Fitch Ratings-Chicago-15 September 2011: Fitch Ratings has affirmed Navy Mutual Aid Association's (NMAA) Insurer Financial Strength (IFS) rating at 'A+'. The Rating Outlook is Stable.
NMAA's IFS rating reflects the association's strong capital levels, high quality, liquid investment portfolio, and conservative financial profile with predictable cash flows. Product liabilities are composed of predominantly term and whole life insurance products and no variable annuity products or guarantees. Financial flexibility is considered adequate in respect to NMAA's unique business profile, and product portfolio.
Fitch views as additional strengths NMAA's conservative reserving, excellent persistency, and consistently low expense ratios. Fitch believes that NMAA's 'war risk' is prudently managed and that mortality experience is within expectations in the face of the current conflicts in the Middle East.
NMAA's investment portfolio is composed of more than 37% U.S. government-guaranteed or government-sponsored enterprise debt and high-quality corporate bonds, with no exposure to structured securities. Portfolio yields have consistently exceeded 6%, and realized credit losses compare favorably those of the life industry over the 2008-2010 period.
Rating concerns include NMAA's moderate volatility in capital driven by common stock investments, limited access to capital markets, and the long-term challenge of membership growth.
The Stable Outlook is driven by Fitch's expectations for strong capital, consistent operating earnings driven by low cost operations, strong levels of investment income, and moderate top line growth.
NMAA's total adjusted capital grew 8.5% in 2010 to $217 million, driven primarily by unrealized investment gains and operating gains. Net operating income declined to $8 million in 2010 from $20 million in 2009 as NMAA posted increased reserves related to new life insurance sales and continued to credit high excess interest on its life insurance policy reserves.
NMAA has a strong niche position as a low cost provider of insurance protection products to the United States sea services and their families. NMAA serves active, reserve and retired members of
the U.S. Navy, U.S. Marine Corps, U.S. Coast Guard, U.S. Public Health Service, National Oceanic and Atmospheric Administration and had total assets of approximately $2.6 billion at year-end 2010. The association is located in Arlington, VA and currently has approximately 100,000 members and more than $21.5 billion of insurance in force.
NMAA's ratings are based in part its unique profile as a modest scale, nonprofit institution serving a narrow customer base. Fitch believes that the Association's strategy to provide high-value products to its customers and maintain prudent levels of reserves and capital, rather than generating stronger earnings and higher reserving and capital levels, limits the upside range of its IFS rating. Barring any change in these qualities, Fitch views Navy Mutual at the upper end of that range.
Key ratings drivers that could result in a downgrade include:
--A decline in estimated risk based capital to below 300% company action level;
--A significant change in war risk exposure and experience;
--An unfavorable change in tax/regulatory status.
Fitch affirms the following rating with a Stable Outlook:
Navy Mutual Aid Association
--IFS at 'A+'.
Contact:
Primary Analyst
R. Andrew Davidson, CFA,
Senior Director
+1-312-368-3144
Fitch, Inc.
70 W. Madison Street
Chicago, IL 60602
Secondary Analyst
Julie A. Burke CPA, CFA
Managing Director
+1-312-368-3191
Committee Chairperson
James B. Auden, CFA,
Managing Director
+1-312-368-3146
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Insurance Rating Methodology' (March 31, 2011);
--'Life Insurance Rating Methodology' (March 31, 2011).
Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266
Life Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905
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