OREANDA-NEWS. Fitch Ratings has affirmed Mutual of America Life Insurance Company's (MOA) Insurer Financial Strength (IFS) rating at 'AA-'. The Rating Outlook is Stable.


MOA's rating is based on the company's established strong niche position in the small to midsized not-for-profit pension market, extremely strong balance sheet fundamentals and conservative investment portfolio. Rating concerns include MOA's narrow operating profile and the impact of ongoing low interest rates given the company's focus on spread-based annuities.

MOA has a long established niche in the small to midsize not-for-profit qualified pension market. The company has grown from pension plan takeovers and rollovers in recent years, which offset declines in defined benefit and other areas the company has deemphasized over time. Net flows, driven to a large extent by the company's 403(b) and 401(k) thrift growth products, were positive through full-year 2015 and for the first six months of 2016.

MOA maintains extremely strong and stable risk-based statutory capitalization, relatively low operating leverage, and no financial leverage. Fitch views the quality of MOA's capital as exceptional. The company has been able to exhibit steady growth in surplus through retained earnings over the last five years and has not engaged in capital enhancing transactions. The total financing and commitments ratio is zero. MOA's risk-based capital (RBC) ratio was 476% as of Dec. 31, 2015 and the agency expects it to remain well above 400% over the medium term.

Fitch continues to view MOA as having one of the more conservative investment portfolios in the Fitch universe. The company's investments are liquid and primarily concentrated in investment-grade corporates and Agency MBS. The company's investment-grade public bond holdings account for approximately 88% of invested assets as of Q1 2016. The company's percentage of below-investment-grade bonds (BIGS) out of total bonds increased from 5.6% as of year-end 2015 to 7.9% as of Q1 2016 largely due to energy related downgrades.

Total risky assets, which include below investment-grade bonds, troubled real estate, unaffiliated common stock and Schedule BA assets, in relation to total adjusted capital was below the industry average at approximately 60% compared with 80% for the industry as a whole. Fitch notes that MOA, unlike the rest of the life insurance industry, does not invest in riskier asset classes such as mortgage loans and alternatives and has nominal exposure to common equity.

MOA's operating performance has been steadily improving over the last several years due to higher separate account fees and lower credited rates, and partially offset by lower investment margins. Reported statutory return on TAC is 5.9% in 2015, which compares favorably with other mutual peers and is reasonable given the company's product mix and risk profile. Most recently, MOA reported a net loss of $5 million for first quarter 2016 compared to $11 million gain in the same period 2015 largely due to higher one-time expenses.

Fitch's rating considers MOA's operating profile as a moderate-sized insurer competing in the group pension market against competitors that have much greater scale and financial resources. MOA's more narrow business focus also exposes it to adverse regulatory changes that could have a negative impact on revenue and earnings. Fitch expects MOA to be able to manage through changes resulting from the Department of Labor (DOL) fiduciary rules. While the new DOL rule will likely increase compliance costs for the company, favorably, MOA's existing captive distribution employees are salaried and not commission based, which is generally consistent with the intent of the new rule.

Fitch's rating also considers the impact of ongoing low interest rates given the company's focus on spread-based annuity products. MOA has used its flexibility to reduce crediting rates in recent years to offset the impact of low interest rates. Fitch considers current crediting rates that are not at the guaranteed minimum rates to be modestly above the minimum rates but notes the company can also increase separate account fees, which have historically been lower than competitors, as a means to generate additional earnings.


Key rating triggers that could lead to a downgrade include an RBC below 400%, a risky asset ratio above 75%, adverse regulatory developments that would negatively impact demand for the company's pension products, and sustained negative net flows.

Key rating triggers that could result in an upgrade include an enhanced market position and size/scale in addition to sustained capital strength including low operating leverage and high capital quality, and continued low asset risk.

Fitch affirms the following rating with a Stable Outlook:

Mutual of America Life Insurance Company

--IFS at 'AA-'.