Fitch Affirms Thrivent Financial for Lutherans’ Ratings; Outlook Negative

Fitch Ratings has affirmed the ratings of Thrivent Financial for Lutherans (Thrivent Financial) and its subsidiary, Thrivent Life Insurance Company (Thrivent Life), collectively referred to as Thrivent hereafter. The Rating Outlook remains Negative. A list of the ratings appears below.

Thrivent Financial is the nation's largest fraternal benefit society. Fitch's ratings of Thrivent Financial and its subsidiary reflect the organization's strong market franchise, good profitability in relation to surplus levels, and sound risk adjusted capitalization. Thrivent Financial has strong membership affinity which contributes to its excellent life insurance policy lapse ratio of 3.7% and surrender rate for annuities in the 2%-5% range, both of which are favorable rates compared to the industry. Thrivent's statutory premiums and overall operating earnings increased 11% and 129% respectively in 2009 indicating the strength of the company's 2009 business recovery, particularly in annuity products. However a factor in Fitch's decision to maintain a Negative Outlook is related to the fact that life insurance product earnings have not rebounded to pre-financial crisis levels. Over the past two years life earnings have been affected by an increased dividend scale, statutory strain from increased sales, and lower investment yields. Fitch believes the prognosis for a near-term increase in investment yields is uncertain.

In addition, like many other industry participants, the quality of Thrivent's investment portfolio deteriorated in 2008 with the start of the financial crisis. Since that time the level of gross unrealized losses has improved, leading to a return to a net unrealized gain position at year-end 2009. However the level of investment risk in the portfolio remains higher than pre-crisis periods. Thrivent's year-end 2009 risky assets ratio, comprised of below investment grade securities (BIGS), troubled real estate, unaffiliated common stock, and joint venture/partnership assets in relation to TAC was approximately 110%, a nearly 35 point increase since 2007. Part of the increase has been intentional as Thrivent currently targets a risky asset ratio of approximately 100%, an increase in investment risk tolerance levels. Fitch believes this higher target level is manageable but does create a lower level of ratings margin. Further, Fitch believes the economy and financial markets will have to improve to facilitate a return of this ratio to target level or lower.

Under Fitch's investment stress test in the Core scenario Thrivent's performance was adequate, and it was able to maintain capital appropriate for its current 'AA' Insurer Financial Strength (IFS) rating level. Thrivent's investment allocation to mortgage related assets continues to be slightly higher than average for the industry, and losses have occurred, particularly in the residential mortgage-backed security (RMBS) portfolio. However, overall exposure to RMBS is relatively small, and Fitch believes the majority of the losses have already occurred. Thrivent's more sizable commercial real estate related portfolio is likely to experience increasing losses as the affects of the economic crisis tend to lag in this asset class. However, the good characteristics of Thrivent's portfolio and the small amount of maturing loans in the next two years will partially mitigate losses.

Thrivent had a sound risk based capital (RBC) ratio of 433% at year-end 2009, very low leverage as measured by a Total Financings Commitments Ratio (TFC) of 0.1x, and a relatively low-risk liability profile. Thrivent has made progress in moving towards the very strong capital level of $5.2 billion it had at year-end 2007. Total Adjusted Capital (TAC) of $4.8 billion at March 31, 2010 was up from $4.6 billion at year-end 2009 and $4.3 billion at year-end 2008. Thrivent has increased its TAC without the aid of Surplus Notes or other capital raising activities that some mutual and publicly owned insurers have undertaken in response to investment driven capital declines during the economic crisis. These avenues remain an option for Thrivent if the need for increased capital arises.

Thrivent Financial provides a variety of fraternal programs and services, life insurance, retirement, disability income and other risk protection and asset accumulation products to its membership. Its affiliates also offer its members a family of mutual funds, and trust and banking services. At March 31, 2010 Thrivent Financial and Thrivent Life reported total statutory assets of $55.7 billion and $3.1 billion, respectively, and capital and surplus of $4 billion and $176 million, respectively.