Fitch Affirms New York Life's IFS at 'AAA'; Outlook Stable
KEY RATING DRIVERS
Fitch's ratings reflect New York Life's leading market position in the U. S. individual life insurance market, extremely strong capitalization and conservative operating profile. Key competitive strengths include the company's strong brand recognition, well-established market position, effective career distribution system and its stable block of participating whole life insurance.
The ratings also consider the company's above-average exposure to risky assets and heightened macroeconomic challenges and uncertainty, including declining interest rates and increased financial market volatility.
New York Life is one of the top producers of whole life insurance and a leading writer of guaranteed income annuities. The company's market position is deepened by its loyal and productive career agency distribution channel, which Fitch believes reduces pricing pressure and anti-selection in competitive market environments.
Fitch views New York Life's extremely strong capitalization as a fundamental strength to its rating, which is reflected by its NAIC risk-based capital (RBC) ratio of 549% and low operating leverage at 9x at year-end 2015. Financial leverage, defined as surplus notes to total adjusted capital (TAC), remained low at 9% as of year-end 2015. New York Life reported a 6% increase in TAC during first-half 2016 (1H16) to $24 billion, which was primarily driven by earnings and unrealized investment gains.
Fitch views New York Life's profitability as moderate on an absolute basis, but favorable on a risk-adjusted basis, given its conservative product profile and operating strategy. Its large, traditional life insurance book generates high-quality, stable earnings, which is supported by its non-insurance business.
The company reported statutory net income of $257 million in 2015 compared with $1.6 billion in 2014. The statutory accounting treatment of the company's acquisition of John Hancock's closed block adversely affected results in 2015. Realized investment losses totaling $382 million also contributed to the decline in profitability, along with strain related to new business growth.
New York Life reported a 10% decline in statutory operating earnings in 1H16, which was partially driven by lower income from limited partnerships and planned business investments.
Investment losses were led by energy-related impairments in 2015, which continued into 2016. Fitch views New York Life's energy exposure relative to corporate bonds as generally in line with the agency's rating universe. Fitch expects credit-related impairments to remain manageable for New York Life.
The ratings on New York Life Global Funding's funding agreement-backed note programs and related issues recognize that the trust obligations are secured by funding agreements issued by New York Life with cash flow structures that enable the trustees to pay the principal and interest on the notes. Thus, the note programs are dependent on New York Life's credit quality and are assigned a rating equal to the company's IFS rating.
New York Life's IFS ratings are currently at Fitch's highest level. Key ratings triggers that could result in a downgrade include:
-- A decline in capitalization which includes an RBC ratio below 425% or a PRISM capital model score below 'Extremely Strong';
--Future increases in financial leverage to more than 15% on a sustained basis, or a reduction in GAAP-based, EBIT fixed-charge coverage below 6x;
--Significantly reduced profitability evidenced by a GAAP operating ROA sustained below 0.5% (0.9% at year-end 2015);
--A decrease in the financial flexibility associated with the company's participating whole life business;
--A major acquisition that leads New York Life away from its core expertise;
--An unexpected shift in tax, regulatory or market dynamics that weakens New York Life's competitive strengths.
Fitch has affirmed the following ratings with a Stable Outlook:
New York Life Insurance Company
--IFS at 'AAA';
--Long-term Issuer Default Rating (IDR) at 'AA+';
--Short-term IDR at 'F1+';
--$1,000,000,000 5.875% surplus note due May 15, 2033 at 'AA';
--$1,000,000,000 6.75% surplus note due Nov. 15, 2039 at 'AA'.
New York Life Insurance and Annuity Corporation
--IFS at 'AAA'.
NYL Capital Corporation
--Commercial paper at 'F1+'.
New York Life Funding
--Program rating at 'AAA'.
New York Life Global Funding
--Program rating at 'AAA'.