Fitch Affirms CUNA Mutual Group's Ratings; Outlook Stable

Business Wire, Sept 5, 2003

Business Editors

CHICAGO--(BUSINESS WIRE)--Sept. 5, 2003

Fitch Ratings affirms the 'AA-' insurer financial strength ratings of the CUNA Mutual Insurance Society (CUNA Mutual), its wholly-owned property casualty subsidiary, CUMIS Insurance Society, Inc. (CUMIS) and its affiliate, CUNA Mutual Life Insurance Company (CMLIC). Fitch also affirms the long term issuer rating of CMLIC of 'A+'. The Rating Outlook is Stable.

CUNA Mutual Group is the leading provider of insurance and other financial services in the credit union marketplace. CUNA Mutual Group's dominant market position reflects the company's strategic focus on and long-standing relationship to the credit union marketplace. Fitch believes that the strong relationships and knowledge of the credit union market place provides CUNA Mutual a competitive advantage relative to other competitors serving the credit union marketplace. The strength of this relationship continues to be a significant rating factor for Fitch.

Other key rating factors include the company's good overall balance sheet fundamental, modest earnings performance and limited operating scale in certain business lines.

CUNA Mutual Group's good balance sheet fundamental reflect the company's good, albeit reduced, risk-based capitalization, conservative reserves, and strong asset quality and liquidity. Fitch is concerned about the decline in risk-adjusted capitalization and anticipates that the company will take steps to improve overall statutory capital adequacy through improved earnings and reducing required capital. Fitch views the quality of CUNA Mutual Group's statutory capital position as very strong - the company employs no financial leverage or financial reinsurance. As a mutual insurance organization, the company's financial flexibility is somewhat constrained.

CUNA Mutual Group's operating performance during 2001 and 2002 declined as US credit markets experienced deterioration. On a GAAP basis, CUNA Mutual Group generated a net loss in 2002 of $12 million due to increased investment losses, write downs of its mortgage servicing rights, a weakening in the operating performance of the property casualty segment, and continued underperformance in the asset accumulation business. CUNA Mutual Group has taken several positive steps in 2003 to reduced expenses and improve overall results. Results in 2003 have improved based on these initiatives, the elimination of one time charges, and improved investment performance. Fitch anticipates further improvement in earnings performance for the balance of 2003 and into 2004.

Since growth opportunities within the credit union market are limited, CUNA Mutual Group's continued strong market dominance is essential. CUNA Mutual Group provides some product or service to virtually all credit unions in the U.S. The number of credit unions in the US continues to decline, predominantly through merger and consolidation, down to approximately 10,000 at year-end 2002. However, credit union membership has risen to nearly 85 million members. Thus, CUNA Mutual Group has a growing marketplace for its products and services.

At June 30, 2003, CUNA Mutual had statutory total assets of $2.8 billion and total adjusted statutory capital of $648 million. CMLIC had total assets of $6.3 billion and total adjusted statutory capital of $279 million. CUMIS had statutory total assets of $827 million and policyholder surplus of $296 million. Statutory net income for the six months ending June 30, 2003 for CUNA Mutual was $14 million, $12 million for CUMIS and a net loss of $5 million for CMLIC.

Fitch rates all three companies on a combined basis based on their common strategic focus, operational integration, shared management, and similar balance sheet profiles.

    Entity/Issue/Type               Action          Rating/Outlook

    CUNA Mutual Insurance Society

    CUNA Mutual Life Insurance Company

    CUMIS Insurance Society, Inc.

    -- Insurer Financial Strength   Affirm           'AA-'/Stable.

    CUNA Mutual Life Insurance Company

    -- Long-term issuer             Affirm            'A+'/Stable.