Best’s News & Research Service - July 15, 2014 01:00 PM (EDT)
A.M. Best Assigns Debt Rating to Mutual of Omaha Insurance Company's New Surplus Notes
Oldwick //BestWire// - A.M. Best has assigned a debt rating of "a" to the $300 million 4.297% fixed-to-floating rate 40-year surplus notes recently issued by Mutual of Omaha Insurance Company (Mutual of Omaha) (Omaha, NE). The outlook assigned is stable. The existing ratings of Mutual of Omaha are unchanged.
A.M. Best expects Mutual of Omaha to utilize the proceeds to purchase a portion of its outstanding $300 million 6.8% surplus notes due 2036 and some of its $300 million 6.95% surplus notes due 2040. Tender offers for these notes were announced by the company on June 27, 2014. Once the purchases are settled, the remaining amounts outstanding (together with the $300 million of 4.297% notes) will account for essentially all of Mutual of Omaha's financial leverage. A.M. Best believes the company's unadjusted debt-to-capital ratio of roughly 21% is prudent while Mutual of Omaha's pro forma statutory interest coverage ratio remains strong.
The ratings of Mutual of Omaha reflect its positive brand recognition, long-term financial strength as a mutual company, strong absolute and risk-adjusted capitalization, diversified product and distribution platforms, good earnings growth within most of its core lines and generally favorable investment performance. Somewhat offsetting these positives is the company's large book of Medicare Supplement business, which exposes it to regulatory and market risks, including the ability to get necessary future rate increases. A.M. Best notes that Mutual of Omaha has successfully managed down sales in the Medicare Supplement line of business, which in A.M. Best's view had grown too rapidly. Corrective actions implemented over the past several years have been effective in driving improved results from this product line. Additionally, Mutual of Omaha has significant exposure to commercial real estate, both in the general account and through affiliated holdings. A.M. Best will continue to monitor the performance of the Mutual of Omaha Bank and the company's East Campus Realty, LLC for potential stresses on Mutual of Omaha's operating results and capital levels.
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 .
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.