Best’s News & Research Service - June 28, 2013 11:34 AM (EDT)
A.M. Best Revises Outlook to Positive for National Farm Life Insurance Company
OLDWICK, N.J. //BestWire// - A.M. Best Co. has revised the outlook to positive from stable and affirmed the financial strength rating of B++ (Good) and issuer credit rating of “bbb+” of National Farm Life Insurance Company (NFLIC) (Fort Worth, TX).
The positive outlook reflects NFLIC’s continued trend in profitably growing life premiums within its niche market in rural Texas, its improved investment results (after large capital losses in 2008 and 2009) and steady growth in risk-adjusted and absolute capital.
The company has reported positive net income for the last four years despite the increased costs associated with its new business growth. The acquisition of a block of life policies from an unaffiliated insurer is expected to provide additional income through increased premium revenue and decreased overall per policy cost of administration.
Results within NFLIC’s investment portfolio have improved since realizing large capital losses in 2008 and 2009. Enhanced investment performance has supported efforts to build capital as the company’s atypical legal structure limits access to capital markets. A.M. Best anticipates that the increased asset base as a result of the block acquisition will lead to increased investment income and profitable results, further improving NFLIC’s risk-adjusted capital.
NFLIC’s geographic concentration in only Texas exposes it to potential risks, including economic, regulatory and legislative risks. In addition, the company’s revenue and earnings sources are not very well diversified as it primarily sells traditional life products.
Key rating factors that could result in positive rating actions for NFLIC include continued favorable trends in its operating results and capitalization. Conversely, if the company reports unfavorable operating performance, a decline in risk-adjusted capital or deterioration in its investment portfolio, the ratings could be pressured downward.
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.