AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating of B++ (Good) and the Long-Term Issuer Credit Rating of “bbb” (Good) of Heartland National Life Insurance Company (HNL) (Indianapolis, IN).

The Credit Ratings (ratings) reflect HNL’s balance sheet strength, which AM Best assesses as strong, as well as its adequate operating performance, limited business profile and marginal enterprise risk management (ERM).

The revised outlooks reflect downward pressure on the company’s overall balance sheet strength assessment due to significant annuity growth that has outpaced excess risk-adjusted capitalization, which has been supported by high third-party reinsurance dependence. AM Best notes that HNL has signed an indicative term sheet with a third-party investment group, which may acquire a minority stake in HNL, by making equity contributions that would significantly enhance its absolute and risk-adjusted capital levels. The overall amount of capital contributions also depends on HNL selling or reinsuring part of its supplemental accident and health (A&H) insurance block to another strategic partner, which would unlock additional capital, enhance near-term earnings under management’s projections through a favorable ceding commission(s) and diversify HNL’s reinsurance counterparties. A negative rating action could occur if HNL fails to improve its risk-adjusted capitalization by executing further on its aforementioned capital raise plans that include either equity or debt investment or additional reinsurance.

Following a year of extensive individual deferred fixed annuity sales targeted to the savings and retirement needs of policyowners, HNL's business profile now has more long-duration asset-liability matching and interest rate risk, in addition to biometric risk from a core portfolio of profitable supplemental A&H business. The latter product line is considered lower risk for insurers on AM Best’s product continuum primarily attributed to providing cash benefits, rather than full medical cost reimbursement, to address policyowners’ health insurance coverage gaps.

HNL has traditionally used extensive reinsurance to share risk and manage capital strain as it executes its growth initiatives under its strategic plan and evolving ERM framework; and in October 2023, the company implemented a 95% quota share flow reinsurance agreement for the annuity sales with Puerto Rico-based Converge Re II. In December 2024, a $7 million surplus note was also issued by HNL, and HNL has access to another $8 million of backup liquidity it can draw from the same credit facility if needed. Altogether these initiatives have helped HNL manage the capital strain associated with its rapid growth; however, this is partially offset by high reinsurance leverage associated with the annuity business that has increased reinsurance counterparty risk capital charges and operational risk. In addition, HNL has reported statutory net losses in 2025, owing to continued high general expenses and direct commissions associated with its high volume of sales and new product launches, which included short-term home health care and cancer heart attack and stroke insurance in 2023 and 2024 respectively, and the upcoming launch of a new fixed index annuity product in some of the company’s 36 approved states. HNL’s relatively small amount of capital and surplus, as compared with its gross liabilities and its various competitors that also focus on the annuity market for the senior demographic, places pressure on the company’s reliance on its sole annuity reinsurer, Converge Re II. Additionally, AM Best notes the elevated financial leverage and modest coverage ratios, as well as the execution risk related to HNL enhancing its capital position given the company’s concentrated capital structure.

AM Best will continue to monitor the company's capitalization and operating performance over the next few quarters against its planned capital management initiatives and current business plan, along with the mix of business between annuity and A&H insurance.

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