Fitch Affirms CUNA Mutual Group's Ratings; Outlook Stable

Business Wire, Nov 5, 2004

CHICAGO -- 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's key strengths include its dominant market position in the credit union marketplace and good overall balance sheet fundaments. The company's market position reflects its strategic focus on and long-standing relationship with 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 unions.

CUNA Mutual's good balance sheet fundamentals reflect the company's good risk-based capitalization, conservative reserves, and strong asset quality and liquidity. Over the past year, CUNA Mutual has made good progress improving its statutory capital position through improved statutory earnings and investment results. 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.

Fitch's key rating issues include the company's moderate, albeit improved, earnings profile, mono-market strategy that focuses solely on an industry deemed as a highly attractive market by insurance company competitors, and operating challenges resulting from the company's many and diverse business lines. In addition, uncertainty associated with the recent resignation of the company's chief executive officer and contract negotiations with the unionized portion of CUNA Mutual's workforce are of concern. The board is well into the process of selecting a CEO and union negotiations are currently scheduled.

CUNA Mutual's earnings performance improved in 2003 and 2004 but remain relatively moderate. Results in 2004 have been driven by continued favorable underwriting performance in the property casualty business and improved results in life and annuity products. These favorable results have been partially offset by a decline in the credit insurance business due to higher expenses, and losses in the mortgage operations due to sharply reduced refinance volumes. Looking ahead, Fitch expects that improved overall results will be sustained in 2005. Fitch, however, believes that the company will be challenged to materially improve earnings levels in both the property casualty and life businesses due to competition and continued pressure on interest margins.

CUNA Mutual is a Wisconsin-based mutual insurance organization formed in 1935. The company's strategic focus is providing insurance and other financial service products to credit unions and their members. At June 30, 2004, CUNA Mutual had total consolidated GAAP assets of $13.2 billion and $1.4 billion of GAAP book equity.

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.