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12 Feb 2004
MOODY'S AFFIRMS RATINGS OF OHIO NATIONAL (INSURANCE FINANCIAL STRENGTH RATING OF A1) AND AFFILIATES FOLLOWING ANNOUNCEMENT OF DEFINITIVE AGREEMENT TO ACQUIRE SECURITY MUTUAL
New York, February 12, 2004 -- Moody's Investors Service has affirmed the ratings of Ohio National
Financial Services, Inc (ONFS) and its insurance subsidiaries,
-- Ohio National Life Insurance Company (ONLIC) and Ohio
National Life Assurance Company (ONLAC) -- both rated A1
for insurance financial strength -- following the company's
announcement that it had signed a definitive agreement to acquire Security
Mutual Life Insurance Company of New York (SMLIC--unrated
by Moody's) in a sponsored demutualization. Moody's notes that
a change in the terms of the deal, or in the financial situation
at either one of the companies, could lead the rating agency to
reevaluate the affirmation of the rating. The outlook on the ratings
of ONFS and its insurance subsidiaries remains negative.
The transaction, if completed, would provide ONFS with a foothold
in New York State, an area in which the company currently is under
represented as compared to the rest of the country. Under the agreement,
SMLIC will demutualize, or convert from a mutual to a stock company,
and become a subsidiary of ONLIC. The transaction will require
the approval of the New York State Insurance Department and eligible policyholders
of SMLIC. ONFS and SMLIC expect to have the transaction completed
within the next 12 to 18 months. .
As rationale for the affirmation, the rating agency noted potential
synergies between the companies and the fact that Security Mutual's
general account has a material amount of participating life insurance,
which Moody's believes to be a highly creditworthy product,
as it allows a company to share its experience with policyholders through
the dividend mechanism. Moody's also believes that the combination
provides ONFS an opportunity to expand into worksite marketing,
as well as recognize expense synergies. The two companies have
had a strategic partnership since 2002, when they set up a joint
venture under which SMLIC distributors sell ONFS products through a jointly
owned company, National Security Life and Annuity Company.
The positive aspects of the potential transaction notwithstanding,
Moody's noted that if completed, the acquisition would increase
the operational leverage of the company. The ratings of ONFS and
its insurance subsidiaries have had a negative outlook since early 2003,
mainly because the company has funded its growth in the fixed annuity
business with an increase in financial leverage. Surplus strain
from sales of fixed annuities and life insurance, along with fixed
income asset impairments, adversely impacted the statutory net income
and statutory capital adequacy of the company during 2001 and 2002.
Although statutory earnings improved during 2003, Moody's
remains concerned about the company's aggressive growth in spread
products and its modest cash coverage ratio for interest expense at the
Moody's notes that the A1 rating incorporates the following expectations:
1) ONFS will maintain NAIC statutory RBC ratios of greater than 325%
in its insurance subsidiaries.
2) Financial leverage will not be greater than 25%.
3) The company will produce solid statutory earnings.
Moody's notes that continued rapid growth in fixed annuity products
could result in a downgrade.
Moody's says that it will monitor the company to see if it is able to
improve its statutory net income and maintain capital adequacy over the
near- to medium-term to mitigate the anticipated increase
in operational leverage from the acquisition of Security Mutual.
Significant improvement in this area could remove the negative outlook
on Ohio National's rating.
The following ratings were affirmed:
ONLIC: insurance financial strength at A1, surplus notes at
ONLAC: insurance financial strength at A1;
ONFS: senior debt at Baa1.
ONLIC, the lead insurance subsidiary of ONFS, is headquartered
in Cincinnati, Ohio. At September 30, 2003, ONLIC
reported total statutory assets of $7.4 and surplus of $629
million. Security Mutual of New York, headquartered in Binghamton,
New York, had statutory assets and surplus of $1.7
billion and $99 million, respectively, as of September
Moody's insurance financial strength rating measures an insurance company's
ability to repay punctually its senior policyholder obligations and claims.
For more information, visit Moody's insurance website: www.moodys.com/insurance
Financial Institutions Group
Moody's Investors Service
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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