A.M. Best Rates American United Life's Surplus Notes; Affirms A+ Rating

Business Wire, April 26, 2000

Business Editors

OLDWICK, N.J.--(BUSINESS WIRE)--April 26, 2000

A.M. Best Co. has assigned an "a" rating to the existing surplus note issued by American United Life Insurance Co., and also has affirmed the A (Superior) financial strength rating. A negative outlook has been placed on the financial strength and surplus note ratings.

The ratings reflect American United Life's sustainable earnings, strong debt service capabilities, established niche position in the defined contribution pension market, effective asset liability management and favorable capital position. A.M. Best notes that the maturity of the company's core individual life insurance business--which generates a substantial portion of its earnings--combined with its established and growing pension operations, should continue to provide sustainable earnings overall. A.M. Best believes that American United Life's below average financial leverage is well supported by its strong debt service capabilities. A focus on developing the less competitive small business segment of the high growth 401(k) market has allowed the company to generate consistent growth in pension business that represents the majority of total reserves and a substantial portion of earnings.

The company uses conservative asset-liability management techniques to effectively support its risk profile that is comprised primarily of group annuity reserves. American United Life further mitigates potential asset-liability mismatch exposure by including market value adjustments and surrender provisions on a majority of reserves. In addition, the company's well-managed investment portfolio is mainly allocated into high investment grade corporate bonds while retaining some exposure to mortgage-related investments that carry pre-payment risk. American United Life has a favorable capital position relative to its peers, as reflected in its strong Best's Capital Adequacy Ratio.

The negative outlook reflects the company's low level of profitability, limited earnings diversification and the intensifying competitive environment of its core pension products which is also the primary source of growth. American United Life's statutory profitability--measured by return on assets--has consistently decreased in the last few years, is below the industry average and that of its peers. In addition, the company has a limited diversification of earnings, with the majority of operating profits generated by its core businesses of pensions and individual life insurance.

American United Life continues to face intensifying competition from larger financial-service companies with more established market positions in the pension arena. These larger entities are expanding their focus on American United Life's niche position in the small business segment. American United Life's relatively limited scale has left the company vulnerable to increasing competitive pressures and resulted in recent margin compression. This margin pressure is somewhat mitigated by an increased emphasis on "takeover" of existing pension plans that typically have larger asset values and generate greater up-front fee income and profitability.

American United Life, headquartered in Indianapolis, provides pension products, ordinary life insurance, group insurance and reinsurance for life and health insurance products. As of Dec. 31, 1999, the company reported $10.6 billion in assets and $739.2 million in shareholders' equity on a GAAP basis.

The following debt rating was assigned with a negative outlook:

- American United Life Insurance Co.--surplus note rating of "a".

The A (Superior) financial strength ratings of the following companies were affirmed and a negative outlook was assigned:

- American United Life Insurance Co.

- The State Life Insurance Co.

A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.