CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 31, 2011 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa-" of The Ohio National Life Insurance Company (ONLIC) and its wholly owned subsidiary, Ohio National Life Assurance Corporation (ONLAC) (together, referred to as Ohio National). The outlook for both ratings is stable. These companies are the principal insurance subsidiaries of the Ohio National Financial Services, Inc. (ONFS), which is an intermediate holding company 100% owned by Ohio National Mutual Holdings, Inc. The companies are headquartered in Cincinnati, OH, except where specified.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+" of National Security Life and Annuity Company (NSLAC) (Binghamton, NY). NSLAC is a joint venture, which is approximately 80% owned by Ohio National and 20% owned by Security Mutual Life Insurance Company of New York, and markets variable annuity products within New York. The outlook for these ratings is stable.
Concurrently, A.M. Best has affirmed the ICR of "a-"and all existing debt ratings of ONFS. At the same time, A.M. Best has assigned a debt rating of "a-" to the newly issued $250 million 6.625% 20-year senior unsecured notes issued in April, 2011 by ONFS. The assigned outlook is stable. (See below for a detailed listing of the debt ratings.)
The affirmation of the ratings reflects Ohio National's positive net operating gains in 2010, strong risk-adjusted capitalization, good risk management platform and the quality of its investment portfolio, which was in an unrealized gain position as of March, 2011. Improvement in the equity markets favorably impacted fee income collected on Ohio National's separate account annuity business. Ohio National reported both statutory and GAAP operating gains in 2010 and through the first quarter of 2011. Ohio National also benefits from a diversified business profile, competitive product offerings and a diversified distribution system. To minimize volatility from its variable annuity living benefit riders, the exposure of net amount of risk associated with variable annuities is reinsured or hedged, either through externally or with a wholly owned off-shore captive. Ohio National also profits from a strong technical platform, efficient variable cost structure, effective asset/liability management, and sound underwriting practices.
Partially offsetting these positive rating factors is Ohio National's increased leverage due to the issuance of the new $250 million 6.625% senior unsecured notes, to be utilized to finance Triple-X reserves through its captive reinsurance company, Montgomery Re. Due to the nature of this transaction, A.M. Best views the debt issuance more as operating leverage.
Other challenges are the continuing volatility in the equity market and its impact on the company's fee income, higher hedging costs, intense competition from other large variable annuity writers in the life insurance marketplace and a large exposure to commercial mortgage loans relative to its statutory capital and surplus funds.
The following debt ratings have been affirmed:
Ohio National Financial Services, Inc.—
- "a-" on $150 million 6.35% senior unsecured notes, due April 2013
- "a-" on $300 million 6.375% senior unsecured notes, due April 2020
The Ohio National Life Insurance Company—
- "a" on $50 million 8.50% surplus notes, due May 2026
The following debt rating has been assigned:
Ohio National Financial Services, Inc.—
- "a-" on $250 million 6.625% senior unsecured notes, due May 2031
The principal methodology used in determining these ratings is Best's Credit Rating Methodology - Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: "Risk Management and the Rating Process for Insurance Companies"; "Understanding BCAR for Life and Health Insurers"; and "Rating Members of Insurance Groups." Methodologies can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.