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Rating Action:

Moody's affirms New York Life's Aaa insurance financial strength rating; outlook to negative

18 December 2019

New York , December 18, 2019 – Moody's Investors Service has affirmed the Aaa insurance financial strength ratings of New York Life Insurance Company and its affiliate, New York Life Insurance and Annuity Corporation (collectively, New York Life), but changed its outlook to negative from stable. Other affiliated ratings were also affirmed with a negative outlook (see below for a complete rating list). The rating action follows the announcement by New York Life and Cigna (Cigna Corporation; senior debt at Baa2, stable outlook) of New York Life's agreement to purchase Cigna's group life and disability insurance business for $6.3 billion. The companies expect the transaction to close in the third quarter of 2020, subject to regulatory approvals.

RATINGS RATIONALE

Moody's said the rating affirmations were based on the New York Life's strengths as the largest US mutual life insurer, with a leading position in the US life insurance market and a large, profitable in-force block of participating whole life (par WL), its strong business diversity and liquidity, good distribution, and strong capitalization. The firm's commitment to mutuality, with a long-term focus on policyholders and creditors is an important rating consideration. Slow growth prospects for par WL relative to higher-risk annuities and interest-sensitive life insurance, as well as holdings of higher-risk assets mitigate these corporate strengths somewhat.

Commenting on the negative outlook, Moody's first noted that the acquisition will provide some benefits to New York Life, further diversifying its business and earnings profile, and immediately hoisting it to a top-five position in the markets for group life and disability income products – markets in which it currently is not a major player. New York Life will have the opportunity to cross-sell insurance, including participating whole life insurance, to Cigna's 9,600 base of corporate clients, but this will take time.

However, the transaction will move New York Life's business and financial profiles incrementally further away from its core participating whole life insurance focus, a trajectory the company has been on for a number of years.

The rating agency added that at $6.3 billion, the cost of the transaction is high and the integration risks are significant, even for the most experienced of acquirers. While New York Life's regulatory capital, in terms of its NAIC Risk-Based Capital (RBC) ratio is strong (478% at year-end 2018), it has been declining over the years, and it is lower than that of both its Aaa-rated peer, and a number of its lower-rated mutual peers, particularly in a stress situation, before the transaction.

While the transaction's financing arrangements have not been disclosed, given the company's lack of access to the equity market as a mutual insurer, debt issuance and/or the use of internal capital could further lower New York Life's RBC ratio and/or incrementally increase its financial leverage ratios and decrease its coverage ratios.

RATING DRIVERS

A combination of the following drivers could return NYL's outlook to stable from negative: the successful integration of the Cigna transaction, with group life and disability income persistency, sales, and earnings as expected; strategic focus on the growth of par WL and risk-sharing products relative to less creditworthy products; consolidated statutory-based high risk asset ratio of less than 140% of shareholders' equity; company action level NAIC RBC ratio above 450% on a consistent basis; adjusted financial leverage of less than 20%; earnings coverage greater than 10x.

The rating agency said the following factors could lead to a downgrade of New York Life and affiliate ratings: a downgrade of the US government rating; challenges integrating the Cigna transaction, contributing to higher-than-expected lapse rates, weakening market positions, and declining group life and/or disability income earnings; further shift away from par WL and risk-sharing products sustained below 50% of total statutory reserves (53% at year-end 2018); consolidated statutory-based high risk asset ratio greater than 140%; company action level NAIC Risk Based Capital (RBC) ratio below 450% for more than a short time period or a reduction in capital of more than 10% over a 12 month period; adjusted financial leverage of 20% or more; or earnings coverage consistently below 10x.

AFFECTED RATINGS:

The following ratings have been affirmed:

New York Life Insurance Company: insurance financial strength at Aaa; surplus note rating at Aa2(hyb); short-term insurance financial strength at Prime-1;

New York Life Insurance and Annuity Corporation: insurance financial strength at Aaa;

New York Life Funding: funding agreement-backed senior MTN program at (P)Aaa;

New York Life Global Funding: Sr Sec MTN program at (P)Aaa; Sr Sec debt rating at Aaa

New York Life Capital Corporation: backed short-term debt rating for commercial paper at Prime-1.

Outlook Actions:

..Issuer: New York Life Capital Corporation

....Outlook, Negative from Stable

..Issuer: New York Life Funding

....Outlook, Negative from Stable

..Issuer: New York Life Global Funding

....Outlook, Negative from Stable

..Issuer: New York Life Insurance & Annuity Corporation

....Outlook, Negative from Stable

..Issuer: New York Life Insurance Company

....Outlook, Negative from Stable

New York Life, a mutual insurance company domiciled in New York, is based in New York City. As of September 30, 2019, New York Life reported consolidated statutory assets of approximately $341 billion and consolidated statutory surplus of about $23 billion.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

The principal methodology used in these ratings was Life Insurers Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Laura Bazer
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Marc R. Pinto, CFA
MD-Financial Institutions
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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