A.M. Best Affirms Ratings of the UNIFI Companies

A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Ameritas Life Insurance Corp (Ameritas Life) (Lincoln, NE), First Ameritas Life Insurance Corp. of New York (Suffern, NY), Acacia Life Insurance Company (Acacia Life) (headquartered in Bethesda, MD) and The Union Central Life Insurance Company (Union Central Life) (headquartered in Cincinnati, OH). These insurance entities comprise the life/health operations of the UNIFI Companies (UNIFI) (Lincoln, NE), which employs a mutual holding company structure. Concurrently, A.M. Best has affirmed the debt rating of “a-”on the existing $50 million 8.20% surplus notes due 2026 of Union Central Life. The outlook for all ratings is stable.

The rating affirmations primarily reflect the group’s solid absolute and risk-adjusted capitalization despite sizeable realized capital losses in its investment portfolio; improved operating earnings on both a statutory and GAAP accounting basis in 2009; and minimal financial leverage. The ratings also consider the multi-platform distribution system and diversified product portfolio of UNIFI. UNIFI currently offers various ordinary life products, individual annuities, disability insurance, retirement plans, group dental and eye care insurance, mutual funds, banking and investment services. While the group had experienced strong premium growth in a number of its core lines of business in the past, overall sales growth has been substantially impacted in recent periods by the economic recession and a strategic decision to reduce growth in certain product lines in order to preserve capital. A.M. Best will be monitoring UNIFI’s ability to resume premium revenue growth in the aggregate through the retention of experienced agents, growth in its established independent agency distribution system and the continued expansion of its group dental and eye care business.

Partially offsetting these positive rating factors are the large realized capital losses experienced by Union Central Life over the past couple of years, due primarily to its exposure to non-agency residential mortgage-backed securities (RMBS). A.M. Best notes that despite these losses, Union Central Life’s risk-adjusted capital position actually improved in 2009, driven by capital contributions from its parent, reinsurance agreements that reduced reserve requirements and the movement of certain products to affiliate company paper to reduce new business strain. In addition, Union Central Life and Acacia Life were repositioned as subsidiaries of Ameritas Life as part of a company-wide legal entity reorganization. A.M. Best believes this should facilitate more efficient management of capital going forward across the life/health insurance entities.

However, A.M. Best notes that Union Central Life maintains significant investments in non-agency RMBS’, exposing the company to potential additional capital losses over the near term. A.M. Best also remains somewhat concerned about increasing loan delinquencies and the adequacy of loan provisions at Acacia Federal Saving Bank, which is a subsidiary of Acacia Life. While UNIFI currently maintains sufficient capital to support the banking operation, further deterioration in the bank’s loan portfolio could be a drag on UNIFI’s consolidated earnings and capital over the near term.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit http://www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at http://www.ambest.com/ratings/methodology.