CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed all ratings on Massachusetts Mutual Life Insurance Company (MassMutual) and its wholly owned domestic insurance subsidiaries (see complete list below). The Rating Outlook is Stable.
This action follows a periodic review of MassMutual's financial results. The ratings and outlook are supported by MassMutual's large and stable block of traditional life insurance, strong capital levels, solid competitive position in several major business lines, strong operating earnings that have recovered since the financial crisis, a high-quality investment portfolio, and moderate financial leverage.
Fitch considers MassMutual's capital strong with significant financial flexibility to maintain strength even under stressed scenarios. Statutory total adjusted capital (TAC) increased approximately 13% in 2010 to $12.4 billion at year-end driven by improved operating earnings and investment quality. NAIC risk-based capital ratio increased to more than 500%.
A significant source of financial flexibility comes from the participating nature of MassMutual's in-force whole life business as well as experience pass-through features of other insurance products. However, Fitch believes the quality of MassMutual's capital has lessened since the beginning of the financial crisis as the company added surplus notes and benefited from accounting changes that led to a write-up in the carrying value of asset management subsidiaries as well as recognition of additional deferred tax assets.
Fitch also believes that while earnings have improved they still remain vulnerable to economic and investment market stress. Statutory earnings increased in 2010 largely due to an improvement in the company's realized and unrealized investment loss profile and earnings from market sensitive business (particularly asset management). Operating return on TAC was 7.4% in 2010, its highest level in five years. Fitch also recognizes that operating results are reflective of the company's comparatively high level of policyholder dividend payments.
MassMutual has no long-term financial debt due until 2023, and its funding agreement business appears substantially self-funded given its strong asset/liability management program. MassMutual's financial leverage ratio of 8% and total financing and commitment ratio of 0.5 times (x) are relatively modest. At year-end 2010, surplus notes comprised 11% of TAC which Fitch views as within expectations.
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 important 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 companies and trusts were established for the sole purpose of issuing debt instruments secured by funding agreements issued by MassMutual.
MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company and its affiliates. MassMutual is headquartered in Springfield, MA. Its affiliates include OppenheimerFunds, Inc.; Babson Capital Management LLC; Baring Asset Management Limited; Cornerstone Real Estate Advisers LLC; MML Investors Services, LLC, MassMutual International LLC and The MassMutual Trust Company, FSB. The company had $448 billion in assets under management as of Dec. 31, 2010.
Key rating drivers for MassMutual ratings that could lead to an upgrade include:
--Sustained improvement in quality and stability of operating results, investment performance and capital generation.
Key rating drivers for MassMutual ratings that could lead to a downgrade include:
--Increased volatility in capital and earnings due to higher than
expected credit-related losses (particularly in commercial real-estate
related investments), adverse outcome to litigation or other unexpected
developments.
--NAIC risk-based capital ratio below 400%.
--Surplus
notes to TAC ratio above 15%.
--A change in MassMutual's legal
organizational structure (which Fitch considers unlikely) or a
significant change in the macro environment.
Fitch affirms 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-';
--Short-term
IDR at 'F1+';
--Commercial paper program '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 at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Insurance Rating
Methodology' (March 31, 2011);
--'Rating Hybrid Securities' (Dec.
29, 2009);
--'Life Insurance Rating Methodology' (March 31, 2011);
--'Fitch's
Approach to Rating Insurance Groups' (Dec. 14, 2010);
--'Insurance
Industry: Global Notching Methodology and Recovery Analysis' (March 31,
2011);
--'Short-Term Ratings Criteria for Corporate Finance' dated
Nov. 2, 2010.
Applicable Criteria and Related Research:
Insurance Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266
Rating
Hybrid Securities
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493086
Life
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905
Fitch's
Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
Insurance
Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265
Short-Term
Ratings Criteria for Corporate Finance
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=568726
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