A.M. Best Downgrades Ratings of OM Financial Life Insurance Company and Its Subsidiary

August 13, 2010 by N/A

OLDWICK, N.J.–(BUSINESS WIRE)–A.M. Best Co. has removed from under review and downgraded the financial strength rating to B++ (Good) from A- (Excellent) and issuer credit ratings to “bbb+” from “a-” of OM Financial Life Insurance Company (Baltimore, MD) and its wholly owned subsidiary, OM Financial Life Insurance Company of New York (Purchase, NY) (together known as OM Financial Life). The ratings have been assigned a stable outlook. OM Financial Life represents the U.S. life insurance and annuity operations of Old Mutual plc (Old Mutual), a leading international long-term savings group based in South Africa and the United Kingdom.

These rating actions follow the announcement by Old Mutual that it has agreed to terms to sell its U.S. life and annuity operations to affiliates of Harbinger Capital Partners LLC (Harbinger) for USD 350 million. Harbinger is a private investment fund based in New York with $10 billion in assets under management. The sale is subject to regulatory approval and is expected to close on or after December 31, 2010.

A.M. Best had previously placed the ratings under review with developing implications on March 11, 2010 when Old Mutual announced its intention to explore the sale of its U.S. life and annuity operations. The ratings for OM Financial Life had historically received partial rating enhancement in recognition of Old Mutual’s financial strength and support. With the likely transfer of Old Mutual’s ownership interest to an entity outside of the insurance sector, OM Financial Life’s ratings no longer qualify for enhancement and, as a result, now reflect its stand-alone credit profile. Should the transaction fail to close, A.M. Best is unlikely to restore the rating enhancement formerly awarded to OM Financial Life’s ratings, as A.M. Best no longer views the U.S. life and annuity operations as a material component of the organization’s future business strategy.

The ratings of OM Financial Life reflect its adequate risk-adjusted capitalization, competitive niche market positions (fixed indexed life insurance and annuities), the significant recovery within its general account fixed income investment portfolio to a net unrealized gain position as of June 30, 2010 and the substantial progress made by the new management team in contracting the company’s business profile through a redesign and simplification of the product portfolio. Furthermore, the company continues to be profitable on a statutory operating basis, and credit-related gains on previously impaired securities have more than offset impairments during the first half of 2010.

A.M. Best expects to have ongoing discussions with Harbinger regarding its strategic and financial plans for the company. However, while A.M. Best views positively Harbinger’s initial intentions of further de-risking the investment portfolio and improving the company’s risk-adjusted capitalization through the use of a Harbinger-owned offshore reinsurance company, these steps are unlikely to have enough of an immediate impact on the insurer’s stand-alone credit profile.

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: Rating Members of Insurance Groups; Risk Management and the Rating Process for Insurance Companies; and Understanding BCAR for Life/Health. Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

Originally Posted at BusinessWire on August 12, 2010 by N/A.