AM Best Downgrades Credit Ratings of Ohio National Financial Services, Inc. and Its Subsidiaries

OLDWICK, N.J.–(BUSINESS WIRE)–AM Best has downgraded the Financial Strength Rating (FSR) to A (Excellent) from A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) to “a+” from “aa-” of The Ohio National Life Insurance Company and its wholly owned subsidiary, Ohio National Life Assurance Corporation (together referred to as the Ohio National Life Group). These companies are the principal insurance subsidiaries of Ohio National Financial Services, Inc. (ONFS), which is an intermediate holding company wholly owned by Ohio National Mutual Holdings, Inc. Concurrently, AM Best has downgraded the Long-Term ICR to “bbb+” from “a-” and all existing Long-Term Issue Credit Ratings (Long-Term IR) of ONFS. (See below for a detailed listing of the Long-Term IRs).

Additionally, AM Best has downgraded the FSR to A- (Excellent) from A (Excellent) and the Long-Term ICR to “a-” from “a+” of National Security Life and Annuity Company (NSLAC) (New York, NY). The outlook of these Credit Ratings (ratings) is stable. All companies are headquartered in Cincinnati, OH, unless otherwise specified.

The ratings of Ohio National Life Group reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management (ERM). The group’s balance sheet strength assessment is based on its risk-adjusted capitalization being at the strongest level, as measured by AM Best, while maintaining strong liquidity. AM Best notes that while the group’s risk-adjusted capitalization remains at the strongest level, it has been enhanced by the issuance of surplus notes and the use of captive structures to support redundant statutory reserves and to reduce volatility from its annuity living benefit riders. AM Best considers consolidated financial leverage and interest coverage ratios to be within acceptable ranges. The assessment of the group’s operating performance considers its long-term positive trend in individual life insurance sales and its stable GAAP-adjusted operating results, while the assessment of the group’s ERM recognizes its strong risk management framework, including front-end risk management practices and sound governance structure.

The rating downgrades reflect a revision in AM Best’s assessment of the company’s business profile to neutral from favorable. In third-quarter 2018, the company stopped accepting applications for the purchase of annuity products to focus its resources on its core life insurance and disability income businesses. Up until such time, the company had maintained a strong market share in the variable annuity market, and to a lesser extent, the life and fixed-indexed annuity markets. Its strategic withdrawal from the institutional distribution system and related annuity sales diminishes the company’s overall market position and limits the diversification of its earnings sources and its distribution footprint going forward. Additionally, the company will become more concentrated in individual life insurance over time as the life in-force continues to grow while the more than $20 billion annuity blocks run off. AM Best notes that the company could be challenged to grow its life insurance business enough in the future to offset the impact of the annuity block run-off.

The ratings of NSLAC reflect the company’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, very limited business profile and appropriate ERM. The ratings also reflect the support of the company’s parent. The company’s balance sheet strength assessment is based on the strongest level of risk-adjusted capitalization and a high quality investment portfolio. The rating downgrades reflect a revision in AM Best’s assessment of the company’s business profile to very limited from limited. NSLAC was the exclusive distributor of annuities for the group in New York, and now effectively has been placed into run-off status. The rating downgrades also reflect AM Best’s view that the strategic value of NSLAC to the group has diminished, given the absence of new business for the foreseeable future.

The following Long-Term IRs have been downgraded with a stable outlook:

Ohio National Financial Services, Inc.

— to “bbb+” from “a-” on $250 million 6.625% senior unsecured notes, due May 2031

The Ohio National Life Insurance Company

— to “a-” from “a” on $50 million 8.50% surplus notes, due May 2026

— to “a-” from “a” on $250 million 6.875% surplus notes, due June 2042

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media – Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Richard Francis

Senior Financial Analyst

+1 908 439 2200, ext. 5152

richard.francis@ambest.com

Thomas Rosendale

Director

+1 908 439 2200, ext. 5201

thomas.rosendale@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Jim Peavy

Director, Public Relations

+1 908 439 2200, ext. 5644

james.peavy@ambest.com