A.M. Best Affirms Credit Ratings of NLV Financial Corporation and Its Affiliates
January 26, 2017 by Best's News Service
Oldwick – A.M. Best has affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term 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). Both companies are life 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.
A.M. Best also has affirmed the Long-Term ICR and the Long-Term Issue Credit Rating (Long-Term IR) of “bbb+” of NLVF. Additionally, A.M. Best has affirmed the Long-Term IR of “a-” on $200 million 10.50% surplus notes, due 2039 of NLIC. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the Long-Term IRs.)
The National Life Group’s ratings reflect its long history of solid execution in targeting life and annuity product solutions to the middle market segment, which it markets through a combination of career agents and a growing independent agency force. The group targets distributors in which members can collaborate, making for stronger partnerships and continued success. The group has shown strong sales growth in recent years, outperforming the broad insurance market combined with operational profitability. The profitable growth has led to an increased market position with increasing market share in its niche products, such as its K-12 educators market. The ratings also reflect recent efforts and the longer-term plan to migrate the invested asset portfolio to a more favorable risk/reward position.
Despite the group’s ongoing efforts to shift to a more balanced book of business, which is less interest sensitive dependent, the group remains concentrated in equity indexed-linked products in the life and annuity segments. Additionally, sales become increasing reliant on guaranteed income benefits, which add additional longer risks to the liability profile. In addition to the inherent risks of these products, these products also have come under additional regulatory scrutiny, and the group’s fixed indexed annuity products may be impacted by the U.S. Department of Labor’s fiduciary rule. Lastly, while the group has a track record of increasing risk-adjusted capitalization, the increased use of captives and surplus notes, reduces the overall quality of capital. In particular, the surplus notes carry a significant interest rate and have impacted the group’s cost of capital and pressured profitability.
The ratings could be impacted positively if the National Life Group is able to maintain strong profitable statutory earnings, increasing capital, and a diversified product mix including less interest sensitive products. The ratings could be impacted negatively if there is sustained material deterioration in operating performance and risk-based capital. The ratings also could be impacted negatively if there is a material increase in riskier assets classes. The following Long-Term IRs 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
National Life Insurance Company—
— “a-” on $200 million 10.50% surplus notes, due 2039
This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings.
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