Statement Regarding Current Market Turmoil
FROM: Dayton H. Molendorp, Chairman, President and CEO
DATE: September 16, 2008
RE: Statement Regarding Current Market Turmoil
OneAmerica continues to maintain the strong financial position on which it has built its reputation.
Our $10 billion in general accounts are held in a conservatively managed, well-diversified portfolio. As a result, and in response to the past week's market turmoil, I want to share the current status of OneAmerica’s investment portfolio.
The recent developments involving Fannie Mae, Freddie Mac, Lehman Brothers, Merrill Lynch, American International Group (AIG) and Washington Mutual are either directly or indirectly related to subprime residential mortgage lending and excessive leverage. Fortunately, OneAmerica's commitment to stewardship and a conservative approach to managing assets have helped us avoid similar problems. As a result, OneAmerica and the OneAmerica Funds, Inc. have none of the following:
-Subprime loans
-Alt-A investments (liar loans)
-Collateralized debt obligations (CDOs)
-Collateralized loan obligations (CLOs)
-Structured investment vehicles (SIVs)
-Auction rate loans
In addition, neither the OneAmerica Companies, nor the OneAmerica Funds, own any investments issued by Lehman Brothers or Washington Mutual.
More than 98 percent of the OneAmerica and OneAmerica Funds investments in Fannie Mae and Freddie Mac are secured by seasoned, conventional, non-subprime residential mortgages. Today these investments are even more secure than they were a month ago because Fannie and Freddie now have a strong commitment of support from the U.S. Treasury.
Recent losses at Merrill Lynch resulted in a proposed takeover by Bank of America. Bank of America’s strong capital position should be a positive for Merrill Lynch bondholders. OneAmerica holds $12.3 million of Merrill Lynch debt, of which $5.7 million is secured by commercial real estate. OneAmerica Funds owns $1 million in Merrill Lynch investments.
AIG is the latest company dealing with problems related to subprime investment activities. The company is now seeking to raise capital until it is able to sell some of its profitable subsidiaries. OneAmerica owns $12 million of senior-level investments at AIG affiliates, SunAmerica and American General Finance. Because of the standing of our investments in the AIG corporate structure, we believe it is unlikely that there will be a meaningful loss in these holdings. OneAmerica Funds does not own any AIG investments.
The combined investment holdings of OneAmerica and OneAmerica Funds in Merrill Lynch and AIG represent less than one-quarter of 1 percent of our investment portfolios.
In June, our overall financial strength was validated by A.M. Best, who affirmed the financial strength rating of A (Excellent) for American United Life Insurance Company® and its affiliates Pioneer Mutual Life Insurance Company and The State Life Insurance Company. The rating is the third highest of A.M. Best’s 15 ratings. In addition, A.M. Best affirmed that the OneAmerica companies are in the upper tier of all A rated companies through its issuer credit rating of a+. The agency also affirmed the debt ratings of OneAmerica and AUL. The outlook for all ratings is “stable.” In addition, our companies maintain the AA- (Very Strong) rating from Standard and Poor’s and the A2 (Good) rating from Moody’s.
Moving forward, we will remain steadfast in our commitment to financial strength and in our service to customers, producers and employees.
