Fitch Ratings has affirmed the 'BBB+' long-term issuer and senior debt ratings of NLV Financial Corp.. At the same time, Fitch affirmed the 'A+' insurer financial strength ratings on National Life Insurance Company of Vermont and Life Insurance Company of the Southwest. The Rating Outlook for all ratings is Negative.

This rating action follows a review of the group's recent financial results. The ratings reflect the group's sound capitalization, stable liability structure, and significantly reduced exposure to credit risk in its investment portfolio and reinsurance relationships. The ratings also recognize the group's improved operating results and the progress management has made in strengthening risk management throughout the enterprise and in reducing expenses and establishing systems and processes to strengthen future profitability.

Fitch notes that the company's recent focus on driving sustained results through diversified revenue growth and strong expense management has been key to the favorable trend in NLV's earnings. The improved equity markets have also contributed to this trend. The ratio of GAAP operating expenses to revenue has declined from 15.9% in 2002 to 13.8% through the first nine months of 2004. GAAP earnings coverage is currently in the 6 times (x) to 7x range, which is within Fitch's expectation for the current rating.

NLV has historically been challenged in generating statutory capital to support growth. As of year-end 2003, the company's four-year compound annual growth rate of total adjusted capital (TAC) was 2%, which is relatively low. If current trends continue, however, that ratio is expected to improve significantly for the full year 2004. Historically, slow growth in capital has been due in part to high levels of new business growth and corresponding capital strain. Fitch believes that management is focused on maintaining profitable growth in all lines of business. It also takes a positive view of the significant decline in NLV's and LSW's consolidated operating leverage since 2002. However, this ratio is still relatively high at about 15x.

NLVF has considerable financial flexibility over the near term as a result of its successful external capital raising efforts in 2003. The company issued $200 million in senior notes and $20 million in pooled trust preferred securities. It used about $130 million of the proceeds to pay off NLV's $70 million surplus note, contributed $30 million in capital to NLV, and contributed another $30 million to LSW. The rest remains at the holding company, which has about $100 million in cash.

Future revisions to the Outlook and ratings levels will be determined by Fitch's view of the sustainability of recent operating improvements, seasoning of the company's recent information technology outsourcing arrangements, and capital growth consistent with business growth.

NLVF had consolidated GAAP assets of $12 billion and equity of $1 billion as of Sept. 30, 2004. NLV, the primary operating subsidiary, had $7 billion in total admitted assets, and $672 million in total adjusted capital at Sept. 30, 2004. LSW, a subsidiary of NLV, had $4 billion in assets.

The following ratings are affirmed with a Negative Rating Outlook by Fitch:

NLV Financial Corp.

-- Long-term issuer affirmed at 'BBB+'.

-- $200 million 7.5% senior notes due Aug. 15, 2033 affirmed at 'BBB+'.

National Life Insurance Company of Vermont

-- Insurer financial strength affirmed at 'A+'.

Life Insurance Company of the Southwest

-- Insurer financial strength affirmed at 'A+'.