A.M. Best Affirms the Ratings of Massachusetts Mutual Life Insurance Company and Its Subsidiaries

OLDWICK, N.J.--()--A.M. Best has affirmed the financial strength rating of A++ (Superior) and the issuer credit ratings of “aa+” of Massachusetts Mutual Life Insurance Company (MassMutual) and its life/health subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company.

Concurrently, A.M. Best has affirmed the debt ratings of “aa-” on the existing surplus notes of MassMutual and the “aa+” on notes issued under the funding agreement-backed securities programs of MassMutual Global Funding, LLC and MassMutual Global Funding II. The outlook for all ratings is stable. The above companies are headquartered in Springfield, MA. (See below for a detailed listing of the debt ratings.)

The rating affirmations for MassMutual are based on its continued strong operating performance, with record earnings and sales results in key business segments and meaningful business diversification. Earnings for 2014 included a favorable one-time gain on the sale of its Fan Pier properties. In addition, the ratings consider the organization’s very strong risk-adjusted capitalization and highest ever levels of assets under management.

Offsetting these positive rating factors is MassMutual’s increased financial leverage, which was 14% on a statutory basis at year-end 2014, and increased to 16.9% in April 2015, with its recent issuance of a $500 million, 50-year surplus note due 2065. Additionally, the rating considers the increased investment in mortgage loans to approximately 15% of invested assets by year-end 2014.

MassMutual’s 2014 absolute capitalization reached a record level as its total-adjusted capital (TAC) increased to almost $16.4 billion, representing a compound annual growth rate of 13% higher than the prior year due to favorable real estate gains, strong consolidated company earnings and the positive impact of lower interest rates on their retirement business. MassMutual’s investment impairment losses have improved significantly, and A.M. Best believes additional near-term impairments will continue to be moderate and remain at expected levels.

MassMutual’s ratings continue to recognize its favorable business mix, diversified operating profile and strong position in the domestic life insurance market. MassMutual is one of the leading writers of whole life insurance in the United States and offers a broad portfolio of insurance products and asset management services to individuals across diverse demographics and the corporate marketplace. The enterprise benefits from a sizable participating whole life block, supplemented by term and universal life policies that primarily are sold through a career agency force. As a result, MassMutual possesses a stable liability structure that facilitates long-term financial strength. Additionally, A.M. Best notes that MassMutual possesses some statutory flexibility to maintain its capital position through the management of its policyholder dividend scale, issuance of surplus notes and/or by securitizing or reinsuring redundant reserves. MassMutual’s statutory balance sheet values its subsidiary holdings conservatively; the fair market value of its subsidiary holdings is considerably higher than what is recognized for statutory purposes.

While MassMutual’s investment management capabilities are strong, A.M. Best remains cautious about its exposure to the real estate market. This exposure is approximately 1.4 times TAC when combining residential and commercial mortgage-backed securities (excluding agency issued securities), whole commercial mortgage loans, equity real estate holdings and limited partnership equity holdings with underlying assets in real estate. In particular, MassMutual reported approximately $20.3 billion of whole mortgage loans at year-end 2014. While the commercial mortgage portfolio is well diversified by both property type and geographic location, A.M. Best notes that the sluggish economic recovery suggests the potential for additional impairments. However, over the past few years, A.M. Best acknowledges that the portfolio has exhibited considerable improvement in its loan-to-value and debt service coverage ratios, along with a substantial decline in watch list loans.

Although MassMutual’s TAC has substantially increased in recent years, A.M. Best notes that the company benefits from a U.S. GAAP guideline (effective Jan. 1, 2009), which reclassifies non-controlling interests as part of equity. While this change has resulted in a roughly $2.4 billion increase to the statutory carrying value of MassMutual’s asset management and international operations, A.M. Best recognizes that the higher statutory carrying amount still remains significantly below the estimated fair value of these operations. Also contributing to the increase in MassMutual’s TAC was the issuance of surplus notes, which is currently at $2.2 billion and includes a new issuance of $500 million in April 2015. A.M. Best views surplus notes as a lower quality of capital than retained earnings or paid-in capital because surplus notes are debt instruments that have the expectation of repayment. Therefore, A.M. Best notes that MassMutual’s quality of capital has declined as a result of the surplus note issuance, which represents about 13.3% of 2014 TAC as compared with 6% at year-end 2008. Additionally, A.M. Best believes MassMutual’s overall financial flexibility is somewhat more limited given its increased financial leverage. While MassMutual’s statutory financial leverage has increased to approximately 16.9%, it is still well within the tolerance range for its current rating level.

A.M. Best believes upward rating movement is unlikely over the near to medium term. Downward rating pressures may occur should MassMutual experience unfavorable earnings trends, a precipitous decline in its risk-adjusted capitalization or significant deterioration in its investment performance.

The following debt rating has been affirmed:

Massachusetts Mutual Life Insurance Company—
-- AMB-1+ on commercial paper program

The following debt ratings have been affirmed with a stable outlook:
Massachusetts Mutual Life Insurance Company—
-- “aa-” on $500 million 4.5% surplus notes, due 2065
-- “aa-” on $250 million 7.625% surplus notes, due 2023
-- “aa-” on $100 million 7.500% surplus notes, due 2024
-- “aa-” on $250 million 5.625% surplus notes, due 2033
-- “aa-” on $750 million 8.875% surplus notes, due 2039
-- “aa-” on $400 million 5.375% surplus notes, due 2041

MassMutual Global Funding, LLC— “aa+” program rating
-- “aa+” on all outstanding notes issued under the program

MassMutual Global Funding II—“aa+” program rating
-- “aa+” on all outstanding notes issued under the program

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Key insurance criteria reports utilized:

  • Evaluating County Risk
  • A.M. Best’s Liquidity Model for U.S. Life Insurers
  • A.M. Best’s Perspective on Operating Leverage
  • Analyzing Insurance Holding Company Liquidity
  • Insurance Holding Company and Debt Ratings
  • Evaluating U.S. Surplus Notes
  • Rating Members of Insurance Groups
  • Rating Funding Agreement-Backed Securities
  • Risk Management and the Rating Process for Insurance Companies
  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts

A.M. Best Company
Joan Sullivan, 908-439-2200, ext. 5144
Senior Financial Analyst
joan.sullivan@ambest.com
or
William Pargeans, 908-439-2200, ext. 5359
Assistant Vice President
william.pargeans@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com

Contacts

A.M. Best Company
Joan Sullivan, 908-439-2200, ext. 5144
Senior Financial Analyst
joan.sullivan@ambest.com
or
William Pargeans, 908-439-2200, ext. 5359
Assistant Vice President
william.pargeans@ambest.com
or
Christopher Sharkey, 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com