Press Release - JUNE 16, 2016

A.M. Best Affirms Ratings of Massachusetts Mutual Life Insurance Company and Its Subsidiaries

 Joan Sullivan
Senior Financial Analyst
+1 908 439 2200, ext. 5144

William Pargeans
Assistant Vice President
+1 908 439 2200, ext. 5359
Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - JUNE 16, 2016
A.M. Best has affirmed the financial strength rating of A++ (Superior) and issuer credit ratings of “aa+” of Massachusetts Mutual Life Insurance Company (MassMutual) and its life/health subsidiaries, C.M. Life Insurance Company and MML Bay State Life Insurance Company. Concurrently, A.M. Best has affirmed the issue ratings of “aa-” on the existing surplus notes of MassMutual and the “aa+” on notes issued under funding agreement-backed securities programs of MassMutual Global Funding, LLC and MassMutual Global Funding II. The outlook for each rating is stable. The above companies are headquartered in Springfield, MA. (See below for a detailed listing of the issue ratings.)

The rating affirmations for MassMutual are based on its continued strong financial results for 2015 (GAAP and Statutory) and record sales in key businesses. The ratings also consider the organization’s continued improvement in its already strong risk-adjusted capitalization and highest levels ever of absolute capital and significant assets under management. Additionally, the ratings consider MassMutual’s recent announcement of its intent to acquire MetLife, Inc.’s U.S. captive agency distribution channel, MetLife Premier Client Group (MPCG), and broker/dealer MetLife Securities, Inc., which has been approved by the Financial Industry Regulatory Authority. MPCG is a retail distribution operation with more than 40 local sales and advisory operations and approximately 4,000 advisers across the country. The combined agency sales force is expected to increase by approximately 50%. Over the past two years, MassMutual has become one of the top providers of whole life insurance, with expectations that this trend will continue and potentially improve. A.M. Best views the acquisition favorably, as it brings additional scale to MassMutual’s existing captive distribution sales force and increased opportunities to expand its product portfolio. Following some one-time integration and infrastructure expense, the acquisition is expected to be accretive to earnings. The final close and implementation date is expected in early July2016.

Offsetting these positive rating factors is MassMutual’s increased financial leverage, which was 16.6% on a statutory basis at year-end 2015 and which increased from the prior year end. Additionally, the ratings consider an increase in impairments, and investment in mortgage loans on real estate, which reached a historical high of more than 15% at the end of 2015.

MassMutual’s 2015 absolute capitalization reached a record level as its total-adjusted capital (TAC) increased to almost $17.3 billion, representing a five-year compound annual growth rate of approximately 7% driven by continuous organic growth and favorable real estate gains in 2014. MassMutual’s investment impairment losses had historically trended downward, with an uptick in 2015 driven by energy exposures and the collapse in oil and gas prices. A.M. Best notes this trend is similar to the industry’s trends.

MassMutual’s ratings continue to recognize its favorable business mix, diversified operating profile and strong position in the domestic life insurance market. MassMutual is one of the leading writers of whole life insurance in the United States and offers a broad portfolio of insurance products and asset management services to individuals across diverse demographics and the corporate marketplace. The enterprise benefits from a sizable participating whole life block, supplemented by term and universal life policies that primarily are sold through a career agency force. As a result, MassMutual possesses a stable liability structure that facilitates long-term financial strength. Additionally, A.M. Best notes that MassMutual possesses some statutory flexibility to maintain its capital position through the management of its policyholder dividend scale, or by securitizing or reinsuring redundant reserves. Moreover, MassMutual’s statutory balance sheet values its subsidiary holdings very conservatively; the fair market value of its subsidiary holdings is considerably higher than what is recognized for statutory purposes. While MassMutual’s investment management capabilities are strong, A.M. Best remains cautious about its exposure to the real estate market. This exposure is approximately 1.2 times TAC when residential and commercial mortgage-backed securities (excluding agency issued securities), whole commercial mortgage loans, equity real estate holdings and limited partnership equity holdings with underlying assets in real estate are combined. In particular, MassMutual reported approximately $21 billion of whole commercial mortgage loans at year-end 2015, and the commercial mortgage portfolio is well-diversified by property type and geographic location. However, over the past few years, A.M. Best acknowledges that the portfolio has exhibited considerable improvement in its loan-to-value and debt service coverage ratios, along with a substantial decline in watch list loans.

Although MassMutual’s TAC has substantially increased in recent years, A.M. Best notes that the company benefits from a U.S. GAAP guideline (effective Jan. 1, 2009), which reclassifies non-controlling interests as part of equity. While this change has resulted in a roughly $2.5 billion increase to the statutory carrying value of MassMutual’s asset management and international operations, A.M. Best recognizes that the higher statutory carrying amount still remains significantly below the estimated fair value of these operations. Also contributing to the increase in MassMutual’s TAC was the issuance of nearly $1.2 billion in surplus notes since 2008, bringing the total outstanding amount to over $2.2 billion as of year-end 2015. A.M. Best views surplus notes as a lower quality of capital than retained earnings or paid-in capital, as surplus notes are debt instruments that have the expectation of repayment. Therefore, A.M. Best notes that MassMutual’s quality of capital has declined as a result of the surplus note issuance, which represents about 13% of 2015 TAC. Additionally, A.M. Best believes MassMutual’s overall financial flexibility is somewhat more limited given its increased financial leverage. With a $500 million surplus note issuance in April 2015, MassMutual’s statutory financial leverage is approximately 16.6%, which is still well-within the tolerance range for its current rating level.

The following issue rating has been affirmed:

Massachusetts Mutual Life Insurance Company

— AMB-1+ on commercial paper program

The following issue ratings have been affirmed with a stable outlook:

Massachusetts Mutual Life Insurance Company—

—“aa-” on $250 million 7.625% surplus notes, due 2023

— “aa-” on $100 million 7.500% surplus notes, due 2024

— “aa-” on $250 million 5.625% surplus notes, due 2033

— “aa-” on $750 million 8.875% surplus notes, due 2039

— “aa-” on $400 million 5.375% surplus notes, due 2041

—“aa-” on $500 million 4.5% surplus notes, due 2065

MassMutual Global Funding, LLC—“aa+” program rating

—“aa+” on all outstanding notes issued under the program

MassMutual Global Funding II—“aa+” program rating

—“aa+” on all outstanding notes issued under the program

This press release relates to rating(s) that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page.

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