CONTACTS:
FOR IMMEDIATE RELEASE
OLDWICK, N.J. - MAY 10, 2011 12:00 AM (EDT)
A.M. Best Co. has upgraded the financial strength rating to A+ (Superior) from A (Excellent) and issuer credit ratings (ICR) to "aa-" from "a+" 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 upgraded the ICR and senior debt rating to "a-" from "bbb+" of OneAmerica Financial Partners, Inc., an intermediate holding company within OneAmerica's mutual holding company structure. A.M. Best also has upgraded the debt rating to "a" from "a-" on the outstanding surplus notes of AUL. The outlook for all ratings has been revised to stable from positive. All companies are domiciled in Indianapolis, IN, unless otherwise specified. (See below for the detailed listing of the debt ratings.)
The rating actions reflect OneAmerica's solid risk-adjusted capital position, strong consolidated top-line revenue growth and consistently favorable operating performance across its core business lines. Growth in statutory premium, capital and net income has consistently outpaced mutual company peers in recent years. Additionally, the ratings recognize OneAmerica's diversified sources of revenues and earnings, driven by results from both its individual and retirement services segments, as well as expansion of distribution channels that have facilitated organic growth.
OneAmerica has established and growing positions in several markets including full-service small to medium retirement plans, life insurance and asset-based long-term care. A.M. Best notes that OneAmerica's investment portfolio has continued to perform significantly better than most of its life/annuity peers with respect to both realized and unrealized losses over the last few years. Furthermore, OneAmerica's mutual holding company structure facilitates a strategy focused on long-term financial strength, and its core product lines have minimal equity market exposure.
Offsetting these positive rating factors is the ongoing competitive pressures in OneAmerica's core lines, particularly in the 401(k) and 403(b) markets. Also, the company has experienced some contraction of earnings and revenue growth over the last year within its employee benefits segment, due to less favorable results in the group life line of business. However, A.M. Best notes strong overall growth within the retirement services segment over the last few years, with double-digit sales growth and record earnings reported in both 2009 and 2010. Nonetheless, OneAmerica continues to face ongoing competition from other life and annuity companies with considerable scale and market penetration. Additionally, the group's employee benefits segment remains modestly sized.
OneAmerica's exposure to structured securities remains significantly lower than life industry norms with no allocation to subprime or Alt-A collateral. The allocation to below investment grade securities has increased modestly but has not caused additional losses and remains well within acceptable limits given the strong capital position of the company. OneAmerica does, however, maintain an above-average allocation to direct commercial mortgages relative to peers, albeit with a more conservative overall credit profile due to solid underwriting and ongoing monitoring of the portfolio. OneAmerica's debt-to-capital ratio (excluding other comprehensive income) is modest and interest coverage remains solid.
The following debt ratings have been upgraded:
American United Life Insurance Company—
- to "a" from "a-" on $75 million 7.75% surplus notes, due 2026
OneAmerica Financial Partners Inc.—
- to "a-" from "bbb+" on $200 million 7.00% senior unsecured notes, due 2033
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 "Understanding BCAR for Life and Health Insurers"; "Rating Members of Insurance Groups"; "A.M. Best's Ratings & the Treatment of Debt"; and "Risk Management and the Rating Process for Insurance Companies." 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.