A.M. Best Affirms Ratings of NLV Financial Corporation and Its Subsidiaries
November 14, 2013 by A.M. Best
OLDWICK, N.J. – A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and the issuer credit ratings (ICR) of “a+” of National Life Insurance Company (NLIC) (Montpelier, VT) and its wholly owned subsidiary, Life Insurance Company of the Southwest (Dallas, TX) (together known as National Life). These companies are the insurance subsidiaries of NLV Financial Corporation (NLVF) (Montpelier, VT), which is the intermediate holding company in the organization’s mutual holding company structure. NLVF and its subsidiaries are collectively known as the National Life Group.
Concurrently, A.M. Best has affirmed the ICR and senior debt ratings of “bbb+” of NLVF. A.M. Best also has affirmed the debt rating of “a-” on $200 million 10.50% surplus notes due 2039 of NLIC. The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.)
National Life Group’s ratings recognize its consistent operating performance, continued conservative risk profile, double-digit sales growth, record life sales and diverse distribution channels. The company also benefits from its competitive position in the indexed universal life (UL) insurance and 403(b) indexed annuity markets, as well as its good expense management. The rating affirmations also reflect National Life Group’s strong risk-adjusted capitalization, which was strengthened by its 2009 surplus note issuance and profitable operations. National Life Group continues to report consistent profitability on both a statutory and GAAP basis. In addition, National Life Group continues to grow its capital base with 2012 total adjusted capital at approximately $1.5 billion, which is 13% above 2011 levels.
National Life Group’s investment portfolio—which is currently in a net unrealized gain position of approximately $1.7 billion—is conservatively managed, with limited exposure to structured securities, including commercial mortgage-backed securities. All residential mortgaged-backed securities held by National Life Group are highly rated, agency backed, without any exposure to Alt-A or subprime collateral. In addition, National Life Group exercises discipline in product design while maintaining competitive positions within its mainstream products (indexed UL and indexed annuities). Mutual fund financial performance by National Life Group’s investment management affiliate, Sentinel Investments, has shown a positive trend in operating earnings for the past three years at $12.0 million for 2012, compared to $9.2 million for 2011. Total assets under management continued to grow and were approximately $30 billion by year-end 2012.
Offsetting these positive rating factors are National Life Group’s dependence on retirement products for a large portion of its statutory earnings and its concentration in equity indexed products business. Additionally, the 2009 surplus note issuance increased National Life Group’s GAAP financial leverage to approximately 21% at December 31, 2012, (excluding other comprehensive income); however, it remains within A.M. Best’s guidelines for the company’s current ratings. At the same time, National Life Group’s GAAP interest coverage at five times has been pressured by the additional interest expense on the surplus notes, which carry a relatively high coupon. However, A.M. Best notes that the organization’s debt service capabilities are supported by a strong cash and invested asset position, along with favorable service capabilities at its primary insurance subsidiaries.
A.M. Best believes that National Life Group’s is well positioned at its current rating level for the near term. Key rating drivers that may lead to positive actions on National Life Group’s ratings include a continued shift to protection products, a sustained growth trend in total profitability and continued strengthening of its risk-adjusted capital. Key drivers that may lead to negative ratings actions include a sustained material deterioration in the organization’s operating performance, material impairments or realized losses in its investment portfolio, and diminished key capital, leverage, coverage and liquidity ratios.
The following debt ratings have been affirmed:
NLV Financial Corporation—
– “bbb+” on $75 million 6.50% senior unsecured notes, due 2035
– “bbb+” on $200 million 7.50% senior unsecured notes, due 2033
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology. BN-NJ-11-14-2013 1540 ET #
