[August 26, 2014]

Fitch Assigns 'AA+' IFS to Guardian Life Subsidiary, Berkshire Life; Outlook Stable

Fitch Ratings assigns an 'AA+' Insurer Financial Strength (IFS) rating to Berkshire Life Insurance Company of America, (BLICA), a wholly owned subsidiary of The Guardian Life Insurance Company of America (Guardian). Existing ratings assigned to Guardian and its affiliates are unaffected by this issuance. The Rating Outlook is Stable.

KEY RATING DRIVERS

Fitch has extended Guardian's group IFS rating of 'AA+' to its operating subsidiary, BLICA, based upon its 'Core' status due to the strategic fit and Guardian's strong ability and track record of supporting subsidiary operations.

Fitch views BLICA as 'Core' due its strategic fit for Guardian with regards to diversification of product revenues and profitability and Guardian's ability and track record of supporting subsidiary operations.

BLICA's primary business is sale and administration of Guardian's disability income. BLICA writes new individual disability income (DI) products through Guardian's career agency system and group offices.

Individual disability insurance is considered a core part of Guardian's product offerings, complementing its large par whole life and group life product lines. Individual Disability premium accounts for 6.5% of total Guardian premium in 2013 and 5% of Guardian's earnings. BLICA and Guardian entered into a new reinsurance agreement in 2013 where Guardian assumed 80% of BLICA's net individual disability business on a funds withheld basis.

Guardian is expected to maintain BLICA's risk based capital at approximately 350% going forward, following a pending capital transfer to parent, Guardian, following the 2013 reinsurance agreement.

BLICA is a wholly owned stock subsidiary of Guardian and licensed in all 50 states. BLICA reported total assets of $3.6 billion and total adjusted capital of $624 million at June 30, 2014.

Guardian's very strong 'AA+' Insurer Financial Strength ratings continue to reflect exceptionally strong balance sheet fundamentals, stable operating results, and a favorable operating profile. The Stable Outlook is driven by Fitch's expectations of continued sustainable solid operating and investment performance for 2014, supported by conservative product and distribution profiles. Fitch believes that the pressure on profitability and capital driven by an extended low interest rate scenario and future investment losses is manageable in the context of the company's capital position and liability profile.

Guardian's very strong balance sheet fundamentals include extreely strong risk-based capitalization, low leverage, and a stable liability profile. The extremely strong capitalization and quality of capital are key factors supporting the rating. Fitch estimates Guardian's risk-based capital (RBC) ratio to be above 525% at June 30, 2014. Total adjusted capital (TAC) increased 13% to $6.8 billion at June 30, 2014 from $6.1 billion at year-end 2013 due in part to the issuance of $450 million in fifty year surplus notes in June 2014. Financial leverage (surplus notes in relation to TAC) increased to approximately 14% from 7% as of Dec. 31, 2013. The total financing and commitments (TFC) ratio remains very low at 0.1x.

Guardian's recent operating performance has remained relatively stable and in line with rating expectations. Reported statutory operating return (after taxes and policyholder dividends) on TAC is in the 4% to 7% range, consistent with peer mutual companies and reasonable given the company's mix of business. Guardian also has significant flexibility to adjust policyholder dividends should experience warrant.

RATING SENSITIVITIES

As a core member of The Guardian Life Insurance Company of America, BLICA shares the same rating sensitivities as the group as a whole.

Key drivers that could result in a downgrade include:

--A significant decline in TAC or an RBC ratio below 400%;

--Statutory financial leverage above 15%;

--GAAP interest coverage below 7x;

--A deterioration in disability claims experience causing a significant operating or capital loss;

--And/or regulatory or tax law changes that hurt the company's position in its primary whole life market.

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

Fitch assigns the following rating with a Stable Outook:

Berkshire Life Insurance Company of America

--IFS 'AA+'.

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

Applicable Criteria and Related Research:

--'Insurance Rating Methodology', Nov. 13, 2013.

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=857614

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