2008-07-02 23:55:08 -

- Fitch Ratings has affirmed the 'AA-' insurer financial strength (IFS) ratings of Midland National Life Insurance Company (Midland) and North American Company for Life and Health Insurance (NACOLAH). The Rating Outlook is Stable for both companies.

The ratings of Midland and NACOLAH, collectively referred to as the Sammons Financial Group (SFG), are based on solid balance sheet fundamentals, consistent profitability, and strong position in the individual fixed index annuity market. Offsetting factors include heightened regulatory scrutiny in SFG's largest product market and a moderate increase in credit risk.

SFG's solid balance sheet fundaments include the strong aggregate capitalization profile of Midland National and NACOLAH as measured by Fitch's Prism model scores of 123% of the 'AA' threshold

level at year-end 2006, low financial leverage and a liquid investment portfolio, which is comprised of mainly bonds. Additional strengths include SFG's good, consistent profitability as demonstrated by low double digit GAAP based returns on equity, good growth rates in statutory surplus and strong asset liability management. SFG has been consistently ranked among the top five writers of fixed index annuities in recent years.

Fitch's primary rating concerns include SFG's large exposure to fixed index annuity (FIA) products that are under increased regulatory scrutiny. Fitch views that SFG's explicit risks that are under general control of management, such as product design, hedge management and product distribution are well managed. Other risks, including the effect of changes in regulatory requirements and class action litigation continue to elevate uncertainty for all players in this market. Fitch expects that SFG like all FIA market participants could be affected by the recent SEC proposal concerning FIA products and sales on a prospective basis as early as the latter half of 2009.

Other concerns include SFG's moderately above average credit risk in terms of surplus exposure and elevated operating leverage. SFG investment in below investment grade bonds is moderately above industry average levels in relationship to surplus, but is partially offset by low holdings of commercial mortgages and common stocks. Fitch views SFG's exposure to less than prime residential mortgages as average and considered manageable. Fitch notes that the majority of these holdings are highly rated, Alt-A mortgages. Fitch expects that credit-related impairments could increase through 2008 from the $15 million reported for 2007, but that the overall credit quality of SFG's investment portfolio will remain solid.

Fitch's Stable Rating Outlook is based on expectations of strong capital as measured by Fitch's Prism model and that the credit quality of invested assets will not decline significantly from current levels. Fitch expects SFG's earnings growth in 2008 will be moderate, but that core profitability will remain solid. Although top line growth in its fixed annuity business could be negatively affected by unfavorable regulatory rulings, Fitch expects SFG to maintain its strong market position in the individual FIA and indexed universal life markets.

Fitch affirms the following ratings with a Stable Outlook:

Midland National Life Insurance Company

--IFS at 'AA-'.

North American Company for Life and Health Insurance

--IFS at 'AA-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings
R. Andrew Davidson CFA, 312-368-3144, Chicago
Cynthia J. Crosson, 212-908-0863, New York
or
Media Relations:
Kenneth Reed, 212-908-0540, New York