OneAmerica dodged crisis, now reaps rewards

Life insurer OneAmerica Financial Partners Inc. rarely was in the headlines the past two years, and that’s fine with company executives. It means they avoided the disastrous investments and other missteps that derailed many of the nation’s financial-services firms in that span.

In fact, OneAmerica is doing just fine, thank you. The company in 2009 reported record revenue of $1.2 billion and record earnings of $103 million. Through the first eight months of 2010, revenue was up 31 percent, to $1 billion, and the company is on track for at least its second-most-profitable year.

“We did avoid all the problems and, yes, the conservative platform is what really took us through,” said Dayton Molendorp, One America’s CEO since 2004.
 

Molendorp

That’s classic Molendorp, and it reflects the culture of the company, a big player in life insurance and annuities, retirement plans for small employers, and a form of long-term-care coverage backed with life insurance.

OneAmerica isn’t flashy, and in go-go times, it might seem downright dowdy. But conservatism is in fashion these days. So are high financial-strength ratings from the ratings agencies. OneAmerica is among only 20 percent of large life insurers that did not receive a negative rating action in 2008 or 2009. The strong balance sheet has allowed the company to bolster its army of agents and grow sales.

“We are being recognized as a port in the storm, somebody you can count on over a very long period of time,” Chief Financial Officer Scott Davison said. “I think both consumers and distributors are valuing that type of steady approach more than they did when things were going gangbusters.”

The stability has been a godsend for the downtown office market, which has been weathering big setbacks, including Eli Lilly and Co.’s decision to vacate its 465,000-square-foot Faris campus. OneAmerica, owner of the 38-story One America Tower, is among the top five corporate users of downtown office space. It has 1,050 employees spread across 12 floors of the tower and another 200 in the nearby Gibson Building.

Opting against IPO

There was a time not long ago when OneAmerica appeared headed in a very different direction. In the late 1990s, the company, then led by CEO Jerry Semler, aggressively lobbied the General Assembly for controversial “mutual holding company” legislation.

The mutual, or policyholder-owned, company said the bill would pave the way for a restructuring and, ultimately, an initial public offering of up to a 49-percent stake.

The insurer’s three-year quest for the legislation came to a successful climax in 1999, and it later restructured, a move that increased flexibility and paved the way for later expansions via mergers. But OneAmerica never took the IPO plunge. And pulling the trigger now is anathema to current management.

As Davison put it, “We have less profit pressure than a public company would have, and more focus on protecting the customer for the long term.”

Molendorp said the company deploys its $12 billion investment portfolio into strong-performing assets without losing sight of the importance of preserving capital.

Leading up to the crisis, its investment managers wisely dialed back exposure to certain segments, such as banks and brokers. And they steered clear of some of the mortgage-backed financial products that ultimately blew up.

That meant OneAmerica had cash to spend when high-yielding bonds issued by quality companies fell to dirt-cheap levels—investments that have since yielded impressive returns.

Standard & Poor’s in an August report praised the company for careful risk management.

“OneAmerica’s investment management strategy is very conservative,” the report said. “Its percentage of speculative-grade securities is less than half the industry average, and only 3.8 percent of its bond portfolio … was rated speculative-grade. Most of those investments are ‘fallen angels,’ which were originally acquired when they were more highly rated.”

That’s not to say the company is free of challenges. A continuation of low interest rates for a prolonged period would squeeze profits, as it would for the entire life insurance industry. And OneAmerica remains a small fry in one of its core businesses, providing employee benefits to small businesses. “OneAmerica will need to work toward attaining greater scale in order to compete more effectively in this market,” A.M. Best said in a July report.

But overall, these are heady times for OneAmerica. Like most companies, it fares well in good times. Now, the company has proven it can do the same in the bleakest of economic conditions.

“It’s great to not end up in a ditch, as some companies did,” Davison said. “It’s another thing altogether to not only parry those market woes but also to take advantage of the opportunities … and have the incredible growth we’ve had.”•