A.M. Best Affirms Ratings of OneAmerica Financial Partners, Inc. and Its Subsidiaries
May 9, 2013 by A..M. Best
OLDWICK, N.J. – A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of American United Life Insurance Company (AUL) and its affiliates, The State Life Insurance Company and Pioneer Mutual Life Insurance Company (Fargo, ND), all of which comprise the OneAmerica Group (OneAmerica). Concurrently, A.M. Best has affirmed the ICR and senior debt ratings of “a-” of OneAmerica Financial Partners, Inc., an intermediate stock holding company within OneAmerica’s mutual holding company structure. A.M. Best also has affirmed the debt rating of “a” on the outstanding surplus notes of AUL. The outlook for all ratings is stable. All companies are domiciled in Indianapolis, IN, unless otherwise specified. (See below for a detailed listing of the debt ratings).
The ratings reflect OneAmerica’s strong risk-adjusted capital, consistent sales growth, excellent retention and positive net flows, which continue to contribute to solid operating earnings within its core businesses of retirement services and individual life. OneAmerica continues to differentiate itself with successful growth in its full service small-to-medium retirement plans, life insurance and asset-based long-term care. OneAmerica’s mutual holding company structure facilitates a strategy focused on long-term financial strength; it has a mature enterprise risk management framework and a generally well protected liability structure with reasonable surrender charge protection, modest level of equity market risk and favorable persistency. OneAmerica’s financial leverage is moderate and interest coverage remains strong. There are no debt maturities in the near to intermediate term, and the group has strong liquidity as evidenced by unrealized gains in its investment portfolio and access to liquidity through its FHLB membership. Furthermore, OneAmerica’s investment management performance is strong as evidenced by lower than peer realized and unrealized losses over the last several years. Investment risk compares favorably with lower levels of below investment grade bond exposure as a percentage of capital relative to peers, and its exposure to commercial mortgage loans as a percent of capital is now in line with similarly rated peers.
Partially offsetting these positive rating factors are the ongoing challenges OneAmerica faces within its employee benefits segment and to a lesser extent, within its retirement services business. The employee benefits segment reported an operating loss in 2012 due to higher mortality and morbidity, and its top line revenue growth has contracted. Although the segment is viewed as strategically important for cross-selling existing core products, it historically has not contributed meaningfully to OneAmerica’s business profile. In contrast, A.M. Best notes strong overall growth within the retirement services segment over the last several years, with double-digit sales growth and record earnings reported. Nonetheless, OneAmerica continues to face ongoing competition from other life and annuity companies with considerable scale and market penetration. Additionally, the group has some interest rate risk associated with its asset-based long-term care products.
A.M. Best believes OneAmerica is well positioned at its current ratings. Factors that could lead to potential negative rating actions include a material decline in net operating income and/or significant asset impairments and realized losses, which would lead to a meaningful decline in risk-adjusted capital.
The following debt ratings have been affirmed:
American United Life Insurance Company—
– “a” on $75 million 7.75% surplus notes, due 2026
OneAmerica Financial Partners Inc.—
– “a-” on $200 million 7.00% senior unsecured notes, due 2033
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 http://www.ambest.com/ratings/methodology.
BN-NJ-05-08-2013 1626 ET #
