Funding II
--Secured notes program at 'AA+'.
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=1004637
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1004637
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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