A.M. Best Affirms Ratings of Independence Holding Company and Its Subsidiaries

A.M. Best has affirmed the financial strength rating of A- (Excellent) and the issuer credit ratings (ICR) of “a-” of Madison National Life Insurance Company, Inc. (Madison National) (Madison, WI), Standard Security Life Insurance Company of New York (Standard Security) (New York, NY) and Independence American Insurance Company (Independence American) (New Castle, DE), all subsidiaries of Independence Holding Company (Independence Holding) (headquartered in Stamford, CT) (NYSE:IHC). Concurrently, A.M. Best has affirmed the ICR of “bbb-” of Independence Holding. The outlook for all ratings is stable.

The ratings of the core operating affiliates of Independence Holding reflect the group’s trend of favorable earnings and more-than-adequate combined risk-adjusted capitalization supported, in part, by the group’s de-leveraging of the balance sheet. Earnings are primarily generated by stop-loss and disability segments with additional contribution from ancillary health products. Over the past several years, IHC Group completed a planned exit from the major medical business with a shift to various fully insured ancillary medical offerings. As a result, revenue from these new insurance products remains significantly lower compared with the historical levels with major medical premium, which has led to a decline in premiums, although ancillary offerings tend to have higher margins than major medical business. Furthermore, earnings in 2015 were bolstered by the sale of administration infrastructure as part of the life and annuity coinsurance transaction at Madison National. IHC Group’s consolidated risk-adjusted capital position, as measured by Best’s Capital Adequacy Ratio (BCAR), has been more than adequate for the ratings of its members for the past five years. In addition, the capitalization is expected to strengthen in 2015, following a transaction to coinsure the last remaining annuity block of business, which substantially reduces IHC Group’s future liabilities and exposure to interest rate risk.

While Independence Holding’s combined earnings remain favorable, A.M. Best is concerned that near-term financial results are heavily dependent on the profitable performance of the stop-loss product, as ancillary medical lines lack scale. In addition, investment income has declined substantially following a reduction in the asset base due to the transfer of reserves as part of the coinsurance transactions; however, such declines should be partially offset by the elimination of losses in the exited individual life and annuity lines of business. Although the risk-adjusted capitalization remains above the guidelines for the ratings, A.M. Best is concerned that given the growth in capital intensive stop-loss premium, deterioration of risk-adjusted capitalization remains possible. A.M. Best will monitor the impact of new business strain and how the group will utilize its capital going forward.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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