A.M. Best Co. has revised the outlook to stable from negative and affirmed the issuer credit rating of "bbb+" of Unified Life Insurance Company (Unified Life) (Dallas, TX). A.M. Best also has affirmed the financial strength rating (FSR) of B++ (Good) of Unified Life.

The outlook for the FSR is stable.

The rating actions reflect Unified Life's improved risk-adjusted capitalization, increased statutory earnings and the anticipated near-term settlement of an outstanding potential class-action lawsuit in Oklahoma, which is expected to have a negligible impact on surplus. Additionally, A.M. Best notes that there has been some improvement in the valuation of Unified Life's commercial mortgage- backed securities (CMBS) portfolio and that the company's acquired blocks of business are generally performing in line with pricing. Going forward, A.M. Best believes Unified Life may be challenged to find favorable acquisition opportunities given its limited financial flexibility as well as the highly competitive environment.

Offsetting factors include Unified Life's exposure to CMBS, some of which have fair market values that are materially below par. Although A.M. Best remains concerned that write-downs may be necessary in the near to medium term, Unified Life intends to hold these below investment grade securities to maturity as its external investment management firm does not regard their impairments as permanent. Additionally, A.M. Best notes that revenue growth may be hampered by ongoing issues with one of its key reinsurance partners, American Medical and Life Insurance Company (AMLI). In 2011, Unified Life assumed $4.2 million of limited medical premium from AMLI.

Unified Life primarily acquires closed blocks of individual health and life insurance business, as well as insurance companies, via assumption and indemnity insurance and mergers. It also underwrites group and individual health and life insurance products in joint venture partnerships with other carriers in selected niche markets.

A.M. Best believes Unified Life is well-positioned at its current ratings. Future negative rating actions may occur if investment valuations deteriorate further, operating performance declines relative to A.M. Best's expectations, or risk-adjusted capital materially weakens.

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. Best's Credit Rating Methodology can be found at ambest.com/ratings/methodology.

A.M. Best Company is an insurance rating and information source.

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