December 20, 2016 / 8:01 PM / 9 months ago

Fitch Affirms MassMutual Ratings; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, December 20 (Fitch) 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 market position in several major and broadly diversified business lines, strong capital levels, along with its good run-rate 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, which has grown at a faster rate relative to its highly rated mutual peers over the last five years. 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, growing career distribution system, and strong earnings and cashflows from its asset management capabilities have provided the company 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, risk-based capital (RBC) ratio was 500%, and the company had a Prism capital model score of 'Extremely Strong'. MassMutual's quality of capital is lower relative to that of highly rated mutual peers given its higher surplus notes to TAC ratio of 13%. However, this 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. While surplus notes to TAC is above average, 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. As of Sept. 30, 2016, MassMutual reported relatively low operating leverage of approximately 9x and asset leverage of approximately 14x, both of which are within rating expectations. Fitch considers MassMutual's run-rate profitability as moderate on an absolute basis, but favorable on a risk-adjusted basis and in-line with highly rated mutual peers. MassMutual's statutory operating results for 2015 were lower over the prior year, driven by the absence of a one-time gain from a real estate sale transaction in 2014, lower investment margins, and higher mortality experience, but partially offset by higher dividends from subsidiaries. Statutory results for the first three quarters of 2016 were down relative to the same period prior year as a result of costs associated with the acquisition of MetLife's retail advisor force, lower investment margins, and increased reserves associated with variable annuity guarantees due to low interest rates. MassMutual manages a diversified and liquid investment portfolio that has performed within expectations over the last few years. Through the third quarter 2016, credit impairments were slightly lower relative to the same period in 2015. The company's exposure to risky assets, 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 475% and maintaining a Prism capital model score of 'Extremely Strong'. --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, NAIC risk-based capital ratio below 425%, or a Prism capital model score below 'Extremely Strong'. --Increased volatility in earnings due to higher than expected credit-related losses. Rating triggers that could lead to wider notching of MassMutual's IDR 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+'. Contact: Primary Analyst Nelson Ma, CFA Director +1-212-908-0273 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Douglas Meyer, CFA Managing Director +1-312-368-2061 Committee Chairperson James Auden, CFA Managing Director +1-312-368-3146 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 15 Sep 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1016814 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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