A rating company has affirmed Mutual of Omaha’s high financial ratings but pointed out some potential problems with low interest rate investments, a concentration of Medicare Supplement insurance sales and risks from commercial real estate holdings, including the Midtown Crossing development in Omaha.
A.M. Best Co. of Oldwick, N.J., kept Mutual’s financial strength rating at A+, or superior; credit rating at aa- ; and bond rating at “a.” Although Mutual has strong capital and good growth in revenue and earnings, Best said, the ratings could be downgraded.
Mutual spokesman Jim Nolan said Friday that the financial strength rating is Best’s second-highest and affirms Mutual’s financial strength and security for its policyholders. “We take the analysis of Best and all the ratings agencies very seriously,” he said, adding that 2012 “is on track to be one of the best years in our history.”
Best said Mutual’s products are diversified and benefit from the company’s strong brand recognition. Medicare Supplement makes up about 35 percent of Mutual’s insurance revenue, which Best said could be hurt by government regulation such as difficulty in getting necessary rate increases in some states.
Best said Mutual has rising but manageable risks in real estate, including Midtown Crossing, and a high level of commercial loans at Mutual of Omaha Bank.
So far, Mutual “has been able to absorb losses in these portfolios” without damaging its overall finances, Best said, adding that it would continue to monitor Mutual’s ability to manage the commercial real estate holdings, the bank’s operations and Midtown Crossing for “potential stresses” on operating results and capital.
Today’s low-interest-rate environment means low returns on some investments, Best said, but mutual has good capital levels, “solid” financial liquidity, favorable operating results and, on Sept. 30, $385 million in excess cash. Mutual of Omaha Bank is profitable and should contribute more to company earnings in the future, Best said.
If the company continues to improve its overall performance and shifts to more creditworthy products, Best said, the outlook for Mutual’s ratings could be switched to “stable.” Best said it could downgrade Mutual’s ratings if capital declines, Medical Supplement claims surpass revenue and real estate holdings result in losses.
Contact the writer: 402-444-1080, email@example.com, twitter.com/buffettOWH