[May 08, 2012]

A.M. Best Revises Outlook to Negative for Lincoln Heritage Life Insurance Company

A.M. Best Co. has revised the outlook to negative from stable and affirmed the financial strength rating of A- (Excellent) and issuer credit rating of "a-" of Lincoln Heritage Life Insurance Company (Lincoln Heritage) (Springfield, IL).

The negative outlook reflects an increased level of financial leverage within Lincoln Heritage, which is anticipated to result in dividend calls on the company. Future dividend requirements may be exacerbated in a rising interest rate environment. Moreover, as a result of increased new business, Lincoln Heritage has increased its reliance on reinsurance, resulting in higher reinsurance leverage over the last two years. Other negative rating factors include Lincoln Heritage's exposure to structured securities, which represents a substantial proportion of its statutory surplus, a limited business profile and dividend payments that have constrained surplus growth.

The rating affirmations reflect Lincoln Heritage's prominent market position in the final expense lifeinsurance segment, consistent direct premium growth, a return to positive net overall results and a more than adequate risk-adjusted capitalization position. The company's effective lead generation program and affiliation with the Funeral Consumer Guardian Society has enabled Lincoln Heritage to be a prominent participant in the growing senior marketplace.

Factors that may lead to negative rating actions include deterioration in Lincoln Heritage's balance sheet quality, limited surplus growth, increasing financial leverage within the company and any further reliance on reinsurance. Factors that may lead to revising the outlook to stable include reduced leverage at Lincoln Heritage and an improvement in the quality of its capital through the retention of earnings.

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: "Understanding BCAR for Life/Health Insurers" and "Evaluating Non-Insurance Ultimate Parents." Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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