Fitch Affirms Minnesota Life's IFS Rating at 'AA-'; Outlook Remains Positive

CHICAGO--()--Fitch Ratings has affirmed at 'AA-' the Insurer Financial Strength (IFS) ratings of Minnesota Life Insurance Company (Minnesota Life) and its subsidiary, Securian Life Insurance Company. Fitch also affirmed the rating on Minnesota Life's surplus notes at 'A'. The Rating Outlook remains Positive.

Key Rating Drivers

The affirmation of Minnesota Life's ratings reflects the company's strong balance sheet fundamentals and conservative risk profile, as well as improving earnings. The ratings also reflect macroeconomic challenges and a strong competitive environment in the company's core markets, within which the company often faces insurers with greater scale and resources.

Minnesota Life's strong balance sheet fundamentals reflect the company's solid capitalization, low operating leverage, and low financial leverage. The company's risk-adjusted capitalization, which is a key factor supporting the company's ratings, remained strong and stable in 2013. The company reported a consolidated risk-based capital (RBC) ratio of 517% of the company action level at Dec. 31, 2013, up from 507% at yearend 2012.

In addition to the company's strong risk-adjusted capitalization, Minnesota Life's solid balance sheet fundamentals are supported by its low statutory operating leverage of 4.6x as measured by adjusted liabilities to total adjusted capital, as well as low financial leverage of approximately 3% on a GAAP basis.

Fitch notes that Minnesota Life's liquidity profile continues to be very favorable. The company's results benefit from its large, investment-grade, publicly traded bond portfolio and stable liability structure.

Minnesota Life's conservative risk profile reflects balanced, diversified sources of revenue that serve to moderate earnings volatility, although growth in fee income related to capital market performance could add further volatility in the future. While the company's product lines have produced below average combined profitability relative to similarly rated peers, Fitch acknowledges that the company's products are reflective of management's mutual insurance company philosophy. Fitch also takes a favorable view of Minnesota Life's high quality career agency distribution channel and strong technology-based service platform, which Fitch considers to be beneficial to its group life and retirement services product lines.

Fitch expects Minnesota Life's operating profitability to strengthen modestly over the short term. Over the course of 2014, Fitch anticipates the company's profitability as measured by GAAP-based return on assets to be near 0.9%. Fitch anticipates that current low interest rates will continue to serve as a headwind to the company's profitability.

Minnesota Life, the primary operating subsidiary of Securian Financial Group, is headquartered in St. Paul, Minnesota and reported total admitted assets of approximately $33.9 billion and capital and surplus of $2.4 billion at March 31, 2014.

Rating Sensitivities

The key rating triggers that could result in an upgrade include:

--Maintain risk-adjusted capitalization and quality of capital at current levels;

--No deterioration in statutory or GAAP-based operating results, with GAAP-based return on assets maintained at or above .90% over the next 18 months;

--Continued low financial leverage;

--Continued low asset risk;

--Modest M&A activity.

The key rating triggers that could result in the Rating Outlook being revised to stable include:

--Deterioration in statutory or GAAP-based operating results.

The key rating triggers that could result in a downgrade include:

--Significant deterioration in financial results that results in a GAAP-based ROA below .60% on a sustained basis;

--A sustained decline in the company's RBC ratio to a level below 450%;

--an increase in financial leverage above 15% as measured by debt-to-total capital.

Fitch affirms the following ratings with a Positive Outlook:

Minnesota Life Insurance Company

--IFS at 'AA-';

--Issuer Default Rating at 'A+';

--$118 million Rule 144a surplus notes 8.25% due 2025 at 'A'.

Securian Life Insurance Company

--IFS at 'AA-'.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=844215

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Contacts

Fitch Ratings
Primary Analyst
Bradley S. Ellis, CFA, +1 312-368-2089
Director
Fitch Ratings, Inc.
70 W. Madison St.
13th Floor
Chicago, IL 60602
or
Secondary Analyst
Dafina M. Dunmore, CFA, +1 312-368-3136
Director
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA, +1 312-606-2353
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Bradley S. Ellis, CFA, +1 312-368-2089
Director
Fitch Ratings, Inc.
70 W. Madison St.
13th Floor
Chicago, IL 60602
or
Secondary Analyst
Dafina M. Dunmore, CFA, +1 312-368-3136
Director
or
Committee Chairperson
Donald F. Thorpe, CPA, CFA, +1 312-606-2353
Senior Director
or
Media Relations:
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com