TEXT-Fitch affirms New York Life's IFS at 'AAA', outlook is stable
Feb 1 - Fitch Ratings has affirmed New York Life Insurance Company's (New York Life) Insurer Financial Strength (IFS) rating at 'AAA'. Fitch has also affirmed all other ratings for New York Life and its wholly owned insurance subsidiaries (see complete list below). The Rating Outlook is Stable. The rating rationale is based on New York Life's extremely strong capital, consistent operating earnings driven by its large book of traditional life insurance reserves and its strong brand name and leading position in the U.S. life insurance and annuity markets. Rating strengths include New York Life's effective career distribution channel targeting middle-market customers and the strong performance of its diversified and liquid investment portfolio. Key rating concerns include New York Life's above-average exposure to risky assets (defined as below investment grade bonds, common stocks, schedule BA-other invested assets and troubled real estate) and uncertainty tied to difficult macroeconomic conditions and evolving regulatory environment. New York Life reported an 11.5% growth in total adjusted capital through the first nine months of 2012 to $19.9 billion. The results were driven by solid operating income and gains from private equity investments, along with the disposal of selected international operations. Risk adjusted capital is very strong at a Fitch estimated 520% at Sept. 30, 2012 (compared to 506% at year-end 2011). New York Life's operating earnings through Sept. 30, 2012 have increased strongly driven by growth in assets, spread income and fees. Profitability measures have improved as exhibited by an increase in operating return on total adjusted capital to 8.1% through the first nine months of 2012. Fitch considers this level of profitability moderate but acceptable for the rating given New York Life's product profile and operating strategy. Fitch favorably views New York Life's product profile that is weighted toward product offerings with more predictable cash flows. They include individual participating whole life insurance, income annuities and variable annuities without aggressive living benefit guarantees. Life insurance sales have been modest with stronger growth in whole life products versus universal life products. Sales of annuity and mutual fund products have grown at double digit rates through the first three quarters of 2012. Fitch views New York Life's financial leverage as low and debt service capacity as very strong. Financial leverage declined modestly as total surplus notes as a percent of total adjusted capital remained low at 10% at Sept. 30, 2012. Fitch's expectation is for GAAP fixed charge coverage to exceed 11x for 2012. New York Life's well-diversified, liquid investment portfolio investment portfolio has performed well in 2012. Investment-related impairments have been low through the first nine months and are expected to be moderate in 2013. New York Life's risky assets as a percentage of total adjusted capital remain above industry averages. Fitch's primary investment concerns are related to New York Life's above-average exposure to residential and commercial real estate related investments (non-agency RMBS, CMBS and commercial mortgage loans), especially under a scenario of prolonged economic weakness. Credit losses have been minimal in 2012 for this class. Fitch believes that New York Life's exposure to potential economic headwinds is manageable, with modest impact on earnings and capital over near term due to conservative product profile. Lower interest rate levels over the intermediate term would decrease product margins, as well as pressure defined benefit costs. However, a double dip in the economy could increase investment-related impairments in New York Life's investment portfolio, especially in mortgages and structured securities. The ratings on New York Life Global Funding's funding agreement-backed note programs and related issues recognize that the trust obligations are secured by funding agreements issued by New York Life with cash flow structures that enable the trustees to pay the principal and interest on the notes. Thus, the note programs are dependent upon New York Life's credit quality and are assigned a rating equal to the company's IFS rating. In the event that Fitch downgrades the credit rating for the United States of America, certain highly rated insurers such as New York Life may be rated above the sovereign rating respectively. Fitch's opinion is that these companies are structurally shielded from foreign exchange transfer and convertibility risks and their financial condition is sufficient to withstand a sovereign crisis. The Stable Outlook is driven by New York Life's very strong capital base and Fitch's expectations of continued sustainable solid operating performance for 2013, supported by conservative product and distribution profiles. Fitch believes that the pressure on profitability and capital driven by an extended low interest rate scenario and future investment losses is manageable in the context of the company's capital position and liability profile. SENSITIVITY/RATING DRIVERS New York Life's IFS ratings are currently at Fitch's highest level. Key ratings triggers that could result in a downgrade include: --A greater than one notch downgrade of the sovereign rating of the United States would cause a reevaluation of New York Life's ratings; --A material weakening of operating company risk based capital to below 425% through either declining asset quality or aggressive growth; --The company encountering a significant level of near-term earnings volatility that is outside the historical average; --Future increases in financial leverage to over 15% on a sustained basis, or a reduction in GAAP based, EBIT fixed-charge coverage below 6x; --A major acquisition that leads in a direction away from New York Life's core expertise; --A decrease in the financial flexibility associated with the company's participating whole life business. Fitch has affirmed the following ratings with a Stable Outlook: New York Life Insurance Company --Long-term IDR at 'AA+'; --IFS at 'AAA'; --Short-term IDR at 'F1+'; --$1,000,000,000 5.875% surplus note due May 15, 2033 at 'AA'; --$1,000,000, 000 6.75% surplus note due Nov. 15, 2039 at 'AA'. New York Life Insurance and Annuity Corporation --IFS at 'AAA'. NYL Capital Corporation --Commercial paper at 'F1+'. New York Life Funding --Program rating at 'AAA'. New York Life Global Funding --Program rating at 'AAA'. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Relevant Research: --'Insurance Rating Methodology' (January 2013). Applicable Criteria and Related Research: Insurance Rating Methodology - Amended
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