Best’s News & Research Service - June 12, 2014 11:19 AM (EDT)
A.M. Best Affirms Ratings of Ohio National Financial Services, Inc., and Its Subsidiaries
Oldwick //BestWire// - A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the 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 Life Group). These companies are the principal insurance subsidiaries of 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 the ICR of "'a+" of National Security Life and Annuity Company (NSLAC) (New York, NY). NSLAC primarily markets variable annuities in New York State.
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, unless otherwise specified. (See below for a detailed listing of the debt ratings.)
The affirmation of the ratings for Ohio National Life Group reflects its strong risk-adjusted capital, which remains more than adequate relative to its insurance and investment risks, continued growth in life sales, historically favorable core operating performance and its stable middle market position. The ratings also recognize Ohio National Life Group's expertise in developing, marketing and managing the risks associated with its variable annuity products through its enterprise risk management program and the good diversity within its distribution channels.
Partially offsetting these positive rating factors are the company's significant exposure to equity market volatility and low interest rates, as separate account assets make up nearly two-thirds of total assets. This exposure contributes to fluctuations in GAAP reported earnings, which in recent periods has reflected equity market volatility and the mark-to-market impact from external reinsurance. While risk-adjusted capital is strong, it has been enhanced by utilization of captives for its Regulation XXX/ AXXX life insurance business and variable annuity living benefits risks; external variable annuity reinsurance; and high utilization of surplus notes, which at 31% of statutory capital is elevated when compared to the U.S. life industry average. Additionally, Ohio National Life Group holds a higher percentage of general account invested assets in private placements and commercial mortgages than the industry average; however, overall liquidity remains more than adequate.
Given present debt levels, A.M. Best views financial flexibility as somewhat limited and believes it will remain elevated particularly when measured on a tangible capital basis. Interest coverage using a traditional Earnings Before Interest and Taxes measure is negative. However, total financial and operating leverage remain within A.M. Best's guidelines, and there is sufficient liquidity at the holding company to meet current obligations with additional liquidity resources available. There are no scheduled debt maturities until 2020.
Positive rating actions are unlikely in the near term. Factors that may lead to negative rating actions include a meaningful decline in earnings and/or risk-adjusted capitalization, a further increase in financial leverage, a lack of improvement in interest coverage or a material increase in equity market sensitive liabilities relative to total liabilities.
The following debt ratings have been affirmed:
Ohio National Financial Services, Inc. --
- "a-" on $250 million 6.625% senior unsecured notes, due May 2031
- "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
- "a" on $250 million 6.875% surplus notes, due June, 2042
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 www.ambest.com/ratings/methodology.
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