CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 21, 2010 12:00 AM (EDT)
A.M. Best Co. has revised the outlook to stable from negative and 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). These companies are the principal insurance subsidiaries of Ohio National Financial Services, Inc. (ONFS), which is the intermediate holding company in the organization's mutual holding company structure.
Additionally, A.M. Best has revised the outlook to stable from negative and affirmed the ICR of "a+" of National Security Life and Annuity Company (NSLAC) (Binghamton, NY). A.M. Best also has affirmed the FSR of A (Excellent) of NSLAC. The outlook for the FSR is stable.
Concurrently, A.M. Best has revised the outlook to stable from negative and 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 $300 million 6.375% 10-year senior unsecured notes issued in April 2010 by ONFS. The assigned outlook is stable. All the above companies are headquartered in Cincinnati, OH, except where specified. (See below for a detailed listing of the companies and debt ratings.)
The revised outlook reflects Ohio National's strong risk-adjusted capitalization, positive net operating gains recorded in 2009 and improved position of its investment portfolio, which had an unrealized gain as of March 31, 2010. In addition, the rise in equity markets has had a positive impact on fee income that Ohio National collects on its separate account annuity businesses. The company's first-quarter 2010 results were positive on a year-over-year basis as net operating gains, surplus and ordinary life sales increased. Ohio National benefits from a diversified business profile with broad competitive product offerings. As part of its enterprise risk management process, Ohio National either reinsures or hedges all of its variable annuity living benefit rider exposure. It also benefits from an efficient expense structure, effective asset/liability management and a disciplined approach to spread management.
Partially offsetting these positive rating factors is Ohio National's increased financial leverage due to the issuance of the new $300 million senior unsecured notes. The company's financial leverage now stands at approximately 24%, and interest coverage has declined as a result of the new debt offering. A.M. Best notes that part of the proceeds from the new debt were used to pay down the remainder of a 7.00% note due 2011, and the balance was retained at the holding company for additional financial flexibility.
In addition, while most of the variable annuity secondary guaranteed minimum benefit riders are reinsured or hedged, higher hedging costs would negatively impact earnings. Earnings also could be depressed should a significant drop in the equity markets re-emerge. Furthermore, Ohio National maintains a significant liquidity position that allowed it to prevent realized losses from forced assets sales during the recent market turmoil, but somewhat dampened the company's investment yield. Moreover, Ohio National's investments in direct commercial mortgage loans exceed total statutory surplus levels, while credit risk exposure exists from its position in below investment grade bonds.
NSLAC is a joint venture, which is approximately 80% owned by ONFS and 20% owned by Security Mutual Life Insurance Company of New York, and markets variable annuity products within the state of New York. The ratings of NSLAC recognize its ancillary role in providing variable annuities in the state. However, NSLAC does not offer Ohio National's full array of life and annuity products, and its current level of operating activity does not represent a material portion of the group's consolidated revenue or earnings.
The following debt ratings have been affirmed:
Ohio National Financial Services, Inc.—
- "a-" on $150 million 6.35% senior unsecured notes, due April 2013
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 $300 million 6.375% senior unsecured notes, due April 2020
For Best's Credit Ratings, an overview of the rating process and rating methodologies, please visit Best's Ratings & Analysis.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at Best's Credit Rating Methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers.