Navy Mutual News & Media

Fitch Affirms Navy Mutual's Insurer Financial Strength Rating at ‘A+’

Published on November 24, 2015

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. 

RATING SENSITIVITIES 
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+'. 

Contact: 

Primary Analyst 
Dafina M. Dunmore, CFA Director 
+1-312-368-3136 Fitch Ratings, Inc. 
70 W. Madison Street Chicago, IL 60602 

Secondary Analyst 
Julie A. Burke, CPA, CFA 
Managing Director 
+1-312-368-3158 

Committee Chairperson 
James Auden, CFA Managing Director 
+1-312-368-3146 
Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. 

Additional information is available on www.fitchratings.com 

Applicable Criteria 
Insurance Rating Methodology (pub. 16 Sep 2015) here 

Additional Disclosures 
Dodd-Frank Rating Information Disclosure Form here 
Solicitation Status here 
Endorsement Policy here

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE."

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