A.M. Best Affirms Ratings of National Western Life Insurance Company
June 3, 2013 by Proquest LLC
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 strong level of risk-adjusted capitalization, an increasing statutory capital and surplus level as well as consolidated GAAP equity, consistently favorable operating results from its domestic and international segments and a conservative investment portfolio in support of its large interest-sensitive liabilities surrounding fixed indexed annuities and life insurance business. The ratings also reflect NWL’s diverse business profile, offering various life and annuity products to residents in both domestic and international markets. 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. Additionally, A.M. Best looks favorably on NWL’s well-defined hedging program, designed to mitigate the equity market risk associated with its fixed index life and annuities products, and its asset-liability management process, which ensures appropriate matching of its assets with its product liabilities.
Offsetting the positive rating factors are NWL’s significant exposure to interest-sensitive liabilities, primarily resulting from growth in fixed indexed annuity sales over the past five years. However, NWL has carefully managed the production of annuities since early 2012 to moderate further concentration of interest-sensitive reserves in times of persistently low interest rates and declining bond yields. While the company’s interest-sensitive liabilities are supported primarily by an investment grade fixed-income investment portfolio and generally actively managed asset-liability management, NWL remains vulnerable to spread compression as a result of falling investment yields in the current low interest rate environment. A.M. Best notes that the surrender charge protection and market value adjustments within the company’s annuity products somewhat mitigate the risk of disintermediation if interest rates begin to rise. Furthermore, NWL’s continued involvement with allegations concerning market conduct and suitability matters could negatively impact its reputational advantage, particularly in the international life insurance segment.
A.M. Best believes NWL is well-positioned at its current rating level. The ratings could face downward pressure if the company reports a trend of declining statutory operating performance, further product concentration in interest-sensitive liabilities, a significant drop in its reported risk-adjusted capitalization or unfavorable consequences from ongoing litigation.
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: ambest.com/ratings/methodology.
A.M. Best Company is an insurance rating and information source.
