Fitch Affirms Mutual of America’s ‘AA- IFS Rating; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AA-' Insurer Financial Strength (IFS) rating of Mutual of America Life Insurance Company (MOA). The Rating Outlook is Stable.

Today's rating action follows Fitch's updated review of MOA's capitalization, operating results, liquidity and financial flexibility. MOA's rating continues to be based on the company's extremely strong balance sheet fundamentals and its established niche position in the small- and medium-sized not-for-profit pension market.

MOA has very strong risk-based statutory capitalization, low operating leverage and no financial leverage. Fitch estimates the company's NAIC RBC ratio and operating leverage to be approximately 450% and 8x, respectively, at September 30, 2010.

Fitch notes that MOA was able to maintain relatively stable statutory capital levels throughout the financial crisis without having to raise new capital via the capital or reinsurance markets. The relative stability of MOA's statutory capitalization was due in part to the company's favorable investment loss experience, which benefited from the company's minimal exposure to structured finance securities and the decision to significantly reduce equity exposure in early 2008 ahead of the market downturn. MOA's results also benefit from the absence of living and death benefit guarantees and related reserve volatility in its pension annuity business.

MOA's reported statutory operating profitability is viewed as below average for the rating category. Fitch notes, however, that reported earnings are understated due in part to discretionary 'dividends' paid to contract-holders in the form of higher crediting rates and lower contract fees. Earnings could be significantly higher without the dividends, and Fitch believes that the ability to adjust these 'dividends' if needed to grow capital gives MOA considerable financial flexibility.

MOA has a long-established niche in the small- to medium-sized not-for-profit qualified pension market. The company has demonstrated its ability to grow throughout the economic downturn due in part to plan takeovers and rollovers which helped to offset declines in voluntary contributions. Overall net flows, driven to a large extent by the company's 403(b) and 401(k) growth products, were $440 million in 2009 compared to $75 million in 2008. Net flows are also very strong in 2010.

The ratings also consider MOA's limited business diversification due to the company's concentration in the not-for-profit pension market, which exposes the company to unanticipated adverse regulatory changes that could have a negative impact on revenue and earnings. Other concerns are

MOA's modest statutory profitability longer term and the increased costs associated with staying competitive in the rapidly changing retirement savings market.

The Stable Outlook reflects, in part, Fitch's view that the company's exposure to future investment losses under Fitch's base case loss scenario is very manageable in relation to the company's statutory capital and projected operating earnings. MOA's investment losses have moderated in 2009 and 2010 similar to the industry, and that is expected to continue. Unlike the industry, MOA has only nominal exposure to commercial mortgages either through commercial mortgage backed securities or direct loans.

MOA is a mutual life insurance company based in New York City. As of Sept. 30, 2010, the company had consolidated statutory total admitted assets and total adjusted capital of $13 billion and $850 million, respectively.

Key rating drivers that could lead to an upgrade:

--A significant and sustained increase in statutory profitability and market share.

Key rating drivers that could lead to a downgrade:

--A material decline in total adjusted capital and RBC that is other than temporary.

--Adverse regulatory developments that would negatively impact demand for the company's pension products.

--A significant decline in revenue and negative overall net flows indicating an erosion of the company's niche market position.

Fitch affirms the following rating with a Stable Outlook:

Mutual of America Life Insurance Co.

--IFS at 'AA-'.

Additional information is available at www.fitchratings.com

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' dated Aug. 16, 2010.

Applicable Criteria and Related Research:

Insurance Rating Methodology

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Fitch Ratings
Primary AnalystCynthia J. Crosson, +1-212-908-0863
Director
Fitch Ratings
One State Street Plaza
New York, New York 10004
or
Secondary AnalystJulie A. Burke, CFA, CPA, +1-312-368-3158
Managing Director
or
Committee ChairDouglas Pawlowski, +1-312-368-2054
Senior Director
or
Media Relations, New YorkBrian Bertsch, +1-212-908-0549
[email protected]

Source: Fitch Ratings