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
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 o 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
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.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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