OREANDA-NEWS. June 17, 2015. Fitch Ratings has upgraded the Insurer Financial Strength (IFS) ratings of Minnesota Life Insurance Company (Minnesota Life) and its subsidiary, Securian Life Insurance Company ratings, to 'AA' from 'AA-'. Fitch also upgraded the rating on Minnesota Life's surplus notes to 'A+' from 'A'. The Rating Outlook is Stable.

KEY RATING DRIVERS

Fitch's upgrade of Minnesota Life's ratings reflects the company's strong balance sheet fundamentals, conservative risk profile and improved earnings. The ratings also reflect its competitive position in the group life insurance market along with the continued competitive environment in which it operates. The previous ratings were assigned a Positive Outlook in September 2013.

Minnesota Life's extremely strong balance sheet fundamentals reflect the company's solid capitalization, low operating leverage and low financial leverage. The company reported a consolidated risk-based capital (RBC) ratio of 527% of the company action level at Dec. 31, 2014. Operating leverage, as measured by adjusted liabilities to total adjusted capital, is among the lowest in Fitch's universe at 4.5x and financial leverage remains extremely low at 3%.

Fitch notes that Minnesota Life's investment and liquidity profile continues to be favorable. The company has a large, investment-grade, publicly traded bond portfolio, low exposure to risky assets and a stable liability structure.

Minnesota Life has balanced, diversified sources of revenue that serve to moderate earnings volatility. However, significant capital market declines could lead to lower fee income and increased earnings volatility, given the company's sizeable separate account liabilities.

The company reported pretax operating return on assets of 1.03% in 2014 compared with 0.87% in 2013. The improvement was driven by favorable mortality in group insurance, robust growth, solid market performance and effective expense management. Fitch anticipates that current low interest rates will continue to serve as a headwind to the company's profitability.

Fitch views the company's ROE of 7.7% as being somewhat constrained by its large relative capital levels. Minnesota Life's profitability is in line with similarly rated peers and reasonable given its mutual operating philosophy and conservative risk profile.

Minnesota Life has a competitive position in the group life insurance market, as the third largest provider in terms of premiums. The company's competitive advantage is supported by its service-driven model and customized systems. However, Minnesota Life faces intense competition from larger companies with greater scale and resources. Additionally, the company faces scale pressure in the highly competitive retirement services market, which continues to consolidate.

RATING SENSITIVITIES
The key rating triggers that could result in an upgrade include:

--An enhanced market position and size/scale;
--Sustained capital strength including low financial leverage and high capital quality;
--Continued low asset risk.

The key rating triggers that could result in a downgrade include:

--A decline in the company's RBC ratio to 450% or lower;
--Significant deterioration in financial performance with GAAP-based return on assets below 0.80%;
--An increase in financial leverage above 15% as measured by debt-to-total capital.

Fitch upgraded the following ratings with a Stable Outlook:

Minnesota Life Insurance Company
--IFS to 'AA' from 'AA-';
--Issuer Default Rating to 'AA-' from 'A+';
--\\$118 million Rule 144a surplus notes 8.25% due 2025 to 'A+' from 'A'.

Securian Life Insurance Company
--IFS to 'AA' from 'AA-'.