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OneAmerica well positioned to acquire other insurance companies

November 3, 2008

OneAmerica Financial Partners Inc. has made no secret of its desire to acquire other companies.

In October, Conseco Inc. forecast that its third-quarter investment losses would total at least $80 million.Well, if it wants to buy, it could hardly find a better time.


Numerous life insurance companies have sustained massive investment losses during the financial meltdown on Wall Street. The market value of publicly traded insurance companies has plunged.

But OneAmerica expects its investment losses from the third quarter to be among the lowest in the life insurance industry, according to an Oct. 3 statement by CEO Dayton Molendorp.

If that proves true when OneAmerica releases its third-quarter results later in November, the policyholder-owned company still would have more than $140 million in cash to spend on scooping up a company or block of insurance policies to add to its business. Its capital and surplus funds exceed $878 million--more than the company has ever had.

"They are very well-positioned to make a move. The bargains out there are tremendous," said James Atterholt, Indiana's commissioner of insurance.

Growth of any kind by OneAmerica bodes well for Indianapolis, where the company employs more than 1,300 at its downtown headquarters. It employs another 300 workers around the country.

OneAmerica's subsidiaries sell life insurance and retirement planning products to individuals, as well as employee benefits to not-for-profits and school districts. The company had revenue of $1.1 billion last year.

Molendorp and OneAmerica's chief financial officer, Scott Davison, declined to comment for this story. But in previous interviews, company executives have been open in talking about their desire to do deals.

"When we see an opportunity, we can go after it quickly," Davison said in an interview in August 2007. Bill Yoerger, OneAmerica's senior vice president of retirement services, said in June that he's constantly on the lookout for companies or lines of business that would make a good fit with OneAmerica's business and culture.

OneAmerica has yet to release its third-quarter investment results. But Molendorp said in a written statement the company didn't own any of the assets that have caused other companies the most trouble: subprime mortgages, alternative-documentation loans or credit-default swaps.

The insurer held some bonds but no stock in Fannie Mae, Freddie Mac, Wachovia Corp. and American International Group—all companies that were distressed and taken over by another company or the federal government.

In addition, OneAmerica owned no stocks or bonds of Washington Mutual, a large bank that collapsed, or Lehman Brothers, the investment bank whose bankruptcy touched off the financial panic.

"We have not had a meaningful bond default in over four years or a delinquency in our commercial mortgage portfolio in over six years," Molendorp said in a letter posted on OneAmerica's Web site. He expects some bond losses, but added, "Based on the facts we know today, we believe that any losses will be small relative to our overall financial strength and may be among the lowest in the life insurance industry."

Contrast OneAmerica's portfolio with that of Carmel-based life insurer Conseco Inc., which held more than $100 million in Lehman Brothers, Freddie Mac and Fannie Mae. In October, Conseco Inc. forecast that its third-quarter investment losses would total at least $80 million.

Since it announced the latest losses Sept. 16, Conseco's stock has fallen 75 percent, to less than $2 per share. The entire company, which has annual revenue of $4 billion, now has a stock market value of just $342 million.

Conseco holds more than twice as much in investments than OneAmerica. But as of June 30, OneAmerica had lost only $1.3 million on investments this year.

"By and large, they are faring better than the bulk of their competitors," said Tom Rosendale, an insurance analyst at New Jersey-based A.M. Best Co., an insurance rating agency. "Based on what [Molendorp] has outlined, it would be unlikely to see big investment losses in the third quarter."

Rosendale thinks OneAmerica might have better buying opportunities now, not so much because the values of insurance companies are depressed, but because other companies will hoard cash and not prowl for acquisitions.

"There's going to be a few more opportunities, because there aren't that many buyers out there," Rosendale said. "There were a lot of buyers and not too many sellers before [this year]."

Jason Croft, Best's lead analyst on OneAmerica, said the company's most recent acquisitions provide the best guide for what it might do in the future.

Its two most recent deals both focused on retirement services and individual insurance products, which combined account for about 90 percent of OneAmerica's premiums.

In 2007, OneAmerica acquired a $700 million block of annuities from Iowa-based Transamerica Life Insurance Co.

In 2005, OneAmerica acquired the financial services arm of Indianapolis-based Golden Rule Insurance Co., which specialized in individual life and annuities that provide a long-term-care benefit.

Also, in October, OneAmerica's subsidiary, American United Life Insurance Co., became the recommended company for Lafayette Life Insurance Co.'s group life and disability insurance customers. Lafayette Life, based in Lafayette, is exiting those lines to focus on other kinds of life insurance.

Many insurance companies might make similar decisions, Croft and Rosendale said. Now that times are tougher, companies might want to shed those lines to focus on what's really important. And that might open opportunities for OneAmerica.

"If you look at their history in the last five or so years, they have focused their markets in certain segments," Croft said. "You could draw from that what they want to strengthen."

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