Insurance and Government and Technology

OneAmerica methodical in approach to new deals: Flush with capital, local insurer on the lookout for acquisitions

August 20, 2007

Don't expect OneAmerica Financial Partners Inc.'s purchase of a $700 million annuity portfolio last month to be its last big-ticket buy.

The Indianapolis-based insurance holding company says its executives and heads of its various product lines are constantly on the prowl for acquisitions.

But don't hold your breath for the company's next deal. Its purchase of annuities from Iowa-based Transamerica Life Insurance Co., announced July 24, took two years to come together. So did its previous acquisition, the 2005 purchase of Golden Rule Insurance Co.'s financial services division.

"We have the ability to be patient," said OneAmerica Chief Financial Officer Scott Davison. "But when we see an opportunity, we can go after it quickly."

OneAmerica can be patient because, as a mutual insurance company, it doesn't have to grow profits quarter by quarter. It can be quick because it has a $678 million capital surplus-more than it's ever had.

"It's easier to grow by acquisition rather than organically in the marketplace right now," said Marc Steinberg, a life insurance analyst at A.M. Best Co., a New Jersey-based credit rating agency that is the most influential in the insurance industry.

Nevertheless, OneAmerica must keep growing to stay ahead of the increasingly big fish operating in its markets.

Through its American United Life subsidiary, OneAmerica derives 61 percent of its premiums from retirement services-the domain of such financial giants as AEGON, Fidelity Investments, ING, Principal Financial Group and others.

OneAmerica has successfully ducked competing headto-head with those behemoths by focusing on small to midsize employers, including schools, city governments and not-for-profit groups, where almost none of the biggest companies focus.

Such employers require more "hand holding," said A.M. Best analyst Stephanie McElroy. OneAmerica has typically provided such service, using an extensive network of its own and independent agents to advise, guide and sell to its customers.

But, increasingly, automated technology has allowed big companies to reach effectively down to smaller employers, and to allow their workers to handle both big and smaller accounts. And some of OneAmerica's employer clients have grown enough to enter the big guys' radar screens.

"As the Fidelities and the more 401(k)- focused providers grow, and they have more automated systems, they're pursuing smaller employers," said McElroy, who focuses on OneAmerica for A.M. Best.

While OneAmerica is dwarfed in revenue by some of its competitors, it's a bigger player in the niches it has staked out. The company has 400,000 customers in its retirement services unit, and the Transamerica deal will add 40,000 more-mostly teachers at public schools who have retirement plans known as 403(b)s.

"This acquisition represents another strong step toward growing the OneAmerica enterprise," OneAmerica CEO Dayton H. Molendorp said in a written statement at the time the deal was announced. "This transaction underscores our commitment to the retirement services franchise."

That deal also pushes OneAmerica's total assets to $19.8 billion.

According to 2006 research by Thomson Gale, OneAmerica ranked as the 184th-largest insurance holding company in the world. The biggest American insurer on the list was Citigroup Inc., which boasted $1.9 trillion in assets.

But OneAmerica's subsidiary, American United Life Insurance Co., ranks as the nation's 15th-largest provider of full-service 401(k) plans and its sixth-largest provider of retirement plans to not-forprofit organizations, Davison said.

OneAmerica's acquisition of Golden Rule's business also vaulted it to second behind Philadelphia-based Lincoln National Corp. in selling a long-term-care product that Davison sees as a key growth vehicle.

Traditional long-term-care policies pay for nursing home and in-home care for seniors, with premiums based on the person's age and health status.

But OneAmerica's product sells longterm-care coverage based on the value of a person's life insurance policy. As policyholders receive payments for their longterm care, the value of their life insurance payout diminishes. For the few people whose medical bills exceed their life insurance benefit, traditional long-term-care coverage kicks in.

Davison said OneAmerica can get its strongest sales growth from those products and its retirement services plans. The company also sells life policies to individuals as well as life, disability and medical stoploss benefits to employers.

"We're committed to growth," Davison said, noting that OneAmerica's total sales have grown 11 percent in the first half of this year.

O n e A m e r i c a expects there to be blocks of business available in all three segments, Davison said. The company is also looking for other mutual insurance companies that might be willing to merge. OneAmerica's structure makes such combinations easier.

In recent history, OneAmerica has acquired two other companies-North Dakota-based Pioneer Mutual Life Insurance Co. and Indianapolis-based State Life Insurance Co. It was State Life that technically acquired the Golden Rule unit, which came with $1.8 billion in assets.

Best's analysts said OneAmerica's leadership is skilled at making good buys.

"They are a very thoughtful company when it comes to acquisitions," McElroy said. "They're not going to stretch."
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