A Message from Navy Mutual’s President

As concerns about the financial security of several large insurance companies grow, we receive calls almost daily from Members asking how Navy Mutual is weathering the economic storm.  Last September I reported that Navy Mutual was sound, with no direct exposure to the toxic investments that were causing havoc in the financial services industry.  Today, I am pleased to confirm that Navy Mutual continues to be strong and that the assets you have trusted to our care remain secure. Navy Mutual has always invested conservatively, consistently steering clear of high-risk investments.  Over the past three years, we have further diversified Navy Mutual’s investment portfolio and, with the approval of our Board, reduced our common stock exposure through sales of more than $50 million of equities.  These sales produced significant capital gains that were reinvested primarily in high quality corporate bonds, further reducing the overall risk of our portfolio.  Some investment management firms have suggested that Navy Mutual could get higher returns from riskier investments, but Navy Mutual has always preferred to fulfill its mission by limiting risk rather than maximizing return.  By holding our course, Navy Mutual has stayed strong while many investment banks and insurance companies paid a hefty price for their high-risk investment choices.  Of course, Navy Mutual is not entirely immune to the current global economic downturn.  Since mid-August, our remaining common stock portfolio declined in value by about 2% of our total assets. In addition, two companies whose debt securities are held in the portfolio, Lehman Brothers and Tribune Company, are in bankruptcy, but our total exposure is less than .5% of our assets and we expect to recover some of our investment when the companies emerge from bankruptcy. Until this recession ends we may sustain additional losses, but our total portfolio is well diversified, conservative, and sound. To independently verify our financial strength, Navy Mutual hires Fitch Ratings to annually assess our financial condition.  Most recently Fitch rated Navy Mutual at A+, the highest rating it offers to insurers of our size.  Please read Fitch’s analysis, which can be found on Navy Mutual’s Web site.  You’ll be proud of Fitch’s comments on the strength and conservatism of your Association. Some Members worry that Navy Mutual may not be able to pay out promised benefits – their concerns are unfounded.  Our actuaries have opined that our reserves are sound, and every penny of the Association’s assets is available to pay benefits.  Last year, a footnote in our annual audit report informed you that our investment portfolio had a market value about $200 million in excess of its “book value,” which meant that our assets could have been sold at year-end for approximately $200 million more than was recorded on our balance sheet.  If needed, those funds would be available to meet your insurance needs.  When this year’s audit is complete, we anticipate a similar report. Our 2008 audit is under way, and our next Fitch review has been scheduled.   We will place the audit and Fitch rating reports on our Web site as soon as they are released, and we anticipate favorable results. Navy Mutual’s Board and management team are conservative stalwarts and, to meet your needs, we plan to stay in existence forever.  Whether you have life insurance or annuity plans with Navy Mutual, you can be confident that your benefits will be available when needed and that Navy Mutual will persevere in its conservative stewardship of your assets. Bruce B. Engelhardt President, Navy Mutual Aid Association

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