Fitch Affs Shenandoah Life Insurance Company Rtgs At `A+'

Business Wire, May 7, 2001

Business Editors

CHICAGO--(BUSINESS WIRE)--May 7, 2001

Fitch affirms the `A ' insurer financial strength (IFS) rating of Shenandoah Life Insurance Company (Shenandoah).

The rating reflects the company's strong balance sheet fundamentals, and recently strong sales growth in the individual life insurance and annuity product lines. The rating also reflects that recent profitability is low for the rating category and the company remains challenged to grow group earned premiums. In addition, the company faces highly competitive core markets and limited financial flexibility. The Rating Outlook is Stable.

Over the last several years, Shenandoah has significantly improved sales and strengthened its competitive position in the individual life insurance market by expanding its Independent Marketing Organization (IMO) distribution channel and offering products designed to meet the specific needs of its niche markets. In 2000, core life insurance sales grew 149% to $30.4 million, with strong improvement in all product lines. During 2000, Shenandoah's individual annuity premium increased significantly as the prevailing higher interest rate environment and bearish stock market made fixed annuities more attractive. Sales of group life and health insurance increased 16% to $14.2 million in 2000.

Over the past two years, Shenandoah's statutory profitability has been low relative to historic levels, however, it remains appropriate for the rating category and reasonable given the positive sales momentum and resulting surplus strain. In 2000, the return on average adjusted surplus (ROS) was 3.1%, which was below 1999 results at 9.7%. GAAP profitability is good for rating category, but expected to decline in the near term. Fitch expects Shenandoah's GAAP profitability to improve as the company attains critical mass.

Shenandoah's strong balance sheet fundamentals reflect the company's solid capital position that is more than adequate for current needs and a relatively conservative asset portfolio managed to match liability needs. Although statutory strain and an unrealized loss from the equity portfolio resulted in a slight decline in adjusted surplus in 2000, historically surplus formation has been impressive as capital doubled from 1995 to 1999. Adjusted surplus at year-end 2000 was $110 million and on a risk-adjusted basis, the company's NAIC RBC ratio was strong at 349% of the company's action level.

Asset quality and liquidity are good, as the investment portfolio has a large concentration of publicly traded investment-grade bonds. The company has historically invested in preferred securities and mortgage loans in an effort to keep its investment yield above industry averages. While the investment portfolio has an above-average exposure to commercial mortgages, Fitch believes the company has developed an expertise in managing commercial loans and has had good results in this asset class.

Entity/Issue/Type                   Action       Rating/Outlook
Shenandoah Life Insurance Company
--Insurer financial strength        Affirmed     `A '/Stable