AM Best


A.M. Best Affirms Ratings of Ohio National Financial Services, Inc. and Its Subsidiaries


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Frank Walko

Financial Analyst

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frank.walko@ambest.com

Raj H. Shah

Assistant Vice President

(908) 439-2200, ext. 5409

raj.shah@ambest.com
Rachelle Morrow

Senior Manager, Public Relations

(908) 439-2200, ext. 5378

rachelle.morrow@ambest.com

Jim Peavy

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james.peavy@ambest.com


FOR IMMEDIATE RELEASE

OLDWICK, N.J. - MAY 31, 2012 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). 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.

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). In December 2011, the remaining 20% interest in NSLAC, which was held by Security Mutual Life Insurance Company of New York, was purchased by ONLIC, which now wholly owns NSLAC. While NSLAC is licensed in 17 states, it serves primarily to market variable annuities in the state of New York.

Concurrently, A.M. Best has affirmed the ICR of “a-”and all existing debt ratings of ONFS. The outlook for all ratings is stable. All companies are headquartered in Cincinnati, OH, except where specified. (See below for a detailed listing of the debt ratings.)

The affirmation of Ohio National’s ratings reflects risk-adjusted capitalization that is more than sufficient to support its ratings, a good risk management platform, generally profitable statutory and GAAP operating trends and sufficient liquidity to support its financial obligations. Ohio National also benefits from a diversified business profile, competitive product offerings, increasing life insurance sales and a diversified distribution system. To minimize volatility from its variable annuity living benefit riders, the exposure of net amount of risk related to variable annuities is reinsured or hedged, either through externally or with a wholly owned off-shore captive. In 2010, Ohio National ceased selling variable annuities with a Guaranteed Minimum Income Benefit (GMIB) rider in virtually all states and replaced it with a Guaranteed Living Withdrawal Benefit (GLWB) rider, which reduces the volatility associated with its guaranteed obligations. A.M. Best notes that the financial leverage of the group remains at manageable level for its current ratings.

Ohio National faces continued challenges due to ongoing volatility in the equity markets and its impact on net amounts at risk, hedging costs and fee income. Other challenges for the organization include increased exposure to mortgage loans and private placements relative to statutory capital and surplus, heightened competition from other large variable annuity writers and increased financial leverage.

Ohio National is well positioned for its ratings. Factors that may place downward pressure on its ratings are a deterioration of capital and surplus due to operating and investment losses, equity market volatility, which could impact earnings, and increasing trends of financial and operating leverage.

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

- “a-” on $250 million 6.625% senior unsecured notes, due May 2031

The Ohio National Life Insurance Company—

- “a” on $50 million 8.50% surplus notes, due May 2026

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. Key criteria utilized include: “Understanding BCAR for Life/Health Insurers”; “Risk Management and the Rating Process for Insurance Companies”; “Insurance Holding Company and Debt Ratings”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology 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.


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