A.M. Best Takes Various Rating Actions on Independence Holding Company and Its Subsidiaries.

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength ratings (FSR) of A- (Excellent) and issuer credit rating (ICR) of "a-" of Madison National Life Insurance Company, Inc. (MNL) (Madison, WI) and the FSR of A (Excellent) and ICR of "a" of Standard Security Life Insurance Company of New York (SSL) (New York, NY). Additionally, A.M. Best has affirmed the ICR of "bbb" of Independence Holding Company (Independence Holding) [NYSE: IHC] (New York, NY). The rating outlook for these entities has been revised to negative from stable. Concurrently, A.M. Best has upgraded the ICR to "bbb+" from "bbb" of Independence American Insurance Company (Independence American) (New York, NY) and affirmed the FSR of B++ (Good). The outlook for these ratings is stable.

The negative outlook reflects the organization's weakened risk-based capital position, particularly for MNL, which is the immediate parent of SSL, although SSL has an appropriate level of risk-based capital for its current rating. Additionally, MNL's insurance operations are experiencing rapid premium income growth. The organization's evolving product mix has increased its risk profile, as it has been expanding its presence in the volatile and increasingly competitive fully-insured medical market. The organization also has sizeable exposure to the ongoing "soft" stop-loss market. The unexpectedly long down cycle in this line of business has placed considerable downward pressure on operational margins. To its credit, Independence Holding is well positioned among the top stop-loss carriers in the country and maintains the necessary scale. Ultimately, A.M. Best believes rated insurance companies within the group, particularly MNL and SSL, should be group rated as the companies are becoming increasingly intertwined with the growing use of intercompany reinsurance agreements.

The organization's growth has been enhanced through its acquisitions of managing general underwriters and through a number of reinsurance arrangements, giving the insurance subsidiaries immediate capabilities by retaining the management and underwriting professionals that come with each acquisition. Independence Holding's business acquisition strategy also includes a number of non-insurance, supporting and administrative entities that were put in place in order to provide in-house expertise for the intrapreneurial development of more flexible product designs. Another critical growth strategy is the purchase of block acquisitions. Through internal reinsurance arrangements, the organization has been able to establish footholds in desired lines of business through a purchase and rehabilitation process that accelerates the timeframe to reach economies of scale for a specific line of business. Notwithstanding, A.M. Best believes Independence Holdings will be challenged to manage its capital position as it actively grows certain product lines.

Independence American's ratings reflect its revised operating profile, which is becoming increasingly tied to MNL and SSL. The company broadened its sphere of operations by adding eight new state licenses and expanding its business into group major medical and stop-loss products, enhancing its product diversification. Independence American maintains more than an adequate level of risk-based capital, which creates the capacity for growth. However, A.M. Best is somewhat concerned by the rate of growth projected for Independence American, which will likely put some capital strain on the company.

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. For more information, visit www.ambest.com.