A.M. Best has affirmed the financial strength rating of A (Excellent) and the 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 consistently favorable operating performance, on both a statutory and GAAP basis, which has led to increases in statutory capital and surplus, consolidated stockholders’ equity and risk-adjusted capitalization. NWL maintains a relatively diverse business profile, offering primarily equity-indexed annuities within the United States and equity-indexed universal life domestically and to residents in international markets. International sales are generated with residents in Central and South America, the Caribbean, Eastern Europe, Asia and the Pacific Rim. A.M. Best notes that NWL mitigates the added risk of international exposure by accepting applications from foreign nationals in upper socioeconomic classes and by denominating policies in the U.S. dollar. In addition, the company utilizes derivative hedging instruments to mitigate exposure to market risks associated with its equity-indexed products.

Partially offsetting these positive rating factors are NWL’s large exposure to interest sensitive liabilities due to growth in fixed-indexed annuities in recent years. NWL mitigates the risk of spread compression through a well matched fixed income portfolio and active management of crediting rates; however, a continued low interest rate environment could negatively impact the company’s operating results. Moreover, NWL is protected against disintermediation risk through long-term surrender charge penalties. A.M. Best notes that the company could be challenged to sustain its historical operating performance due to competition from larger companies with substantial financial resources and marketing depth, as well as increased expense strains associated with premium growth.

A.M. Best believes positive rating actions are unlikely in the near to medium term. NWL’s ratings may face downward pressure if operating results deteriorate, there is increasing product concentration in interest sensitive liabilities or risk-adjusted capitalization declines materially.

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 www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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