Best s Rating Report

Transcription

1 AMERITAS LIFE INSURANCE CORP. AMERITAS LIFE INSURANCE CORP. OF NEW YORK A A Lincoln, Nebraska A Printed August 18, Page 1 of 24

2 Ultimate Parent: Ameritas Mutual Holding Company AMERITAS LIFE INSURANCE CORP O Street Lincoln, NE Mailing Address: P.O. Box 81889, Lincoln, NE Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A Outlook: Stable Best s Financial Size Category: XIV RATING RATIONALE Rating Rationale: The ratings of the members of Ameritas Life Group (Ameritas), Ameritas Life Insurance Corp. (Ameritas Life) and its New York subsidiary, Ameritas Life Insurance Corp. of New York (ALICNY), reflect the group s strong risk-adjusted capitalization, diversified operating earnings, strong balance sheet and favorable business profile. These strengths are tempered by fluctuating statutory operating income reported more recently, one-time impacts due to acquisition and divestiture activity, and increased competition within some of Ameritas core businesses, group dental and vision and individual life insurance. Ameritas overall capitalization is strong, on both an absolute and risk-adjusted basis, with very low financial leverage, below-average intangible assets and a generally conservative investment posture supporting its high-quality balance sheet. The organization maintains a conservative investment profile and low exposure to below-investment-grade bonds relative to industry norms. A.M. Best notes that the group has a slightly higher exposure to mortgages and real estate-related assets as a percentage of its capital and surplus, relative to similarly rated peers. However, impairments related to these asset classes have been modest. Ameritas business profile is bolstered by its diversified sources of revenue and earnings from its array of product offerings, including individual life insurance, annuities and disability income insurance; group dental, vision and hearing; retirement plans and investment programs. The company is strongly positioned as a top-five provider of group dental and vision, which has historically produced favorable operating results. Furthermore, Ameritas operations have been more centered on products that are considered more creditworthy. Ameritas market position within the U.S. life insurance arena has generally remained steady, and recent sales growth has remained in line with industry averages with a focus on traditional and indexed universal life products. The group s favorable business profile is complemented by a unified branding strategy, improved economies of scale and a broad product portfolio. In the past, A.M. Best had been concerned with its subsidiary, Calvert Investments, Inc. s challenges to generate positive net flows and consistently grow assets under management; however, the entity was divested during the fourth quarter of Consistent with the industry, Ameritas earnings have been pressured in recent periods due to spread compression. In addition, Ameritas Calvert operations had been hindered by investors movement away from active investment managers to passive investment managers. As such, A.M. Best viewed favorably the organization s divestiture of Calvert in late A.M. Best believes that Ameritas retirement plans segment lacks some scale and remains challenged to reverse the negative net flows recently experienced. A.M. Best believes the group may find it tough to materially grow future earnings due to the low interest rate environment and the competitive challenges in many of the company s core business lines as the U.S. market continues to mature and consolidate. Additionally, A.M. Best notes that Ameritas recently reported volatility regarding mortality and strain that has impacted the profitability of its life business during the past two years. A.M. Best will continue to closely monitor profitability of this line of business. Moreover, Ameritas needs to continue to build scale and improve its competitive position within the retirement plans segment as the economy slowly recovers and competition continues in Ameritas group dental business from other large national players. Recent block acquisitions of whole life and retirement plan businesses have notably increased scale in these lines of business. A.M. Best notes that Ameritas has a substantial exposure to real-estate related assets at over 100% of capital and surplus as of year-end 2016 and has reported a modest level of impairments tied to these holdings. Factors that could result in positive rating movement of the ratings include a material improvement in overall statutory operating results, including ordinary life business, as well as a sustainable trend of increasing statutory return on equity. Factors that may result in negative rating movement include a substantial decline in risk-adjusted capitalization or deterioration in normalized operating results. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/17/17 A 03/28/14 A 03/02/16 A 03/22/13 A 02/06/15 A Printed August 18, Page 2 of 24

3 KEY FINANCIAL INDICATORS ($000) Total Capital Capital Asset Net Net Surplus Valuation Premiums Invest Funds Reserve Written Income Net Income Year Assets ,865,600 1,370, ,439 2,101, ,073 96, ,326,383 1,571, ,698 1,943, , , ,894,709 1,643, ,572 2,200, , , ,218,495 1,532, ,251 3,444, ,301-9, ,696,586 1,484, ,821 4,421, ,481-4,796 (*) Within several financial tables of this report, this company is compared against the Group Annuity Composite. (*) Data reflected within all tables of this report has been compiled from the company-filed statutory statement. BUSINESS PROFILE Ameritas Life Group (Ameritas) offers a broad array of insurance and financial products and services to individuals, families and businesses. The group has four main business segments: Individual, Group, Financial and Retirement Plans. The core financial strength of Ameritas Mutual Holding Company lies within its insurance companies, Ameritas Life Insurance Corp. (Ameritas Life) and Ameritas Life Insurance Corp. of New York (ALICNY). The July 2014 merger of affiliates Acacia Life Insurance Company and The Union Central Life Insurance Company into Ameritas Life allowed the organization to better meet the insurance and financial services needs of customers under a single and growing national Ameritas brand. Additionally, in March 2016, Ameritas completed its acquisition of Security American Financial Enterprises, Inc. including its insurance subsidiaries of Security Life Insurance Company of America and Security Health Insurance Company of New York further expanding Ameritas distribution and customer base. Those entities have since been consolidated into Ameritas Life. The organization s Calvert Investments operations were sold to Eaton Vance in December Scope of Operations: Ameritas individual division includes the individual life, annuity and disability income product lines offered by its core insurance entities. Life insurance products are well diversified and include traditional whole life, term insurance, universal life, variable universal life, and indexed universal life. In December 2015, the company announced an acquisition of several blocks of whole life insurance, with life insurance in force of $2.1 billion. As such total life insurance in force has increased materially relative to several years ago. Annuity product lines include traditional fixed annuities, indexed annuities and variable annuities (VAs). Disability income products include non-cancellable policies, guaranteed renewable policies, and business overhead expense policies. Individual products are marketed in all 50 states and the District of Columbia using a multi-channel platform which includes core general agencies, disability income centers and independent distribution. The company currently remains focused on increasing the productivity of its existing field force and expanding the number of producers. The individual division s earnings continue to represent a material portion of Ameritas consolidated results. Ameritas innovative group dental products include its Dental Rewards product, which offers a rollover benefit maximum to its plan participants. Dental Rewards has been a highly successful product for the group and is complemented by the FUSION product, which combines dental and vision benefits. Another innovative product introduction for Ameritas was offering LASIK coverage as a rider to its dental product, the first in the industry. Several years ago, Ameritas introduced Ameritas Rewards which allows plan participants to use unused dental maximums for vision and hearing needs. Ameritas continues to introduce value-added dental products to the market. The company s dental franchise continues to be a major contributor to earnings, supported by its efficient cost structure, dental block consolidation expertise, flexible product design, persistency and excellent customer service as evidenced by Ameritas earning their tenth Center of Excellence award from BenchmarkPortal. The group s extensive dental database, which is utilized in pricing, product development and claims management, is crucial to facilitating favorable underwriting results. These competitive advantages continue to allow Ameritas and its partnerships to compete effectively in the increasingly competitive group market. The recent acquisition of Security American and its affiliated companies will further strengthen the company s productivity in the market. Finally, captive distribution within the group division consists of approximately 91 sales associates operating within 30 regional sales offices nationwide, and a number of strategic partnership alliances, third party administrators and brokerage general agency channels. In addition to dental and vision, Ameritas offers a hearing product to complement its current group product portfolio. In 2016, the group division contributed roughly 29% of GAAP pre-tax operating earnings to Ameritas. The retirement plans segment markets group annuities to the small and mid-sized 401(k) employer market (under 250 employees) and offers products on both a bundled and unbundled basis. TOTAL PREMIUM COMPOSITION & GROWTH ANALYSIS Reinsurance Period DPW Prem Assumed Ending ($000) (% Chg) ($000) (% Chg) ,237, , ,269, , ,319, , ,311, ,326, ,414, ,259, Yr CAGR Printed August 18, Page 3 of 24

4 Reinsurance Period Prem Ceded NPW & Deposits Ending ($000) (% Chg) ($000) (% Chg) , ,336, , ,108, , ,419, , ,620, , ,496, Yr CAGR Territory: The company is licensed in the District of Columbia, AL, AK, AZ, AR, CA, CO, CT, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WV, WI and WY. Business Trends: A.M. Best notes that Ameritas growth in ordinary life sales has been trending above industry averages in recent years. As such, statutory strain associated with that sales growth has hindered profitability in that line of business in recent years. While in 2015, Ameritas annuity sales increased 6% compared to flat industry growth, driven by growth in indexed annuities, sales for 2016 were relatively flat to prior year compared to an industry decline of 6%. Overall, the individual division has reported a slight decline in sales for 2016, reflecting a decline in life and annuity sales, partially offset by modest growth in individual disability sales. Historically, the group division s dental revenue has outpaced industry sales results with double-digit growth rates. Ameritas dental sales growth trends have historically been strong, particularly within dental PPO, where it maintains a strong and growing dental provider network. The division has reported favorable trends in annualized premium and premium equivalents and serves over 6 million people across the nation. Consolidated net premium written growth was driven materially by recent acquisitions in ordinary life, group annuities, and dental and vision plans. At year-end 2016, consolidated premiums rose 28.3% over prior year. As such, ordinary life policies and reserves increased accordingly, and total life insurance in force was roughly $90 billion at year-end Year-end 2016 AUM in the retirement plans division increased materially due to acquisition of business. Additionally, through a nationwide network of financial advisors, Ameritas Investment Corp. financial advisors have nearly $4.1 billion in assets under advisement and launched a series of technological enhancements to better serve the diverse investment needs of individuals and families BY-LINE BUSINESS ($000) Reinsurance Prem Assumed DPW Product Line ($000) (%) ($000) (%) Ordinary life 565, , Group life 3, Individual annuities 351, Group annuities 661, ,148, Individual A&H 172, Group A&H 660, , Total 2,414, ,259, Reinsurance Prem Ceded NPW Product Line ($000) (%) ($000) (%) Ordinary life 179, , Group life , Individual annuities 8, , Group annuities 10, ,799, Individual A&H 53, , Group A&H , Total 252, ,421, BY-LINE RESERVES ($000) Product Line Ordinary life 5,280,171 5,178,008 3,825,585 3,689,865 3,873,717 Group life 12,442 13,327 13,847 14,846 15,892 Supplementary contr 20,623 21,555 23,130 23,924 23,559 Individual annuities 2,276,967 2,118,194 2,003,515 1,911,855 1,996,284 Group annuities 1,307,435 1,202,722 1,197,499 1,193,040 1,479,111 Deposit type contracts 878, , , , ,989 Individual A&H 327, , , , ,567 Group A&H 8,506 9,737 11,402 14,609 15,057 Total 10,112,559 9,719,086 8,046,620 7,671,018 8,203,177 LIFE POLICIES STATISTICS -Ordinary Policies- -Group Policies- -Group Certificates- Year Issued In Force Issued In Force Issued In Force , , , , , , ,977 4,211 59, , , ,980 6,156 54, , , ,021 4,784 54, , , ,118 Printed August 18, Page 4 of 24

5 Whole Life Endow. & LIFE INSURANCE IN FORCE ($000) Total Insurance In Force Year Adds Term Credit Group Industrial ,629,142 44,023,241 1,768, ,420, ,634,529 33,002,411 1,671, ,308, ,801,655 36,937,107 1,663, ,402, ,076,845 38,523,193 1,664, ,264, ,001,403 39,529,662 24, ,555,311 NEW LIFE BUSINESS ISSUED ($000) Year Whole Life & Endow. Term Credit Group Industrial Total Insurance Issued Non- Par (%) Par (%) ,304,901 3,789,320 90,202 6,184, ,262,405 4,059, ,783 6,453, ,428,347 3,655, ,126 6,330, ,537,408 4,274, ,693 6,954, ,293,182 3,852,874 4,595 6,150, ORDINARY LIFE STATISTICS Ord. Renew Average 1st Yr 1st Yr Gen. Lapse Premium Ord. Policy Avg Prem / Comm / Exp. / Ratio Persist (in dollars) Prem Total 1st Yr Policies Year % % Issued In Force ($/M) Prem Prem In Force , , , , , , , , , , First Year Gen l Exp/ Return on Number of Policies Premium Reserves Reserves Year Issued In Force (000) (%) (%) , , , , , , , ,916 98, , ,395 95, , ,413 85, INDIVIDUAL ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res(%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) ,020 2,019, ,462 1,935, ,629 2,026, ,523 2,139, ,700 2,297, GROUP ANNUITY STATISTICS Comm & Exp to Res Exp to NPW (000) Res (%) (%) Benefits & Wdrwls to NPW (%) Benefits & Wdrwls to Res (%) NPW Year (000) ,760 1,479, ,905 1,193, ,741 1,197, ,801 1,202, ,799,593 1,307, TOTAL ANNUITY ACTUARIAL RESERVES BY WITHDRAWAL CHARACTERISTICS With Min or No Surrender Surrender Charge 5% With Charge (%) or more (%) MVA (%) No Surrender Allowed (%) Total Annuity Year Res (000) ,498, ,128, ,224, ,342, ,605, SEPARATE ACCOUNT DATA Sep Acct Assets 6,404,013 6,278,575 6,679,996 6,581,547 5,780,865 % Growth S/A Assets/Adm Assets Sep Acct Reserves 6,345,937 6,213,349 6,607,665 6,503,080 5,699,738 % Ordinary Life % Individual Annuities % Group Annuities Other Liabilities 58,076 65,226 72,332 78,467 81,127 S/A Prems & Deposits 703, , , , ,121 % Ordinary Life % Individual Annuities % Group Annuities Sep Acct Fees & Charges 49,063 53,907 55,315 52,919 48,637 % Ordinary Life % Individual Annuities % Group Annuities Fees & Chgs to Assets% Sep Acct Ben & Wdrwls 904, , , , ,581 % Ordinary Life % Individual Annuities % Group Annuities Ben & Wdrwl to Assets% Printed August 18, Page 5 of 24

6 Market Share/Market Presence: A.M. Best believes that Ameritas has strong franchises in group dental as well as an established and increasingly important presence in the life and annuity markets. The company s offerings are diverse by product as well as by geographic region, which has become even further diversified over the last five year period. Per LIMRA, Ameritas enjoys a top ten position in new sales of group dental products. On a nationwide basis, the company offers a competitive suite of limited scope health benefits products including dental, vision and hearing insurance. The group division has an insured base of over 6 million participants and contributed roughly 29% to Ameritas 2016 consolidated pre-tax GAAP operating earnings for insurance. The segment s participating provider organization (PPO) panel has approximately 406,000 provider access points covering over 2.8 million employee lives. The organization s group products are sold through a multiple distribution strategy which includes its captive distribution for Ameritas, a leading provider of group dental indemnity, PPO, voluntary and individual dental products and services; and its partnering distribution arrangements. Its market position has been achieved through organic growth, selective block acquisitions and multiple distribution partnering arrangements. While the overall scale of the retirement plans division is currently modest, Ameritas has been increasingly focused on expanding its business profile within certain segments of the retirement savings arena. Ameritas acquired Guardian s 401(k) retirement business in late 2016 through a coinsurance agreement, adding scale to the existing operations. The current target market includes small employers (with defined contribution plans with assets under management of $3 million or less), local governments (i.e., 401(a) and 457(b) plans), and plan sponsors seeking to limit fiduciary liability. A.M. Best believes that the U.S. retirement market is maturing and represents one of the more profitable segments within the U.S. life and annuity market requiring increased scale and superior risk management capabilities to compete effectively. Ameritas is a mid-tier player in the individual life and annuity market. The individual division offers a diversified portfolio of whole life, term, universal life, variable universal life, traditional fixed annuities, indexed annuities and individual disability income (DI) products. DI business is reinsured on a coinsurance basis (35% of earned premium) with carriers assuming equal portions in excess of the first $5,000 of monthly benefit. A.M. Best believes the individual and retirement plans businesses are integral to Ameritas future growth strategy. In recent periods, the company has experienced a noticeable increase in sales of indexed universal life insurance as well as fixed-indexed annuities. GEOGRAPHIC BREAKDOWN BY DIRECT PREMIUM WRITINGS ($000) California 275, , , , ,958 Texas 224, , , , ,268 Nebraska 204, , , , ,918 Pennsylvania 112, , , , ,483 North Carolina 111, , , , ,992 Ohio 111, , , , ,185 Florida 106, , , , ,694 Illinois 99,330 59,761 67,676 68,636 68,899 Missouri 92,908 49,375 66,856 47,121 57,627 Georgia 75,372 68,080 75,978 72,690 73,232 All Other 1,051,732 1,027, ,402 1,020,954 1,025,237 Total 2,466,644 2,464,598 2,510,208 2,410,847 2,439,493 RISK MANAGEMENT Ameritas utilizes a comprehensive enterprise risk management (ERM) framework driven by an ERM committee that is comprised of senior and executive officers, including the Chief Executive Officer. The ERM department coordinates all risk management activities, reporting and communication. The risk officer is responsible for the measuring, monitoring and reporting of operational risks and risk transfer programs, as well as facilitating risk assessments and doing a comprehensive review and reporting of all risks, with assistance from risk coordinators in the various business units. That risk officer is responsible for the execution of the ERM program and reports to the CEO. Reports are also made to the Ameritas Board and Audit and Risk Committee, who also have oversight responsibility. Also, each specific business unit and shared service area designates a risk coordinator to participate in risk identification and assessment, monitoring policies, procedures, and controls, and facilitating risk reporting by the business unit for the enterprise. The risk management process is also supported by the legal and compliance functions, internal and external audit, as well as regulatory bodies. Ameritas has developed a comprehensive set of policies, procedures, and controls that serve to establish a stated risk appetite for the types of products, services, and investments the insurance companies will be involved in, as well as the tolerances, limits, or extent to which the companies will be exposed to them. The ERM Committee has also established tolerances for operating risks related to capital investment, financial reporting, legal and regulatory matters, code of conduct, reputation, staffing, and systems availability. At any given time there are more than thirty specific risks which are tracked at the enterprise level. Key risks are evaluated, monitored and action plans are created when necessary. When adverse outcomes do occur, Ameritas focuses on determining the lessons to be learned and makes adjustments in order to improve the management and measurement of risk. As part of its risk appetite, Ameritas utilizes reinsurance partnerships to control its level of risk in certain Printed August 18, Page 6 of 24

7 segments and business lines. As with many companies in the industry, Ameritas has increased its focus on technology risks such as cyber security and overall data integrity. The company regularly reviews and assesses for potential threats of breach. Ameritas has effectively demonstrated where its risk management practices support its strategic business planning, and has ERM capabilities which are a good match to its risk profile. OPERATING PERFORMANCE Operating Results: Ameritas has a diversified earnings profile, consisting of the group s insurance and financial services businesses. Within insurance, earnings are further diversified between individual life, annuity, disability income and group dental & vision, with the largest percentage driven by the individual segment. For 2016, each division s GAAP pre-tax operating earnings approximate contributions were as follows: individual (63%), group (29%) and corporate (17%), with financial and retirement plans reporting losses tied to acquisitions and divestitures in those segments. The company reported consolidated GAAP net income of $89.6 million as of year-end 2016 vs. $111.1 million reported in the prior year. The decline in GAAP earnings relative to the year prior was primarily due to one-time impacts from transactions as well as the impact of assumption unlocking that occurred in the third quarter of A change in interest rate assumptions had a sizable impact to operating results in the individual division during that reporting period, as well as the impact of the reinsurance transaction within the whole life blocks that were acquired late in Overall, individual life and annuity sales production for 2016 was down modestly relative to prior year, partially offset by disability income sales that were favorable to prior year. Expenses were well managed for the segment and in line with prior year, and below expectations. The group division s GAAP pre-tax operating results were down slightly from prior year at $25.8 million compared to $27.3 million year-end Results reflected increased premium revenue from the acquisition of Security Life that closed in the first quarter of Additionally, sales production in the division was favorable to prior year, with dental sales up by $35 million and vision sales up by $2 million relative to As such group division revenue increased by over 10% compared to Expenses tied to the acquisition partially offset favorable morbidity trends in the group dental and vision lines of business. The group division continues to be pressured by headwinds due to the evolving and uncertain healthcare environment as well as increased competition in the market. The retirement plan division s GAAP 2016 pre-tax operating loss of $2.6 million reflected the impact of assumption unlocking and reserve adjustments to account for interest rates that impacted the third quarter. Additionally, the impact of the coinsurance transaction for acquisition of Guardian s 401(k) business unfavorably impacted operating results for year-end Revenue was bolstered by additional contract charges and other asset based fees, largely as a result of the Guardian 401(k) acquisition. Sales production in 2016 in this segment was favorable with an increase of 54% reported. Retirement plans have been impacted by market impacts on separate account assets. The financial division, which includes broker/dealer and investment advisory operations, reported under Ameritas Investment Corp. (AIC) and Ameritas Investment Partners, Inc. (AIP), reflected lower sales and modestly higher underwriting fees in AIC. Finally, the corporate division s reported 2016 GAAP pre-tax operating earnings were favorable to prior year, benefiting from favorable net investment income reported. The statutory results exclude the financial services businesses and consist of the following statutory reporting entities: Ameritas Life and Ameritas Life of NY (as well as the recently acquired Security American entity and its affiliates). The Acacia Life and Union Central operations were merged into Ameritas Life on July 1, Security Life business was merged into Ameritas as of December 31, On a statutory basis, Ameritas has reported a decline in pre-tax net operating income in 2015 and Year-end 2016 results reflected the impact of several transactions, the coinsurance of Guardian s retirement plan business and the acquisition of Security Life, and integration of that business. While operating income trends were not favorable in recent years, organic growth and acquisitions drove material increases in direct and net premiums reported. Revenue was bolstered by favorable net investment income reported as of year-end 2016, partially offsetting underwriting losses. Some volatility in operating gains was attributable to the impact of interest rates on assumptions within life and annuity business. Overall, the company reported returns significantly below those of several years ago. The decline in 2015 was primarily driven by the impact of the whole life blocks which were coinsured late in that year. Ameritas had incurred a $49.3 million commission and expense allowance as a result of the whole life coinsurance agreements. Not accounting for this impact, the individual life business reported a loss of $2 million driven by unfavorable mortality. Individual annuity business reported a decline in profitability due to the impact of mark-to-market adjustments on guaranteed lifetime withdrawal benefits (GLWB) for the company s variable annuity business. Individual disability business reported favorable results relative to prior year, reflecting a decline in the loss ratio statutory operating results also reflected pressure in the group division related to increased distribution costs and operating expenses, offset by favorable morbidity. PROFITABILITY ANALYSIS ($000) Company Pre-tax Net Period Net Oper Operating Net Total Ending Income Gain Income Return , ,673 96,933 37, , , , , , , , , ,617-19,608-9,654-74, ,466-4,796-3,783 5-Yr Total 331, , , ,509 Printed August 18, Page 7 of 24

8 Company Industry Composite Period Operating Operating Operating Operating Ending ROR (%) ROE (%) ROR (%) ROE (%) Yr Avg PROFITABILITY TESTS Comm & Pre-tax Ben Paid Exp to NOG Operating Invest to NPW NPW to Tot NOG to Return on Net Total Year & Dep & Dep Assets Tot Rev Equity Yield Return Year Avg (*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications NET OPERATING GAIN ($000) Product Line Ordinary life 5,979-91, ,742 6,372 Group life , ,451 Supplementary contr 183 1, Individual annuities 23,126 27,145 38,902 24,186 10,006 Group annuities -72,722 7,806 7,004-5,245 6,997 Individual A&H 20,775 10,334 8,798 15,442 11,492 Group A&H 4,166 12,381 19,979 17,226 17,989 Other 9,887 13,471 47,383 62,232 49,774 Total -8,466-19, , , ,673 ACCIDENT & HEALTH STATISTICS ($000) Net Premiums Net Premiums Loss Exp. Underwriting Year Written Earned Ratio Ratio Results , , , , , , , , , , , , , , ,442 Current Year Experience: Group 731, , ,672 Non-can. 74,567 74, ,392 Guarant renew 7,606 7, ,758 Other 37,496 37, ,404 INVESTMENT GAINS ($000) Company Net Realized Unrealized Inv Capital Capital Year Income Gains Gains ,073-6,740-59, ,405 71,821-13, ,811 4,542 10, ,301 9,954-65, ,481 3,670 1,013 5-Year Total 2,238,071 83, ,590 Company -Industry Composite- Pre-tax Invest Inv Inc Inv Return on Total Inv Inc Inv Growth Yield Inv Assets Return Growth Yield Year (%) (%) (%) (%) (%) (%) Yr Avg (*) Pre-Tax Invest Total Return quarterly calculation based on more limited quarterly data - see Calculation Specifications BALANCE SHEET STRENGTH Capitalization: As of year-end 2016, capital and surplus had declined by roughly $50 million relative to prior year-end, driven by the impact of various transactions that occurred as Ameritas acquired blocks of business through coinsurance and acquisition over the course of the year, as well as Printed August 18, Page 8 of 24

9 underwriting losses tied to the impact of unfavorable mortality in certain lines of business. While capital has declined due to lower income reported and dividends paid, A. M. Best considers the company to be more than adequately capitalized relative to its investment and insurance risks, and anticipates favorable trends in the near to medium term. In the year prior, surplus declined materially, reflecting the statutory impact of the December 2015 coinsurance treaty for several whole life blocks of business as well as the impact of unrealized losses tied to market volatility. Stockholder dividends of $60 million were paid over the past three years to Ameritas Holding Company and increases in non-admitted assets and other charges against surplus further impacted capital and surplus levels. On a qualitative basis, the group s very good capitalization levels are complemented by favorable financial measures including low financial leverage, solid interest coverage, and moderate intangibles-to-equity. Current BCAR: 350 CAPITAL GENERATION ANALYSIS ($000) Source of Surplus Growth Pre-Tax Net Realized Unrealized Adjusted Capital Income Capital Year Gain Gains Taxes Gains ,385-6,740-19,288-59, ,260 71,821-33,964-13, ,966 4,542-9,062 10, ,617 9,954 64,225-65, ,670 7,705 1,013 5-Yr Total 331,467 83,247 9, ,590 Source of Surplus Growth Change Change % Chg in Other in in Year AVR Changes C&S C&S ,917-63,929-49, ,259 34, , ,873-51,686 71, ,679-32, , ,570-40,802-48, Yr Total -60, ,626 63, QUALITY OF SURPLUS ($000) Surplus Other Contributed Unassigned Year Notes Debt Capital Surplus , , , , ,174 1,035, , ,433 1,129, , ,442 1,017, , ,864 1,000,202 Year-End Asset Valuation Adjusted Year C&S Reserve C&S ,370, ,439 1,490, ,571, ,698 1,704, ,643, ,572 1,794, ,532, ,251 1,686, ,484, ,821 1,641,887 LEVERAGE ANALYSIS Company -Industry Composite- C&S NPW & Dep Change C&S to Surplus to Total in NPW to Surplus Year Liab(%) Relief(%) Capital & Dep(%) Liab(%) Relief(%) CEDED REINSURANCE ANALYSIS Company -Industry Composite- Face Affil Unaffil Total Total Amount Reins Reins Reins Surplus Reins Reins Reins Year Reins Ceded Rec/C&S Rec/C&S Rec/C&S Relief Leverage Rec/C&S Leverage ,642, ,016, ,616, ,764, ,032, Liquidity: The group s overall liquidity is supported by positive net cash flows from its diversified business mix and access to a committed, but fully outstanding, bank line at Ameritas Life. In addition, Ameritas Life is a member of the Federal Home Loan Bank system which provides the potential for additional borrowing capacity at a relatively low cost of funds. Finally, liquidity is further enhanced through Ameritas mutual holding company structure; its very low financial leverage, which includes $50 million in unaffiliated surplus notes, due 2026, and relatively modest borrowings from a revolving credit facility, as well as the organization s generally lower risk product portfolio. Printed August 18, Page 9 of 24

10 LIQUIDITY ANALYSIS Company Operating Non-Inv Delnq & Cash Quick Current Grade Bonds Foreclsd Year Flow ($000) Liquidity Liquidity to Capital Mtg to Capital , , , , , Company Industry Composite Mortgage Affil & RE Invest Quick Current Year to Capital to Capital Liquidity Liquidity Investments: Ameritas investment portfolio is managed by Ameritas Investment Partners, an affiliated company. The general account portfolio is concentrated primarily in fixed income securities (approximately 73% on a consolidated basis) and mortgage loans (14%), with the balance invested in common and preferred stock, real estate, alternative investments, policyholder loans and cash and cash equivalents. The fixed income portfolio is comprised of roughly one-fifth structured securities, and includes investments in residential, commercial and other asset-backed securities that are primarily backed by residential mortgages and student loans. A.M. Best notes that exposure to these securities has declined noticeably in recent periods, and the potential for material investment losses in this sector is limited. Bonds are split with three quarters allocated to public, down slightly from prior years and just under one quarter allocated to privates, as of year-end Relative to similarly-rated peers, Ameritas has below-average exposure to high-yield bonds as a percentage of statutory capital, reflecting its conservative investment philosophy, financial discipline and superior capitalization. Interest rate risk from the mortgage-backed securities portfolio is actively managed by the monitoring of market values and active asset/liability management. Ameritas mortgage loan portfolio is geographically diversified and primarily comprised of commercial loans on office, retail, apartments, and industrial buildings. Lending activity is driven by conservative underwriting standards (low loan-to-value, loan size and over sixty percent borrower recourse) and the historical performance has been above average, with only a modest amount of delinquencies in recent periods. Ameritas mortgage loan and real-estate related assets, as a percentage of statutory capital, is slightly higher than similarly-rated peers and includes approximately $167 million of primarily interest-only loans that were transferred to Ameritas general account from Acacia Federal Savings Bank before its sale in November INVESTMENT YIELDS Cash & Invest. Net Short- Real Estate Exp. Year Yield Bonds Stocks Mortgages Term Gross Net Ratio INVESTMENTS - SECURITIES Current Year Distribution of Bonds By Maturity Years Yrs-Avg Maturity Government Gov t Agencies & Muni Industrial & Misc Hybrid Securities Total Bonds (000) 8,421,920 8,347,515 7,027,089 6,595,373 6,968,381 US Government Foreign Government State/Special Revenue - US Industrial & Misc - US Private Issues Public Issues Bond Quality (%) Class Class Class Class Class Class INVESTMENTS - EQUITIES Stocks (000) 530, , , , ,494 Unaffiliated Common Affiliated Common Unaffiliated Preferred Printed August 18, Page 10 of 24

11 INVESTMENTS - MORTGAGE LOANS & REAL ESTATE Mortgages (000) 1,666,517 1,462,568 1,407,117 1,382,678 1,472,206 Commercial Residential Mortgage Quality (%) 90 Days Delinquent In Process of Foreclosure Total Delinquencies Real Estate (000) 59,452 61,213 72,849 67,876 67,279 Property Occupied by Co Property Held for Inc Property Held for Sale INVESTMENTS - OTHER INVESTED ASSETS Other Inv Assets (000) 1,088,322 1,018, , , ,422 Cash Short-Term Schedule BA Assets All Other HISTORY Date Incorporated: 04/06/1887 Date Commenced: 05/06/1887 Domicile: NE This company was incorporated under the laws of Nebraska on April 6, 1887 as a stock life company. In 1941, a plan of mutualization was adopted, and by December 1949, all shares were retired. The company was originally incorporated as Bankers Life Insurance Company of Nebraska, and in 1988, the present title was adopted. Effective January 1, 1998, the company converted from a mutual insurance company structure to a stock life insurance company by adopting the mutual holding company structure. All of the shares of the capital stock of Ameritas Life were issued to and are owned by an intermediate stock holding company, Ameritas Holding Company. This structure provides the organization with greater financial flexibility in its capital management which includes access to additional capital from public markets. Evidence of operational flexibility includes mergers of mutual holding companies and subsidiary reorganizations. On January 1, 1999, the Ameritas Mutual Insurance Holding Company was merged with the Acacia Mutual Holding Corporation and renamed Ameritas Acacia Mutual Holding Company. On January 1, 2006, the Ameritas Acacia Mutual Holding Company merged with The Union Central Mutual Holding Company and was renamed UNIFI Mutual Holding Company. During 2009, Acacia Life and Union Central were made subsidiaries of Ameritas Life. On May 2, 2012 UNIFI Mutual Holding Company was renamed Ameritas Mutual Holding Company. In July 2014, Acacia Life Insurance Company and The Union Central Life Insurance Company merged into Ameritas Life Insurance Corp. In December 2016, Security Life Insurance Company of America merged into Ameritas Life Insurance Corp. In December 2016, Security American Financial Enterprises, LLC was liquidated and dissolved. Mergers: Ameritas Variable Life Insurance Company, Nebraska, LifeRe Insurance Company, Texas, Acacia Life Insurance Company, District of Columbia, The Union Central Life Insurance Company, Nebraska, Security Life Insurance Company of America, Minnesota, MANAGEMENT Officers: Chairperson and Chief Executive Officer, JoAnn M. Martin; President and Chief Operating Officer, William W. Lester; President, Steven J. Valerius (Individual Division); Executive Vice President, Karen M. Gustin (Group Division); Senior Vice President, Treasurer and Chief Financial Officer, Susan K. Wilkinson; Senior Vice President and Chief Investment Officer, James Mikus; Senior Vice President and Chief Information Officer, Richard A. Wiedenbeck; Senior Vice President and Chief Marketing Officer, Brent F. Korte; Senior Vice President, Corporate Secretary and General Counsel, Robert-John H. Sands; Senior Vice Presidents and Chief Actuaries, Robert M. Jurgensmeier (Individual), Linda A. Whitmire (Corporate); Senior Vice President, Chief Actuary and Chief Underwriting Officer, Kelly J. Wieseler (Group); Senior Vice President and Chief Human Resource Officer, April L. Rimpley; Senior Vice Presidents, James J. Barone (Group Business Development & MGA Distribution), Ryan C. Beasley (Shared Agency Distribution), Bret L. Benham (Retirement Plans), Patrick D. Fleming (Group National Accounts & Key Partnering Relationships), Bruce E. Mieth (Group Operations), Lisa A. Mullen (Individual Financial Operations). Directors: James P. Abel, J. Sidney Dinsdale, James R. Krieger, William W. Lester, JoAnn M. Martin (Chair), Patricia A. McGuire, Tonn M. Ostergard, Kim M. Robak, Paul C. Schorr IV, Bryan E. Slone. REGULATORY An examination of the financial condition was made as of December 31, 2012, by the insurance department of Nebraska. The 2016 annual independent audit of the company was conducted by Deloitte & Touche, LLP. The annual statement of actuarial opinion is provided by Linda A. Whitmire, Senior Vice President & Chief Actuary, Corporate. Reserve basis: (Current ordinary business): 2001 CSO 3.5%; Net Level, CRVM, GL43 VACARVM (Current deferred annuity business): 2012 IAR 3.75% (Current SPIA business): Group 94 GAR 4.0%, Individual 2012 IAR valuation rates from 1.60%-2.45%. REINSURANCE The company maintains reinsurance treaties with several reinsurance companies for ceding excess for its insurance line. Maximum net retention is $2,000,000 with retention graded down for ages over 66 and ratings over table A for individual contracts. Business is also ceded for group contracts. For Printed August 18, Page 11 of 24

12 disability income, $5,000 of the monthly benefit is retained for non-cancellable and guaranteed renewable policies, and $15,000 of the monthly benefit is retained for business overhead expense policies. FINANCIAL INFORMATION BALANCE SHEET ($000) - YE 2016 Assets Liabilities Total bonds 8,421,920 +Net policy reserves 9,229,261 Total preferred stocks 10,430 Policy claims 107,058 Total common stocks 520,455 Deposit type contracts 878,611 Mortgage loans 1,666,517 Interest maint reserve 85,346 Real estate 59,452 Comm taxes expenses 104,760 Contract loans 533,808 Asset val reserve 157,821 Cash & short-term inv 203,219 Other liabilities 245,650 Other invested assets 286,241 Prems and consids due 101,826 Tot liab w/o sep accts 10,808,506 Accrued invest income 105,385 Separate account bus 6,404,013 Other assets 383,320 Total liabilities 17,212,520 Tot assets w/o sep accts 12,292,572 Common stock 2,500 Separate account bus 6,404,013 Surplus notes 50,000 Paid in & contrib surpl 431,449 Unassigned surplus 1,000,202 Other surplus -86 Assets 18,696,586 Total 18,696,586 +Analysis of reserves; Life $5,244,438; annuities $3,584,402; supplementary contracts with life contingencies $20,623; accidental death benefits $428; disability active lives $12,559; disability disabled lives $18,925; miscellaneous reserves $16,263; accident & health $331,624. SUMMARY OF OPERATIONS ($000) Premiums: Death benefits 234,070 Ordinary life 424,446 Matured endowments 3,501 Individual annuities 343,700 Annuity benefits 69,437 Group life 2,786 Disability benefits 2,452 Group annuities 2,799,593 Surrender benefits 1,566,519 Acc & health group 731,756 Acc & health benefits 563,523 Acc & health other 119,633 Int on policy funds 16,669 Total premiums 4,421,915 Supplementary contracts 2,723 Supplementary contracts 1,164 Incr life reserves 363,831 Net investment income 474,481 Incr a & h reserves 9,838 Amort interest maint res 13,723 Res adj reins assumed 1,945,606 Comm & exp reins ceded 23,509 Commissions 139,230 Res adj on reins ceded -1,282 Comm exp reins assumed 80,514 Other income 214,848 Insur taxes lic & fees 55,978 General ins expenses 376,106 Net transf to sep acct -323,411 Misc operating expense 4,303 Total 5,148,359 Total 5,110,889 Gain from operations before FIT & div to policyholders... 37,470 Dividends to policyholders: life... 38,231 Dividends to policyholders: accident & health... 0 Gains from operations after dividends to policyholders Federal income taxes incurred... 7,705 Net gain from operations after FIT and dividends... -8,466 CASH FLOW ANALYSIS ($000) Funds Provided Funds Applied Gross cash from oper 2,848,349 Benefits paid 2,186,640 Transf from sep account 329,873 Comm, taxes, expenses 656,069 Long-term bond proceeds 1,094,936 Long-term bonds acquired 1,050,516 Stock proceeds 266,785 Mortgage loans acquired 403,521 Other invest proceeds 293,243 Other cash applied 575,445 Other cash provided 1,947 Decr cash & short-term 37,059 Total 4,872,192 Total 4,872,192 Printed August 18, Page 12 of 24

13 Ultimate Parent: Ameritas Mutual Holding Company AMERITAS LIFE INSURANCE CORP. OF NEW YORK 1350 Broadway, Suite 2201 New York, NY Mailing Address: P.O. Box 81889, Lincoln, NE Web: Tel.: Fax: AMB#: NAIC#: Ultimate Parent#: FEIN#: BEST S CREDIT RATING Best s Financial Strength Rating: A Outlook: Stable Best s Financial Size Category: XIV RATING RATIONALE Rating Rationale: The ratings of Ameritas Life Insurance Corp. have been extended to the company as it is integral to the group s business strategy as the New York marketing arm and shares the same senior management team and back-office support. The ratings of the members of Ameritas Life Group (Ameritas), Ameritas Life Insurance Corp. (Ameritas Life) and its New York subsidiary, Ameritas Life Insurance Corp. of New York (ALICNY), reflect the group s strong risk-adjusted capitalization, diversified operating earnings, strong balance sheet and favorable business profile. These strengths are tempered by fluctuating statutory operating income reported more recently, one-time impacts due to acquisition and divestiture activity, and increased competition within some of Ameritas core businesses, group dental and vision and individual life insurance. Ameritas overall capitalization is strong, on both an absolute and risk-adjusted basis, with very low financial leverage, below-average intangible assets and a generally conservative investment posture supporting its high-quality balance sheet. The organization maintains a conservative investment profile and low exposure to below-investment-grade bonds relative to industry norms. A.M. Best notes that the group has a slightly higher exposure to mortgages and real estate-related assets as a percentage of its capital and surplus, relative to similarly rated peers. However, impairments related to these asset classes have been modest. Ameritas business profile is bolstered by its diversified sources of revenue and earnings from its array of product offerings, including individual life insurance, annuities and disability income insurance; group dental, vision and hearing; retirement plans and investment programs. The company is strongly positioned as a top-five provider of group dental and vision, which has historically produced favorable operating results. Furthermore, Ameritas operations have been more centered on products that are considered more creditworthy. Ameritas market position within the U.S. life insurance arena has generally remained steady, and recent sales growth has remained in line with industry averages with a focus on traditional and indexed universal life products. The group s favorable business profile is complemented by a unified branding strategy, improved economies of scale and a broad product portfolio. In the past, A.M. Best had been concerned with its subsidiary, Calvert Investments, Inc. s challenges to generate positive net flows and consistently grow assets under management; however, the entity was divested during the fourth quarter of Consistent with the industry, Ameritas earnings have been pressured in recent periods due to spread compression. In addition, Ameritas Calvert operations had been hindered by investors movement away from active investment managers to passive investment managers. As such, A.M. Best viewed favorably the organization s divestiture of Calvert in late A.M. Best believes that Ameritas retirement plans segment lacks some scale and remains challenged to reverse the negative net flows recently experienced. A.M. Best believes the group may find it tough to materially grow future earnings due to the low interest rate environment and the competitive challenges in many of the company s core business lines as the U.S. market continues to mature and consolidate. Additionally, A.M. Best notes that Ameritas recently reported volatility regarding mortality and strain that has impacted the profitability of its life business during the past two years. A.M. Best will continue to closely monitor profitability of this line of business. Moreover, Ameritas needs to continue to build scale and improve its competitive position within the retirement plans segment as the economy slowly recovers and competition continues in Ameritas group dental business from other large national players. Recent block acquisitions of whole life and retirement plan businesses have notably increased scale in these lines of business. A.M. Best notes that Ameritas has a substantial exposure to real-estate related assets at over 100% of capital and surplus as of year-end 2016 and has reported a modest level of impairments tied to these holdings. Factors that could result in positive rating movement of the ratings include a material improvement in overall statutory operating results, including ordinary life business, as well as a sustainable trend of increasing statutory return on equity. Factors that may result in negative rating movement include a substantial decline in risk-adjusted capitalization or deterioration in normalized operating results. FIVE YEAR RATING HISTORY Date Best s FSR Date Best s FSR 03/17/17 A 03/28/14 A 03/02/16 A 03/22/13 A 02/06/15 A Printed August 18, Page 13 of 24