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A.M. Best Affirms Ratings of the Mutual of Omaha Companies(BestWire Services Via Acquire Media NewsEdge) 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). Additionally, A.M. Best has affirmed the debt rating of “a” on $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 sufficient absolute and risk-adjusted capitalization; relatively modest realized and unrealized capital losses in its investment portfolio considering the current economic environment; and solid top-line revenue growth within its core product lines. Additionally, the diversity of the company’s product lines and distribution systems, strong brand name recognition and strengthened enterprise risk management practices also are important factors driving the rating decisions. Mutual of Omaha utilizes a well-diversified individual and group business model, marketing health, life and annuity products to the middle income and senior marketplace. The organization expanded its banking initiative in 2008 by purchasing approximately $3 billion in deposits of a failed banking entity from the Federal Deposit Insurance Corporation (FDIC). While Mutual of Omaha Bank was not profitable during the past year due to investment in infrastructure and transaction costs, A.M. Best expects Mutual of Omaha’s banking strategy to ultimately provide additional earnings diversification while affording it the opportunity to deploy excess capital in higher margin business lines, assuming critical scale is achieved. Mutual of Omaha’s overall top-line revenue growth has been impacted by the group’s strategic shift over the last several years from a major medical provider to a diversified life, annuity and health organization. While the company’s core product lines have experienced growth over the past three years that have met or exceeded industry averages, A.M. Best has a more cautious view of certain core product lines that are currently driving revenue growth, including long-term care and Medicare supplement insurance. Mutual of Omaha’s financial leverage and coverage ratios continue to be strong, and the company has a modest level of intangible assets relative to equity. In addition, while the company experienced a decline in GAAP equity over the most recent period due to unrealized losses in its investment portfolio and funding obligations in its defined benefit pension plan, Mutual of Omaha’s GAAP equity has generally increased over the past five years. This capital expansion is primarily due to organic growth via the retention of earnings across many of the group’s core operating segments. However, A.M. Best notes that certain lines of business have experienced some volatility with mixed statutory results primarily due to the impact of substantial investments in group life and disability and retirement plans, as well as operating losses within the single premium immediate annuity line. Additionally, operating results have declined noticeably within United of Omaha, the group’s largest insurance entity, mainly due to lower investment income, and a substantial write-down of software assets. The organization’s substantial balance sheet strength is supported by its conservative approach to product pricing and relatively low level of exposure to securities issued by financial institutions and non-agency structured securities within its investment portfolio. However, A.M. Best notes that Mutual of Omaha’s recent growth in direct commercial mortgages, its East Campus Reality construction project and the larger than expected increase in Mutual of Omaha Bank’s assets have increased the company’s aggregate exposure to real estate-related assets. A.M. Best will continue to monitor the company’s ability to manage the overall increase in risk within the organization. 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, which may have been considered, can be found at http://www.ambest.com/ratings/methodology. (c) 2009 A.M. Best Company, Inc. |