Fitch Ratings Affs Navy Mutual Aid Association's 'A+' IFS Rtg.

Business Editors

CHICAGO--(BUSINESS WIRE)--June 17, 2003

Fitch Ratings has affirmed Navy Mutual Aid Association's (NMAA's) 'A+' insurer financial strength rating. The Rating Outlook is Stable.

Rationale for the rating includes NMAA's solid niche position as a provider of mainly interest-sensitive and term life insurance to active, reserve and retired members of the U.S. Navy, U.S. Marine Corps, U.S. Coast Guard, U.S. Public Health Service and National Oceanic and Atmospheric Administration and their families and NMAA's solid capital position. Fitch views as additional strengths NMAA's conservative reserving, outstanding persistency and low mortality, consistently low expense ratios, and its focused and steadfast adherence to its mission of serving its members.

Partially offsetting these strengths is the decline in NMAA's adjusted surplus over the last two years due mainly to unrealized losses in the company's equity portfolio. NMAA has historically carried a moderately higher than industry allocation to common stocks, resulting in volatility of asset values and adjusted surplus. Fitch notes that NMAA has modified its equity exposure strategy and is reducing common stock investments as a percentage of statutory capital.

Fitch views NMAA's operating performance over the last three years as good, characterized by consistent, moderate pre-dividend gains from operations and moderate premium growth. While the Association's statutory gain from operations before policyholder dividends declined to $35 million in 2002, versus $40 million for 2001, NMAA reported a second consecutive year of modest operating gains after dividends. Key drivers were lower policyholder dividend rates in response to the continued low interest rate environment, well managed expense levels, good investment income and favorable persistency and mortality experience. Fitch expects solid operational performance for 2003 as well.

Fitch notes that NMAA's investment portfolio exhibited mixed results in 2002. The association's fixed income portfolio performed well in the difficult credit environment, but its equity portfolio produced large unrealized losses reflecting the declining levels of the broad equity markets, and thereby reducing an historical source of gains for the payment of policyholder dividends.

Fitch believes NMAA bond portfolio has very low credit risk as 98% of bonds were investment grade at year-end 2002, and NMAA's investment in below investment grade bonds as a percent of adjusted surplus is well below the industry average at 33%. The association's exposure to mortgages and real estate is very low at less than 1% of invested assets. Bonds comprised approximately 84% of invested assets, and common stocks represent 5% which is below the historical range of between 6% and 8% of invested assets. The company's equity portfolios consisted of diversified, indexed funds.

Fitch views NMAA's liquidity and asset liability management to be sound. While the long duration of the bond portfolio increases NMAA's interest rate risk, it is considered appropriate for the association's liability profile.

Navy Mutual Aid Association, which is headquartered in Arlington, Virginia, reported total admitted assets of $1.6 billion and adjusted surplus of $88 million at Dec. 31, 2002. The association currently has over 100,000 members and over $9.9 billion of insurance in force as of December 2002.

Entity/Issue/Type Action Rating/Outlook

Navy Mutual Aid Association

-- Insurer financial strength Affirmed 'A+'/Stable.