Fitch Affirms NLV Financial Corp. Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings today affirmed the 'BBB+' Issuer Default Rating (IDR) of NLV Financial Corp. (NLVF) and the 'A' Insurer Financial Strength (IFS) ratings of National Life Insurance Company (Vermont)(NLIC) and Life Insurance Company of the Southwest (LSW) - collectively known as the National Life Group (NLGroup). A complete list of ratings follows at the end of this release. The Rating Outlook for all ratings is Stable.

KEY RATING DRIVERS

The affirmation is based on Fitch's view that NLG's operating results through Sept. 30, 2012 are in line with Fitch's expectations, financial leverage remains moderate, and statutory capitalization is sound.

Fitch views NLGroup's profitability and interest coverage as relatively low and anticipates the company will have difficulty improving earnings significantly in the current low interest rate environment. Interest margins are a significant driver of the group's earnings given the focus on indexed life and annuity products with minimum guarantees. Earnings coverage of interest on debt was 4.4x as of Sept. 30, 2012 compared with 4.5x at year-end 2011.

NLGroup continues to report favorable investment performance, with a decline in credit related gross realized losses partially offset by an increase in other than temporary impairments. The group reported total net realized investment gains of $5 million as of Sept. 30, 2012 compared to $15 million for the prior year period.

NLGroup's statutory capitalization is sound. Fitch estimated the combined NAIC risk-based capital (RBC) ratio was 403% at the end of the third quarter 2012 compared to 393% at the end of 2011. The RBC is expected to remain near current levels over the medium term.

Fitch views NLGroup's financial leverage ratio of 21% at Sept. 30, 2012 as moderate and in line with rating expectations. The total financing and commitments (TFC) ratio is low at 0.3x. Surplus notes in relation to total adjusted capital (TAC) are 14% compared to Fitch's maximum guideline of 15% for standard notching.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade are: GAAP interest coverage of 6x to 8x; financial leverage below 20% and RBC maintained at or above current levels.

Key rating triggers that could lead to a downgrade are: GAAP interest coverage below 4x; financial leverage above 30%; and an RBC below 350% on a sustained basis.

Fitch has affirmed the following ratings with a Stable Outlook:

NLV Financial Corp.

--IDR at 'BBB+';

--$199 million 7.5% senior notes due Aug. 15, 2033 at 'BBB';

--$68 million 6.5% senior notes due March 15, 2035 at 'BBB';

National Life Insurance Company (Vermont)

--IFS at 'A';

--IDR at 'A-';

--$200 million of 10.5% surplus notes due Sept. 15, 2039 at 'BBB+'.

Life Insurance Company of the Southwest

--IFS at 'A'.

Additional information available at 'www.fitchratings.com'. The ratings above were unsolicited and have been provided by Fitch as a service to investors.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Jan. 11, 2013).

Applicable Criteria and Related Research:

Insurance Rating Methodology ¬タヤ Amended

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=698731

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Contacts

Fitch Ratings
Primary Analyst
Cynthia J. Crosson, +1-212-908-0863
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, New York 10004
or
Secondary Analyst
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Committee Chair:
Brian Schneider, +1-312-368-2321
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Cynthia J. Crosson, +1-212-908-0863
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, New York 10004
or
Secondary Analyst
Julie A. Burke, CPA, CFA, +1-312-368-3158
Managing Director
or
Committee Chair:
Brian Schneider, +1-312-368-2321
Senior Director
or
Media Relations
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com