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 affirmation of the ratings reflects NWL’s stable statutory capital and surplus and consolidated GAAP equity, its strong level of risk-adjusted capitalization, profitable net operating performance—albeit decreased in 2011 due to index option volatility—the absence of financial leverage in its capital structure and a conservative fixed income investment portfolio. The rating actions also reflect NWL’s diverse business profile, which includes dollar-denominated life products to residents of Latin and Central America countries. A.M. Best recognizes NWL’s long-standing presence in the international life insurance segment as a strong competitive advantage that provides diversification of revenue, earnings and risk management. Other positive rating factors include NWL’s well-defined hedging programs designed to mitigate the equity market risk associated with its fixed index annuities and life products and asset/liability management that ensure appropriate matching of its assets with its product liabilities.
Partially offsetting these positive rating factors is NWL’s large and increasing exposure to interest-sensitive liabilities, which is a result of recent strong growth in annuity sales. The company’s interest-sensitive liability growth trends are supported primarily by a fixed-income investment portfolio, which could be vulnerable to declining yields and further 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.