The Long and Short

OneAmerica Financial (ONEAM) offers good relative value

| January 6, 2023

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

OneAmerica Financial’s (ONEAM) sole index-eligible bonds offer a nice discount to many comparable high-BBB/low-A credits in the life insurance subgroup, likely due to a lack of active coverage on the credit. The issuer is a stable operator with a solid credit profile and high ratings. ONEAM has experienced some limited disruption from Covid-19 over the past few years, but revenues appear to be stabilizing and returning to pre-pandemic levels. Investors can achieve total yields north of 6% by owning the ONEAM 2050s with a split A/BBB rating profile. Bonds also trade closely in-line with those of larger issuer LNC (Baa1/BBB+/BBB+), which experienced significant operating turbulence at the end of 2022.

Exhibit 1. Long-dated Life Insurance Comps – BBB rating or higher

Source: Amherst Pierpont, Bloomberg/TRACE Indications

ONEAM 4.25% 10/15/50 @+225/OLB, G+224, 6.08%, $75.62
Life insurance comps:

Issuer: OneAmerica Financial Partners Inc. (ONEAM)
CUSIP: 682441AB6
Ratings: A-/BBB+
Private Placement 144A

ONEAM is a mutual life insurance company, the ultimate parent company is American United Mutual Insurance Holding Company. ONEAM’s three core business lines are Individual Life and Financial Services (ILFS), Retirement Services (RS), and Employee Benefits (EB). The first two account for over 90% of all premiums. Within ILFS, ONEAM offers traditional life insurance, asset-based long-term care (LTC), and annuities products. Asset-based LTC does not carry the same stigma associated with more traditional LTC exposure in the industry, as it enables the policy holder to leverage their death benefit in order to pay long-term care costs. Comparable to peers, ONEAM’s mix of business is considered well diversified as it does not appear overly reliant on a single class of products, such as annuities.

The company has experienced some disruption from Covid-19 with stay-at-home protocols and slow job growth modestly impacting sales over the past few years – a trend we expect will continue to improve as more individuals return to their regular places of employment. According to statutory life statistics, fiscal year 2021 total life revenue of $7.58 billion and lagging-twelve-month total revenue of $6.86 billion as of third quarter 2022 are both back above pre-pandemic levels (2019). Most similarly-positioned life insurance operators saw some form of top-line weakness in 2020 and/or early 2021. Corebridge Financial (CRBG: Baa2/BBB+/A-) saw revenue dip from $31.5 billion in 2019 to $27.3 billion in 2020 before recovering in the subsequent two years. Though revenue was flat from 2019 to 2020, Equitable Holdings (EQH: Baa1/BBB+) experienced a significant drop in premiums in 2021, before recovering in the current year.

ONEAM has total statutory life assets of just under $42 billion with total cash and investments of over $25 billion. Total policy reserves are just over $20 billion as of 3Q22.

The company appears well capitalized. Total capital and surplus were $1.87 billion as of third quarter 2022. The total risk-based capital ratio (TAC/ACL RBC %) as of year-end 2021 was 882%. For comparison purposes, the lower-rated but tighter-trading CRBG credit had a statutory life capital ratio of 760% as of year-end 2021, while the similarly-positioned EQH name was roughly in-line with ONEAM at 876%.

The 2050 bonds are the only index-eligible ONEAM debt issue outstanding, and the $400 million represents the largest public debt maturity in the capital structure. The company has $75 million due in 2026 and $200 million due in 2033. There is currently just over $360 million in cash on the balance sheet. Meanwhile, the ultimate parent company and one of ONEAM’s operating subs have arrangements with FHLB to provide up to $3.5 billion against the company’s investment portfolio in the event of a liquidity crisis providing added protection to debtholders.

Dan Bruzzo, CFA
dan.bruzzo@santander.us
1 (646) 776-7749

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