A.M. Best Affirms Ratings of the Mutual of Omaha Companies

OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of Mutual of Omaha Insurance Company (Mutual) and its subsidiaries, United of Omaha Life Insurance Company(United of Omaha), Companion Life Insurance Company (Companion Life) (Lynbrook, NY) and United World Life Insurance Company(United World Life). Concurrently, A.M. Best has assigned a debt rating of “a” to the recently issued $300 million 6.95% 30-year surplus notes and affirmed the debt rating of “a” on the existing $300 million 6.8% surplus notes due 2036 of Mutual. The outlook for all ratings is stable. All companies (collectively referred to as Mutual of Omaha) are located in Omaha, NE, unless otherwise specified.

The rating affirmations primarily reflect Mutual of Omaha’s strong absolute and risk-adjusted capitalization, despite depressed statutory operating earnings and realized capital losses in its general account investment portfolio in recent periods, solid top-line revenue growth within many of its core lines of business, favorable GAAP operating results and moderate financial leverage. The company also benefits from a well diversified product portfolio, a multi-platform distribution system and strong brand awareness.

While risk-adjusted capital remains solid within the group’s statutory insurance entities, A.M. Best believes Mutual of Omaha’s financial flexibility is more limited following the recent $300 million surplus note offering and the Regulation XXX reserve financing transaction executed in the first half of 2010. In addition, while GAAP operating results have been favorable in recent periods, the company’s 2010 surplus position has been impacted by a statutory operating loss primarily associated with the new business expense strain from increased sales of more capital intensive lines of business. A.M. Best also notes the rising, although manageable, level of delinquencies in the company’s direct commercial loan portfolio, the increased commercial real estate exposure throughout the organization—including the company’s East Campus Realty construction project—and the high level of commercial loans within Mutual of Omaha Bank. A.M. Best will continue to monitor the company’s ability to manage the overall commercial real estate exposure over the near-term.

Mutual of Omaha’s operating results on a GAAP basis have been favorable in a majority of the company’s core lines of business. This has resulted in a considerable increase in policyholder equity in recent periods, which also has been bolstered by an improving net unrealized capital gain position in the general account investment portfolio. The company also has realized strong top-line revenue growth, particularly in its individual insurance segment. A.M. Best notes that some mutual insurance companies with strong capital positions have benefitted from a “flight to quality” in the wake of the recent financial crisis and have increased market share in a number of lines of business. However, A.M. Best maintains a more cautious view of certain core product lines currently driving Mutual of Omaha’s revenue growth, including Medicare supplement and long-term care insurance. A.M. Best views these products to be substantially less creditworthy than other products such as ordinary life and fixed annuities, as companies may be challenged to effectively manage their premium rates as actual experience deviates from their original pricing assumptions. Going forward, A.M. Best expects operating results to continue to be favorable on a GAAP basis, bolstered by the emergence of earnings from its banking operation, but statutory operating results may continue to be pressured by new business expense strain and the persistent low interest rate environment.

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: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Life and Health Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s Perspective on Operating Leverage”; and “A.M. Best’s Ratings & the Treatment of Debt.” 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. For more information, visit www.ambest.com.

Copyright © 2010 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.

A.M. Best Co.
Michael Adams
Senior Financial Analyst
908-439-2200, ext. 5133
[email protected]
or
Thomas Rosendale
Assistant Vice President
908-439-2200, ext. 5201
[email protected]
or
Rachelle Morrow
Senior Manager, Public Relations
908-439-2200, ext. 5378
[email protected]
or
Jim Peavy
Assistant Vice President, Public Relations
908-439-2200, ext. 5644
[email protected]

Source: A.M. Best Co.