The following statement was released by the Fitch Ratings agency:
"CHICAGO, November 17 (Fitch) Fitch Ratings has affirmed Navy Mutual Aid Association's (NMAA) Insurer Financial Strength (IFS) rating at 'A+'. The Rating Outlook is Stable.
KEY RATING DRIVERS
NMAA's IFS rating and Stable Outlook reflect the association's extremely strong capitalization, high-quality and liquid investment portfolio, and modest profitability. The ratings also consider the company's interest-sensitive product profile along with its narrow focus and relatively small scale.
NMAA maintains extremely strong capitalization with an RBC ratio of 521% as of Sept. 30, 2015. The company's total adjusted capital (TAC) increased 5% to $282 million during the first nine months of 2015, driven primarily by solid earnings.
NMAA reported a net operating gain of $16 million in the first nine months of 2015 compared with $2.8 million in the prior-year period. Fitch views the company's profitability as modest but in line with mutual peers, given its strategy of distributing excess earnings to its members through relatively high crediting rates. The company targets a level of profitability that maximizes value to its members while supporting new business growth and providing a cushion against unexpected losses.
NMAA's investment yield continues to decline but remains solid at just above 6%, which allows it to credit high levels of interest on its life insurance policies and maintain favorable persistency. Fitch expects the company's investment yield to decline further in 2016, which is consistent with its view for the industry. NMAA continues to actively manage its crediting rate, but this management tool diminishes the longer rates remain low.
NMAA has one of the most conservative investment portfolios in Fitch's universe. The association's fixed income assets are 99% investment-grade with an average credit rating of 'AA-'. Total risky assets, which include below investment-grade bonds, lower quality real estate, unaffiliated common stock and Schedule BA assets, in relation to TAC remains exceptionally low at 38% compared with an industry average of 82%.
Fitch views NMAA at the upper end of its IFS range, due to its narrow focus and the long-term challenge of membership growth. NMAA has a solid niche position as a low-cost provider of insurance protection products to the United States Sea Services and their families.
Fitch does not anticipate an upgrade in the intermediate term, as NMAA's modest scale and narrow market focus limit the upside in its rating.
Key ratings triggers that could result in a downgrade include:
--A decline in estimated RBC to below 350% company action level;
--A spike in investment-related losses or a trend of sustained net operating losses;
--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+'.
Dafina M. Dunmore, CFA Director
+1-312-368-3136 Fitch Ratings, Inc.
70 W. Madison Street Chicago, IL 60602
Julie A. Burke, CPA, CFA
James Auden, CFA Managing Director
Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: firstname.lastname@example.org.
Additional information is available on www.fitchratings.com
Insurance Rating Methodology (pub. 16 Sep 2015) here
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