Fitch Affirms Union Central's IFS at 'A+'; Outlook Revised to Stable from Positive

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed The Union Central Life Insurance Company's (Union Central) Insurer Financial Strength (IFS) rating of 'A+' and surplus note rating of 'A-'. The Rating Outlook has been revised to Stable from Positive.

The ratings of Union Central reflect Fitch's view that Union Central is a core subsidiary of the UNIFI Companies (UNIFI). Based on Fitch's group rating methodology, Union Central's ratings benefit from the financial and operational support provided by the parent and affiliated companies. Fitch believes that the standalone credit profile of Union Central is materially weaker than UNIFI's other core subsidiaries.

The Stable Outlook reflects Fitch's view that further investment losses, which are expected to continue to put pressure on capital given UNIFI's exposure to residential mortgage-backed securities, are manageable in context to UNIFI's capital position. The ratings also recognize that UNIFI's 2008 earnings and capital volatility were higher than anticipated when the Outlook was revised to positive in 2007 subsequent the merger with Ameritas Life Insurance Corp. and Acacia Life Insurance Company.


The most important factor in UNIFI's combined financial strength is its strong capital level as represented by a risk-based capital ratio of 508% on Dec. 31, 2008. However, Fitch recognizes that some of the capital flexibility that UNIFI's year-end 2007 risk-based capital (RBC) of 626% afforded the company has now lessened significantly with actual impairments taken through first quarter 2009 and those Fitch expects to be taken through year-end 2009. Fitch also notes that UNIFI's consolidated total adjusted statutory capital (TAC) declined 22% to $1.3 billion at year-end 2008, which was at a higher pace than the industry average (as calculated from Fitch's universe of rated companies).

Additional positive rating factors include Fitch's view of UNIFI's: a) solid liquidity position, which at year-end 2008 was estimated to be $4 billion (consisting of liquid assets and available lines of credit); b) modest financial leverage; and c) relatively conservative liability profile with low exposure to guaranteed living benefits associated with variable annuity products.

Rating concerns focus on UNIFI's operating profile and earnings performance. UNIFI's 2008 statutory net loss was $229 million primarily driven by investment losses. Earnings were also negatively affected by other aspects of the economic environment including lower fees on lower assets under management, a decline in investment income from limited partnerships and a reduction in the earnings contribution from the dental business as consumer utilization on voluntary products has increased. Additionally, Fitch considers UNIFI a mid-size player that participates in fiercely competitive markets within the industry and does not benefit from the scale advantages of larger competitors, particularly as manifested in expense efficiencies and certain distribution relationships.

Fitch's additional concerns, which could put pressure on the rating, include: a) lack of access to the capital markets, which limits financial flexibility both at the holding company and operating company levels; b) idiosyncratic risks including the performance of UNIFI's wholly-owned federal savings bank, Acacia Federal Savings Bank; and c) higher than Fitch anticipated investment losses driving RBC levels below what is appropriate at the rating category.

The UNIFI Companies is headquartered in Lincoln, Nebraska with home offices in Lincoln, Nebraska; Bethesda, Maryland and Cincinnati, Ohio. The company offers life insurance, annuities, individual disability insurance, group dental and eye care, retirement plans, investments, mutual funds, banking and public finance. UNIFI Companies has $15.5 billion in GAAP assets and $1.5 billion in equity as of Dec. 31, 2008.


Fitch affirms the following ratings and revises the Outlook to Stable from Positive:

Union Central Life Insurance Company

-- IFS at 'A+';

-- Issuer Default Rating at 'A';

-- Surplus note 8.2% due 2026 at 'A-'.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.





Fitch Ratings

Lauren Kalinowski, CPA, +1-212-908-0524

(New York)

Martha M. Butler, CFA, CLU, +1-312-368-3191

(Chicago)

Brian Bertsch, +1-212-908-0549

(Media Relations, New York)

brian.bertsch@fitchratings.com



Source: Fitch Ratings