The Long and Short
Limited opportunities in life insurance point to ONEAM
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. This material does not constitute research.
OneAmerica Financial Partners (ONEAM: A-/BBB+) trades at an attractive discount to similarly rated life insurance credits in the long-end of the curve. Most securities offering comparable or additional spread compensation in that sector are classified as pre-capitalized securities (PCAPs), which trade at significant liquidity discounts to comparable senior unsecured debt . ONEAM stands out as a compelling senior unsecured issue with similar risk compensation.
While the PCAP segment still offers attractive opportunities, with some issues offering spreads of 125 bp to 135 bp over the Treasury curve for ‘A/BBB++’ credit quality, many investors may be getting full on the structure after significant debt issuance over the past several months. Likewise, the senior unsecured ‘A/BBB+’ life insurance sector is highly concentrated in only a few issuers such as PRU, MET, AFL, and PFG; and ONEAM could offer some issuer diversity to investors seeking to add exposure (Exhibit 1).
Exhibit 1: ONEAM and longer life insurance debt ‘BBB+’ or higher rated
Source: Santander US Capital Markets LLC, Bloomberg/TRACE G-spread indications
ONEAM is an Indiana-based privately-owned mutual life insurance company with two operating subsidiaries, American United Life Insurance Co. and Shenandoah Life Insurance Co., both with ‘AA-‘ insurance financial strength ratings from S&P. ONEAM provides workplace retirement, life and annuity products, employee benefit education and asset-based long-term care (LTC) solutions among its core product offerings. The company generates the majority of income in combination products that link life and annuities to its long-term care offerings. ONEAM has been operating since the late 1800s.
Long-term care exposure among life insurance operators has been a rising cause of concern in the industry in recent years but there is a huge difference in liability risk for those offering asset-based LTC compared to traditional LTC. Asset-based differs because benefits are capped whereas traditional has much more unpredictable claims over the long-term. In asset-based LTC, consumers fund their policies upfront versus traditional which have had poor initial pricing upfront. Reserves are also more manageable with asset-based LTC versus traditional, which have much higher reserve requirements. Therefore, ONEAM should not be placed in the same risk category as life insurers with traditional LTC exposure.
Last month, S&P revised the outlook on their ‘A-‘ rating to Negative from Stable while affirming the rating. The agency stated that the change reflects a one-in-three chance that they would consider lowering the rating by one notch within the next year. The rationale behind the new outlook is the recent return-on-assets relative to mutual fund peers with ‘AA-‘ insurance financial strength ratings. However, the rating agency acknowledged that the sale of ONEAM’s retirement plan business to VOYA earlier this year could serve to bolster these metrics despite a modest reduction in business diversity. The bottom-line is that the spread level on ONEAM debt already appears to reflect ‘BBB+’ ratings compared to comparable bonds in that part of the curve, limiting the risk of a potential one-notch downgrade.
ONEAM has been historically well capitalized, mostly maintaining capital adequacy at or above the ‘AA’ level at the rating agencies over the past several years. According to US statutory life financials, total capital and surplus as of mid-year 2025 stood at just under $1.9 billion. Meanwhile, the total risk-based capital ratio at last year end was at 865% and has remained in a similarly attractive range over the past five-year period dating back to the heights of the covid pandemic in 2020.
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