Business & Finance
Business and Finance
Business and Finance
Thu, May 26, 2011 A.M. Best Affirms Ratings of National Western Life Insurance Company
OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of aaa of National Western Life Insurance Company (NWL)(Denver, CO) (NASDAQ: NWLI). The outlook for both ratings is stable.
"Risk Management and the Rating Process for Insurance Companies."
The affirmation of the ratings reflects NWLa™s increasing statutory capital and surplus and GAAP equity, as well as its strong level of risk-adjusted capitalization. Risk-adjusted capitalization has been enhanced by NWLa™s profitable net operating performance, the absence of financial leverage in its capital structure and a conservative fixed-income investment portfolio that has modest exposure to non-agency residential mortgage-backed structured securities, no exposure to commercial mortgage-backed structured securities and is currently in a large unrealized gain position. The rating actions also reflect NWLa™s diverse business profile, which includes writing dollar denominated ordinary life products to residents in a variety of countries.
A.M. Best recognizes NWLa™s international insurance segmenta™s strong competitive position that provides diversification of revenue and insurance risks, as well as profitable earning trends. Positive rating factors also include NWLa™s strong cash flow analytics, well-defined hedging programs designed to mitigate the market risks associated with its indexed products and asset/liability techniques that ensure appropriate matching of its assets with its product liabilities.
Partially offsetting these positive rating factors is NWLa™s large and increasing exposure to interest- sensitive liabilities, which is a result of recent strong growth in annuity sales. The companya™s interest-sensitive liability growth trends are supported primarily by a fixed-income investment portfolio, which could be vulnerable to heightened market volatility and reinvestment risks. A.M. Best recognizes that these risks are somewhat mitigated by surrender charge protection and market value adjustments within its annuity products, as well as by its strong capital position. A.M. Best believes NWL may be challenged to sustain and improve its historical operating performance given the expense strains expected from anticipated new business growth, the challenges of increased competition and costs related to its continuing technology enhancement initiatives. While acknowledging its recent efforts to grow its U.S. domestic life businesses, A.M. Best believes the company will remain challenged to meaningfully grow this segment in the near term given the intense competitive landscape of the individual life insurance market. Additionally, due to the challenges to achieve economies of scale in its U.S. domestic life insurance segment, A.M. Best believes the segmenta™s earnings will be modest relative to the companya™s annuity and international business segments.
A.M. Best notes that NWLa™s net premium and deposit growth in recent years has been driven primarily by strong sales of its annuities, especially indexed annuity products, which have been subject to industry-wide market conduct and suitability challenges. However, NWLa™s prudent product design and customer profiles, its diverse business profile and integrated risk model, including hedging programs and active market conduct and compliance programs, somewhat mitigate these concerns. Additionally, the recent repeal by the courts of the SECa™s rule 151A has provided NWL with the opportunity to continue to market its fixed indexed annuity products through its traditional distribution channels. NWL has addressed the recent changes to the NAICa™s suitability model regulation for annuities and life insurance by complying with the training component of the regulation and further enhancing its internal processing procedures.
The principal methodology used in determining these ratings is [ Besta™s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta™s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aUnderstanding BCAR for Life and Health Insurersa; aAssessing Country Riska; and aRisk Management and the Rating Process for Insurance Companies.a Methodologies can be found at [ www.ambest.com/ratings/methodology ].
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit [ www.ambest.com ].
Copyright © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.
