Ratings company A.M. Best Co. has revised its outlook to negative and affirmed the financial strength rating of A++ (superior) and issuer credit ratings (ICR) of "aa+" of Springfield insurer MassMutual and its life/health subsidiaries.

Concurrently, A.M. Best has revised the outlook to negative and affirmed the debt ratings of "aa-" on the existing surplus notes of MassMutual and "aa+" on notes issued under MassMutual’s funding agreement-backed securities programs. A.M. Best also has affirmed the rating of "AMB-1+" on the commercial paper of MassMutual.

The revised outlook reflects the level of MassMutual’s 2008 and 2009 investment losses, as well as the potential for additional credit losses within the group’s general account investment portfolio, Best said in a statement. In 2009, MassMutual recorded a statutory net loss of $283 million, which included pre-tax (and before transfers to the interest maintenance reserve) net realized capital losses of $988 million. A.M. Best notes that first quarter 2010 results indicate significantly lower capital losses of $22 million (pre-tax and before transfers to the interest maintenance reserve) and statutory net income of $45 million.

A majority of the company’s recent investment losses are attributable to its significant exposure to non-agency residential mortgage-backed securities (RMBS) and limited partnership equity holdings. The potential exists for additional losses in its non-agency RMBS portfolio (especially those backed by Alt-A and subprime loans). In addition, MassMutual has approximately $10 billion of direct exposure to whole commercial mortgage loans, and the generally negative outlook for commercial real estate suggests the potential for impairments.

While MassMutual’s commercial mortgage portfolio is well diversified by both property type and geographic location, A.M. Best notes that the portfolio maintains an above average exposure to properties in the higher loan-to-value ratio and lower debt service coverage ratio bands.