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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 28, 2010 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit rating to "bbb+" from "a-" of National Farm Life Insurance Company (National Farm) (Fort Worth, TX). The outlook has been revised to stable from negative.
The rating actions reflect National Farm's weakened risk-adjusted capitalization, the challenging business environment, which has led to a decline in new business, investment losses reported during the last two years and the potential for further investment impairments given the company's continued unrealized investment loss position.
A.M. Best notes that National Farm's risk-adjusted capital levels have declined relative to higher historical levels, and absolute total capital has been flat over the latest five-year period. At year-end 2009, National Farm's level of below investment grade securities was elevated, representing over half of its total capital, while real estate exposure through direct mortgage loans was approximately three-quarters of surplus. In addition, National Farm recorded a number of impairments on selected fixed income securities, which resulted in realized capital losses over the last two years.
The ratings continue to reflect National Farm's stable book of business and good market position in its niche rural markets. The continued expansion into worksite markets and the emerging Hispanic market have provided the company with additional opportunities to expand its business. However, A.M. Best notes that first-year life premiums have declined in each of the last two years. To rebuild total capital that declined as a result of realized investment losses over the past two years, the company reduced its participating policy dividend scale. This action has led to an increased net gain from operations.
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.