Fitch Affirms Minnesota Life's Ratings; Stable Outlook

OREANDA-NEWS. Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Minnesota Life Insurance Company (Minnesota Life) and its subsidiary, Securian Life Insurance Company ratings at 'AA'. The Rating Outlook is Stable.

KEY RATING DRIVERS

Fitch's affirmation of Minnesota Life's ratings reflects the company's extremely strong balance sheet fundamentals, conservative risk profile and solid earnings. The ratings also reflect its competitive position in the group life insurance market along with the continued competitive environment in which it operates.

Fitch views Minnesota Life's extremely strong capitalization, which is reflected by its NAIC risk-based capital (RBC) ratio of 527% at year-end 2014, as a fundamental strength to its rating. Operating leverage, as measured by adjusted liabilities to total adjusted capital, is among the lowest in Fitch's universe at 4.6x. Financial leverage, defined as surplus notes to total adjusted capital (TAC), remains extremely low at 4%.

Minnesota Life has balanced and diversified sources of revenue that reduce earnings volatility. The company reported first-half 2015 pretax operating earnings of $215 million, down 20% from the prior-year period. The decline was primarily driven by unfavorable group mortality, which remains within the company's long term expectations. Minnesota Life continues to generate solid business growth and strong retention while maintaining prudent expense management. Pretax operating return on assets was solid at 0.97% during first-half 2015.

Fitch anticipates that low interest rates will continue to serve as a headwind to Minnesota Life's profitability. Significant capital market declines could lead to lower fee income and increased earnings volatility, given the company's sizeable separate account liabilities.

Fitch notes that Minnesota Life's investment and liquidity profile continues to be favorable. The company has a large, investment-grade, publicly traded bond portfolio, low exposure to risky assets and a stable liability structure.

Minnesota Life has a competitive position in the group life insurance market, as the third largest provider in terms of premiums. The company's competitive advantage is supported by its service-driven model and customized systems. However, the company faces intense competition from larger companies with greater scale and resources. Additionally, the company faces scale pressure in the highly competitive retirement services market, which continues to consolidate.

RATING SENSITIVITIES

The key rating triggers that could result in an upgrade include:

--An enhanced market position and size/scale;
--Sustained capital strength including low financial leverage and high capital quality;
--Continued low asset risk.

The key rating triggers that could result in a downgrade include:

--A decline in the company's RBC ratio to 450% or lower;
--Significant deterioration in financial performance with GAAP-based return on assets below 0.80%;
--An increase in financial leverage above 15% as measured by debt-to-total capital.

Fitch affirmed the following ratings:

Minnesota Life Insurance Company
--IFS at 'AA';
--Issuer Default Rating at 'AA-';
--$118 million Rule 144a surplus notes 8.25% due 2025 at 'A+'.

Securian Life Insurance Company
--IFS at 'AA'.

The Rating Outlook is Stable.