New York Life Insurance Company And Subsidiaries Full Rating Report Life Insurers / U.S.A. Ratings Security Class Rating Long-Term Issuer Default Rating AA+ Surplus Notes AA Short-Term Issuer Default Rating F1+ Operating Company New York Life Insurance Co New York Life & Annuity Ins. Co. Insurer Financial Strength AAA Note: See additional ratings on page 13. Rating Outlook Stable Financial Data ($ Mil.) 12/31/13 Total Adjusted Capital (TAC) 21,470 Surplus Notes Outstanding 1,992 Statutory Net Income 1,326 Operating Return on TAC (%) 6.2 RBC (%) 561 Note: Statutory data is for New York Life consolidated. Source: Fitch Ratings, SNL Financial. Related Research Fitch Affirms New York Life s IFS at AAA ; Outlook Stable (August 2014) Life Insurers Investment Portfolios Results of Fitch s Year-End 2013 Survey (August 2014) North American Life Insurers Financial Leverage and Debt Servicing Capacity (March 2014) 2014 Outlook: U.S. Life Insurance (December 2013) Key Rating Drivers Market Leader in Life Insurance: New York Life Insurance Company (New York Life) is one of the top producers of whole life insurance and a leading writer of fixed annuities. The company s market position is deepened by its loyal and productive career agency distribution channel. New York Life has a diversified product offering with relatively conservative features. Extremely Strong Capital: New York Life s total adjusted capital (TAC) increased 10% to $21.5 billion at year-end 2013, which was maintained through first-quarter 2014. Solid operating results and limited partnership investment performance contributed to the favorable results. Risk-adjusted capital remains extremely strong evidenced by Fitch Ratings estimate of RBC at 565% as of June 30, 2014. The company s financial leverage, defined as surplus notes to TAC, remains low at 9.3% at year-end 2013. Conservative Product Profile: Fitch considers New York Life s profitability as moderate on an absolute basis and somewhat suppressed by its large capital base. However, results compare favorably with its rated peer group and on a risk-adjusted basis, given its conservative product profile and operating strategy. New York Life s diversified operating segments and large traditional life insurance book generate high-quality, stable earnings. Consistently Solid Operating Results: New York Life reported higher operating earnings in 2013, partially due to greater asset-based fees driven by favorable capital market performance and sales activity. This was somewhat offset by modest spread compression in interest ratesensitive business. Fitch believes that New York Life s exposure to potential economic headwinds and the low interest rate environment is manageable. Robust Sales Activity: Life insurance sales were modest in 2013 while annuity sales remain robust, primarily driven by guaranteed lifetime income/future income annuities and market value-adjusted (MVA) fixed deferred annuities. While Fitch views the company s product profile as being relatively low risk, the agency also views rapid growth with caution. Above-Average Risky Assets: New York Life manages a well-diversified, liquid investment portfolio. Risky assets are above average at 119% of TAC as of June 30, 2014, which Fitch views as being somewhat mitigated by the company s strategy of matching these assets with low lapse, participating life policies. Impairments remain modest and within Fitch s expectations. Rating Sensitivities Analysts Dafina M. Dunmore, CFA +1 312 368-3136 dafina.dunmore@fitchratings.com R. Andrew Davidson, CFA +1 312 368-3144 andrew.davidson@fitchratings.com Factors Supporting a Downgrade: Key rating triggers that could lead to a downgrade include material weakening of operating company RBC to below 425% through either declining asset quality or aggressive growth; a significant increase in near-term earnings volatility that is outside the historical average; future increases in financial leverage to more than 15% on a sustained basis; a reduction in fixed-charge coverage below 6.0x; a decrease in financial flexibility associated with the company s participating whole life business; a major acquisition that leads New York Life away from its core expertise; or an unexpected shift in tax, regulatory or market dynamics that weakens its competitive strengths. www.fitchratings.com
Corporate Governance Corporate governance and management are adequate and neutral to the rating. Ten of 11 board members are independent. Standard subcommittees are in place. Pricewaterhouse Coopers is New York Life s auditor. The audit opinion for 2013 was unqualified. Although not an SEC registrant, New York Life voluntarily complies with section 302 of Sarbanes- Oxley Act of 2002. New York Life annually reports consolidated results publicly under U.S. GAAP. New York Life and its insurance subsidiaries report results under statutory accounting principles permitted as prescribed by their respective states of domicile. Market Position and Size/Scale Large Market Position Leading U.S. life insurance franchise. Strong positions in life insurance and fixed annuities. Strong captive distribution. Conservative business model. Leading U.S. Life Insurance Franchise New York Life is one of the largest life insurance organizations in the U.S. and Mexico with $411 billion in assets under management, approximately $237 billion in total statutory assets and $21.5 billion in TAC at Dec. 31, 2013. On Feb. 3, 2014, New York Life completed its acquisition of Dexia Asset Management, a European investment asset manager, which added an additional $100 billion in assets under management (AUM). Diversified revenue sources allow the company to emphasize certain products in various economic scenarios and reduce its dependence on any single product. The company s Insurance Group and Investments Group provide diversification of mortality, interest rate and longevity risks. Strong Positions in Life Insurance and Fixed Annuities The company is one of the top producers of whole life insurance and a leading writer of fixed annuities. Key competitive advantages are its high credit rating and its loyal and productive career agency distribution channel. New York Life is the market leader in individual immediate annuities with strong sales of its guaranteed lifetime income and guaranteed future income annuity products. Strong Captive Distribution New York Life s key strategies include selling individual life insurance products through a career general agency distribution channel. Fitch believes this distribution strategy can reduce pricing pressure and the likelihood of anti-selection in competitive market environments. New York Life s agency force is characterized by an industry-leading representation of Million Dollar Round Table producers and solid retention rates. New York Life targets middle-market to affluent customers. Conservative Business Model New York Life uses effective risk management tools in its capital planning, investment and business strategies. The company offers relatively conservative product features and maintains a strong capital position to offset risks related to various stress scenarios. Ratings Range Based on Market Position and Size/Scale Related Criteria Insurance Rating Methodology (September 2014) IFS Rating Category AAA AA A BBB <BBB Senior Debt Rating Category AA A BBB BB <BB Large Market Position and Size/Scale Medium Market Position and Size/Scale Small Market Position and Size/Scale New York Life Insurance Company 2
Ownership Is Positive to Rating Fitch views the ownership structure of mutual insurance companies favorably, as the interests of management are aligned with those of policyholders, thus promoting a stronger focus on financial strength. New York Life s mutual ownership is viewed as a positive ratings factor. Fitch believes that the company s ownership structure has generally allowed management to hold more conservative levels of capital and pursue a more conservative operating strategy with a longer term focus on growth. During the 2008 2009 financial crisis, New York Life and other strongly capitalized mutual life insurers clearly benefited from having stronger capital buffers than many stock peers that were more focused on growth and return targets. Organizational Structure New York Life is the lead life insurance company and a holding company for its U.S. insurance operating subsidiaries New York Life Insurance and Annuity Corporation (NYLIAC); NYLIFE Insurance Company of Arizona; and New York Life Enterprises, LLC, an international insurance subsidiary. New York Life s security brokerage, financial advisory, trust services operations and capital funding operations are owned by an intermediate holding company, NYLIFE LLC. Organizational Structure New York Life Insurance Company New York Life Insurance Company NYLIAC NYLIFE Insurance Co. of Arizona NYLife LLC New York Life Enterprises, LLC NYL Investment Mgmt. Holdings, LLC New York Life Capital Corp. Source: Company filings. New York Life Insurance Company 3
Sovereign- and Country- Related Constraints Fitch rates the local currency sovereign obligations of the United States of America at AAA with a Stable Outlook, and the country ceiling is similarly AAA. The local currency sovereign rating expresses the maximum limit for local currency ratings of most, but not all, issuers in a given country. At current levels, the ratings of U.S. insurance organizations and other corporate issuers are not likely to be constrained by sovereign or macroeconomic risks. Industry Profile and Operating Environment U.S. Life Industry Has Strong Balance Sheet Fundamentals A majority of U.S. life insurers in Fitch s rated universe have Insurer Financial Strength (IFS) ratings in the AA and A categories. Key industry risk factors include fixed-income and equity investment risks, macroeconomic uncertainty, persistent low interest rates and intense price competition, as well as regulatory and accounting uncertainty. The industry withstood the 2008 2009 financial crisis reasonably well, with capital largely rebounding due to earnings, investment gains and capital raises. Balance sheets reflect very strong liquidity, reasonable financial leverage, and good asset quality. Earnings have largely returned to precrisis levels despite ongoing pressure from low interest rates and increased hedging costs. The industry s profitability has benefited in recent years from a rebound in the equity markets, which has led to improved asset-based fee income. Improved capital market conditions and enhanced hedging strategies have reduced the risk associated with the industry s large variable annuity (VA) exposure. However, industry earnings and capital remain exposed to uncertain policyholder behavior in an unexpected, albeit plausible, severe stress scenario. Ratings Range Based on Industry Profile/Operating Environment IFS Rating Category AAA AA A BBB <BBB Senior Debt Rating Category Life Insurance AA A BBB BB <BB Annuities Accident and Health Composite New York Life Insurance Company 4
Peer Analysis New York Life Compares Well with AAA Peers Fitch compares New York Life with other highly rated mutual insurance companies with a significant emphasis on life insurance. New York Life s capitalization, as measured by RBC and operating and financial leverage, are comparable with peers and in line with median rating guidelines. Fitch believes New York Life has high-quality and stable earnings with profitability in 2013 that exceeded most of its peer group. Risky assets as a percentage of TAC are above average in comparison with the life insurance industry and peers. New York Life s significant capital base, conservative product offering and mutual structure have historically allowed the company to assume a moderately higher exposure to investment risk versus the life industry. Peer Comparison Table Surplus Notes/ TAC (%) ROA (%) Operating Return on TAC (%) Asset Operating Risky Assets/ (As of Dec. 31, 2013) IFS Rating RBC (%) TAC ($ Mil.) Leverage (x) Leverage (x) TAC (%) New York Life AAA 561 21,470 11.0 8.1 121 9.3 0.55 6.18 Northwestern Mutual AAA 617 23,162 9.4 7.4 108 7.6 0.24 2.34 Mass. Mutual AA+ 454 14,531 13.4 8.0 96 12.0 0.16 2.59 Guardian AA+ 499 6,133 9.8 6.9 76 4.1 0.77 6.35 IFS Insurer Financial Strength. TAC Total adjusted capital. ROA Pretax return on total assets post-dividend. Source: Fitch Ratings, SNL Financial. New York Life Insurance Company 5
Capitalization and Leverage 2009 2010 2011 2012 2013 Fitch s Expectations Total Adjusted Capital ($ Mil.) 15,639 17,438 17,847 19,542 21,470 Capital is expected to remain strong with RBC well above 425%. Operating and RBC (%) 433 452 506 522 561 financial leverage are expected to remain Asset Leverage (x) 12.0 11.4 12.0 11.4 11.0 near current levels. Surplus Notes/Total Adjusted Capital (%) 12.7 11.4 11.2 10.2 9.3 Source: Fitch Ratings. Strong Capitalization Supports Current Ratings Extremely strong capitalization. Capital flexibility due to whole life book. Financial leverage is low. Low capital market funding needs. Extremely Strong Capitalization New York Life is strongly capitalized based on Fitch s estimate of its RBC ratio at 565% as of June 30, 2014. The company reported approximately 10% growth in TAC in 2013 and an additional 3% in first-half 2014 to $22.1 billion. Growth was driven by solid operating gains, limited partnership investment performance and gains on the disposal of selected international operations. Capital Flexibility Due to Whole Life Book The participating nature of New York Life s large block of in-force whole life business allows the company to adjust dividend rates to maintain strong targeted capital levels. Providing additional capital flexibility is the company s access to the capital markets, as demonstrated by its $1 billion issuance of surplus notes during challenging market conditions in fourth-quarter 2009. Financial Leverage Is Low New York Life s financial leverage and reliance on capital market funding is low compared with life insurance industry peers. The company s statutory financial leverage (defined as surplus notes to TAC) remained modest at 9.3% at year-end 2013 compared with 10.2% at year-end 2012. Fitch expects the company s financial leverage to remain relatively stable. Low Capital Market Funding Needs New York Life s reliance on capital markets funding is relatively low, as demonstrated by its below industry average total financing and commitments ratio (TFC) ratio of 0.2x. This is consistent with its mutual peer group. In addition to surplus notes, the company s funding is provided by lower risk security lending and repurchase agreements, commercial paper and nonrecourse securitizations of special-purpose entities. New York Life Insurance Company 6
Debt Service Capabilities and Financial Flexibility 2009 2010 2011 2012 2013 Fitch s Expectations Adjusted Interest Expense ($ Mil.) 75 127 127 126 126 GAAP Interest Coverage (x) 15.1 10.9 8.8 14.6 22.2 Interest coverage is expected to remain solid in the mid-double digits, given modest financial leverage and solid earnings. Statutory Interest Coverage (x) 21.1 13.2 10.7 14.0 11.0 Note: GAAP interest coverage consists of earnings before interest and taxes divided by adjusted interest expense. Statutory interest coverage consists of net gains from operations after dividends to policyholders and before federal income taxes divided by Interest on surplus notes. Source: Fitch Ratings, New York Life. Long-Term Debt Maturities ($ Mil.) 2013 0 2014 0 2015 0 2016 0 2017 0 2018 or Later 2,000 Source: Fitch. Strong Coverage Metrics Strong interest charge coverage. No refinance risk over near term. Additional financial flexibility. Strong Interest Charge Coverage New York Life exhibits strong and consistent levels of debt-servicing capabilities. GAAP-based interest coverage was 22x and the statutory interest coverage ratio was solid at 11x for 2013. In practice, liquidity from New York Life s entire general account is available to provide debt service for the company s $2.0 billion of outstanding surplus notes. No Refinance Risk over Near Term New York Life has no near-term refinancing needs for long-term debt. Subsidiary New York Life Capital Corp. issues commercial paper on an opportunistic basis in the management of cash flows for investment and liquidity purposes. Outstanding commercial paper balances are manageable and totaled $503 million at year-end 2013. Additional Financial Flexibility New York Life has two $500 million revolving credit facilities, for which there were no outstanding balances as of Dec. 31, 2013. The company also has approximately $6.2 billion of borrowing capacity with the Federal Home Loan Bank of New York. New York Life Insurance Company 7
Financial Performance and Earnings (%) 2009 2010 2011 2012 2013 Fitch s Expectations Revenue, Excluding Realized Gains/(Losses) 21,859 23,290 23,385 24,108 24,852 New York Life is expected to Net Income 1,327 1,655 1,281 1,999 1,816 generate midsingle-digit returns on equity in 2014. Profitability should Pretax Realized Gains/(Losses) 387 858 377 1,027 (71) remain relatively stable, given lowrisk/return % Pretax Operating Return on Assets 0.7 0.8 0.5 0.7 1.0 product and distribution % Return on Common Equity 6.9 7.7 5.6 8.6 8.3 profiles. Note: U.S. GAAP accounting. Source: Fitch Ratings, SNL Financial. Sustained Solid Profitability Product profile contributes to earnings stability. Favorable risk-adjusted returns. Operating earnings remain solid. Sales activity remains robust. Product Profile Contributes to Earnings Stability New York Life generates consistent operating results driven by its large, seasoned book of life insurance and annuity products. The relative stability of earnings comes in part from the participating nature of the company s whole life book that has limited guarantees and flexible dividend scale. Key factors enabling the individual life segment to market its products on a cost-effective basis are its low lapse rates associated with protection-based insurance products and overall low expense base, aided by New York Life s significant scale. Fitch believes the company s low lapse rate for its life products illustrates sound product design, competitive dividend rates and strong relationships between New York Life s career agency system and its policyholders. Employee pension-related funding could continue to generate moderate earnings volatility in a sustained low interest rate environment. The plan status remains underfunded by $1.8 billion as of year-end 2013. Favorable Risk-Adjusted Returns While New York Life s profitability measures appear modest when compared with the industry, Fitch views its results as favorable on a risk-adjusted basis. The company s returns are partially suppressed by strong capital levels along with the lower risk/lower return nature of its primary product, whole life insurance, which accounts for the majority of general account statutory reserves. Due to the participating nature of this product, underwriting and investment experience is shared with policyholders in the form of dividends that can be adjusted annually. Operating Earnings Remain Solid New York Life s operating earnings improved in 2013, partially due to higher asset-based fees driven by favorable capital market performance and sales activity, which was somewhat offset by modest spread compression in interest rate-sensitive business. Fitch believes that New York Life s exposure to potential economic headwinds is manageable over the near term, due to its conservative product profile and capitalization. Sales Activity Remains Robust New York Life is consistently among the industry leaders in life insurance sales largely due to the strength of its career agency channel. Individual life sales were up 4% in 2013 driven primarily by sales of individual whole life and universal life sales. Individual annuity sales grew New York Life Insurance Company 8
30% in 2013 led by its guaranteed lifetime income and guaranteed future income products, as well as a significant increase in its MVA fixed deferred annuity sales and VAs. While new fixed annuity sales with guaranteed minimum interest rates below 1% reduce the company s overall interest rate risk and product features remain conservative, Fitch generally views rapid growth with caution. New York Life has a relatively small VA book with $23 billion in account value, 25% of which have living benefits. For VAs with living benefit guarantees, the net amount at risk is less than 1%. New York Life s mutual fund and institutional investment net sales declined by a modest 2% in 2013 to $10 billion. New York Life Insurance Company 9
Investments and Asset Risk 2009 2010 2011 2012 2013 Fitch s Expectations Cash and Invested Assets ($ Mil.) 157,605 164,819 174,916 180,108 187,801 Asset exposures are expected to remain relatively stable and creditrelated impairments should be Below Investment-Grade Bonds/TAC (%) 68 56 57 51 45 Risky Assets Ratio (%) 128 116 126 128 121 modest. Investment Yield (%) 5.5 5.3 5.1 4.9 4.7 TAC Total adjusted capital. Note: U.S. statutory accounting. Source: SNL Financial, Fitch Ratings. Investment Risks Manageable in Diversified Portfolio Well-diversified portfolio. Above-average risky assets. Commercial real estate-related concerns manageable. Low credit-related losses. Well-Diversified Portfolio New York Life manages a well-diversified liquid investment portfolio that has performed relatively well in 2013. Investment yields have declined with the overall interest rate environment, but credit related impairments remain very low. The portfolio consists primarily of investment-grade publicly traded and private placement bonds (with no notable shift to NAIC 2 bonds), mortgage loans and agency structured products. However, the company maintains above-average exposure to private equity limited partnerships and common stocks. Above-Average Risky Assets New York Life s risky assets ratio (measured by below investment-grade bonds, common stocks, schedule BA other invested assets, and troubled real estate as a percentage of TAC) remained above industry average at 119% as of June 30, 2014. The company s asset/liability management (ALM) strategy matches a diversified portfolio of limited partnerships and other private equity investments with participating business lines. Impairment-related losses during the economic crisis were manageable with respect to the company s capital and diversified investment portfolio. Gains from limited partnerships were a driver of increased TAC in 2013. Commercial Real Estate-Related Concerns Manageable Fitch s primary investment concerns are related to the company s exposure to residential and commercial real estate-related investments such as non-agency residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and commercial mortgage loans. Performance has been favorable in recent years with very low impairments in mortgage loans and only modest losses in structured bond classes. Under a scenario of prolonged economic weakness, Fitch believes that New York Life will incur manageable levels of delinquencies, restructured loans and impairments. Low Credit-Related Losses New York Life s 2013 gross credit losses were negligible at 2 bps of cash and invested assets. Fitch expects losses for 2014 to remain manageable relative to statutory earnings and capital, given the quality of its portfolio. The company has moderate exposures to troubled corporate credit sectors with banks/financial institutions and sovereigns comprising approximately 6% and 2% of corporate exposure, respectively. New York Life Insurance Company 10
2013 Risky Assets to Total Adjusted Capital (New York Life Versus. Life Industry Aggregate) (%) 150 120 90 60 30 0 Below Investment Grade/Total Adjusted Capital New York Life Troubled Real Estate/Total Adjusted Capital Source:SNL Financial, Fitch. Unaffiliated Common Stock/Total Adjusted Capital Life Insurance Industry Sch BA Other Investment Assets/TAC Risky Assets Ratio New York Life Cash and Invested Assets ($189 Bil. at Dec. 31, 2013) Contract Loans Cash 5.0% 0.9% Real Estate 0.5% Mortgage Loans 11.0% Preferred Stock <1% ABS 4.3% Common Stock 2.5% Non-Agency Residential MBS 2.2% Source: Company. Derivatives 0.5% Commercial MBS 4.7% Other Invested All Other Assets (Sch. BA) Invested Assets 7.4% 0.1% U.S. Treasurys and Agencies 4.5% Municipal 2.3% Non-U.S. Sovereign 1.1% Agency RMBS 11.7% Corporates 41.1% New York Life Insurance Company 11
Asset/Liability and Liquidity Management 2009 2010 2011 2012 2013 Fitch s Expectations Liquidity Ratio (%) 78.8 78.3 75.1 72.8 69.4 Fitch expects operating cash flow coverage to remain near 1.3x and the liquidity ratio to Operating Cash Flow Coverage (x) 1.7 1.4 1.3 1.3 1.3 remain in the 65% 75% range in the near Total Adjusted Liabilities and Deposits ($ Mil.) 173,705 184,090 196,612 204,312 217,138 term. Note: U.S. statutory accounting. Source: Fitch Ratings, SNL Financial. Solid Asset Liability Management and Good Liquidity Strong liquidity position. Well-managed product risk. Modest exposure to VA guarantees. Strong Liquidity Position New York Life maintains a large publicly traded bond portfolio, benefits from strong cash flows generated through its large individual life insurance book and product design that mitigates liquidity risk. The liquidity ratio is average in comparison with other large writers of individual life insurance. Well-Managed Product Risk Fitch believes the company effectively manages asset and liability risks through good product design, strict pricing discipline and actively managing duration. As part of its strategy, New York Life accepts mortality, longevity and credit risk when adequately compensated and seeks to reduce or minimize interest rate risk and foreign exchange risk. New York Life is exposed to withdrawal/maturity risk through individual annuities and stable value products. Its interest rate and disintermediation risks are well managed through cash flow matching and contract provisions. In addition, the company mitigates liquidity risks in its institutional annuity products by limiting the overall exposure to these products to 25% of general account liabilities (8.6% at year-end 2013). Fitch believes New York Life s liquidity risk is well managed, as none of its $9.3 billion in funding agreement-backed medium-term notes have put options that are exercisable. Modest Exposure to VA Guarantees New York Life s moderate position in the VA market has not significantly affected the company s earnings and capital under protracted adverse financial market conditions. New York Life manages these risks through a combination of product design features and hedging. The company has limited exposure to VAs with guaranteed living benefits. Liabilities VA Guarantees ($ Mil., GAAP Liability) 2013 2012 GMDB 43 32 GMAB 69 405 Total 112 437 VA Variable annuity. GMDB Guaranteed minimum death benefit. GMAB Guaranteed minimum accumulation benefit. Source: Company. Selected Variable Annuity Benefit Guarantee Data a Account Value Net Amount at Risk ($ Mil.) 2013 2012 2013 2012 GMDB Return of Premium 12,698 9,456 26 47 GMAB Return of Premium 5,766 4,526 19 51 GMDB Ratchet 11,570 10,985 160 286 a New York Life's variable annuity contracts offer more than one guarantee. Amounts are not mutually exclusive. GMDB Guaranteed minimum death benefit. GMAB Guaranteed minimum accumulation benefit. Source: Company. New York Life Insurance Company 12
Complete Ratings List Appendix A: Additional Financial Exhibits Issuer Security Class Rating New York Life Insurance Co Insurer Financial Strength AAA Long-Term Issuer Default Rating (IDR) AA+ Surplus Notes AA Short Term IDR F1+ New York Life Insurance and Annuity Corporation Insurer Financial Strength AAA NYL Capital Corporation Commercial Paper F1+ New York Life Global Funding Funding Agreement Backed Note Programs AAA New York Life Funding, Inc. Funding Agreement Backed Note Programs AAA Source: Fitch Ratings. New York Life Insurance Company 13
Appendix B: Other Ratings Considerations Below is summary of additional ratings considerations of a technical nature that are also part of Fitch s ratings criteria. Group IFS Rating Approach All of the insurers listed in the table on page 13 are considered to be core subsidiaries and, thus, Fitch applied a group rating methodology, rating each entity based on a combined group assessment. Notching Per Fitch notching criteria, New York Life s country of domicile, the United States, is a strong regulatory environment with restrictions on payments from the operating companies to holding company and priority afforded policyholder obligations. New York Life Global Fund and New York Life Funding Note Programs The AAA ratings on these and related issues recognizes that the trust obligations are secured solely by funding agreements issued by New York Life with cash flow structures that enable the trustees to pay the principal and interest on the notes. The note programs are dependent on New York credit quality and are assigned a rating equal to that company s IFS rating. Notching Summary Holding Company Not applicable. IFS Ratings Due to the existence of policyholder priority, a baseline recovery assumption of Good was applied to the Insurer Financial Strength (IFS) rating and standard notching was used. Surplus Notes A baseline recovery assumption of Below Average was applied and standard notching was used. Short-Term Ratings New York Life s short-term Issuer Default Rating (IDR) was notched using standard long-term and short-term ratings equivalencies, per Fitch s criteria. Back-up meets Fitch s liquidity guidelines. New York Life s subsidiary New York Life Capital Corp. (NYL CapCo) is authorized to issue $2 billion in commercial paper and serves solely as a funding vehicle for the organization. At Dec. 31, 2013, the company had $503 million of commercial paper outstanding. NYL CapCo s commercial paper rating is directly related to the credit quality of its parent, New York Life, which provides explicit support to its subsidiary via a support agreement. The support agreement states that New York Life will (directly or through a wholly owned subsidiary) own and hold the entire legal title to and beneficial interest in all outstanding shares of capital stock of NYL CapCo. New York Life Insurance Company 14
The support agreement also indicates that New York Life will at all times cause NYL CapCo to have a tangible net worth of at least $1. Support for the rating includes $1.0 billion in back-up sources of liquidity: a three-year credit agreement for $500 million that expires June 28, 2016 and a five-year credit agreement for $500 million that expires June 28, 2018. Hybrids Equity/Debt Treatment Hybrids Treatment Summary Hybrid Amount ($ Mil.) CAR Fitch % CAR Reg. Override % FLR Debt % Surplus Notes due 2039 1,000 0 100 100 Surplus Notes. due 2033 1,000 0 100 100 CAR Capital adequacy ratio. FLR Financial leverage ratio. Note: CAR % shows a portion of hybrid value included as Available Capital, both before (Fitch %) and after Regulatory Override. For FRL, % shows a portion of hybrid value included as debt in numerator of leverage ratio. Exceptions to Criteria/Ratings Limitations None. New York Life Insurance Company 15
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In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. New York Life Insurance Company 16