A.M. Best has affirmed the
financial strength rating of A++ (Superior) and issuer credit ratings of “aa+”
of Massachusetts Mutual Life Insurance Company (MassMutual) and its life/health
subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance
Company.
Concurrently, A.M. Best has
affirmed the debt ratings of “aa-” on the existing surplus notes of MassMutual
and the “aa+” on notes issued under funding agreement-backed securities
programs of MassMutual Global Funding, LLC and MassMutual Global Funding II.
The outlook for all ratings is stable. The above companies are headquartered in
Springfield, MA. (See below for a detailed listing of the debt ratings.)
The rating affirmations for
MassMutual are based upon its strong financial results for 2013 with
double-digit growth and record sales in key businesses. The ratings also
consider the organization’s continued strong capitalization.
Offsetting these positive rating
factors, however, is MassMutual’s recorded statutory net income of a loss of
$113 million for full year 2013, compared to a gain of $872 million for full
year 2012. The significant decrease is due primarily to a number of one-time
items including the acquisition of The Retirement Products Group from The
Hartford. MassMutual’s 2013 absolute capitalization reached a record level as
its total-adjusted capital (TAC) increased to almost $14.5 billion,
representing a compound annual growth rate greater than 8% over the past five
years. MassMutual’s investment impairment losses have improved significantly,
and A.M. Best believes additional near-term impairments will continue to be
moderate and statutory earnings will reach normalized levels and expectations.
MassMutual’s ratings continue to
recognize its favorable business mix, diversified operating profile and strong
position in the domestic life insurance market. MassMutual is one of the
leading writers of whole life insurance in the United States and offers a broad
portfolio of insurance products and asset management services to individuals
across diverse demographics and the corporate marketplace. The enterprise
benefits from a sizable participating whole life block, supplemented by term
and universal life policies that primarily are sold through a career agency
force. As a result, MassMutual possesses a stable liability structure that
facilitates long-term financial strength. Additionally, A.M. Best notes that
MassMutual possesses some statutory flexibility to maintain its capital
position through the management of its policyholder dividend scale and/or by
securitizing or reinsuring redundant reserves. Moreover, MassMutual’s statutory
balance sheet values its subsidiary holdings very conservatively; the fair
market value of its subsidiary holdings is considerably higher than what is
recognized for statutory purposes. While MassMutual’s investment management
capabilities are strong, A.M. Best remains cautious about its exposure to the
real estate market. This exposure is approximately 1.5 times TAC when
residential and commercial mortgage-backed securities (excluding agency issued
securities), whole commercial mortgage loans, equity real estate holdings and
limited partnership equity holdings with underlying assets in real estate are
combined. In particular, MassMutual reported approximately $15.3 billion of
whole commercial mortgage loans at year-end 2013, and while the commercial
mortgage portfolio is well diversified by both property type and geographic
location, A.M. Best notes that the sluggish economic recovery suggests the
potential for additional impairments. However, over the past few years, A.M.
Best acknowledges that the portfolio has exhibited considerable improvement in
its loan-to-value and debt service coverage ratios, along with a substantial
decline in watch list loans.
Although MassMutual’s TAC has
substantially increased in recent years, A.M. Best notes that the company
benefits from a U.S. GAAP guideline (effective January 1, 2009), which
reclassifies non-controlling interests as part of equity. While this change has
resulted in a roughly $2.2 billion increase to the statutory carrying value of
MassMutual’s asset management and international operations, A.M. Best
recognizes that the higher statutory carrying amount still remains
significantly below the estimated fair value of these operations. Also
contributing to the increase in MassMutual’s TAC was the issuance of nearly
$1.2 billion in surplus notes since 2008, bringing the total outstanding amount
to $1.74 billion. A.M. Best views surplus notes as a lower quality of capital
than retained earnings or paid-in capital as surplus notes are debt instruments
that have the expectation of repayment. Therefore, A.M. Best notes that MassMutual’s
quality of capital has declined as a result of the surplus note issuance, which
represents about 12% of 2013 TAC as compared to 6% as of year-end 2008.
Additionally, A.M. Best believes MassMutual’s overall financial flexibility is
somewhat more limited given its increased financial leverage. With a $400
million surplus note issuance in early 2012, MassMutual’s statutory financial
leverage is approximately 13.7%, which is still well within the tolerance range
for its current rating level.
A.M. Best notes the significant
accomplishment of completing the acquisition of The Hartford Retirement
Products Group business, which should support continued growth in MassMutual’s
retirement business, as well as adding complementary markets and distribution
capabilities.
A.M. Best believes upward rating
movement is unlikely at this time. Downward rating pressures may occur should
MassMutual experience an unfavorable earnings trends, a precipitous decline in
its risk-adjusted capitalization or significant deterioration in its investment
performance.
The following debt rating has
been affirmed:
Massachusetts Mutual Life
Insurance Company—
-- AMB-1+ on commercial paper
program
The following debt ratings have
been affirmed with a stable outlook:
Massachusetts Mutual Life
Insurance Company—
-- “aa-” on $250 million 7.625%
surplus notes, due 2023
-- “aa-” on $100 million 7.500%
surplus notes, due 2024
-- “aa-” on $250 million 5.625%
surplus notes, due 2033
-- “aa-” on $750 million 8.875%
surplus notes, due 2039
-- “aa-” on $400 million 5.375%
surplus notes, due 2041
MassMutual Global Funding,
LLC—“aa+” program rating
- “aa+” on all outstanding notes
issued under the program
MassMutual Global Funding
II—“aa+” program rating
- “aa+” on all outstanding notes
issued under the program
The methodology used in
determining these ratings is Best’s Credit Rating Methodology, which provides a
comprehensive explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Best’s Credit Rating
Methodology can be found at www.ambest.com/ratings/methodology.
