Fitch Ratings Affirms Guardian's 'AA+' IFS Ratings; Outlook Stable

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NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the 'AA+' insurer financial strength (IFS) ratings of Guardian Life Insurance Company of America and its wholly owned subsidiary, Guardian Insurance & Annuity Company, Inc. (collectively referred to as Guardian). The Rating Outlook is Stable.

Guardian's very strong ratings reflect exceptionally strong balance sheet fundamentals, below-average investment risk, stable operating results, and a favorable operating profile.

Guardian's exceptionally strong balance sheet fundamentals, include strong statutory capitalization with limited investment exposure to structured finance and below investment grade securities. Fitch estimates that Guardian's risk-based capital ratio was 481% as of March 31, 2011 compared to 492% at year-end 2010, and expects the RBC to end 2011 well above 450%.

Guardian's quality of capital is strong, with limited financial leverage or dependence on reserve financing arrangements. Guardian has $400 million of surplus notes outstanding, which accounted for 7% of TAC at the end of the first quarter of 2011 compared to a Fitch maximum guideline of 15%. Operating leverage of 6.1 times (x) is low relative to mutual company peers and the industry as a whole, and the company's pension obligation is fully funded. Guardian's total financing and commitments (TFC) ratio is among the lowest in the industry at .04x.

Guardian also has a relatively low risk liability profile with limited exposure to equity market volatility and disintermediation risk. Individual participating whole life insurance accounts for roughly 70% of consolidated general account reserves, while retail annuities account for just 4%. Fitch views participating whole life as relatively low risk, given the long duration participating liabilities, limited disintermediation risk and very limited guarantee provisions. The ability to adjust policyholder dividends every year provides the company with significant financial flexibility.

Guardian's operating performance continues to meet or exceed Fitch's expectations. Guardian has consistently generated about $1 billion of consolidated statutory operating earnings per year pre-tax and pre-dividend, and has paid out over $700 million in policyholder dividends in each of the past three years. Guardian's three core operating segments -- individual life, individual disability and group non-medical insurance, particularly dental -- continue to provide diversified earnings streams and consistently contribute to results.

Fitch's concerns include the potential for significant deterioration in disability loss ratios in the current economic environment and for regulatory changes that could have a negative effect on Guardian's primary markets or distribution channels.

The Stable Rating Outlook reflects Fitch's view that current trends will continue over the next 12 to 18 months.

Guardian is a mutual life insurance company based in New York City. As of March 31, 2011, the group had consolidated statutory total admitted assets and total adjusted capital of $46 billion and $5.4 billion, respectively.

Key rating drivers that could lead to a downgrade include a significant decline in TAC or an RBC ratio below 400% on a sustained basis; a deterioration in disability claims experience causing a significant operating or capital loss at the Berkshire subsidiary; and/or regulatory or tax law changes that hurt the company's position in its primary whole life market.

Given that Guardian already has the second highest rating, Fitch does not anticipate an upgrade at this time.

Fitch affirms the following ratings with a Stable Outlook:

Guardian Life Insurance Company of America

--Issuer default rating (IDR) at 'AA';

--Insurer financial strength (IFS) at 'AA+';

--Surplus notes at 'AA-'.

Guardian Insurance and Annuity Company

--Insurer financial strength (IFS) at 'AA+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Life Insurance Rating Methodology' (March 31, 2011);

--'Insurance Rating Methodology' (March 31, 2011);

--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (March 31, 2011);

--'Fitch's Approach to Rating Insurance Groups' (Dec. 14, 2010);

--'Total Financing and Commitment Ratio (TFC) for Insurance Organizations' (May 21, 2010).

Applicable Criteria and Related Research:

Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=612905

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614266

Insurance Industry: Global Notching Methodology and Recovery Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=614265

Fitch's Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765

Total Financing and Commitment Ratio (TFC) for Insurance Organizations: Definition and Application

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=528708

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CONTACT:

Fitch Ratings
Brian Bertsch, +1-212-908-0549
Media Relations, New York
brian.bertsch@fitchratings.com
or
Primary Analyst:
Cynthia J. Crosson, +1-212-908-0863
Director
Fitch Ratings
One State Street Plaza
New York, New York 10004
or
Secondary Analyst:
Douglas L. Meyer, CFA, +1-312-368-2061
Managing Director
or
Committee Chairperson:
Brian C. Schneider, CPA, 1-312-606-2321
Senior Director