Fitch Affirms MassMutual Ratings; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed all ratings for Massachusetts Mutual Life Insurance Company (MassMutual), and 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

The ratings reflect MassMutual's strong competitive position in several major and broadly diversified business lines, strong capital levels, improved profitability and good 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.

The company's statutory capital is very strong and in line with rating expectations. At Dec. 31, 2014, total adjusted statutory capital (TAC) was $16.4 billion, and the risk-based capital (RBC) ratio was 497%, 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 $1.8 billion or 13% in 2014 due to positive contributions from statutory operating earnings and significantly higher unrealized gains from derivatives and investments.

As of year-end 2014, MassMutual reported low operating leverage of 7.7x TAC and higher pro-forma financial leverage, measured as surplus notes to TAC, of 13.3% (this ratio reflects the surplus notes balance as of May 2015 to include the most recent surplus note issuance compared with the year-end 2014 TAC). 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.

MassMutual's profitability measures are within range of similarly rated peers. Statutory results for full-year 2014 were improved over the prior year, driven by a one-time gain from a real estate sale transaction, stable mortality results, and higher fee income driven by higher assets under management.

MassMutual manages a diversified and liquid investment portfolio that has performed within expectations over the last few years. Credit impairments were higher in 2014 due entirely to a write-down in the carrying value of a minority share in a foreign joint venture. Excluding this investment, impairments for 2014 were part of a lower trend since 2011. MassMutual's risky asset ratio of 99% as of Dec. 31, 2014, 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.

Fitch published newly updated insurance notching criteria on July 14, 2015 via an update to its master criteria report, 'Insurance Rating Methodology.' Today's affirmation reflects application of the updated notching criteria to MassMutual's ratings.

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 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 Apr. 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. 14 Jul 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989051

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989051

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

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Contacts

Fitch Ratings
Primary Analyst:
Nelson Ma, CFA, +1-212-908-0273
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Douglas Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
James Auden, CFA, +1-312-368-3146
Managing Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Nelson Ma, CFA, +1-212-908-0273
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst:
Douglas Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
James Auden, CFA, +1-312-368-3146
Managing Director
or
Media Relations:
Alyssa Castelli, +1-212-908-0540
New York
alyssa.castelli@fitchratings.com