The ranks of US life insurers boasting the highest financial
strength rating – AAA from Standard & Poors (S&P) and Fitch
and Aaa from Moody’s – have thinned this year with industry majors
such as John Hancock, Pacific Life and MetLife all downgraded a
notch. Left with the coveted AAA rating are a mere handful: New
York Life (NYL), Northwestern Mutual and TIAA-CREF

The Aaa rating by Moody’s in March, followed by AAA from S&P in
June and Fitch in October vindicated the confidence NYL expressed
in its financial stability following an internally conducted stress
test in February 2006.

The US’ largest mutual insurer has now reiterated its confidence
against the background of the World Health Organisation’s recent
declaration of the swine flu (H1N1) outbreak as a pandemic.

NYL’s assurance follows re-stress testing its surplus and asset
valuation reserve under the same three catastrophic scenarios used
in 2006:

• A major pandemic;

• A decade-long low interest rate environment; and

• A stock market drop of 40 percent.

“When we constructed the catastrophic scenarios three years ago we
believed it was extremely remote that two of them might occur
simultaneously. Now this is a real possibility – and we know New
York Life can handle the challenge,” commented Ted Mathas, NYL’s
chairman, president and CEO.

On the added threat posed by the pandemic he commented: “Our
company is well aware of the risks associated with pandemics.

“The 1918 flu pandemic, which claimed millions of lives around the
world, was the single biggest event in our company’s 164-year
history, in terms of death claims. It far surpassed the World Wars
and other disasters in its devastating human cost.”

He continued that in the latest stress test NYL used its historical
records of the 1918 pandemic. The stress test included the impact
of higher mortality claims and indirect macroeconomic effects of a

“We found we could maintain very strong capital levels even under
the extreme scenario of another pandemic of 1918 proportions,” said

“Our tests show that New York Life’s policyholders are well
protected and that the company has more than enough capital and
liquidity to handle such extreme events and meet all of our

Championing mutual insurers, he continued: “One of the key reasons
we can withstand these potential calamities is our mutuality.

“Being focused on long term financial strength has meant that in
recent years we were able to accumulate an additional one billion
dollars per year in the company’s surplus, increasing it from $8.8
billion in 2002 to $14.7 billion in 2007. We would not have been
able to do this if we were a public company, having to deploy any
excess capital to satisfy the shorter-term demands of equity

During the current economic crisis, Mathas added, NYL’s capital
surplus has been reduced to about $12 billion. However, he stressed
that in addition to having $12 billion in surplus, NYL has more
than $40 billion in total liquidity to handle extreme

Following NYL’s issue of $1 billion surplus notes, Fitch’s
assessment noted that the insurer risk-based capital (RBC) ratio as
measured by regulatory calculation and Fitch’s analysis is expected
to exceed the 429 RBC ratio reported by NYL at the end of

Summing up its AAA rating of NYL, S&P noted that it reflected
NYL’s “very strong” risk-based capital, “exceptional quality” of
its career agency force, “very strong” operating earnings and
growing presence in international markets.

“We consider New York Life to be one of the most respected names in
the domestic life insurance business, characterised by a commitment
to mutuality and its policyholders,” stated S&P.