New York, December 11, 2012 -- Moody's Investors Service has affirmed the Aaa insurance financial strength
(IFS) ratings of the following US life insurers and changed their outlooks
to negative from stable: New York Life Insurance Company (NYL),
Northwestern Mutual Life Insurance Company (NML), and Teachers Insurance
& Annuity Association of America (TIAA). See below for a complete
rating list.
RATING RATIONALE
Moody's stated that the affirmation of the three Aaa-rated
insurers reflects their exceptional intrinsic strengths, including
leading positions in their core markets, excellent distribution
channels, strong underwriting skills and robust and resilient balance
sheets. All three companies also have mutual or not-for-profit
ownership structures that help to align the interests of policyholders/owners,
creditors, and the company management.
The change in outlook is significantly influenced by Moody's view
that (1) the linkages between the credit profiles of these insurers and
the US government are very strong and (2) these insurers lack sufficient
diversification or the resiliency to decouple, or absorb the fallout,
from systemic risks that affect the US government's creditworthiness,
and aligns their outlook with the negative outlook on the US government's
Aaa rating.
The negative outlook for these three companies also reflects Moody's
negative outlook on the US life insurance sector, driven by low
interest rates and a weak economic recovery, factors that create
pressures for the industry overall, but particularly for the ratings
of those companies that carry the highest rating of Aaa.
LINKAGES BETWEEN RATING OF US SOVEREIGN AND US LIFE INSURERS
Very strong credit linkages exist between these US life insurers and the
US government in factors that affect business prospects, investment
portfolios, earnings and capital generation--including their
significant direct investment in US government and government-guaranteed
securities. These credit linkages support Moody's position
that the ratings of these insurers should not be higher than the rating
of the US, given that the companies' operations are almost
exclusively in the US. Managing Director Robert Riegel added,
"These insurers are exposed to many of the same macroeconomic pressures
and financial market conditions that affect a sovereign's creditworthiness."
Moody's said these Aaa US life insurance companies' investments,
businesses, revenues and reserves are predominantly domestic.
Solvency and credit profiles are tied largely to their investment portfolios,
given their high asset leverage model (assets-to-equity),
and the securities these companies invest in, including corporate
credits, which are typically correlated with the US government and/or
economy. Credit problems, and dislocations in the markets
for these securities under a material weakening of the credit quality
of the US government would be major drivers of similar problems in the
credit profiles of US life insurance companies. In addition,
Moody's expects sales and revenues for these life insurers to be
highly correlated with the domestic economy as insurance purchases,
in many cases, are highly dependent upon discretionary income.
A key strength of all three of the Aaa life insurers is their ability
to pass losses, including those from investments, in part
or in full, onto policyholders through the dividend mechanism contained
in their participating products. However, while this risk
sharing is a strong credit positive, it does not insulate them sufficiently—in
both amount and timing—from the strong linkages to the US government
for them to carry a higher rating.
In its Rating Implementation Guidance, "How Sovereign Credit
Quality May Affect Other Ratings," published in February 2012,
Moody's outlined broad principles, which apply globally,
to enhance transparency around corresponding rating actions likely to
be taken when sovereign ratings change.
NEW YORK LIFE
Moody's Senior Credit Officer Ann Perry said, "The affirmation of
the ratings for New York Life reflects the company's strong brand and
franchise, well-diversified distribution channels,
excellent capital base and high-quality and liquid investment portfolio."
Perry adds, "New York Life's financial flexibility benefits
from its large and stable block of participating life insurance business,
for which it can adjust policyholder dividends."
These strengths are tempered by the challenges in growing NYL's
more traditional business lines and its moderately-sized direct
equity and limited partnership investment portfolio. In addition,
NYL is exposed to industry-wide pressures on its capital and profitability
from the low interest rate environment and weak economy.
Moody's said a downgrade of NYL's ratings could result from the following:
1) downgrade of the US government rating; 2) the company action level
NAIC company action level Risk Based Capital (RBC) ratio falling below
400% for more than a short time period or a reduction in capital
of more than 10% over a 12 month period; 3) adjusted financial
leverage of 20% or more; or 4) earnings coverage consistently
below mid single digits.
The outlook could be changed to stable from negative if the rating of
the US government were affirmed at Aaa and its outlook returned to stable,
and if there is improvement in the current and prospective profitability
of the insurer.
The following ratings have been affirmed with the outlooks changed to
negative from stable:
New York Life Insurance Company: insurance financial strength at
Aaa; surplus note rating at Aa2(hyb);
New York Life Insurance and Annuity Corporation: insurance financial
strength rating at Aaa;
New York Life Funding: funding agreement-backed senior debt
at Aaa;
New York Life Global Funding: funding agreement-backed senior
debt at Aaa.
The following ratings has been affirmed with a stable outlook:
New York Life Insurance Company: short-term insurance financial
strength at Prime-1;
New York Life Capital Corporation: backed short-term debt
rating for commercial paper at Prime-1.
New York Life, a mutual insurance company domiciled in New York,
is based in New York City. As of September 30, 2012,
New York Life reported statutory assets of approximately $135 billion
and statutory total adjusted capital of approximately $19 billion.
NORTHWESTERN MUTUAL
Moody's Senior Credit Officer Neil Strauss said, "Northwestern Mutual
Life's Aaa IFS rating reflects its excellent insurance franchise,
highly productive and cost efficient career agency force, and excellent
capitalization and liquidity." Strauss continues, "It
is the dominant leader in sales of participating traditional fixed life
insurance such as whole life insurance, a product whose features
are highly supportive of insurer creditworthiness." Other
strengths include a liability profile dominated by low-risk,
participating insurance reserves, inherent earnings stability,
and a well-diversified investment portfolio. The company's
ability to adjust crediting rates on its participating insurance provides
strong protection in the event of a stressful economic environment.
These strengths are tempered by the challenges of maintaining growth in
the company's distribution force, the possibility of a long-term
shift in consumer product preferences toward investment-oriented
products over time, its large exposure to commercial real estate-related
investments, and industry-wide pressures on its capital and
profitability from the low interest rate environment and weak economy.
Moody's said that a downgrade of NML's ratings could result
from: 1) downgrade of the US government rating; 2) NAIC RBC
ratio below 400% for more than a short time period or a reduction
in capital of more than 10% over a 12 month period; 3) a significant
decline in the percentage of individual life premiums relative to total
premiums and deposits; 4) adjusted financial leverage of 20%
or more; or 5) earnings coverage consistently below mid single digits.
The outlook could be changed to stable from negative if the rating of
the US government were affirmed at Aaa and its outlook returned to stable,
and if there is sustained improvement in the prospective profitability
of the insurer.
The following ratings have been affirmed with the outlooks changed to
negative from stable:
Northwestern Mutual Life Insurance Company: insurance financial
strength rating at Aaa, surplus note rating at Aa2(hyb);
Northwestern Mutual Long Term Care Insurance Company: insurance
financial strength rating at Aaa.
Northwestern Mutual, a mutual insurance company domiciled in Wisconsin,
is based in Milwaukee. As of September 30, 2012, Northwestern
Mutual reported statutory assets of approximately $198 billion
and statutory total adjusted capital of approximately $22 billion.
TIAA
Moody's Senior Vice President, Scott Robinson said, "TIAA's
Aaa IFS rating is driven by the company's outstanding business profile,
expense advantages, excellent capitalization, and robust financial
flexibility." TIAA is the dominant provider of annuities in the
higher-education pension market with a uniquely stable liability
structure. The company's ability to adjust crediting rates
to plan participants on its pension products provides strong protection
in the event of a stressful economic environment.
These strengths are somewhat offset by increased competition from other
financial service providers in the higher education pension market,
as well as the potential for investment losses and earnings volatility
in a stress scenario, and industry-wide pressures on its
capital and profitability from the low interest rate environment and weak
economy.
Moody's said that a downgrade of TIAA's ratings could result from the
following: 1) downgrade of the US government rating; 2) NAIC
RBC ratio declining below 400% for more than a short time period
or a reduction in capital of more than 10% over a 12 month period;
3) significant expansion into non-core businesses; 4) adjusted
financial leverage of 20%; or 5) earnings coverage consistently
below mid single digits.
Moody's could change the outlook to stable from negative if the
US government's rating were affirmed at Aaa and its outlook returned
to stable, and if there is sustained improvement in the prospective
profitability of the insurer.
The following ratings have been affirmed with the outlooks changed to
negative from stable:
Teachers Insurance and Annuity Association of America: insurance
financial strength rating at Aaa, long-term issuer rating
at Aa1, and surplus note rating at Aa2(hyb);
TIAA-CREF Life Insurance Company: insurance financial strength
rating at Aaa;
TIAA Global Markets, Inc.: guaranteed senior debt rating
at Aa1.
Teachers Insurance & Annuity Association of America, an insurance
company domiciled in New York, is based in New York City.
As of September 30, 2012, Teachers Insurance & Annuity
Association of America reported statutory assets of approximately $235
billion and statutory total adjusted capital of approximately $33
billion.
The principal methodology used in these ratings was Moody's Global Rating
Methodology for Life Insurers published in May 2010. Please see
the Credit Policy page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
The Global Scale Credit Ratings on this press release that are issued
by one of Moody's affiliates outside the EU are endorsed by Moody's
Investors Service Ltd., One Canada Square, Canary Wharf,
London E 14 5FA, UK, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that has issued a particular Credit Rating is available on www.moodys.com.
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated
entities, obligations or credits satisfactory for the purposes of
issuing these ratings.
Moody's adopts all necessary measures so that the information it
uses in assigning the ratings is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating
Process page on www.moodys.com for further information on
the meaning of each rating category and the definition of default and
recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com
for the last rating action and the rating history. The date on
which some ratings were first released goes back to a time before Moody's
ratings were fully digitized and accurate data may not be available.
Consequently, Moody's provides a date that it believes is
the most reliable and accurate based on the information that is available
to it. Please see the ratings disclosure page on our website www.moodys.com
for further information.
In addition to the information provided below please find on the ratings
tab of the issuer page at www.moodys.com, for each
of the ratings covered, Moody's disclosures on the lead rating
analyst and the Moody's legal entity that has issued each of the
ratings.
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's affirms Aaa ratings of New York Life, Northwestern Mutual, and TIAA; changes outlooks to negative
