Fitch Affirms New York Life's IFS at 'AAA'; Outlook Stable
KEY RATING DRIVERS
Fitch's ratings reflect New York Life's leading market position in the U.S. individual life insurance market, extremely strong capitalization and conservative operating profile. Key competitive strengths include the company's strong brand recognition, well-established market position, effective career distribution system and its stable block of participating whole life insurance. The ratings also consider the company's above-average exposure to risky assets and ongoing challenges related to the protracted low interest rate environment.
New York Life is one of the top producers of whole life insurance and a leading writer of guaranteed income annuities. The company's market position is deepened by its loyal and productive career agency distribution channel, which Fitch believes reduces pricing pressure and anti-selection in competitive market environments.
New York Life further enhanced the operating scale of its whole life business with the acquisition, through reinsurance, of a net 60% interest in John Hancock Financial's closed block, comprised primarily of participating whole life insurance policies. Under a separate agreement, New York Life Investment Management sold New York Life Retirement Plan Services (RPS), excluding its stable value business, to John Hancock. Fitch views these transactions favorably and consistent with New York Life's strategy of growing its core life insurance business.
Fitch views New York Life's extremely strong capitalization as a fundamental strength to its rating, which is reflected by its NAIC risk-based capital (RBC) ratio of 534% and low operating leverage at 8.5x at year-end 2014. Financial leverage, defined as surplus notes to total adjusted capital (TAC), remained low at 9.3% as of year-end 2014. New York Life reported an 8% increase in TAC during first-quarter 2015 to $23.3 billion, which was driven by solid operating results and investment performance.
Fitch considers New York Life's profitability as moderate on an absolute basis and somewhat suppressed by its large capital base. However, results compare favorably to its rated mutual peer group and on a risk-adjusted basis, given its conservative product profile and operating strategy. New York Life's diversified operating segments and large traditional life insurance book generate high-quality, stable earnings.
New York Life reported solid operating earnings in 2014 and into 2015, partially due to greater asset-based fees driven by favorable capital market performance and sales activity, which was somewhat offset by the impact of sustained low interest rates. However, New York Life maintained its spread margins with sound investment performance and actively managed crediting rates. Fitch believes that New York Life's exposure to potential economic headwinds and the low interest rate environment is manageable.
Key concerns include macroeconomic headwinds in the form of low interest rates, financial market volatility and a weak economic recovery in the U.S. and abroad. These conditions are expected to constrain New York Life's earnings in the near term and could have a material negative effect on earnings and capital in a severe, albeit unexpected, scenario.
New York Life's well-diversified, liquid investment portfolio continues to perform well with minimal credit-related impairments in 2014. New York Life's risky assets ratio of 106% is above the industry average of 82% at year-end 2014, primarily driven by the company's greater exposure to alternative investments. Fitch views the strategy of matching a diversified portfolio of limited partnerships and other private equity investments with low lapse, participating life policies as reasonable.
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 on New York Life's credit quality and are assigned a rating equal to the company's IFS rating.
Fitch published newly updated insurance notching criteria on July 14, 2015 via an update to its master criteria report, 'Insurance Rating Methodology.' Today's affirmation reflects application of the updated notching criteria to New York Life's ratings.
RATING SENSITIVITIES
New York Life's IFS ratings are currently at Fitch's highest level. Key ratings triggers that could result in a downgrade include:
--A material weakening of operating company RBC ratio to below 425% through either declining asset quality or aggressive growth;
--A significant increase in near-term earnings volatility that is outside the historical average;
--Future increases in financial leverage to more than 15% on a sustained basis, or a reduction in GAAP-based, EBIT fixed-charge coverage below 6x;
--A decrease in the financial flexibility associated with the company's participating whole life business;
--A major acquisition that leads New York Life away from its core expertise;
--An unexpected shift in tax, regulatory or market dynamics that weakens New York Life's competitive strengths.
Fitch has affirmed the following ratings with a Stable Outlook:
New York Life Insurance Company
--Long-term Issuer Default Rating (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'.
Комментарии