A.M. Best Affirms Ratings Of National Western Life Insurance Company

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of National Western Life Insurance Company (NWL) (Denver, CO) [NASDAQ: NWLI]. The outlook for both ratings is stable.

The rating actions reflect NWL’s increasing statutory capital and GAAP equity trends, its strong level of risk-adjusted capitalization enhanced by the company’s overall profitable operating performance and the absence of financial leverage in NWL’s capital structure. NWL’s risk-adjusted capitalization has been further enhanced by a conservative investment portfolio that has, thus far, avoided significant investment losses. The rating actions also reflect NWL’s diverse business profile of accepting applications from U.S. residents, as well as residents of various international countries. A.M. Best recognizes NWL’s international insurance segment’s strong competitive position that continues to provide diversification of revenue and insurance risks, as well as profitable earning trends. NWL’s strong cash flow analytics, well defined hedging programs, which mitigate the market risks associated with its indexed products and improving asset/liability (ALM) techniques that assure appropriate duration matching of underlying assets and liabilities, also are considered positive rating factors.

Partially offsetting these positive rating factors is NWL’s large and increasing exposure to interest sensitive liabilities primarily driven by strong annuity production, and to a lesser extent, universal life sales. The company’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 acknowledges that these risks are somewhat mitigated by surrender charge protection and market value adjustments within NWL’s annuity products, as well as by its strong capital position. A.M. Best believes that the company may be challenged to sustain and improve its historical operating performance, due to expense strains associated with new business growth strategies and the challenges of increased competition and costs related to its technology enhancement initiatives. While acknowledging positive advancements made in its efforts to grow its U.S. domestic ordinary life segment, A.M. Best believes the company will remain challenged to meaningfully grow its U.S. domestic life businesses going forward, given the intense competitive landscape of the individual insurance market. Additionally, due to the challenges to achieve economies of scale in its U.S. domestic ordinary life operations, A.M. Best believes NWL’s overall statutory earnings will be dampened somewhat going forward by the expense strains and costs related to its expanding marketing initiatives. While NWL has made positive strides to refine its enterprise risk management and ALM processes, A.M. Best believes the company has more work ahead.