A.M. Best Affirms Ratings of National Life Group (VT); Revises Outlook on ICR and Debt Ratings to Positive.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit ratings (ICR) of "a" of National Life Group's (National Life) key insurance subsidiaries, National Life Insurance Company (NLV) (Montpelier, VT) and its subsidiary, Life Insurance Company of the Southwest (LSW) (Dallas, TX). Concurrently, A.M. Best has affirmed the ICR of "bbb" and the existing debt ratings of "bbb" of NLV Financial Corporation (NLV Financial) (Montpelier, VT), an intermediate holding company within National Life's mutual holding company structure. The outlook for the ICRs and debt ratings has been revised to positive from stable. The FSR outlook is stable.

The rating actions reflect National Life's positive financial trends including solid growth in top-line revenue, operating earnings and capitalization, both on an absolute and risk-adjusted basis. A.M. Best also recognizes the group's reduced investment risk, stable investment spreads, distribution channel diversification and strengthened enterprise risk management practices. National Life's overall sales continue to trend positively, driven by strong growth from indexed universal life (UL) products, partially offset by recent declines in traditional life and indexed annuities. However, A.M. Best notes that indexed annuity sales have diminished industry wide, mainly in response to shifting consumer preferences towards CDs as well as money market funds, which favor liquidity and flexibility. Nevertheless, A.M. Best believes National Life has made significant progress in strategically positioning itself within 403 (b) indexed annuities and indexed UL to effectively compete while eschewing products/riders such as no-lapse guarantee UL and guaranteed living benefits on variable annuities. Its core life and annuity products are marketed through diversified channels with an emphasis on the qualified tax-deferred retirement savings marketplace, middle income individuals, small business owners and professionals.

National Life's life and annuity operating profile is further diversified by its ownership of Sentinel Asset Management (Sentinel).While Sentinel's investment performance remains solid, the mutual fund industry is facing a number of competitive challenges including high redemptions, shifting consumer preference for exchange-traded funds and increasing demand for international equities. A.M. Best notes that Sentinel is experiencing relatively high levels of redemption--albeit within industry norms--and sales have moderated from their peak three years ago. Going forward, A.M. Best believes Sentinel must continue to expand its distribution and grow its international capabilities to compete effectively in a challenging industry environment.

National Life's financial leverage is roughly 18%, which is moderately reduced from prior years and well within expectations for its ratings. Additionally, the group possesses solid interest coverage of roughly 8 times and is well-positioned to meet its liquidity needs. Over the next 12-36 months, A.M. Best will monitor the success of National Life's programs to enhance recruiting, retention and productivity of its career agents as well as its plans to grow its independent channels (while preserving the integrity of its career agency force) by aligning producer compensation with performance measurement throughout the organization.

The following debt ratings have been affirmed:

NLV Financial Corporation-
--"bbb" on $75 million 6.50% senior unsecured notes, due 2035
--"bbb" on $200 million 7.50% senior unsecured notes, due 2033

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.